Kao Aktie

We would like to start with Page 4, key highlights will be a year in which we further enhance our sustainable earning power and accelerate our transition to growth. We will increase the likelihood of achieving the K27 while building the foundation for the step change growth that lies beyond. In the first quarter, centered on the GC business, our profit-generating capabilities became firmly established both domestically and internationally, enabling us to further strengthen our earnings base. Net sales was JPY 413.2 billion, up 2.5% on a like-for-like basis, excluding the foreign exchange effects.

Operating income was JPY 44.9 billion, with an operating margin of 10.9%, up JPY 14 billion year-on-year and a significant improvement of the 3.0 percentage points. As a first step or that optimizing our logistics operations, we sold land and recorded a gain of JPY 11.5 billion. However, even excluding this, we secured a steady profit growth, and we view this as improvement in organic growth. ROIC was 10.1%, an improvement of the 2.6 percentage point year-on-year. And the result, our ROIC focused management are steadily becoming apparent. In the overseas GC business, sales increased in key focus areas, such as cosmetics in Asia and health and beauty care in the Americas and the growth model is taking solid shape.

From the second quarter, we will strive to accelerate the growth and expand the profit contribution to our focused businesses while advancing the sections and concentration of our overseas business to face challenges expeditiously. Although we are currently seeing the changes in the external environment we are mitigating the impact through agile management that leverages Kao's integrated operations from upstream to downstream, including the chemicals business, and we are maintaining our full year earnings forecast at this time.

Progress towards achieving K27 is proceeding as planned and with even better prospective for success. Please move on to Page 6. First quarter sales were JPY 413.2 billion, up 6% year-on-year and up 2.5% on a like-for-like basis, excluding the foreign exchange effect, securing the steady growth in both volume and price. The gross profit margin improved by 0.4 percentage points year-on-year to 38.4% reflecting the steady result of our efforts to increase value-added and control costs. Operating income was JPY 44.9 billion, an increase of the JPY 14 billion year-on-year and the operating margin improved significantly to 10.9%. We also secured an increase in profit on the business basis, excluding the gains on land sales indicating the steady progress in improving our profitability. Net income attributable to the parent company was JPY 31 billion, and EPS increased significantly by 39.3%, reflecting how profit growth is translating into enhanced shareholder value. Page 7, please, sales results. Here is the breakdown of the first quarter fiscal year 2026 net sales of JPY 43.2 billion, up 2.5% on a like-for-like basis.

The GC business saw a 3.9% increase in sales on a like-for-like basis, driven by the strong Japanese market. In Japan, overall GC sales increased by 5.8% with growth across the major categories, Health and Beauty, Europe, 7.6%; Fabric & Home Care, up 7.3%; and Cosmetics, up 4.9%. We are supporting the sales growth in both volume and price through the introduction of the high value-added products and appropriate pricing strategies. Overseas, while overall performance remained flat due to the operations focused on profitability, we are seeing steady growth in our priority areas. Cosmetics grew in Asia and Health and Beauty care in the Americas, and we are beginning to see results in our focus areas. We are optimizing some businesses and strengthening our earnings base through selection and concentration. Net sales of the Chemicals business declined due to the sluggish demand in Europe and the United States, but high value-added areas such as electronic materials are performing quite well.

Page 8, please. There are 3 focus segments. First is Cosmetics. Driven by our 6 key brands, we saw growth in both Japan and China. And as a result of the structural reforms, we achieved the profitability for the first time in 4 years. Second is the Fabric & Home Care. By enhancing the value and improving the brand loyalty in the Japanese market, we are continuing to increase the operating income while maintaining the high operating margin. Third is the Chemicals segment. Although we reported a decline in both net sales and operating income, this is just primarily due to the time lag in passing on the price increases for oil and fat products in Europe and the United States. There has been no change in our competitiveness. Currently, the price increases for the products other than the oil and fat products in Europe and the United States are also contributing to our results. Starting in the second quarter, we anticipate a recovery in to the progress in passing on the price increases for the petrochemical products and oil and fat products, as well as growth in electronic materials. Page 9, analysis of the operating profit changes. This is an analysis of the change from first quarter fiscal year 2025, operating income of JPY 30.9 billion to the first quarter fiscal year 2026 operating income of the JPY 49 billion, up JPY 14 billion.

Overall, the result exceeded our plan, confirming that the improvements in our earning power are steadily translated into the stronger performance. Let me explain the earning power and growth strategies, respectively. First, the effect of the improved profitability in the GC business was JPY 5.5 billion. This is due to the sales price revision as well as improvements in cost of sales such as TCR effects and the changes in the product mix and the cumulative impact of the raw material prices. Next is the contribution from our growth strategy. Volume in the GC business grew by 2.9% year-on-year, resulting in a profit increase of JPY 5 billion. Even after deducting the marketing investment, this resulted in net increase of the JPY 2.0 billion. In the chemicals business, the profits declined due to the temporary factors such as the delays in passing on the price increases, but the improvements are on its way. Selling and general and administrative expenses were kept under control and the favorable exchange rates also contributed, enabling the business as a whole to achieve a stable margin. As a result, excluding gains on land sales, Operating income increased by JPY 2.5 billion, including the gains on land sales of JPY 11.5 billion. The year-on-year change was recorded at JPY 14 billion.

Page 10, the further improvement. Despite the impact of the fluctuation in raw materials prices, the gross profit margin has improved due to the introduction of the high value-added products and cost reduction activities. The gross margin improved by 0.4 percentage points to 38.4% from the previous year. In the GC business, in particular, the margin improved by 1.9 percentage points progressing at the pace that exceeds the annual target. This improvement stems from the combination of the price revision, value-added initiatives and cost reduction efforts, indicating a shift towards sustainable earnings structure rather than a onetime gain. Going forward, we will continue to steadily build on cost reduction and the pricing strategies to enhance the sustainability of profit growth.

Please turn to Page 11. The GC business in Japan has steadily strengthened both competitiveness and the earnings base through high value-added proposals and enhanced brand power. In Q1, under a consistent brand concept, we continued proposing high value-added products, strengthening brand loyalty while also expanding cross-category sales. In H&PC, Kao's market share exceeded the previous year for 33 consecutive months, and this very long momentum is continuing. In laundry detergents, market share further expanded to 47%, continuing share gains in key categories. This reflects the result of portfolio management with a clear strategic focus, responding to consumer polarization labeling value through both the high premium price segment and the mass market price segment. In cosmetics, the 6 focus brands achieved 10% growth, while the market contracted by 2%, thus expanding market share and strengthening brand presence. The accumulation of growth built on the strong loyalty of each brand is contributing to enhanced competitiveness of the overall business. Going forward, we will further strengthen our advantages in strong categories while achieving sustainable expansion in both scale and profits through new value creation.

Please turn to Page 12. Biore's key new products driving new value creation received third-party awards. Going forward, we will continue enhancing brand value through acquiring this kind of third-party recognition. Please turn to Page 13. Outside Japan, we achieved steady profitable growth through focused investments in key brands and strategic areas. As shown here, growth has been achieved across regions centered on priority areas. First, in cosmetics, while strengthening global collaboration and advancing the 3 strategic expansion models, Kate ramped up new product rollouts in tandem with Japan starting in Thailand, and Curel steadily expanded in major retail chains in the Americas and Europe. In skin protection, Biore UV expanded distribution nationwide through strategic retail change in North America, in the Americas. In Asia as well, new products served as a hook for expanded rollout and increased sales in ASEAN.

In self-tanning, the 2 brands Jergens and Bondi achieved higher than market growth in the U.S., the largest market, which expanded distribution and demand acquisition progressing steadily. In addition, Jergens space in skin care also expanded mainly in the U.S. U.S., achieving steady growth of positive 8% year-on-year. In sanitary products, Laurier expanded in Asia led by China while also securing positive growth in highly competitive Indonesia. Furthermore, in chemicals, electronic materials are growing globally, particularly in East Asia, supported by expanding demand for generative AI and data centers. In this way, outside Japan, concentrating management resources in priority areas is steadily establishing successful growth models. We will continue accelerating growth along this axis going forward.

Please turn to Page 14. In the Chemical business, the recent decline in profit is due to temporary factors and the measures for recovery are clear. First, the business portfolio consists of 4 areas: Oleo chemicals, Consumer Care Chemicals, Performance Chemicals and Information materials. Oleo chemicals and consumer care chemicals support the business space, while Performance Chemicals and information materials serve as highly profitable growth drivers. In Q1, in Oleo chemicals, price backflow in response to rising raw material costs progressed in Asia, while it was delayed in the Americas and Europe, leading to shrinking profit margins. Also, demand adjustments in Performance Chemicals continued mainly in the Americas and Europe. On the other hand, in information materials, electronic materials performed steadily in high value-added remains mainly in Japan and Asia supported earnings. From Q2 onwards, increase in price pass-through in the Americas and Europe is expected to support profit recovery in Oleo chemicals, also in consumer care chemicals, performance chemicals and information materials we will strengthen the expansion of high value-added products and improved profitability.

To reiterate, the recent downturn in profit was mainly caused by delays in price pass-through in the Americas and Europe and is not a structural issue. Also anticipated rises in raw material costs associated with the Middle East situation will also be addressed through price pass-through, high value-added products and PCR. Please turn to Page 15. To give you the conclusion first, even amid raw material sourcing risks, Kao's integrated supply chain management is currently expected to ensure planned supply volumes for the year. Uncertainties remain high with raw material price fluctuations, supply instability and demand fluctuations as well as the current Middle East situation, so we will continue to closely monitor their impact.

We have built end-to-end integrated operations from upstream to downstream that enable adaptation to changes in the external environment. Specifically, this includes technological capabilities, enabling rapid response through alternative raw materials and formulation changes, procurement capabilities, leveraging global networks, reduction and supply capabilities utilizing an SCM database and pricing adaptability, leveraging strong brand power and proprietary sales channels. Furthermore, Kao's competitive advantage lies in its integrated business model with both the chemical and GC businesses, enabling end-to-end optimize operations from raw materials to supply of finished products. Through these comprehensive capabilities, we will ensure stable supply, flexible response to demand fluctuations and the minimization of impacts on business results, while we continue investment in growth. Based on all of that, and outlook for secure supply, the full year forecast of consolidated results remain unchanged at this time.

Please turn to Page 16. In Q1, we confirm the repeatability of our earning power marking a solid step towards accelerating the shift to growth. Fiscal 2026 is an important year to translate that earning power into growth and increased the certainty of achieving K27. While uncertainty remains in the external environment, we will leverage Kao's business portfolio and comprehensive capabilities to respond flexibly and aim to achieve our full year plan. Please turn to Page 19 of the appendix. Lastly, I'd like to briefly report on the Extraordinary General Meeting of Shareholders held on April 30. Although the shareholder proposal was rejected, we do not view this result simply in terms of winning or losing. We sincerely recognize once again the societal interest in the palm supply chain and the weight of accountability expected of Kao.

With this in mind, we will clearly advance 4 initiatives going forward. First, achieving full traceability. Second, further expanding the grievance mechanism. Third, enhancing disclosure on forest-related procurement. Fourth, conducting an independent third-party review. Kao aims to realize the sustainable and highly transparent supply chain from raw material production sites to finished products. We believe this is not merely a defensive response but rather Kao's responsibility as a company that continues to earn the trust of consumers and also our social future competitiveness. That's all from me. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

I will begin by providing an overview of the consolidated financial results. Please turn to Page 4. These are the key highlights. Let me start by looking back at fiscal 2025. In Japan, market share continued to expand steadily and earning power became firmly established, making fiscal 2025 a year of solid progress. In overseas businesses, while challenges became clearer, we also entered a phase in which tangible signs of growth began to emerge in targeted growth areas. ROIC management has become firmly embedded across the organization, and we can now see a clear path toward achieving the K27 target of 11% or higher ROIC.

In 2026, we will focus on businesses with strong growth potential and pursue expansion while simultaneously turning around overseas businesses facing challenges toward achieving our planned profit targets. At the same time, we position fiscal '26 as a preparation period to ensure the achievement of K27 profit targets and to extend that growth to beyond K27.

Near the end of my presentation today, I will also clearly reiterate our approach to capital allocation. As stated here, with regard to the share repurchases totaling about JPY 80 billion conducted in fiscal '25, the acquisition and retirement of shares have already been completed. I will also explain our plan for a dividend increase in fiscal '26 as well as the share split scheduled for July 1 of this year.

Page 6. Net sales amounted to JPY 1.6886 trillion, an increase of 3.7% year-on-year. On a like-for-like basis, excluding the impact of foreign exchanges, net sales also increased by 3.7%. Gross margin improved by 0.4 percentage points from the previous year to 39.6%. Operating income totaled JPY 164.1 billion, an increase of JPY 17.4 billion year-on-year. Although this was JPY 0.9 billion below our revised forecast, this shortfall was primarily due to inventory valuation losses as a result of declining prices of fats and oils in the chemical business.

The operating margin improved to 9.7%. Excluding onetime factors such as gains on business transfers recorded in the previous year, operating income increased by JPY 24.7 billion on a like-for-like basis. Net income attributable to owners of the parent was JPY 120.1 billion, up JPY 12.3 billion or 11.4% year-on-year. Basic earnings per share were JPY 260.3, an increase of 12.2% year-on-year, demonstrating solid progress in both profitability and capital efficiency.

The year-end dividend is planned at JPY 77 per share, subject to approval at the general meetings of shareholders, bringing the full year dividend to JPY 154 per share, an increase of JPY 2. As a result of our ability to generate stable cash flows, we have continued to increase dividends even amid economic fluctuations. We expect this fiscal year to mark the 36th consecutive year of dividend increases.

Next, please turn to Page 8. Let me summarize the key points for the full year of fiscal 2025 once again. Net sales increased by 3.7% and operating income increased by JPY 24.7 billion on a like-for-like basis. Rate improved by 0.5 percentage points year-on-year to 9.7%. There are 3 main drivers behind these results. First, each GC business in Japan successfully achieved both growth and enhanced earning power. In addition to volume growth, earning power became firmly established, resulting in year-on-year increase in both sales and profits.

Second, the cosmetics business achieved a significant improvement in profitability. Along with the recovery in China, sales growth in Japan and the streamlining of fixed costs were particularly evident in the fourth quarter, resulting in a substantial full year increase in operating income of JPY 14.1 billion.

Third, we thoroughly implemented ROIC-based management. With business operations increasingly focused on capital efficiency, ROIC improved by 0.5 percentage points year-on-year to 9.7%. We will continue to pursue further improvements aiming to achieve our K27 target of 11% ahead of schedule.

Next, please turn to Page 9. The green figures represent results, excluding the impact of transfer of pet care and beverage businesses and structural reforms implemented last year. From this point onward, I will explain our performance based on these adjusted figures. First, please look at the total column on the right, which shows the GC business. Overall, the GC business net sales grew by 2.8%. By region, Japan grew by 4.9%, while total overseas sales across Europe, the Americas and Asia declined by 1.1%

However, as shown on Page 11, sales grew by 1.1% in the fourth quarter following growth in the third quarter, indicating that we have entered a recovery phase in the second half of the year. In Japan, Cosmetics grew by 6.3%, Health and Beauty Care by 6.1% and Fabric and Home Care by 5.5%. All categories clearly outperformed market growth and delivered robust expansion.

In Asia, sales declined in Indonesia as we prioritized profitability and avoided price competition. However, this was offset by a significant increase in sales resulting from the resolution of excessive distributor inventories in China's cosmetics business and overall sales declined only slightly. The Chemical business achieved sales growth in all regions.

Page 10 shows segment performance. Fabric & Home Care saw operating income grow by JPY 5.7 billion, driven by price revisions, supported by a thorough focus on the higher value-added products and strengthening customer loyalty, the operating margin improved by 0.8 percentage points to 19.1%. Sanitary delivered operating profit of JPY 7.1 billion as a result of advancing earning power reform through a cross-functional scrum structure. Excluding the impact of the Pet Care business transfer, this represents a like-for-like improvement of JPY 4.1 billion. Health and Beauty Care saw growth in skin care and high premium hair care in Japan.

In Europe and the Americas, we worked on building foundations for growth while initiating reforms in challenged areas. As a result, even excluding the impact of structural reforms implemented in the hair salon businesses 2 years ago, operating profit increased by JPY 1.3 billion year-on-year. Cosmetics significantly improved profitability through the growth of 6 focus brands and the effects of fixed cost reductions, expanding profitability and delivering a profit increase of JPY 14.1 billion, well above plan.

The Business Connected business recorded a 1.5% increase in sales, excluding the prior year sales of the beverage business transferred in August last year. Profit improved by JPY 3.4 billion, excluding gains from the beverage business transfer. The Chemical business was impacted in Europe by weak market conditions and inflows of products from China. Also in the fourth quarter, a sharper-than-expected decline in fats and oils prices led to customer purchasing restrain and inventory valuation losses due to market price declines, resulting in a profit decrease of JPY 5.5 billion. However, these factors were largely temporary, and we believe profit recovery is achievable from 2026 onward by focusing on growth areas. On a company-wide basis, we achieved an operating margin of 9.7%. The combined contribution of growth, earning power and the structural reforms delivered steadily profit improvement.

Please review Pages 11 and 12 later and turn to Page 13. Analysis of change in operating income in fiscal year 2025. Operating profit was JPY 164.1 billion, an increase of JPY 17.4 billion year-on-year. Excluding onetime factors such as gains on business transfers included in 2024, operating profit increased by JPY 24.7 billion on a like-for-like basis. As explained in the previous earnings briefing, I will break down the sources of profit from 3 perspectives: growth capability, earning power reform and fixed cost reduction effects.

First, growth capability. In the GC business, volume growth drove sales expansion. Higher volume contributed to JPY 15.5 billion operating income increase, but after subtracting about JPY 9 billion in increased expenses such as marketing investments, the net contribution was about JPY 6.5 billion.

Next, earning power reform. Against raw material cost increases of JPY 8.5 billion, we offset these through selling price increases of JPY 9 billion and other cost of sales improvements of JPY 18.5 billion, including JPY 17 billion from TCR initiatives and product mix improvements. As a result, we generated an improvement effect of about JPY 17.5 billion.

Finally, fixed cost reduction effects. Through personnel structure reform implemented both domestically and overseas, fixed costs were reduced by about JPY 5.5 billion. These effects are included in other cost of sales and SG&A expenses.

Page 14, further improvement of earning power. Despite headwinds from rising raw material prices, we improved profit margins through the introduction of high value-added products and cost reduction in initiatives purchased from all angles. Company-wide gross margin, including the Chemical business improved by 0.4 percentage points from 39.2% in '24 to 39.6% in '25. In GC business against our target of a positive 1 percentage point annual improvement, we achieved 1.5 point improvement in 2025, representing steady progress ahead of plan.

Please turn to Page 15. The competitiveness of the Japan DC business has improved significantly. Please look at the graph at the top. Since announcing K27 and structural reforms in July 2023, Kao's share in the toiletry market has exceeded the same month of the previous year for 30 consecutive months, an extremely rare trend. One of the factors behind this is portfolio management with clearly defined focus covering both premium and mass price segments.

In Japan, while consumer behavior tends to be restrained amid rising prices, the reality is increasing polarization with consumers cutting spending thoroughly in areas they are indifferent to, while not compromising and seeking added value in areas they care about. Kao has captured this consumer insight and is pursuing growth through a clear division of roles, creating a new value in premium segments while broadly delivered universal value in mass segments to expand the customer base.

The lower section shows examples in laundry detergents, kitchen care and in-bath hair care. For example, in laundry detergents by promoting both the Attack ZERO series and Attack Antibacterial EX series as dual pillars, we further increased share by 2 percentage points to reach 46%. Profitability improvements have been achieved in both segments. Through this dual value approach, we are maintaining a pyramid-shaped customer structure with a broad base, connecting that to scale expansion and profit growth.

Page 16. Cosmetics business was explained at the business strategy briefing last September. We have strengthened toward K27 and beyond 3 key areas: growth and profitability, earning power and streamlining through the 3 system that transcend the organizational boundaries. As a result, operating income exceeded JPY 10 billion, achieving the profitability in our Japan operations. First, growth and profitability in Japan. Our 6 focus brands, including the Cur�l, KANEBO and SENSAI in particularly -- well, other brands also grown steadily, thanks to the strength in the retail presence and the expansion of our direct operated e-commerce. Next is building the foundation for global growth. All 3 development pattern introduced at the business strategy briefing are progressing steadily.

In Asia, we promoted new KANEBO and KATE products simultaneously with Japan and primarily in Thailand. The sales grew significantly, reaching the 113% year-on-year and 116% across ASEAN as a whole. Cur�l, which is expanding in Europe and North America, continued its growth in the U.K. and launched in Canada. Sales in the U.K. expanded to 1.8x of the previous year. Furthermore, SENSAI doubled its sales compared to the previous year by integrating the operations in Japan, China and travel retail. Reorganizing the China business, we achieved a sell-out growth exceeding the market average while advancing the price correction in non-authorized channels. 2025 is the year of the structural reform. We also worked to streamline our business. In Japan, we generated a cost saving exceeding JPY 4 billion as a result of reducing the global inventory. The ROIC also improved significantly. The Cosmetics business, a key pillar of our global growth area is steadily progressing with its restructuring toward K27.

Next, please look at Page 17. In our overseas GC business, we advanced the reforms by strengthening the brands and expanding the market, focusing on the cosmetics and skin protection. Bior� UV significantly expanded its distribution in Europe and U.S. by highlighting its features aqua rich through the influencer marketing and strengthened the partnership with the strategic chains. While facing challenges in Asia, it is now catching up through the full-scale rollout of its Airy UV, which attracted attention in Japan last year. JERGENS, primarily operating in Americas faced challenge with the brand aging.

Starting in the Q3 2025, it strengthened the new product launches and communications. The brand recognition among the younger consumers has significantly recovered, providing the solid evidence of the brand. In 2026, the company will restage its main product line to advance the brand rebuilding. Additionally, while not mentioned in the materials, ORIBE became the first co-owned brand to be adopted by Sephora in the United States. Thus, we are steadily increasing our presence in retail channels.

Page 18, please. As highlighted earlier, our company-wide ROIC reached 9.7% with improvement across all 3 business segments. This table shows that the improvement rates in operating income and ROIC across the 3 areas as part of our efforts. In the stable earnings and the business transformation segment, 2025 ROIC improved by 1.4 points and 1.1 points, respectively. In the business transformation area, multifaceted initiatives in the sanitary business and the premium hair care brand in Japan contributed to this improvement. In the stable earnings, high value-added initiatives and enhanced brand loyalty made big contributions. We will continue to pursue the further ROIC improvements in these areas.

In the growth driver area, we will focus on growth for fiscal year '27 and beyond by actively investing in the tertiary amines in the Chemicals segment and in market in the Beauty Care segment.

Page 20, please. We project net sales of JPY 1.750 trillion, representing the real growth of 3.2%. Operating income is planned at JPY 182 billion, an increase of JPY 17.9 billion year-on-year. Net income attributable to the parent of company shareholders is projected to be JPY 130 billion, an increase of JPY 9.9 billion year-on-year. The basic core earnings per share are provided to be the JPY 287.4 representing 10.4% growth rate. The dividend is planned to be JPY 156 per share on a pre-split basis, representing plus JPY 2 from the previous year.

Our CEO will discuss the details on 22 page later. Page 24, 2026 operating profit forecast. We will explain that the JPY 17.9 billion increase in operating income from the JPY 164.1 billion in fiscal year '25 to the fiscal year '26 forecast of JPY 182.0 billion, more than JPY 17 billion accrued by our earning power is the reason. In the GC business, we will aim to improve the gross margin by at least 1% through both sales price revisions and the cost reduction. JPY 10 billion from selling price increases combined with JPY 7 billion from adjusting selling price totaling JPY 17 billion.

In the GC business, real volume-based growth of 3.5% is anticipated and contributed approximately JPY 18 billion. For Health and Beauty Care, we will accelerate the global expansion centered on our 6 focused brands in the cosmetics business with Hair Care in Japan and UV Care in the Americas. SG&A are projected to increase by JPY 25.5 billion. Of this, JPY 10 billion are for the marketing investment with the remaining JPY 15.5 billion representing increases in the personnel costs and the others. While fiscal 2025 saw a reduction in the fixed cost due to the structural reform, this effect will not be present in 2026.

The Chemical business is expected to recover from the temporary profit decline caused by falling fat and oil prices in the latter half of the '25. '26 profit growth is anticipated due to the start-up of the new U.S. tertiary amine production plants from the second quarter and the steady progress in acquiring new customers in high value-added fields, including the electronic materials for semiconductors.

In summary, we will steadily expand earnings, ensure the return to a growth trajectory and achieve '27 goals. Page 25, please. This is a summary of the K27 progress. The progress on the key KPI is for K27. The 2026 plan projects a ROIC of the 10.5%, EVA of JPY 51 billion, operating income of JPY 182 billion and the sales outside of the Japan JPY 760 billion.

Page 26, as shown in the graph, we have achieved the operating income increase of JPY 24.7 billion for 2 consecutive years since implementing the structure reform. Coincidentally, we achieved the same number, 24.7% in 2 years in a row. While income increase for the '26 appears slightly smaller, there is no significant deviation from the initial plan. The main factors are increased personnel expenses as well as inclusion of the upfront cost for turning around the overseas businesses.

2 years remain until the fiscal year 2027. In the GC business, we will maintain the strong performance in Japan while strengthening the overseas management to accelerate growth. In the Chemicals business, we are proceeding with the necessary investment as planned and expect to catch up in fiscal 2026.

Finally, I will explain the Kao's approach to capital allocation. Approximately 40% will be allocated for future growth and approximately 30% for strategic investment, including M&A and the share repurchase. Regarding the shareholder returns, we aim for a stable and continuous dividend increase targeting approximately 30%. Now the decision-making criterion for the capital allocation is EVA. For capital expenditures and M&A, we emphasize whether they are expected to generate the value exceeding the cost of capital. We will actively utilize debt as necessary without being overly fixated on the equity ratio.

On the other hand, when investment opportunities exceeding the cost of the capital are limited, we will flexibly utilize a share repurchase for capital efficiency. Kao does not intend to hold the surplus cash for extended period. Kao consistently demonstrated this perspective based on our past performance.

This concludes our fundamental capital allocation plan and concludes my explanation. Thank you.

Thank you very much, Mr. Negoro. Next, we would like to call on our CEO, Mr. Hasebe, for his presentation.

I'd now like to talk about the progress of the K27 midterm plan and the path to growth beyond that. Under K27, we are not merely aiming to achieve numerical targets, but also focusing on building a management foundation that can reproducibly generate the next phase of growth.

Today's discussion will focus on 4 key points. First is the progress of K27 itself. Second is the pathways for further growth of Kao. Plans for 2026 and the direction for 2027 have become clearer. So I will talk about that. Third, I will touch on digital transformation to build a foundation for business growth. Finally, about advancing dialogue-based management, I will briefly discuss the management reforms we implement every year.

Let me begin with the progress of our portfolio management and share our thinking. We have clearly defined and managed Kao's businesses in 3 business areas. In the stable earnings area, we see steady growth of Fabric and Home Care and Personal Health centered around Japan, our home market and Asian markets. This business area functions as the engine of our business. In the growth driver area, Skin Care, Hair Care, Cosmetics and Chemicals are driving global growth. As mentioned earlier by Negoro, in 2025, the pace of this growth became more solid and reliable.

Please turn back briefly to Page 22, which covers our priority overseas business. Since what happens in 2026 will lead to 2027, I would like to explain them here. In 2026, we aim to further enhance the domestic operations earnings power as our earnings base and at the same time, strengthen our key overseas businesses. In the Cosmetics business, we will clearly position growth overseas as our core focus, streamline our offerings and achieve steady expansion.

In the Japan origin model, we will have full-scale rollout of Cur�l in key countries in Europe and Americas, expanding the number of countries while achieving double-digit year-on-year sales growth in targeted markets. In the Asia model with Thailand as a base, the KATE and KANEBO models that are very successful will be further solidified, and we will aim for double-digit growth significantly outpacing market growth. At the same time, we will enhance earnings power through price revisions in priority categories and strengthen sales capabilities while balancing growth and profitability through data-driven management and inventory optimization.

In the Health and Beauty Care business, we will make focused investments to further accelerate growth in the skin care business, in our strategic category of core UV businesses, including skin protection, we will deploy globally integrated initiatives through concentrated investment in digital marketing, aiming for double-digit year-on-year growth in Japan, Asia, Europe and the Americas.

Furthermore, in expanding our business in Europe and the Americas, our key focus regions, we will strengthen Bior� to achieve double-digit growth, exceeding market growth. For Jergens, we will pursue revitalization through brand renewal, aiming to balance growth and profitability. In 2025, Jergens has been successfully restaged with very positive momentum. We intend to leverage this momentum to further elevate Jergens into an even stronger brand.

In the Chemicals business, under the newly established 3-region production structure, we will accelerate the global rollout of tertiary amines while also driving double-digit growth in high profit areas such as electronic materials, including semiconductors. Through these initiatives, we aim to ensure steady progress toward achieving K27.

Now let me return to the previous page. The key points of growth potential required to achieve K27 can be broadly explained in 3 areas. The first is the chemical business shown at the top. Here, we aim to accelerate high value-added businesses such as electronic materials and agrochemicals. The chemical business is the most advanced in terms of global expansion, so it is essential to strengthen our presence in countries that we serve.

In skin care and hair care, we will advance global expansion centered on skin protection. In cosmetics, we will roll out overseas expansion models and further enhance our channel strategies. Through the combination of these initiatives, we aim to achieve additional operating income growth of JPY 30 billion from 2026 to '27. This represents adding a further JPY 30 billion on top of the target for 2026 mentioned earlier by Negoro.

Next slide, please. When looking beyond K27, both now and going forward, we place importance on 3 axes: global, sharp and top. This is our policy and indeed is our strategy itself. Global refers to market scale, growth potential and growth rates necessary for global operations. Sharp represents exclusive uniqueness, technology and the sharpness of brands. Top refers to whether we can clearly hold the #1 position in the specific markets we target. We will concentrate management resources on businesses that enhance these 3 indicators. This is a fundamental philosophy that will continue beyond K27.

Now I'd like to take a step back and explain how we will advance these 3 businesses. Our core technologies are not easily expressed in a single phrase. But today, I'd like to touch on 3 distinctive technologies using 3 examples. To put it simply, there are technologies that protect what is essential, remove only what is unnecessary and precisely control physical properties. These technologies form the core of what we have cultivated over many years, starting from soap with which we wash our faces. Today, I will explain them by dividing them into 3 categories. First is precision selective cleansing.

Next slide. From here, I will discuss 3 concrete examples with which to jump up our businesses by adding high values. First is the electronic materials field within the chemical business. With the growth of generative AI and data centers, semiconductor manufacturing is becoming increasingly miniaturized, complex and sophisticated. There are more than 500 semiconductor manufacturing steps and 30% to 40% of them are actually related to cleaning. This is where we come in. As manufacturing becomes more advanced, what to clean, how far to clean and how to clean it become critical in determining yield and performance. With our focused efforts, we have now reached a very strong position.

Next slide, please. As mentioned earlier, Kao's strength lies in selective cleansing technologies accumulated over nearly 140 years, that is technologies for washing selectively. Removing dirt without damaging the skin, that is selective cleansing of skin. Removing dirt from fabrics without damaging fabrics, that is selective washing of clothes and now semiconductors, while protecting areas that have already been cleaned, we clean the deep inner parts. We have been refining this technology. As structures become more complex, you want to avoid damaging the parts already cleaned in subsequent cleaning steps.

The ability to clean increasingly intricate areas with even greater precision is our true strength and represents the essence of our technology. The more miniaturization advances and the higher the cleaning difficulty becomes, the more it becomes our field of play. In fact, up to this point, we have achieved record high sales for 2 consecutive years and also renewed record high profits. This is strongly linked to the growth of data centers. With the expansion of data centers, hard disks are used for long-term data storage. And in this area of hard disk manufacturing agents, we hold a 50% global market share.

Also for semiconductors, which are short-term memory devices, remembering and recalling in an instant to use a brain analogy, we hold a 60% global market share in semiconductor manufacturing agents. Beyond this, we have built a strong formation in electronic materials by combining various businesses such as CMP slurries and dispersant for multilayer ceramic capacitors. Under K27, we are pursuing a plan to double sales. We are planning high growth with a CAGR of about 20%. Furthermore, as shown on the right, we are not just working by ourselves, but under the concept of Team Japan, we are further strengthening our capabilities by combining our core technologies with the strength of other companies. We have established a cleaning center in Taiwan and aim to further enhance co-creation with partners.

Next, I'd like to talk about the cosmetics business in the skin care and hair care domain. I touched briefly on this last month. So today, I will focus only on the key points. As many of you know, competition in this domain has shifted due to generative AI and the use of data. In the past, it was KOL and other influencers as well as commercials that induced brand-switching behavior or mind change of many customers. Today, however, we are in an era where more and more AI determines consumer choices. Even KOLs and influencers are now using AI to select cosmetics that they seek and wish to communicate.

In other words, advanced personalization is progressing rapidly. Going forward, not only price and shelf placement, but also scientifically validated data, reproducibility and data itself will become the axis of competition. This is an area where we must engage from an early stage. By leveraging RNA data that can be easily obtained from skin surface lipids, Kao aims to build a business model that simultaneously improves marketing investment efficiency, the probability of successful matching with consumers and the reduction of social waste. Next slide, please.

The so-called skin gene mode is derived from our RNA research insight. It's a new yardstick to see a person's current skin conditions. You may consider that your skin stays the same until the end of your life once that you measure your skin conditions, but no, the skin conditions fluctuate in about 60% of the people. What fits you today may completely change in a year later based on cumulative data that we have enabled AI image analysis to classify the 2 skin groups and the result can be displayed on your cell phones with high accuracy. 80% of the genes can be classified into specific categories.

Next slide, please. The skin gene modes successfully and visibly match the skin and corresponding skin care. I have prepared 3 case studies applying the available products of ours. We have more. We have accumulated the rich source of the such paired data of the customers of Kao and the other companies. Rich stock of the data improves the matching accuracy, which will derive our competitiveness advantage. Cumulative LTV model based on the estimated skin types will raise our profitability. Thus, this platform business promote the competitiveness and profitability simultaneously. The former competitors within the consortium will all contribute their data of their different categories to this platform and in turn, extract better ideas for the customers to apply the products best fit for their skins.

While we explained the skin gene model today, Kao is actively developing the numerous other business models that leverage a detailed knowledge of each customer's unique characteristics to help them select the optimum solution in 2026 and 2027.

Next, let me introduce specific examples of the individualized optimal selection products. Let me be brief. Through RNA stratum corneum research, we can observe the daily changes in skin conditions and align the products that just fit for each day cyclically. SOFINA is already very successful in the market as a master brand, and we will place SOFINA Sync in the brand. The Answer line is already a big hit in the market, and we will uplift its benefit even more to offer the serum that best matches just to your skin, calling The Answer program that high LTV model would boost the customers' loyalty.

This product line will evolve from the simple sell-out model into continuously selling model to repeaters. This is the third case study of what I call environment adaptive selection. Globally, the population growth and the surging consumption prices are depleting the surfactant, a key ingredient for washing. The conventional active ingredient for cleaning, lauric oleo accounted for only 5% of all fat and oils, leaving the balance of 95% unusable for washing. Kao has been working to solve this challenge for about 20 years squarely and developed the world's first high-performance surfactant Bio IOS. Bio IOS is using the C16, C18 oleic stearic acid and are used and richly extracted from the algae.

The new ingredients is far superior to conventional agents because, one, it does not use the fossil fuel; and, two, does not produce byproducts, including dioxin. And also, it is far cheaper than C12 and C14 and still positively used in products. We are not simply chemical business. Kao is also a consumer of our own products.

Next, please. These are some of the Bio IOS-based products on our portfolio. There are others. The Attack ZERO contains the highest amount of the Bio IOS, followed by the Attack Antibacterial EX, Bior� The Body and Merit Osolo launched last year. All these innovative products are developed, thanks to the Bio IOS. We are committed to expand this portfolio. Each product uplift and add value, significantly reduce CO2 emissions and increase the renewable carbon ratio compared with their predecessors provided a product is not completely new. The unit price per product volume is higher and thereby increase the sales in each category. In short, we are transforming the sustainability from cost into a revenue driver.

Next page, please. Kao's approach to ESG as a way to grow. Kao is not aspiring to be environmentally compliant company, but aspires to turn environmental compliance into a competitive advantage. In general, ESG is considered a costly operation, but we position it as a competitive edge and the revenue source if it is backed by our exclusive and proprietary technology and not only the pro bono activities contributing to society. Maximum with minimum. I have been advocating this philosophy ever since I assumed the post of CEO. By adjusting the numerators and the denominators of the formula, we can include the ESG initiative into one of our competitive pillars or transforming nonfinancial to future financial as a part of our proactive strategy. My belief is taking root in corporate culture.

The figure explains the functions of the surfactant. And I would like to emphasize that washing has been always our core business, and we have to protect this technology in a sustainable manner that we procure the raw materials, distribute them not among ourselves, but the other companies in order to disseminate the know-how. This is our strong commitment.

Next page, please. This slide shows the 3 core technologies. Please note that each includes the term selective and cleaning. It is not enough that if we are selected as a detergent producer. We have to know what the expectation of customer is first. What do they wish to or need to cleanse, what makes them select us from many others. What can we leave behind the environment? We summarize into these 3 growth drivers. The 3 drivers helped us grow in 2025 and will help us grow in '26 and subsequent years. They would not proceed linearly.

On the left side, you can see new detergent designed to wash semiconductors, which is a very new field. Advanced individual optimum selection agent should offer the unique features, differentiating it from the conventional products. We have to deep dive into the new market in a very focused manner, even to the genomic level. Number three, sustainability will be a must for our company to achieve, taking up the challenge of the sustainability, aggressively develop the world first product and thereby lead the global market. This is our strong commitment.

Next, please. I would like to explain the progress and outcomes of the digital transformation. Digital transformation supports both management and the business growth as a solid foundation. 8 years ago, we launched a new group called SIT, and I assumed the leadership. The impact of our initiatives far exceeded my initial expectation, both in depth and with AI big bang took place 2 years ago and further extended our scope of activities.

AI-centric initiatives help us identify the RNA genes and accurately segment the washing and cleaning operations. The slide shows our internal data as well as some outside opinions on our digitization efforts.

Next page, please. These 3 partner companies of ours are all noted for their unique characteristics. These are the evaluations made by each of them when we ask how their view of RDS. We ask them to be very frank without sweetening any words. The Microsoft says that they are impressed that every single person of Kao, including executives can comfortably use AI and plug in the database into data lake. The global sales turnout and inventory of all our products are completely visible daily by anybody from anywhere within Kao, thanks to our fixed site observation network.

SAP representative stated that Kao excels in using the AI for all levels of ROIC and ESG decision-making. Perfect is a venture company noted for the image processing and creation. The Kao is good at playing around with the images, but has also been collaborating with Perfect in order to create a database consisting of images. Perfect praises the Kao by saying that the images are used efficiently and comprehensively at implementation levels.

In order to advance dialogue-based management, we invited 2 highly capable professionals on board as partners in order to evolve our leadership lineup to a higher level. First, Mr. Shinji Okuyama, who has experiences as the President of global consumer goods company and well versed in IT. Though his nomination must be approved by a Board meeting in March, he is expected to bring his objective and professional point of view. As you know, he was the CEO of the most formidable rival company in Japan a decade ago. We decided to invite this former worthy enemy as our Board member.

The other is Wakako Sato who possesses extensive experience in capital market and industrial analysis within our market sector. I strongly request her to come and join us, identifying that what is lacking from us, how can we communicate with the self stakeholders and how to access our customers. In short, she will be our interpreter to interface with other members of the committee. As you can see, Kao is committed to let our leadership grow and evolve by inviting the fresh talent from outside. Furthermore, Kao will strengthen its communication capabilities from the investors' perspective.

Four key K27 target should be achieved by all means. We are progressing in line with the targets and aspiring to overperform. Next page, I do not have to repeat the key highlights. Finally, I would like to briefly touch upon the main upcoming events of this fiscal year. Scientific marketing strategy or scientific marketing has been promoted by Kao for some time, but what is the definition of the scientific marketing? You will hear the detailed explanation of scientific marketing strategy during the upcoming briefing. Another is a briefing on research and development strategy, where you will be able to hear how our R&D budget be used and allocated into the future. That's all from me. Thank you very much for your attention.

Dear equity market participants, Sato has returned. Of course, the reason I'm here is to enhance Kao's corporate value and to deepen and strengthen its dialogue with the capital markets. I will swiftly and accurately convey investors' concerns to management and turn them into inputs for decision-making and execution. I will also make every effort to communicate the company's management strategy to the capital markets as a clearly articulated equity story. I believe that the management invited me back because they are committed to realize growth by any means possible, not shying away from harsh criticism from an outsider's perspective.

Now recently, Japan has been recognized among global travelers as the most attractive travel destinations in the world. One of the reasons cited is that Japan is a clean and beautiful country. Clean and beautiful is Kao's purpose. And I believe it is Kao that supports this concept from the foundation from advanced technologies. If Japan's cleanliness and beauty have become an object of admiration worldwide, I am convinced that now is precisely the moment when Kao's global growth will accelerate.

My own challenge in the capital markets also resumes here at Kao. I will strive to meet your expectations by providing results. I sincerely ask for your continued guidance and support.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Now let me explain the financial results for the third quarter or 9 months ended September 30, 2025. Please turn to Page 4. The key highlights. We position fiscal 2025 as a year to further enhance our earning power and build the foundation for global sales expansion towards profitable growth. In the third quarter, alongside establishing a strong foundation in Japan, the steady execution of strategic initiatives led to a recovery in the cosmetics business and a significant improvement in profitability. As a result, our earning power improved steadily, achieving an operating margin of 9.3%, ROIC of 9.3% and EPS growth of 19.5%. We're confident that we can reliably achieve the publicly announced forecast.

Moving forward, we will maintain this momentum while continuously strengthening marketing investments, particularly for growth outside of Japan in skin protection and cosmetics. Concurrently, to promote growth outside of Japan across the entire business, we will also initiate reforms in areas facing challenges impacted by evolving market dynamics. To achieve K27, the Kao Group is at a transition point from quantity-based to quality-based growth. Through selection and concentration, we will transform into a healthier and stronger business structure, enhancing quality of profit to reliably increase the certainty of achieving K27.

Moving to Page 6, highlights of consolidated financial results. Net sales reached JPY 1.232 trillion, an increase of 3.5% year-on-year. Excluding currency translation effects, the like-for-like growth was positive 4.1%. Gross margin improved by 0.5 percentage points year-on-year to 39.1%. Operating income was JPY 114.9 billion, up JPY 13.8 billion year-on-year. The operating margin rose to 9.3%, demonstrating steady progress in growth accompanied by profit expansion. The net income attributable to owners of the parent was JPY 84.7 billion, up 19.3% year-on-year. Earnings per share were JPY 182.64, demonstrating solid progress in both profitability and capital efficiency.

Next, please take a look at Page 7, highlights of consolidated financial results. Sales for the third quarter, July to September were JPY 427 billion, up 5.2% from a year before. Excluding currency translation effects, sales increased by 4.8% on a like-for-like basis. Gross margin improved by 1.4 percentage points year-on-year to 40.1%. Operating income increased by JPY 2.3 billion year-on-year to JPY 45.4 billion.

Excluding one-off items from the previous year, such as a JPY 6.3 billion gain on the transfer of the beverage business, this would represent a like-for-like growth of JPY 8.3 billion. The operating margin reached 10.7%. Profit attributable to owners of the parent was JPY 35.1 billion, a 27.1% increase year-on-year. This was also aided by the reversal of last year's foreign exchange loss into a gain this fiscal year. Earnings per share were JPY 75.85, representing a significant increase.

Moving on to Page 8, key points of the results and future initiatives. For the cumulative third quarter, sales increased by 4.1%, operating income rose by JPY 13.8 billion and ROIC improved by 0.9 percentage points year-on-year to 9.3%. Three key factors contributed to this performance.

Firstly, sales recovered in all categories and areas. Both sales and profit increased year-on-year due to continuous improvement in earning power on top of volume increase representing growth.

Secondly, a significant improvement in profitability in the cosmetics business. Recovery in China as well as increased sales and progress in streamlining fixed costs in Japan led to a substantial JPY 10.9 billion increase in operating income.

Thirdly, the rigorous implementation of ROIC focused management. By thoroughly prioritizing capital efficiency in our business operations, ROIC improved by 0.9 percentage points year-on-year to reach 9.3%. We are progressing steadily towards our annual target of 10%.

Key initiatives for the fourth quarter are as follows: Japan's Global Consumer Care or GC business will strive for further market share expansion through value propositions incorporating new innovations. We will advance brand restaging centered on Jergens in the U.S. and reforms in areas impacted by evolving market dynamics. Key points will be discussed later.

Page 9, please. Net sales in the third quarter year-to-date. Figures in green represent results excluding the impact of last year's transfers of the pet care and beverage businesses and structural reforms. Subsequent explanations will use these adjusted figures. First, please look at the GC business in the total column on the right. The GC business as a whole achieved a 2.9% increase in sales. By region, Japan showed robust growth of 5.6%.

Europe and Americas and Asia collectively saw a 1.8% decrease. But as detailed on Page 11, the third quarter results showed a 3.1% increase, indicating a shift in trends for recovery. In Japan, strong growth was demonstrated in Health, Beauty Care at 7.1% and Cosmetics and Fabric & Home Care at 6.0%. The decline in Asia was primarily due to intensified price competition in Indonesia. The Chemical business secured revenue growth across all regions.

Turning to Page 10. Please take a look at consolidated results by segment. I will now explain the results by segment. In Fabric & Home Care, profit increased by JPY 3.8 billion, driven by the implementation of price adjustments while thoroughly promoting high value-added products and strengthening customer loyalty. The operating margin improved by 0.7 percentage points to 18.5%. As for Sanitary business, reforms to enhance earning power were advanced through a scrum style system. Profit reached JPY 6.1 billion, representing a JPY 4 billion improvement, excluding the impact of the Pet Care business transfer.

Regarding Health Beauty Care, in Japan, skin care and high premium hair care grew. In Europe and U.S., we laid the foundations for growth while also initiating reforms in areas facing challenges. Consequently, even excluding the impact of structural reforms in salon business, profit increased by JPY 200 million from a year before. In cosmetics, profitability significantly improved through growth of 6 focused brands and fixed cost streamlining. Profits expanded with a JPY 10.9 billion growth.

In Business Connected business, commercial use hygiene products formed the mainstay. Excluding the prior year sales posted by the beverage business transferred in August last year, total sales increased by 1.6%. Profit increased by JPY 2.7 billion year-on-year as the beverage businesses losses were eliminated. As for Chemicals business, sales volume was slightly below the previous year, but higher prices for natural fats and oil and raw materials were absorbed by passing them on to selling prices, leading to an 8.5% increase in sales value. However, profit decreased due to the impact of European economic slowdown and reduced demand in automotive-related fields and total company achieved an operating margin of 9.3%. Growth, earning power and structural reforms functioned as Trinity, delivering solid profit improvement.

Please turn to Page 13. In analysis of change in operating income in Q3 year-to-date, the difference between operating income for third quarter year-to-date in fiscal 2024 and that of fiscal 2025 was a JPY 13.8 billion increase. Overall, results exceeded plans, clearly reflecting the effects of measures to expand profits.

I will now revisit the sources of profit outlined in our previous earnings announcement, explaining them from 3 perspectives: growth capabilities, the form of earning power and effects of structural reforms. First, growth capabilities. Volume growth in the GC business was the primary driver of sales expansion. After fully allocating and deducting increased expenses such as marketing investments from this JPY 10.5 billion volume increase, the net contribution from growth was positive JPY 2 billion approximately.

Next, the reform of earning power. We offset approximately JPY 8 billion rise in raw materials cost through selling price adjustments and improvements in other cost of sales, generating a positive effect of about JPY 12 billion. Finally, the effects of structural reforms. Fixed cost reductions from ongoing domestic and international structural reform of human capital contributed about JPY 5 billion, which was included within the cost of sales and SG&A expenses.

Turning to Page 14. Please take a look at the further improvement of earning power. Despite facing impacts from rising raw material costs, we achieved improved profit margins through the launches of high value-added products and comprehensive cost reduction activities. The company-wide gross margin improved by 0.5 percentage points from 38.6% in third quarter year-to-date of fiscal 2024 to 39.1% in that of fiscal 2025. Notably, the GC business is showing good progress, exceeding its target of 1 percentage point annual improvement with an actual 1.5 percentage point gain.

Please see a breakdown in the right bottom part.

Negative impact by rising raw material prices was minus 1.3 percentage point. Whereas contribution by selling price increases was plus 0.9 percentage point and sales mix improvement and manufacturing cost reduction made positive impact of 1.9 percentage point, clearly more than offsetting the decline. In Q4 and beyond, by continuing initiatives to strengthen price competitiveness by adding value and thorough cost management, we believe it is fully achievable to improve gross margin by 1 percentage point in the entire GC business.

Please turn to Page 15. The biggest factor in sustaining strong sales consistently in GC business is consistent launch of competitive products in focus categories. Please refer to the graph in the top. Since July 2023, which almost overlaps the time when we announced K27 structural reform, Kao's share of H and PC market has been increasing year-on-year for the record of 27 consecutive months.

Categories of prominent sales growth rate are shown below. In addition to the laundry detergent and in-bath hair care product, which were presented in the previous financial results briefing. In Kitchen care, hair make and oral care product as well, in many product groups, we achieved both profitability and market share expansion. Expanding wage hikes and inbound demand have been underpinning economy in Japan, but consumer activities have been cautious due to rising prices. Under such circumstances, Kao Group has expanded sales volume by adding value, capturing consumers' needs for products and reflect them in price setting as well as promoting innovative marketing to enhance brand loyalty.

Please turn to Page 16. In cosmetics business, as explained in the business strategy briefing in September, under K27 and the medium-term strategy for further period, we are accelerating the structural reform and the new structure. We identified issues and worked on scrum style system across organizational units. And as a result, we achieved profitability for the first time in 3 years and expanded profit further in Q3. In Japan business, where we aim to achieve both growth and profitability improvement, contribution by new products were prominent. In particular, 6 focus brands, including Curel, KANEBO, SENSAI showed robust growth. Other brands have also been steady by strengthening in-store capabilities and expansion of direct e-commerce.

In laying the foundation for global growth, 3 patterns that were explained in the business strategy briefing have been steadily developing. In Thailand, the focus area for expansion in Asia, we strengthened global promotion of new products of KANEBO and Kate by the same time launch with those in Japan. As a result, sales increased 129% year-on-year and the sales expansion in ASEAN was as strong as 113% year-on-year. Curel, whose presence in Europe is strengthening, continues to grow in the U.K. where we expanded ahead of other areas, but we also started rollout in Canada to strengthen presence. SENSAI's growth is accelerating through integrated operation in Japan, China and Travel Retail.

In China business reorganization, we had a strong resumption of growth. Along with the price adjustment in nonofficial channels, we achieved a better than market average sell-out expansion. Locally produced products grew 1.9x year-on-year and reorganization of growth foundation has been steadily progressing.

Please turn to Page 17. I will explain the global Consumer Care business initiatives outside Japan to ensure the success of K27. To ensure the success of K27, we are promoting initiatives in 2 aspects of strengthening growth areas and advancing reforms in areas facing challenges. Within growth areas, in skin care category in Americas and Europe, we implemented the rejuvenation of legacy brand of Jergens. We are developing emerging sales channels, leveraging the expertise of Bondi Sands and reviewing portfolio. In skin protection category, focusing on Biore UV, we deployed differentiation strategy by evidence-based marketing, accelerating rollout through a scrum style system, we are steadily expanding distribution in major retail chains in North America.

In Asia, we achieved profitable growth even in the severe competitive environment through the combination of portfolio reform of Laurier and loyalty marketing. In cosmetics, we are promoting growth strategy steadily for both Prestige, Sensai and [indiscernible] Curel in Japan, Asia and Europe. In advancing reform scenarios facing challenges, we are implementing strategic measures to address market dynamics. In hair salon products business in Europe and Americas, we review low-margin and inefficient businesses promptly.

We will improve efficiency in sales and marketing by strengthening mainstay brand Goldwell through restage as well as promoting DX across beauty brands, leveraging expertise of Oribe. In Asia, amid the intensifying price competition, we review the overall business portfolio. We will promote optimization of sales organization, including collaboration with major retailers and rebuild fabric care attack. By simultaneously promoting growth and reform, as mentioned, we will ensure the success of K27.

Please turn to Page 18 for raw material prices outlook in FY 2025. Raw material cost improved from the assumed annual cost increase of JPY 9 billion as of Q2 to JPY 8.5 billion, down by JPY 0.5 billion due to domestic naphtha price decline, which is linked to crude oil market. Price of fats and oils continue to be high, but the impact in Q4 will be down by JPY 0.5 billion year-on-year. Despite lingering adverse impact on cost, its impact is trending down.

Please turn to Page 19 for the forecast of factors in operating income in FY 2025. I explain factors between operating income in FY 2024, JPY 146.6 billion and operating income forecast in FY 2026, JPY 165 billion, increase of JPY 18.4 billion. The impact of the reform of earning power in our initial estimate is expected to be more than JPY 16 billion. And in GC business, we will achieve improvement of gross margin of plus 1% by revising selling prices and cost reduction.

Raw material prices are expected to deteriorate by JPY 8.5 billion for the full year, but selling price increase of JPY 12 billion will more than offset the decline, and it will result in a plus of JPY 3.5 billion in net. Adding the cost of sales plus JPY 13 billion, JPY 16.5 billion in total will be the improvement by earning power. In volume, GC business will make JPY 17.5 billion, in particular, in cosmetics as we have been working on the inventory issue of distributors in China since the second half of 2024, we expect the strong growth in sales in China in Q4 FY 2025.

Additionally, by focusing on the 6 focus brands, strong growth is expected centering on Japan, and we expect to exceed the initial operating income guidance of JPY 7 billion. SG&A expense remains unchanged from the announcement in Q2 with the increase of JPY 12 billion, of which JPY 10 billion is marketing investment and remaining JPY 2 billion includes personnel expenses, other cost increase and the structural reform of human capital. We continue proactive marketing investment in growth business areas to promote sales area expansion and strengthen business foundation.

In Chemical business, despite temporary profit decrease, new tertiary amine production plant in the U.S. has been operating steadily as well as a steady new customer acquisition in value-added business areas, including semiconductors. impact of currency transactions and other income and expenses minuses is mainly due to the gain on transfer in the previous year as described below. In conclusion, we are on the steady growth trajectory with steady expansion of profit.

Finally, please turn to Page 20 for K27 progress. As I explained today, K27 has been progressing steadily. We ensure the successful achievement of K27 by promoting both growth and reform consistently.

This concludes my presentation. Thank you very much for your attention.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Thank you very much for taking the time to join us today. I'd like to talk about what we aim to achieve as cosmetics business of Kao Corporation and Growth Strategy.

There are three parts to my presentation. First, I will explain what we aim to achieve and K27 strategic vision and the progress of the first half of 2025. Secondly, I'd like to talk about the growth strategy for six focus brands, which will be the key, and building a business foundation for further growth.

First, let's look back at our company's business characteristics, which form the basis for differentiation along with its history. Kao's Cosmetics Business is one of its major businesses accounting for about 1/5 of the total sales. Kao, KANEBO founded in 1887, have their origins in the cosmetic business of SOFINA in 1982 and KANEBO Limited in 1936. And have continued to create valuable brands that transcend the ages welcoming Curel and MOLTON BROWN into the group. Each of these histories form the foundation of our current technological capabilities and brand power.

Our vision is to become a sharp top business that is the most chosen in the targeted categories, price targets and regions by combining scientifically proven benefits with emotional and sensory appeal to create a group of distinctive brand identities. The driving force behind this is Kao's comprehensive strength, including the technology and brand nurtured over a long history, extensive manufacturing technologies based on essential research on skin with human subjects, chemical, and process research that goes beyond cosmetics, emotional value born from consumer research, collaborations with the chemical business and household and personal care business and global network of basis.

With these assets at the core, we aim to establish a revenue base by 2027 and achieve sustainable growth thereafter by achieving both global consistency and local flexibility. However, in reality, the environment surrounding the cosmetics industry is not an easy one and is rapidly changing. This shows our sales trends since 2017, the market environment changed dramatically in the wake of COVID-19.

Until 2019, the Japanese market benefited greatly from strong consumer spending, including inbound tourists from China. However, the situation has changed dramatically since the pandemic with a decline in inbound tourists, changes in lifestyles due to digitalization caused by restrictions ongoing out and the impact of out treated water.

Manufacturers who have lost their mainstay in China have entered a challenging period in terms of both sales and profits. Our company is no exception, and we decided to return to the roots of our business structure and quickly restructure our approach for the huge Chinese market.

As a result, in 2025, we expect to build on the results of these structural reforms and achieve year-on-year growth without relying on the Chinese market. In light of this recovery trend, we have decided to first envision what we aim to achieve and then incorporate it into the business design for K27 medium-term financial performance targets.

First, our performance target is to achieve JPY 400 billion in sales and 15% operating margin. To achieve these, we have positioned K27 as a medium-term milestone that must be achieved with targets of JPY 300 billion in sales and 7% operating margin. These figures are based on sales CAGR of 7% and 10% increase for our six focus brands and we aim to achieve them using 2025 results as a solid foothold.

Next, I would like to explain our thinking on business reform, which will serve as an important starting point. We recognized that the fundamental issue was that the investments were dispersed under our previous brand-based operations and that high fixed costs were putting pressure on profits. We, therefore, focused on globally unified operations.

Specifically, we focused our resources on six focus brands for global expansion, developed a scrum style operation without borders and restructured the organization to enhance execution. As a result, we gained strategic focus in our global cosmetic business investments, achieving both growth and profitability improvement in Japan, laying a foundation for global growth and making progress in China business reorganization, a virtuous cycle of capital creation and focused investments have begun. These efforts are beginning to bear fruit in the performance of 2025.

Under these new business reforms, we have seen positive results in our Japan business, global growth and China business. Our six focus brands in Japan have grown 15% year-on-year. Our e-commerce business has grown 34%, and we have achieved JPY 3.8 billion reduction in fixed costs. Structural reform and growth are progressing in tandem.

In global expansion, Thailand, in particular, has seen rapid growth of 27% year-on-year. ASEAN as a whole is also showing significant growth. We have also begun integrated operations which are essential for globalization and are seeing results by establishing our brand in targeted areas and increasing recognition. Even in our China business, which is susceptible to market fluctuations, sales prices have recovered through thorough management of distribution inventory.

At the same time, we are steadily progressing with local development and cultivating locally produced products that are not affected by imports. We are seeing positive results not only in the numbers, but also in feedback from internal and external stakeholders. One happy feedback from a consumer with serious concerns that this product has changed my life. We also received the voices of expectation from the beauty industry.

Within the company, we have enhanced our cross-divisional scrum style operation, starting with the cosmetics integrated project. This increased the sense of unity, speed and responsibility becoming a major driving force and entire business is starting to move steadily forward.

Now I'd like to explain our overall business policy for achieving K27 and our growth strategy for six focus brands. As we have seen during the pandemic, the cosmetics business is susceptible to market fluctuations. So it's important to constantly monitor overall balance to control where to expand and where to tighten. However, growth cannot be expected simply by maintaining overall balance. Therefore, we need a comprehensive blueprint that visualizes the cycle of constantly generating growth and investing in growth and helps us determine when to use the accelerator or when to use the break.

This diagram simply illustrates a self-sustaining cycle of capital acquisition and investment by simultaneously implementing earning power and business streamlining, leading to business expansion and improved soundness. Based on this, we can clarify the mission of each brand, monitor events affecting the entire business and quickly address any abnormalities. To simply put, growth potential is having a unique global strategy. Earning power is achieved by thoroughly implementing a category portfolio based on key technologies and business streamlining is achieved managing assets, including inventory.

First, let's focus on the growth potential that drives business expansion. The six focus brands are the source of our global growth potential, including SENSAI established as a luxury brand in Europe with the philosophy of living mind-free in place. And MOLTON BROWN, a luxury brand established in London in 1971 and is a supplier to the British Royal family. They have a mission of aggressive global expansion.

Each brand specializes in a specific category, price range and geographical area. By expanding into the right areas through the right channels, we can steadily achieve the top position in our targeted markets. While we won't go into the details today, we also have another group of brands separate from these globally competitive brands. These brands are deeply rooted in Japan and Asia.

And by focusing on acquiring loyal consumers who generate efficient profits, they form the backbone of our entire business. In this way, all of our brands work together as one team to drive business growth.

Earlier, I mentioned expansion in the right areas, but not all six brands will move in the same direction at the same time. As step one, we are dividing them into those three models and developing them sharply. By finding success patterns in areas where each brand excels. Number one is Japan origin model; second is Europe origin model; and the third is Asia model. And applying that know-how to the next brand, we aim to increase the success rate and maximize investment efficiency.

Let me introduce some representative examples of those three models. The first is Curel, a Japan origin model. Curel currently operates in 12 markets worldwide, including Japan, China, Thailand, Singapore and the U.K. The strength lie in its trust as Japan's #1 derma care brand and its proven effectiveness backed by over 25 years of ceramide research and over 40 years of research on dry and sensitive skin. The truly unique product capabilities, particularly its proprietary development of ceramide functional ingredients that enhance skin's barrier function and its processing technology for fine emulsification and high concentration of easily precipitated ceramide functional ingredients underpin the brand's long-standing popularity among consumers suffering from dry and sensitive skin.

We have now targeted Europe, where 40% of consumers report having dry and sensitive skin, a rate comparable to Japan's 44% as a region to expand into. This figure is significantly higher than Asia's 17%.

Moving forward, we will focus on growing sales in existing markets while also pursuing new market entries in Europe where SENSAI and MOLTON BROWN have established business foundations. Our goal is to achieve a 50% overseas sales ratio by fiscal year 2027. We will enhance our global presence through two key drivers: expansion in Europe and the local optimization of our product portfolio.

Second is the European origin model represented by SENSAI and MOLTON BROWN. Both brands will deploy brand value cultivated in Europe into Asia through borderless integrated operation that manages the fast-growing Asian region as one market. SENSAI, for example, is a rare brand developed by a Japanese company as a European brand.

In Europe, where the use of face wash and lotion was not common, SENSAI has advocated double cleansing and double moisturizing of Japanese skin care rituals. Now the SENSAI value fostered in Europe are to be deployed back to Japan and Asia. Adopting the concept of integrated operation where Asia as a whole, not each country separately is regarded as a customer shopping forum. We will accelerate our sales plan in Asia, taking advantage of the brand's 40-year track record and the 90% of its sales coming from outside Japan.

Third is the Asia model represented by KANEBO, KATE, and SOFINA. The Asia model delivers values established in Japan, taking into consideration the characteristics of each country and region. KANEBO is a brand that achieved three consecutive years of 30% growth whose strengths lie in its unique products and marketing that embody the I HOPE brand purpose as well as trust and expertise backed by a long history.

KATE aims to become the #1 brand in Asia from #1 in Japan. It will accelerate its development in Asia by leveraging Japanese culture through the evolution and penetration of its core value "NO MORE RULES" and "Shadow Enhancing Makeup" for Asians.

As a strategic country, we will focus on Thailand, where the number of tourists is increasing due to its affinity with Japanese culture and similarity of the national character and where inbound visitors from the countries is expected to be second only to that of China. Against the background of relatively stable economic growth among Southeast Asian countries, we will aim at successfully achieving 2.5x sales in Thailand, where cosmetics consumption is expected to increase and use the strength of brands originating in Japan and brand identity to capture the Asian market and expand sales and profits.

Meanwhile, SOFINA has been restated as a Renewed SOFINA and the values of all series will be integrated into one SOFINA brand. The core of the brand is the counseling channel represented by SOFINA ip, which embodies stratum corneum care.

Next spring, the first new series incorporating cutting-edge science unique to SOFINA will be launched through e-commerce.

In autumn next year, we will introduce the second series, which will be the first entry into the self-selection channel in the domestic market. We will use the three channels differently according to the characteristics of each geographical area to achieve a fresh start in the Asian market. First, SOFINA Ange will be launched in September this year in the currently strong Taiwan and Hong Kong markets with the aim of increasing Asian sales by approximately 1.5x by 2027. We will increase both the presence and scale of the brand through unlocking skin's potential with science, which is common to all SOFINA series and regional optimization.

So far, I have talked about three models of deployment, which are the first steps for the six global focus brands as growth potential. In the future, we will create a playbook of winning patterns in each geographical area and propagate our know-how to the next brand through cross-brand development to further increase the initial speed of launch and winning rate.

We will also control prices, inventories and measures across borders through borderless integrated operations to accelerate the establishment of our business in each area of operation.

Finally, with an eye to the future, let me explain how we will build a business foundation for solid growth. The design philosophy of our Cosmetics Business is the positive cycle of capital acquisition and investment, which was presented earlier.

In order to maximize the efficiency of investment, it is important to achieve both growth and improved soundness. From this point onwards, we will focus on earning power and business streamlining as the means of improving soundness in order to generate capital.

The key points are the product category strategy, which is the basis of earning power, maximizing the sales capabilities of people and streamlining fixed costs through data-driven SCM efficiency.

First is the product category strategy, which generates earning power. The concept of product category strategy is the idea of focusing on categories with advantage such as highly differentiated core technologies and high profitability and strategically concentrating on them to gain profits efficiently, which we call earning power or winning power.

As is the fate of cosmetics, there is a tendency towards offering a wide variety in order to meet diverse needs. Adapting to trends is an important consumer value. However, designing all products from scratch, simply means dispersion of investments, which is a major challenge in terms of efficiency and profitability.

The solution to this challenge is the modularization of product design and shared fundamental technologies. We have accumulated fundamental technologies with exclusive uniqueness in each category. And as I said at the beginning, we can draw on the knowledge and experience from a long history. This means that the fundamental technologies of the modularized product elements are shared, while other parts such as functionality, ingredients, fragrances and packages can be easily updated by flexibly combining them in a way most suitable for the brand, so we can design products efficiently and sustainably.

In other words, by sharing strong differentiating technologies among focus categories, it achieves maximum results with efficient investment. The fundamental technologies that are the source of this differentiation will make use of technology assets in a wide range of fields across the Kao Group.

These are some examples. The most distinctive feature is the combination of material design from a chemical perspective and a wide range of production process technologies in addition to dermatological and biological science, which are strongly linked to cosmetics. We provide a truly unique product experience that only a general chemical manufacturer can offer.

The essential elements for improving sales capabilities and SCM efficiency are the power of people with specialized skills and the power of digital and the use of AI. It is important to combine the experience and intuition unique to humans with the power of digital and AI to process vast amounts of data and derive rational and optimal solutions.

The most important feature of our AI-based data-driven management is that we have data inputs from a wide range of sites and outputs for diverse applications in-house. In other words, in addition to generally available market data, we can input data from our own research, sales, production, counseling service counters, logistics systems, et cetera, and output this data not only to marketing, but also to production control and various other fields.

To give an example, a challenge that cannot be ignored in maximizing cosmetics sales capability is the workload of each salesperson to acquire a vast amount of brand knowledge. The power of digital technology can reduce this workload and support salespeople so that they can deal with consumers with confidence. We have built a system that integrates vast amounts of data, converts it into intelligence through AI and extracts appropriate information when necessary.

Furthermore, by accumulating information on raw materials, production and sales, it manages key asset items such as supply and demand forecast and inventory status and is expected to contribute to highly accurate data-driven management that drives SCM efficiency.

Let me now summarize our growth strategy. We are taking the first steps towards the three models approach. Japan-origin, Europe-origin and Asia model. In line with the characteristics of the markets as for growth potential, Curel is leveraging the strength of its Japanese origins while also starting development from Europe. SENSAI is scaling up the value it has fostered in Europe, in Asia. Molton Brown is integrating the entire process from experience to purchase and sign conversion under the OMO strategy.

KANEBO KATE are horizontally expanding the successful Thai model into Asia. SOFINA is responsible for expanding the consumer demographics in Asia with the One SOFINA Restaging based on skin science. KPIs are designed for the period of 2024 to 2027 with overseas sales ratio, Asian sales growth and country-specific expansion indicators being managed by model.

The aim is to accelerate the great of growth by steadily acquiring a reproducible growth pattern and horizontally deploying the know-how to the next brand through the combination of deployment model, brand and KPI.

Finally, we present our aim to achieve in K27 as a milestone. Our performance targets are JPY 400 billion in sales and an operating margin of 15%. And by 2027, we aim for JPY 300 billion in sales and operating margin of 7%, a sales CAGR of plus 7% and six focus brands growth of 10%. We will first build a solid foundation in 2025.

The drivers are the concentration of resources on the six focus brands, which have growth potential, the acquisition of earning power through the cross utilization of fundamental technologies in the product category strategy. and business streamlining through SCM and asset efficiency.

We aim at achieving both growth and profitability with this approach. We will work from 2025 onwards to build the foundation, establish a stable revenue base and expand growth with the aim of achieving the target as quickly as possible.

Thank you very much for your attention.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Now let me present the financial results for the first half of this year. Thank you very much for coming despite your very busy schedules. First, please turn to Page 4. This year is positioned as the year to achieve two goals in parallel: to improve earning power and solidify our operations in Japan and to use the profits earned from these efforts to build a foundation for global expansion in growth and focus areas.

Looking back on the first half of the year from this perspective, we were able to achieve solid results as planned. As you see here, the three main contributors to solidifying business in Japan are continued market share expansion in Fabric and Home Care, improved profitability in cosmetics and significant growth in the high premium hair care area. We also rolled out measures for global growth in focus areas such as UV care and cosmetics.

Based on the positive feedback that the plan is progressing well, we have revised upward our full year operating income forecast for fiscal year 2025 from the JPY 160 billion announced at the Q1 results meeting to JPY 165 billion. At the same time, the company also resolved today to repurchase up to 15 million shares or a total amount of JPY 80 billion.

This capital policy is based on a comprehensive assessment of capital efficiency improvement and shareholder return. We will continue to focus on creating shareholder value by maintaining the necessary financial flexibility while continuing to emphasize investments in future growth.

Now please turn to Page 6. Net sales increased 2.7% to reach JPY 809 billion. Excluding the effect of currency translation, net sales increased 3.7%. Gross margin was 38.5%, the same level as the same period of the previous year. But for the GC business alone, an improvement of 1.2 points was achieved.

Operating income was JPY 69.5 billion, an increase of JPY 11.5 billion from the same period last year, and the operating margin improved to 8.6%. Net income attributable to owners of the parent was JPY 49.6 billion, an increase of 14.3% or JPY 6.2 billion from the same period last year. Earnings per share was JPY 106.85, an increase of 14.4% from the same period last year. The interim dividend will be JPY 77 per share, an increase of JPY 1 per share as initially planned. Please turn to Page 8. Net sales increased by 3.7%. Operating income increased by JPY 11.5 billion and ROIC improved by 0.5 points from the same period last year to reach 8.0%.

The improvement in the operating margin is a result of improved profitability of Cosmetics as well as Fabric and Home Care, which is the foundation of the company's business. This indicates that our earning power continues to steadily improve. The improvement in ROIC was due to increased profits and efforts to improve invested capital efficiency such as by streamlining the sanitary business.

For Q3 onwards, we will continue to revise prices by adding further value to our products in the GC business in Japan. As for the U.S. tariff policy, the direct effect of tariff increase is expected to be about JPY 1.5 billion, JPY 0.5 billion less than the assumption shown at the Q1 results meeting due to the revision of tariff rates. Based on the favorable progress of the plan as described above, we have increased our full year forecast for net sales by JPY 20 billion to JPY 1.690 billion and for operating income by JPY 5 billion to JPY 165 billion.

Now please turn to Page 9. First, we sold the Pet Care and Beverage businesses last year, and the percentages excluding these businesses are shown in green. Today's explanation will use these adjusted figures. Overall, the GC business posted a 1.8% increase in net sales. By region, competition intensified in Asia, the Americas and Europe.

In Europe and the United States, in particular, the market itself is in a difficult environment with consumers being more cost conscious. Net sales in the first half declined and overseas sales declined by 4.1%. However, sales in Japan grew by 5.2% and overall sales in the GC business increased by 1.8%. In the Chemical business, net sales increased in all regions. In Japan, Cosmetic sales increased 6.7%.

Both Fabric & Home Care and Health, Beauty Care grew strongly by 5.6%. Please turn to Page 10. I would like to explain the business performance by segment. Hygiene Living Care continued to improve its earning power and posted an increase of JPY 1.4 billion in operating income.

Excluding the gain on the sale of the Pet Care business in Q2 of last year, operating income increased by JPY 5.7 billion. Fabric & Home Care achieved an increase of JPY 2.9 billion in operating income by promoting high value-added products and enhancing customer loyalty, which also contributed to price revisions.

Operating margin improved by 1.1 points and reached 17.3%. In Sanitary Products, the reform of earning power was implemented in a multifaceted manner through scrum style management and price revisions, resulting in an operating income of JPY 4.5 billion, an increase of JPY 2.8 billion.

In the Health, Beauty Care business, sales of skin care and high premium hair care products in Japan grew significantly, contributing to a 1.6% increase in net sales due to volume growth while continuing to build a foundation for future growth. In the Skin Care business, Marketing expenses were also significant due to the aggressive global deployment of UV care products in particular.

So excluding the impact of last year's hair salon business structural reforms, income was JPY 300 million lower than the same period of the previous year. In the Cosmetics business, sales in Japan increased significantly as a result of the concentration of resources on 6 focused brands. Streamlining of the business was also successful, resulting in a significant improvement in operating income of JPY 6.5 billion, and the company returned to first half profitability for the first time in 3 fiscal years.

In Business Connected, KPS or Kao Professional Services, which develops business products is the core business. Excluding sales in the same period last year of the Beverage business, which was sold last year in August, sales was almost flat year-on-year, but profits increased by JPY 1.4 billion due to the elimination of the loss in the Beverage business.

In Chemicals, sales volume was slightly lower than the previous year, but the company responded to soaring prices of raw materials for oils and fats by revising selling prices. As a result, sales increased 11.0%. However, profit decreased due to lower demand in the automotive-related sector in the second quarter, economic slowdown in Europe and elimination of unrealized profit on oleo products.

As a result, operating margin on a company-wide basis was 8.6%. Turn to Page 13, please. I will now analyze the factors behind the JPY 11.5 billion difference in operating income for the first half of 2024 and 2025. I will explain from the 3 perspectives of earning power growth and fixed cost reduction effects from structural reforms, which I presented at the previous earnings announcements.

First, as for the earning power effect, the GC business as a whole saw an increase in profit of about JPY 5 billion. Although increase in selling prices did not fully absorb the rise in raw material prices, cost of sales reductions contributed to the increase.

Second, in terms of growth, the GC business as a whole saw a JPY 4.5 billion increase due to volume growth. If we subtract part of the increase in SG&A expenses from that, it comes to about JPY 1.5 billion. Fixed cost reductions due to structural reforms will amount to approximately JPY 4 billion.

The total of these factors plus the impact of currency translation and the negative impact of the Chemicals business will amount to JPY 11.5 billion. In terms of SG&A expenses, approximately JPY 3.0 billion is the increase in marketing and personnel expenses, which is offset by a fixed cost decrease of approximately JPY 3.0 billion due to human capital structural reforms.

Please turn to Page 14. In the GC business, profit margin improved as cost increases due to high raw material prices were absorbed by proactive introduction of high value-added products and aggressive cost reduction activities. The gross margin for the entire company, including chemicals, remained flat at 38.5% compared to the first half of 2024. But the GC business, which targets a 1% per year improvement showed a steady improvement of 1.2 points.

Please look at the box on the right-hand side. We believe that we can achieve an improvement rate of 1.0 points or more by continuing these activities and introducing new high value-added products from the third quarter onwards. Next, please turn to Page 15. The primary reason for the continued strong performance of the GC business is the uninterrupted launch of competitive products into the market.

Please look at the top graph. Since July 2023, around the time when we announced the K27 and structural reforms, Kao's share in the toilet tree market has increased compared to the same month of the previous year for 24 consecutive months.

Contributing greatly to this share expansion are the laundry detergent and in-bath hair care categories. In laundry detergents, the use of digital transformation and scrum-based product development have enabled us to significantly accelerate the launch of new and improved products such as Attack ZERO, Antibacterial EX, Perfect Stick and newbies, we achieved #1 category share in June '23 and continue to grow our share.

At the end of June this year, we made price adjustments for Antibacterial EX in line with its enhanced value. We expect its effects to materialize even more strongly in the second half. We have also seen a significant increase in market share in the in-bath hair care category since we entered the high premium market in 2024.

Page 16, hair care business reform. Under the business vision, hair, the Power of Life, we restructured our brand formation, which had previously been built around functional value to focus instead on fundamental human emotional needs as shown in the diagram. While focusing on emotional needs, we also leveraged our 100 years of expertise in hair care research, incorporating cutting-edge technology into each brand to drive product development.

As a result, both the first and second product offerings achieved about twice the planned sales in the first half of 2025. We successfully captured sharply defined target consumers with substantial increase in both trial and repeat purchases. Users have given high reviews that the concept, naming, user experience, fragrance and finish all come together at a high level.

The answer won 27 best cosmetics awards at Cosme, Japan's largest online beauty and cosmetics portal, including the Grand price, the first time a hair care product was bestowed with the top price. Of the 6 parts, we haven't been able to fill the red part. That is what we will target with our third offering. This will complete our hair care brand formation and further strengthen Kao's presence in the market.

Next, please turn to Page 17. In the Cosmetics business, undergoing structural reform under our new organization since January this year, we clarified the issues to address and implemented a scrum approach across organizational barriers, which led to profitability in the first half for the first time in 3 years. In Japan, by focusing investment and sales activities on 6 focus brands, we succeeded in creating a strong in-store presence.

New products such as Curel and SOFINA iP are performing well. We also focused on expanding our own e-commerce to strengthen our base in the channel. As a result of these efforts, sales of the 6 focus brands increased 115% year-on-year and directly operated e-commerce sales grew substantially by 134%.

Meanwhile, through streamlining efforts such as the organizational restructuring carried out since last year, we reduced fixed costs by JPY 3.8 billion. Regarding our global expansion focus, we have clarified 3 directions: first, expansion in ASEAN; second, rollout in Europe; and third, the introduction of brands from Europe into Asia.

We are building the necessary foundation for this. For expansion in ASEAN, sales of the 6 focus brands progressed steadily, reaching 111% year-on-year. In Thailand, where we are putting particular focus, sales grew significantly, reaching 127%. For our expansion in Europe, we have begun rolling out Curel, leveraging the brand assets built through SENSAI.

Also, we are accelerating the introduction of the European grown SENSAI into Asia around our flagship store in China, we have built an integrated operational structure for Japan, China NTR Travel Retail. And with steadily introduction into Indonesia, sales in Asia increased 2.4x year-on-year. Our China business is generally progressing well.

Sell-out is growing as planned and selling prices at unofficial e-commerce stores are moving within the expected range. Locally produced product that we are cultivating have also grown 1.8x year-on-year, indicating steady overall growth of the China businesses.

Next, please turn to Page 19. From here, I will explain the earnings forecast for fiscal 2025. In light of the strong results in the first half, we have revised our full year forecast upward. Net sales forecast is up by JPY 20 billion to JPY 1.690 billion and operating income is up by JPY 5 billion to JPY 165 billion.

With the planned share repurchase, ROE is projected to improve by 0.9 points from the original plan to 11.7% and earnings per share are expected to increase 13% year-on-year to JPY 262. Please turn to Page 20. In Japan, we aim to further enhance profitability through offering high value-added products in Fabric Care and elsewhere. Outside Japan, we are working for recovery through growth in Cosmetics and new product offerings in Health Beauty Care, among other measures, the JPY 20 billion upward revision of full year net sales is due to strong sales in Japan.

Page 21. Regarding raw material prices, the expected JPY 10 billion cost increase in Q1 has been revised down to JPY 9 billion due to falling domestic naphtha prices, which are linked to crude oil markets. On a year-on-year basis, though, prices for natural fat and oils remain high. And in the second half, we expect JPY 3 billion higher cost over last year.

Please turn to Page 22. Now I will explain the JPY 18.4 billion increase in operating income between JPY 146.6 billion in fiscal '24 to JPY 165 billion revised fiscal '25 forecast, which has been raised by JPY 5 billion. First, regarding earning power, we expect the rise in raw material costs by JPY 9 billion to be offset by JPY 15 billion in gains from pricing adjustments.

There is further improvement of about JPY 10 billion from cost of sales reductions. As a result, we expect profit increase by enhanced earning power to be more than JPY 16 billion. In the growth category, including cosmetics, we expect a positive impact of about JPY 20 billion from higher volume after deducting higher marketing, personnel and other general administrative expenses, we forecast a net gain of around JPY 4 billion.

Cost reductions from structural reforms will be about JPY 5.5 billion. Also, there is JPY 1 billion increase for the chemicals and a negative impact of JPY 7 billion in currency translation and others. The negative impact of JPY 1 billion for the GC business has been factored in as the direct effect of tariff revisions in the U.S. Of the JPY 12 billion increase in SG&A, about JPY 10 billion is related to marketing investment.

The remaining JPY 2 billion includes higher personnel and operating expenses and fixed cost reductions from structural reforms. For Chemical, we factor in a direct tariff-related risk of around JPY 500 million. We revised our earnings forecast slightly downward based on first half results and recent market deterioration, but the promotion of higher value-add and customer acquisitions for the new tertiary amine plant in the U.S. in Q4 onward are progressing smoothly.

Negative impact of currency translation and others is mainly due to the absence of onetime gains from asset sales recorded in the previous year. Page 23. This chart shows the 3 business areas year-on-year changes for sales growth rate, operating income improvement and ROIC improvement in the first half. In the stable earnings, sales grew by 3.5%, operating income increased by JPY 3.8 billion and ROIC improved by 2.4 points.

In the growth driver, sales rose by 5.4%, operating income increased by JPY 4.1 billion and ROIC improved by 0.5 points. In the business transformation, sales remained almost flat at minus 0.1%, but operating income rose by JPY 2.2 billion and ROIC improved by 1.4 points. Overall, each area is progressing largely in line with expectations.

Going forward, toward the full year, we will steadily proceed toward achieving ROIC targets in each area, focusing on capital efficiency improvements. Page 24. With today's upward revision of operating income and the implementation of a share repurchase of up to JPY 80 billion, ROIC is expected to reach double digits at 10% and EVA is projected to significantly exceed JPY 40 billion. We are making steady progress toward achieving the goals of K27, and we intend to continue driving profitable growth.

Lastly, please turn to Page 25. You see the progress toward the K27 targets in the graph when the revised outlook for fiscal '25 is applied. I believe this clearly shows that we are making steady progress. That concludes my explanation. Thank you for your attention. Now our President and CEO, Hasebe, will speak about our further strategic initiatives.

Good afternoon. Thank you very much for coming despite your busy schedules. I will explain the progress of our midterm plan K27, including the strategic mechanisms we have introduced for K27 and the results for 2024.

This slide shows our net sales and operating income trends since 2019 when we posted record profits. Since the announcement of K27 in 2023, we have achieved a steady and significant improvement in our operating income. Structural reform through K27 helped us offset major impacts of the macro environment such as COVID-19 and soaring raw material prices.

Please turn to Page 28. Next, let me explain how we are reforming our management structure from the business structure as of 2019 when we achieved record profits. The chart on the left shows the operating income structure by business in 2019. At that time, we were highly dependent on the Chinese market, which made us vulnerable to changes in international affairs.

Furthermore, the Fabric and Home Care and Skin Care Hair Care segments, which were mainly focused on Asian markets, including Japan, was facing slower growth due to a lack of countermeasures against competitors' moves. Under these circumstances, there were 3 major management issues to address: global growth, earning power and human capital revitalization.

The challenges that became apparent were external factors, including the disappearance of inbound demand and soaring raw material prices and internal factors such as insufficient allocation to strategic investments. To address these issues, we implemented business portfolio management, value-based pricing, in other words, strategic price increases and ROIC management to push forward well-balanced and focused management reform.

We also focused on loyalty marketing to increase support from customers and monitored the results of such marketing through data-driven management. The driving force behind these efforts is the company-wide scrum style activities. To achieve these goals, we have set clear KPIs for each management issue and formulated the K27 plan.

Please turn to Page 29. Here, we share the concept of a well-balanced and focused business strategy portfolio. Kao's focus is on customer perspective and business characteristics. Here, Kao's business categories are organized from the consumers' perspective. On the far left is Cosmetics, the main beauty care category. On the right is Sanitary. In Hygiene, Living Care, on the right, the priority is to solve the challenges of or eliminate the pain points in cleanliness and hygiene.

So specific products tend to be chosen continuously. Consumers' choice is based on absolute benefit of products rather than comparison to others. On the other hand, in Cosmetics and Health Beauty Care, consumers tend to try many products because they are looking for new experiences and satisfaction of curiosity or something to gain. So consumer loyalty tends to be lower.

Consumers want to compare and find the product most suitable for themselves. Furthermore, in general, the categories on the right tend to have heavier capital investment burdens, while those on the left tend to have heavier marketing burdens. Therefore, in the problem-solving categories on the right, we will strengthen basic functions and improve loyalty, consumer loyalty in areas where the brand has high penetration.

On the other hand, in categories on the left where switches are more likely to occur, we adopt a lean start-up approach. First, we find and focus on features that we are sure appeals to the consumer and expand based on initial learnings. Once what makes the product a must-have is identified, the consumer can no longer do without the product because of its benefits, which leads to enhanced consumer loyalty.

We call this the Gain to Pain strategy. Our technical capability will be perceived as high quality by the customer. And once they experience it, they will continue to choose it. Because we are confident about this, we can take this strategy. Please turn to Page 30. Here are some examples of our success, although not exhaustive. The two on the left in green, social significance and exclusive uniqueness are the strategic pillars, which demonstrate Kao's strengths, leading to competitive advantage.

Lean Startup and Gain to Pain tactics on the right are essential to expand each area globally. As necessary, the tactics will change, but social significance and exclusive uniqueness on the left-hand side will not change because they are our strengths, the foundation of our business. Biore UV, Curel, Melt and the Answer are all proposed as very attractive offerings by Kao. Once customers try them and experience the quality, the products become pain products, which they cannot do without, leading to expansion of business.

Please turn to Page 31. Once again, we present the concept of Kao's Global Sharp Top strategy. Global refers to scale of sales. Sharp refers to loyalty ratio and profitability and Top refers to presence or market share. With these 3, we intend to establish a global presence. Today, I would like to talk about 3 growth businesses.

Please turn to Page 32. I will now talk about a category that will be a growth driver based on this strategy, the skin protection category. Demand for skin protection from environmental factors such as global warming is growing. Today is hot with strong sunshine. This is not just in Japan, but this is a globally expanding trend.

External factors that are relevant in protecting the skin include sunlight, heat and pest. Demand for higher protection against these will increase. And cosmetic factors related to beautification, including -- include tanning and brightening. These 2 factors would be skin care and makeup for the face, but they apply to body care as well and are complementary to each other.

From this perspective, Kao's brand assets, Jergens and Bondi Sands together hold an overwhelming global Sharp Top position. The share in the United States is 51% and globally, it is 20%. A 20% share globally is very high for Kao's business lineup. Biore is a top brand in Japan in UV care and thermal stress care, which fights against sunlight and heat.

Unfortunately, the brand is not strong globally. How to combine these 2 assets is strategically important. We are leveraging our exclusively unique technologies to develop synergistic and complementary businesses in potential core market areas.

Please turn to Page 33. Next is one of our growth drivers, the chemical business. The chemical business is well suited for the Global Sharp Top strategy as strategies for each business segment can be clearly defined. On the far left, there are global top businesses that are facing increasing price competition. In these areas, we aim to enhance value by further sharpening features.

In the lower right, we have Sharp Top businesses with strong domestic presence. While they are top in the core market of Japan, global rollout is insufficient. We are, therefore, accelerating expansion in overseas markets. For globally sharp but small-scale businesses such as Inkjet and Asphalt, we are focusing on securing large strategic customers.

For every business, we are aiming to be global Sharp Top, and we are implementing initiatives to strengthen their positions. Each category is steadily moving forward with a clear strategy. Please turn to Page 34. I will briefly explain the cosmetics business reform and growth strategy. In the Cosmetics business, we are aiming to build a self-sustaining cycle of capital acquisition and investment for sustained growth.

We are first working on the optimization of production systems and enhancement of operational efficiency. With cross-sectional use of our assets, we are aiming to create and develop strategic star products. This is to become more Sharp. While these two initiatives are strongly oriented toward improved soundness, the gains they generate allow us to invest in business expansion.

We are focusing on 6 focused brands as global growth drivers and working to establish their presence in each market. This cycle is now beginning to work effectively. Global expansion, the development of sharp uniquely focused brands and well-honed business streamlining to achieve global top.

These three are now starting to move in a cycle. This system is the very backbone of our global Sharp Top strategy for Cosmetics. Its positive effects have already begun to appear in 2025, and we expect the momentum to grow further toward 2027. Page 35. I will now explain the current progress of our portfolio management and our vision for K27.

Currently, we are managing our businesses categorized in 3 areas. In the stable earnings, performance is exceeding expectations. In the growth driver, we are applying lean start-up style tactics, which require time to generate results. In the business transformation, we are beginning to see positive outcomes from business reform in the Hair Care and Sanitary businesses. However, as we indicate with triangles in skin care, global expansion is taking time. Likewise, expansion of hair salon business in Europe is also requiring more time than expected. Nevertheless, we are committed to achieving global expansion through both the stable earnings and growth driver areas towards the K27. Page 36. Toward achieving the K27 target for overseas sales, we are aiming to grow by more than JPY 95 billion over 3 years with contributions coming equally from the three segments.

This approach includes Cosmetics, Health, Beauty Care and Chemical, Hygiene Living Care, each playing a role with the shares shown here. On the right, you will find a table listing the main initiatives and the regions to be strengthened. We have about 2 years and 5 months remaining. And at this stage, I believe we are progressing well.

Page 37. I'd like to speak about our target for operating income. We are now in a positive where we can discuss our outlook with some confidence. We are targeting over JPY 65 billion in operating income growth over 3 years with contributions from the 3 segments expected to be fairly evenly weighted. That said, the meaning behind the breakdown differs slightly from what I mentioned earlier about sales.

On the right side of the slide, you'll find a table of our main initiatives and regions to be strengthened. Please refer to them later. As mentioned earlier by Negoro, profit recovery in the cosmetics business is progressing very well. Cosmetics inherently have high gross margins, and this recovery is a strong source of encouragement for us.

Cosmetics and Health Beauty Care together account for about 60% of Beauty Care and the core part of these would always include not only Japan, but global growth as well. We believe this area will serve as a testing stone of our success. We encourage you to closely monitor our progress here as a benchmark.

Page 38. To summarize what I have shared so far, this is how we look at the profit structure. 2019 and 2024 are actual structure, and it shows how we envision in 2027. While we are aiming to achieve operating income in 2027 that exceeds that of 2019, the structure is entirely different. As I mentioned at the beginning, 2019 was our strongest year in terms of performance, but it was also marked by considerable uncertainty in social conditions.

In contrast, what we aim for in 2027 is a strong, stable foundation in the global market, business structure adaptable to changing social conditions and management system that promotes cutting-edge digital transformation. I believe that our advanced management system is now operating at a top-tier level within the industry.

If you look at this year's progress in cosmetics reform and business growth in skin care and hair care, I believe you will feel a strong sense of confidence in our ability to achieve the K27 targets. Page 39. This slide is one we share regularly, but I'd like to reemphasize the importance of the Global Sharp Top strategy.

We are strengthening our efforts in R&D, DX investment and the use of AI, and we are fully united as a company in our pursuit of the K27 goals. Each of the strategies listed here has been carefully selected as a direction we are confident will lead us to the successful achievement of K27.

Please turn to Page 40. This was explained earlier by Negoro. I will not repeat the same points. However, I'd like to reiterate that the core of the K27 strategy is transforming to build robust business through investment. This includes enhancing our exclusive uniqueness through R&D, making essential DX investment for global expansion and driving various business transformations using AI.

At present, many employees are working in a scrum, doing high-level work in a speedy manner. I am confident that we are regaining our earning power and shifting firmly toward growth potential. With about 2 years and 5 months remaining to achieve K27, I believe we are not only on track but progressing at an even faster pace.

Finally, please turn to the next page. Our cosmetics business is now gaining strong momentum. We plan to hold the cosmetics business strategy briefing on September 19. Our new leader, Executive Officer, Tomoko Uchiyama will be presenting at the event.

Today, I touched on cosmetics with just a single slide, but I believe she will be able to provide full insights into the areas you are most interested in. Please look forward to that briefing. Thank you very much for your attention.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]