Shiseido Co Ltd Ord

Thank you very much. So this is Fujiwara, the CEO and the president of the company. Now, first, let me introduce the key points of Q1 2026 financial results. Day three. In the first quarter, while challenges remain in terms of sales, profit growth exceeded expectations. Core operating profit was 13 billion yen, an increase of 4.8 billion yen year over year. We believe this is a result of the structural reforms implemented over the past few years, functioning effectively even during periods of declining revenue, improvements in fixed cost structure and discipline. The investment decisions have strengthened our so-called management strength or resilience to environmental changes. On the other hand, net sales were 232 billion yen, representing a real growth rate of minus 3%. This year's biggest theme is shifting to a new growth trajectory, and we take this figure very seriously. However, we have clearly identified that factors contributing to the declines in sales by brand and region, and we have already taken some actions, and I would like to cover that later. Previously, optimism about the sales growth and delays in responding to market changes sometimes led to the cost adjustment being delayed. Currently, we are shifting to a system that allows us to grasp the business situation in a timely manner and control it effectively based on priorities. This profit increase is not the result of a short-term reduction in marketing. We believe the essence of this increase lies in our organizational ability to distinguish between necessary investment and costs to be curbed while maintaining investment in marketing and R&D as our focus area. The business environment remains fluid and geopolitical risks are rising. Still, the overall impact of Japan-China tensions is manageable. We anticipate a prolonged slump in inbound demand in Japan, but we plan to compensate for this with accelerated growth in China and travel retail. We have already seen an improvement in momentum, particularly in Hainan Island in Q1, and we will maximize this opportunity. On the other hand, the business risk due to heightened tensions in the Middle East have increased significantly, and we recognize that this is where our fundamental management capabilities will be tested. The key is how we can accelerate our transformation action in response to this uncertainty as we implement the three points of the cost-efficiency measures outlined in our midterm plan as early as possible. Our earnings focus remains unchanged at this point. Among the Middle East impacts, the company can absorb the increased cost for raw materials and logistics. However, if the current situation prolongs and supply constraints, production costs, and stockout risk materializes, we will assess the situation from Q2 onwards and update our earnings forecast as necessary. This is CFO Hiro Fuji. Please see page 4, an overview of Q1. So the details for the Q1 result and the situation of each region. Well, reported net sales increased by 3.7 billion yen. In reality, sales decreased by 3% after excluding FX Impact and others. On the other hand, cooperating profits increased by 4.8 billion yen year over year to 13 billion yen, clearly demonstrating the results of structural reforms and financial discipline. We have achieved increased profits in all categories, operating, pre-tax, and quality profits. Next on page 5, details of co-operating profits. COGS has improved due to improvements in the brand and product mix and a decrease in allocation of excess inventory write-offs. SG&A appears to have increased due to the weak yen, but in reality, the amount has decreased, and the ratio to sales has also declined. The marketing investment ratio has increased due to the strengthening of the brand's value of focus area and upfront investment for new products. Meanwhile, both personnel and other expenses have decreased as a ratio to sales. Despite increased costs due to salary increase, personnel costs have decreased thanks to the effects of structural reforms in America and the optimization of necessary human resources resulting from overall productivity improvements. Other expenses have also decreased because of structural reforms and cost management. Next page 6. Next sales by region. Although the impact of Japan-China tensions remained within expectations, inventory adjustments and others affected, ending up with a lower than expected global figures. While the Americas saw a 5% increase in sales, the impact of Japan-China tensions affected negatively on inbound business in Japan, as well as China and travel retail, and sales in EMEA decreased due to the impact of initial shipments of new products in the previous year. Now, details of each region. First, page 7, Japan business. Due to the slowdown of inbound caused by the sharp decline in Chinese tourists and the impact of shipment restrictions during the transition from old to new products, and that sale started with the 4% decrease, but local business continues to maintain its strength. Local customer purchases of Cifedo, Elixir, and Anessa grew by double digits. Elixir, in particular, is performing exceptionally well with the new brightening lotion and emulsion exceeding 3 million units shipped in just two months since the launch. Cuero Povote is down due to the backlash from the rush before the price increase last year. However, since late April, when the effects of the backlash have subsided, we have seen a partial recovery in momentum, and we would work towards recovery from Q2 onwards. Core OPM is approximately 15%, maintaining profitability even amidst a significant decline in inventory. Productivity improvement through operational efficiency and personal optimization contributes to this. Excluding temporary factors that are focused, brands' performance in Japan is generally strong, and we have secured stable profitability even amid headwinds. We will continue to maintain a strategic direction.

Next, please turn to page 8, covering China and travel retail. Net sales declined 1% on a like-for-like basis but exceeded our plan, reflecting strong growth in Hainan and the fact that the impact from Japan-China relations has remained smaller than expected, we have revised our full-year outlook upward and now aim to achieve growth for the full year. In China, we successfully maximized opportunities from key promotions such as International Women's Day and strategically focused on high-functionality and high-value-added products. As a result, mainland China achieved positive growth this quarter. Consumer purchases remain strong for Cuero Pobote and NARS, while Shiseido also continues to grow. In travel retail, although sales declined due to retailer changes in mainland China, Hainan and Hong Kong remain solid. We are successfully capturing demand through marketing activities aligned with shifts in travel destinations. For Anissa, we are currently in an adjustment phase aimed at inventory optimization and market normalization, resulting in a significant sales decline. Increased inflows from unauthorized channels have created price distortions. which we believe will require time and a gradual approach to correct. Rather than prioritizing short-term sales, we are prioritizing the restoration of pricing discipline and the protection of medium- to long-term brand value. At the same time, we will steadily grow our other brands to secure overall business sales. Core operating profit increased despite lower sales, supported by cost management initiatives and other measures. Market conditions are also becoming increasingly complex. While mainland China continues to maintain moderate growth, Hong Kong remains structurally weak. In travel retail as well, momentum differences across regions have become increasingly pronounced. Hainan and Hong Kong have returned to strong growth, while mainland China recorded a big decline due to the temporary impact of retailer changes. Going forward, we will continue to identify growth areas and flexibly allocate resources accordingly. Next, please take a look at Case 9 covering the Americas region. Net sales increased 5%, marking a return to growth after a prolonged period of decline in representing a steady first step toward achieving four-year profitability. NARS and Shiseido were the key drivers of this growth. On the other hand, consumer purchases remained down in the low single digits. However, the pace of decline has narrowed compared with last year, showing signs of improvement. For Drunk Elephant, shipments returned to growth, while consumer purchases continue to decline. That said, the rate of decline has moderated, and branding campaigns are beginning to show encouraging signs. Regarding core operating profit, the structural reforms completed last year are clearly contributing to improved profitability. While sales stabilization remains a work in progress, clear signs of improvement emerged in Q1, and profitability also returned to positive territory. Fujiwara-san will later provide further details regarding our upcoming initiatives. Next, please turn to page 10. In Asia-Pacific, Taiwan, where market contraction had continued, returned to positive growth, and all countries and regions achieved positive growth. Against this backdrop, our consumer purchases grew in the high single digits, and we continue to expand market share. Vibram, Elixir, and NARS, which continue to expand through new store openings, perform strongly. By channel, e-commerce also delivered robust growth, cooperating profit increased by 600 million yen through disciplined cost management. EMEA recorded declines in both sales and profit. In particular, fragrance saw a notable decline in shipments. This was mainly due to a strong initial shipment of major new products in the previous year, as well as reduced shipments to certain Middle Eastern markets. However, consumer purchases continued to maintain strong growth, led by Zadig and Voltaire and Narciso Rodriguez. On the profit, first quarter profit declined due to planned upfront marketing investments aimed at future growth, as well as a slower-than-expected launch of certain new products. We intend to steadily realize the returns from these investments, mainly in the second half, and aim to achieve full-year profit growth. Next, please have a look at page 11 for an update on the progress over global cost reduction and structural reform initiatives. Following the completion of the major actions implemented last year, benefit have already begun to materialize, with 7.5 billion yen in benefit for Q1. While the business environment continues to become increasingly uncertain, we view this as an opportunity to build a stronger management foundation. By focusing on controllable areas that are less affected by external factors, and by thoroughly enforcing cost discipline and advancing structural reforms, we will steadily strengthen our earning power toward achieving the goals of our medium-to-medium management plan. And this will conclude my part. From here, I will review the key initiatives undertaken in the first quarter. Please turn to page 13. This slide breaks down the factors behind the recent sales decline by brand into one-time factors and structural challenges, clearly outlining our countermeasures for each item. We have broadly organized this into three areas. First is the area that is delivering strong results like Elixir. We will concentrate investments in these areas and further accelerate growth. Second is the area affected by temporary factors such as timing difference and rebound from previous year's performance. We will steadily recover this area from Q2 and onwards. Third is the area with structural challenges driven from pricing and distribution such as Anissa. We will prioritize to rectify the structure rather than focusing on short-term sales. In an environment where market changes have become the norm, rather than treating all issues uniformly, we will clearly differentiate priorities between investment and corrective actions according to the nature of each challenge. By concentrating resources on the area where we are succeeding and taking agile action in areas facing challenges, we will increase the overall certainty of growth. Through this approach, we will advance both recovery and structural reform simultaneously, enhancing both solid growth and capital efficiency, from the second quarter onward. Next, America's operations.

This Q1 marked a planned start towards a goal of achieving the four-year profitability. The left shows a summary of the structural reforms implemented in July of last year. As a result of the comprehensive review of the organization, costs, and procurement, we achieved an annualized cost reduction of 15 billion yen, significantly improving the profit and loss structure of America's operations. Given that basis, we are transitioning to a phase of balancing growth and profitability, focusing on selective investment in key areas and maximizing results. Specifically, looking at combinations of brands and channels, Only a few combinations generate the most of the sales and profits, hence we focus on them. As part of our channel structural transformation, we are accelerating our shift towards e-commerce, primarily through the high-growth Amazon. Going forward, we will concentrate resources on these winning areas to improve the precision and the speed of execution. we will extend our focus on winning area strategy, which demonstrated a successful turnaround from a loss-making structure in EMEA to the Americas. And while promoting cost synergies across EMEA and the Americas, we will ensure full-year profitability. In addition, we are working to improve organizational strength centered on the structure of strengthening sales capabilities. With fixed costs, Now under control, sales expansion directly translates to improved profitability, making the strengthening of sales capabilities the most important driver. Therefore, we intend to secure and securely capture the growth by enhancing the organizational execution capabilities while simultaneously achieving continuous profit improvement. The two brands, NARS and GSAIDO, which accounts for approximately 60% of America's sales, performed well in shipments during Q1, driving growth across the Americas. NARS achieved growth in the high teens. In addition to the strong performance of OTA, Natural Matte Longwear Foundation, the major new product, also contributed to improved sell-out. Shiseido grew across all product lines, achieving high single-digit revenue growth. The expansion of vital perfection at OTA and new products in beneficence contributed to this growth, and the sun care segment, which showed weak momentum last year, has regained its strength. We will continue to use these two brands as pillars of growth, achieving both high-quality growth and improved profitability. Regarding Drunk Elephant, we witnessed certain achievements through our Q1, while also clarified the remaining challenges for renewed growth. Sales have turned positive on shipment basis, and leading indicators such as awareness and engagement of new communications are improving across the brands as a whole. However, customer purchases remain negative, and the performance gap by channel became evident. Specifically, growth in accelerating on Amazon at Ultra, and strong responses are being seen during promotion campaign, while some retailers are facing with the weak conversion rates. Based on our analysis on what works and what doesn't, we are narrowing down the activities we will focus on from the second quarter onwards. First, in channels that are performing well, we will aim to maximize sales by combining key annual promotions with product relaunches. We also plan to enhance buzz with the new product in Q2. For retailers, where challenges remain, we will strengthen measures that directly lead to from the awareness to purchase, such as improving the way products are displayed in stores and online, expanding word-of-mouth marketing, and making product description clearer and simpler in order to improve conversion rates. Going forward, by increasing the precision and speed of execution, we will reliably restore customer purchases and return to a growth trajectory. Next on page 17. As part of optimizing our global production structure, we have decided to close our Hsinchu factory in Taiwan. Production will end in Q1 of 2027, and the factory is scheduled to close in second half of 2027. In terms of financial impact, structural reform costs will amount to approximately 3.5 billion yen for 2026 and 2027 combined, of which approximately 2 billion yen will be recorded in 2026. By the majority of this will be non-cash. Furthermore, we expect an annual reduction in fixed costs of about 1 billion yen after the closure. This decision aims to optimize our global production system in light of demand fluctuations and maximize capital efficiency. By consolidating production at domestic factories, we will strongly promote improvements of utilization rates and investment efficiency. We will pursue company-wide optimization while ensuring our ability to respond to demand fluctuations arising from market changes.

Lastly, I would like to explain the impact of geopolitical risks on our business performance as well as our full-year outlook. Regarding the prolonged tensions in Japan-China relations, we believe the impact on our business remains within a controllable range at this point. In the first quarter, we saw a clear impact on Japan inbound demand and travel retail Japan. However, overall performance remained within our expected range. what is important is that our business structure has evolved to become more resilient to changes in the external environment. Through growth in China and travel retail, as well as diversification of our business portfolio across regions, we have reduced our dependence on profits from any single market and are able to respond flexibly to shifts in demand. In addition, within our Japan businesses, Structural reforms have lowered the break-even point, enabling us to secure stable profitability without relying heavily on inbound demand. As for our full-year outlook, we have revised downward our assumptions for growth in Japan inbound demand. At the same time, we intend to secure overall growth and profitability by steadily capturing growth opportunities in China, travel retail, and other regions. Lastly, I would like to explain our thinking regarding the four-year targets in light of the current business environment. First, we expect the decline in Japan in month sales to be offset by accelerated growth in businesses such as China and travel retail. In addition, with regards to rising costs such as higher raw material and logistics expenses associated with heightened tensions in the Middle East, these factors have already been incorporated into our earnings forecast. and we intend to absorb them through disciplined cost management. Accordingly, we are maintaining our current four-year outlook at this time. On the other hand, if tensions in the Middle East become further prolonged, there is a possibility that shortages in raw material procurement could lead to reduced production and lower sales. We will continue to closely monitor the situation and provide updates from the second quarter onward as necessary. While these additional risks are not currently reflected in our earnings forecast, We are already preparing for worst-case scenarios and are advancing operational optimizations across production, procurement, and sales. At the same time, we are advancing pricing initiatives and company-wide cost management efforts and will make every effort to recover profitability toward achieving our full-year co-operating profit margin target of 7%. What is important here is that we do not view the current changes in the business environment merely as risks, but rather as an opportunity to transform into a stronger and more efficient business structure. Taking this opportunity, we will further accelerate optimization of our supply structure, portfolio, and investment allocation, ultimately evolving into a business with a stronger profitable structure. While uncertainty in the market environment remains extremely high, The management reforms we have advanced over the past several years have steadily strengthened our resilience. The fact that we were able to respond swiftly and secure profits even amid sales decline in the first quarter is clear evidence of this progress. We view this uncertainty as an opportunity to accelerate transformation and further enhance our competitiveness. As for our remaining key challenges of power to growth, our management is firmly committed to realizing both optimal resource allocation and accelerated growth. Built on the foundation of profitability and discipline, we are determined to complete the transition back to a sustainable growth trajectory. That concludes my presentation.

Thank you very much. Now I'll move on to Q&A. Now, the floor is yours. Now I would like to start asking the Kuwahara song of J.P. Morgan to raise questions.

J.P.

Morgan, Kuwahara speaking. Can you hear me? Yes, I can hear you. Thank you for taking my question. So you talked about the geopolitical risks and so forth. It was very clear. Based on that, In terms of the geopolitical risks, I would like to deep dive on that. So in the short term, Japan-China relations, that was within your expectation. So within numbers, impact, you know, 10 billion impact for the whole year, and then the 3 billion yen or co-operating profit impact. So... I believe that was an impact on the first quarter, right? But I believe that the first quarter you did not reach that level of the negative impact, so you were expecting some further growth. So normally the inbound is the marginal profit ratio in the China travel retail is quite high, so that is kind of offsetting the negative impact of the tension. So can you clarify that? And then the 5 billion yen impact was covered in the media, but is it true? And for the regional impact, so can you please explain which region you're looking at? So first of all, thank you for the question in terms of Japan-China impact. As was explained in the last earnings report, we talked about the first quarter impact was already embedded, like the 10 billion for the revenue in the first quarter, and then the first quarter result was within this range. So that's the answer. In Japan, inbound, sluggish inbound business was at originally 30% impact, but as you can see on the slide, 20%, or the high 20%. impact only. And then the travel retail impact also recognized in Japan business, but we tried to capture the other regional inbound customers sales. And Hainan and other region, some changes in the travelers, and there were some positive impact on the travel retail from other regions. So for the impact to the China region, Japan technicians it was within our expectations and so going forward at least for the short period time we are not able to see a big recovery from the Chinese no travelers but on the other hand in China mainland as well as the highland regions we may be able to be compensated in terms of the self as well as the profits and given that background Overall, sales outlook remains the same, unchanged. However, Japan sales goes down, the low single-digit growth, and then China travel retail originally anticipated negative growth, but now improved to a low single-digit percentage growth, not negative. Now impact on the Middle East, some coverage by media. I would like to clarify that at the end of our slide, there are a few topics and on the left you can see the middle business affected by the Middle East impact. And then there are some raw material impact as well as the net sales reduction of the Middle East. And so overall, We will manage for that. And, of course, the FX impact has to be taken care. And then we believe that the 7% is unchanged. Well, thank you for that. So the number one and number two is that the reduction in the declining sales in ME, but the 5 billion, is that in your region? Or are there any impact in other regions as well? So number three and four, that risks are not reflected in four-year forecast, number three and number four. So what is the level of the probability that the risks will be materialized? So I just want to understand your assessment. So your first question, so the net sales reduction in the Middle East region is limited to the Middle East, not, of course, centered around the India region overall, However, in terms of the overall amount affecting that in yourself, it's minimal. So this 5 billion impact, we said, was coming from number two, which is rising raw material costs. And so number three, that is not reflected in our four-year forecast. which is a self-loss from the production cuts in the factories due to material shortage, this is uncertain. So it is rather difficult for us to assess the impact at the moment. That is the reason why we are not incorporating these risks in our four-year guidance. But, of course, it is too late if that risks are materialized and to embed in our focus. Therefore, whenever we see some impact is more imminent, then we will take care and also reflect into our focus going forward. Understood. Thank you very much.

Thank you very much. Now, next. Oliver, I'm from CLSA. Oliver from CLSA.

Thank you, and congratulations. It's a very strong quarter. I had a high expectation, but you exceeded them, so well done. Could you tell us a little bit more about the potential bottlenecks of Middle East impact? Which are the areas which you are most concerned about? Thank you.

I think, thank you, Oliver. As shown in the last slide, the currently identifiable impact from the Middle East situation mainly relates to higher raw material costs and increased logistics expenses, which we have highlighted and quantified as 5 billion yen at this stage. We estimate this impact to be absorbed, company-wide cost management, as you highlighted, I think we are more confident with our capability as a company to manage your bottom line and selective price increases in the future and agile resource allocations. So we are not lowering our full-year guidance at this point as a result, as mentioned in our earlier Q&A. However, it is clear that there are some increased cost pressures, which we intend to be, with agility, properly managing. And we remain committed to our future forecast.

So just maybe my question was more like how much visibility do you have? Like can you see out like three months or six months in terms of that final risk? You talked about if you were unable to produce products, then you couldn't sell them, right? So for that risk, what kind of timeline visibility do you have?

To be honest, I think it is extremely, at this point, uncertain at this stage with regards to the number three and number four risks that we have highlighted in this stage. Therefore, we will continue to monitor the developments carefully. We have, of course, provided internally some approximations and actions that we can do to mitigate those But at this stage, it is fluctuating quite significantly, quite drastically, and very frequently. And hence, you know, I think it is important that we monitor the developments carefully and take the necessary actions accordingly, as listed in this last slide on the right-hand side in the top area. So, these actions is something that, you know, we need to be taking in advance to well manage our bottom line profitability toward the end. I hope this answers your questions.

Okay. Thank you very much.

Thank you. Miyazaki-san from Goldman Sachs, please. Thank you for taking my question. Miyazaki speaking from the Goldman Sachs. So I want to talk about the China and travel retail business. So actual, the sales increase rate was minus 1.4%. So on the other hand, but the profits was up. Some effects impact, of course, but merging. itself was growing. In other words, the actual amount of profit was increasing, in my understanding. But still, the sales momentum is still weak. But what caused the profitability improvement? So that is my question for China, mainland China, online or offline business or travel retail. Can you answer to the question? Thank you. First of all, profitability improvement by 2.2 points. That was some rebound from the allowance, temporarily allowance. And so it's not 100% coming from the positive. But still, there are some brands, some growing, and some still challenging brands. There are some mixed results. And, for example, NARS went well dramatically. So that, you know, source of profit coming from NARS type of brands are very much contributing to the overall profits of the China business. And overall, agility was very much focused by the China regional management. And so that also yielded in the results, especially for Chaba Retail. Let me add a few things. So that's what I will tell. The shallow negative impact was narrowing down. So the fourth quarter was 40% or so negative, but in the first quarter, this time, in the mid-teens, it was improved. So negative impact was mid-teens, so quite a big improvement. And that's what I will tell. not just the travel retail, but the China mainland was still negative, quite large, but the Hainan Island was very positive, so it turned to positive. So that is another feature in non-traveler, and we are making the intentional control, and the travel retail overall, China travel retail region, overall demand from the individual customers are growing. Well, thank you. In that case, travel hotel Hainan went well, but the hypothesis is that the non-traveler is excluded. So you focus on the travelers, and then the actual performance in Hainan worked well. If that understanding is correct, the Q2 onwards continue to see the quite high profitability compared to the previous year. So can we expect the Q2 onwards Well, we now shift our business focusing on the travelers. So in terms of our initiatives, yes, your understanding is correct. So overall, our business is now becoming more healthy, but the regional profitability still not yet alleviated. So that profitability itself is not translating into the future profits as it is. However, We are trying to secure the profits and try to make sure that we manage all the profits every quarter. Thank you. Thank you.

Next, Morgan Stanley Miyake-san from Morgan Stanley, please. Please wait. Thank you. Thank you. This is Miyake from Morgan Stanley. I want to ask about Drunk Elephant. I want to hear and elaborate on Drunk Elephant. You mentioned about the structural item there. Depending on the distribution channels, some is going well, some have challenges. So distribution channel like Amazon, that's going well. So when you do a promotion, you said the sales does boost up. But looking at, for example, I'm a bit worried that would it turn into a situation like China in the past. So the reaction to promotion is, it could be, yes, it could be, do you mean, I wanted to check that, does that mean that Drunk Elephant is more attractive or is it promotion-led boost? Because then it would be promotion first. So I wanted to think about what you think about this fund. And you mentioned about the winning distribution route. the distribution channel, how do you see this? And then within this brand, what is the distribution channel split within this brand, if you can share with me? For Drunk Elephant, first of all, as for brand campaigns, we have a new campaign to express the value of the brand so that we can heighten the awareness of the brand and to elevate the engagement of the consumers. And that, at the timing of promotion, the conversion rate goes up. So for the promotion itself, of course, there will be higher traffic due to the promotion. So in that sense, those are the new consumers or consumers that we do want to capture. But to know that there are consumers coming into it through these promotions, it means that we have a good relationship with the retailer as well. So it is a positive note. But at the same time, to your point, is it promotion-driven and are we going to resolve everything? That would not be the case. We will need to continue to elevate the brand value of Drunk Elephant and continue to the communication. In the second half of the year, it's not written here, but it's maybe right here, we have renewed the online page, the website page, or we want to enhance on the buzz around new products so that we can strengthen the brand equity going forward. And where the distribution channel that is not working well, then as for the sales distribution or allocation of the channel, we do not disclose the detail of the numbers, but it is not small. So in other retailers, this conversion rate is good, but why in this retailer is the conversion rate not so high? Just like it says on the second point, enhance visual merchandising and also optimize assortment by channel. Maybe we need some kind of, for example, optimizing exclusive products or product lineup. And these are things that we need to enhance so that we can contribute it to the growth of the brand. That would be it for myself. Thank you very much. So in Q1, the new promotion, the new communication, you've rolled out the new communication in Q1 and the sales in terms of the sellout momentum. You had... What you had assumed at the end of last year, are you achieving what you had assumed at the end of last year through this campaign in Q1? To be honest, it is not as high as what we had expected. And the reason why is because there is a distribution channel that is working really well and there is a distribution channel that is not going great. That's where we need to improve. But the positive note from this, is that we have been very thorough in detail about these initiatives and having to set a leading KPI that will lead to sales. We can clearly see what worked and what did not work. What works, we will enhance, and what does not work, we can improve. So we have a good PDCA cycle that is working, and we feel that it's a great fruit out of this campaign. Thank you very much for the clarity. Thanks.

Next, Bank of America. Ashley, the floor is yours.

This is Ashley Willis from Banks America. Thank you for taking my question. I just want to check that you can hear me because I had issues with my audio earlier. Yes, we can hear you. Okay, perfect. I was just hoping that you could please quantify the impact of the shipment timing and inventory adjustments on Q1 revenue and therefore help us understand what was underlying Q1 revenue growth excluding these impacts. And do you already expect Q2 like flags to turn positive?

Thank you, Ashley, for joining in. Q1, there are some one-time timing shifts and inventory adjustments. However, we are not providing clear sort of quantifications of how much that impact exactly is. There are some specific Q1 negativities. Specifically, China inventory adjustments in Japan, for example, last year we had some price increases and hence there are some rebound impacts here and some impacts and also even where some new launches we had specifically last year and this year the impact is smaller. These are all sort of one-time negative impact. And hence, that is the reason that we feel that from Q2 onwards, we should be able to turn positive. And excluding these one-time impacts, we are at a fairly steady sales momentum in Q1.

Okay, perfect. Thank you so much for the columns.

Thank you very much. From Daiwa Securities, Hirozumi-san. This is Hirozumi from Daiwa. Can you hear me? Yes, we can hear you. Similar to the previous question, sell-in and sell-out. I've been focusing on sell-in and sell-out, and so I want to ask about that. Q4, the consumer purchase, I think was positive here and there. I think America's was the minus, but everywhere else I felt like it was a positive for consumer sales. But in Q1, the consumer sales, it seems like it's dropping here and there. So why? I want to know why it is dropping. So, for example, looking at page 7, looking at Japan's consumer sales, it's a minus right now. But China is a double-digit growth. So some are growing, some are declining. And for America's, too, sell-in is really good. but the consumer sales is a minus. So this consumer purchase, the sellout, I really put a lot of focus on this. So when this sellout, the consumer purchase, goes to the negative, how do we interpret this? I think it might be better to speak by market. So for Japan, in the Japan consumer purchase, the biggest minus impact was the inbound, the negative from the inbound declines. And that has pushed down the overall decline for Japan. So that would be the biggest point to mention. On the other hand, for local, if you look at local, the local consumer purchase, it's actually a slight positive. Yes, he says here, she said, okay, understood. What about Americas? And you mentioned about shipments. So for example, for Drunk Elephant, as I have mentioned, the shipment is going up. There's a down shipment, so the consumer purchase is still a negative. But the range of the minus is narrowing by quarter. And as I have mentioned... There are areas that were winning and that were not doing well. Where it's winning, it's actually coming back to flat, and where it's not, the consumer purchase is not coming back. So that is the current situation. It's a mixed situation in the Americas. The impact of Drunk Elephant has, overall in the Americas, pushed down the consumer purchase to a low single-digit minus. But NARS and Branch Isedo, these two brands, are not negative. So here there is a difference by brand as well. This is my last question. Consolidated basis, the sales. Did you start a bit lower than expected? Would you say minus 3% was lower than expected start? Yes. And by region, what would be the biggest impact? Is it Japan that gave you the biggest impact? I would say there are two areas or two things to mention. Japan and EMEA were the two big areas that pushed down the top of the sales. For Japan, as I have mentioned, the inbound demand has gone down. And on top of that, Elixir, we had some return shrinkage initiatives that we did, and there's a time lag for that. And as Sudo Fujisawa has mentioned, the credit for both did last year. Last year, we had the rush to buy before the price increased for quite a pobote. So as a result, overall, it was a negative. For EMEA, this is just the timing gap of the shipment that's impacting or pushing down the numbers. So I mentioned this in the last slide, but the Japan inbound will probably be a longer impact going forward. So that's what we foresee. And so for that, we should be able to offset and cover in China. For EMEA, it's due to the timing lag, so we should be able to recover from Q2 onwards. That will be the overall kind of the story. So that's why, China, you have to change the number to upward revision. Understood. Thank you. Next, SMBC Nikko.

Yamanaka-san, the floor is yours. Hello, this is Yamanaka. So I would love to ask the non-recurring... items so there was a depreciation cost and for the factory all the factories and there will be some potential cash in for the addressing the old factories well known recurring items so Q1 result was the shown the multiple initiatives so our outlook was 10 billion yen for the non-recurring, and part of that is coming from the closure of the Hsinchu Taiwan factory closure, and that will be the accelerated depreciation will be reflected in the PL, so not just this year, but next year, we will recognize some relatively expensive majority will be the non-cash basis. The rest of the factory-related initiatives There is no further initiative taken for the factory or production facilities. Well, thank you. And in terms of the non-recurring, for the Americas, you know, impairment risks that I am a bit worried about. For in terms of impairment testing, so for the midterm growth opportunities and also the discount rates. And can you please... Explain whether the risks in Americas are increasing. Are there any possible impairment? Well, in terms of impairment in the Americas, there is nothing that we have in terms of the communication for the impairment of the Americas region. But as has been explained to you, there is no headroom in terms of the impairment test. So we need to make sure the monitoring is in place. And the Q1 result, the Americas was quite good. And there is a good sign of improvement in the profitability as well as earnings. But as was explained in the presentation, we need to monitor carefully about the sellout. And so this is the Q1 result. a profit improvement has to be realized throughout the year. So that means that we are not complacent, so we need to continue to manage well about America's business. So U.S. actual performance is still on track, but we need to uplift this result going forward and try to reduce the risks. Thank you. Thank you.

Next, Kono-san. Thank you very much for the presentation. This is Kono. In your presentation, profit, cash, ROIC, you've been steering to focus on those items and we're seeing the fruit of this. So I understood that well. And it's not just a cost reduction, but SKU and narrowing down the regions, I'm seeing the impact of these initiatives. So the brand operation... model itself I felt like it's really showing some detailed outcome and from the CFO Hirofuji-san has mentioned that you will be aiming even higher or Fujiwara-san the CEO has mentioned that we will elevate the brand value so from the management team further higher or further elevation what and where are you aiming for And the reason why I ask this is because you've had the structural reform, and you were able to bring down the profit. But as a brand company, how do you grow? I believe that bringing down profit is also a different challenge from bringing back the value of a brand company. And so for you, you're still considering the second half, or I feel like it's all a bit mixed up right now. So the phase that you have or you're going in parallel simultaneously, but from the external audience, how can we monitor that? And at the same time, you have advanced investment and some of the structural changes. How do you work on it and prioritize? So if there are any color that you can add to it, please elaborate. Thank you. Thank you for your question. For structural reform, The structural reform that I was aiming for was to continue to grow the brand. So we wanted to bring a company structure where we can continue to grow the brand. The P&L structure was what we really focused on, and that was most of the targets around the structural reform. And, of course, going forward, if the brand is strong, there is sustainable growth and sustainable cash will be generated, and that does not change. So aiming for 2030... as Hirohichi-san has mentioned, to a higher elevated place, is the cost structure. We will need to continue to improve, and we will keep on working on initiatives to improve. And so, therefore, for 2030, we will continue to secure the cost to grow the brand, but also, in other areas, we will be more efficient with the cost so that we can increase the profit. And that's what we will continue to aim for. And as we do this, What do we see, where should we lay the KPI for brands? Maybe that's part of what you mentioned. And one thing is on a monthly, on a quarterly basis, what we do is the P&L structure. First to the sales, if you look at it to the sales on a quarterly basis that we announced, I think that gives you kind of a metric of how we approach the brands. Have I answered your question? Thank you very much. The brand strategy. or what is a brand it kind of leads to this question it's it doesn't work so kind of sparkly shiny Shiseido image that we have from the past or is Shiseido kind of changing to something else because if you think about just a brand brand is something that even if it's expensive I want to buy or evolving ahead, because it's expensive, it's great quality, and it gives me joy. I think when we think about brands, there's different stages. And so it's a bit abstract story I am talking about right now, but to elevate the brand value, how do you prioritize or what do you look for? So for a shareholder, I do understand there's the cost cutting and there will be investments, but as you go into the next phase, What kind of money do you need, and what kind of investment will there be needed to bear the fruit? And if there's more details around that, that would be more appreciated. Thank you. As for brands, as for the brand, this is also my personal opinion or view, but a brand is something that is irreplaceable, and that's where we can heighten the brand. And I believe that that's the real core value of a brand. It cannot be replaced. So a brand, how unique does it look? Meaning that it does not have to be in the mass. It has its own original value and the consumers see it. And that's the real and true value of a brand is how I see it. And so we do not disclose the detailed numbers of the brands, etc. But brand... the number of loyal users for the brand increases and these loyal users continue to use the brand for a longer period of time and that's really the very important metric and core of a brand is how I see a brand thank you very much for that we have only one minute but we can take one last question Mizuho Securities Miyasako-san who is yours thank you can you hear me Miyasako speaking

Yes, I can hear you. So I'm worried about the Japan market, especially local business. You explained the Alex sale or the new product launch in the last minute, Clos de Poboté, you know, sales last year and rebound from that. The impact was quite large compared to our original expectation. And also the market is not growing these days. And there will be some... uncertainty in the Middle East tensions, and some non-core brands, you have to compete with the Korean brands as well, or new brands, so you are losing some of the shares. I believe that the local business, you are not changing your outlook this time, but can you give us the color on that? Well, local market, we do not anticipate or expect the high growth in the local markets. So, but a slight increase, slight increase, not the high increase. So, and of course, the impact from the Middle East tensions, it is not embedded in our expectation, but still there should be some modest local growth. And Japan has been making a lot of reforms And the strong brand grows every year as time goes by, especially Alex Seal. Because the brand value is fully communicated as time goes by, and then the Alex Seal business is growing accordingly. Another good news is that in the past two years, brand Cicedo has been recognizing double-digit growth in the past two years. So this is quite good news. In the past, Kuredo-Pobote led the local market a lot. However, now we see a lot of expectation from Elixir and Branchiseido, so Japan's local brands, also growing. So unlike other regions, Japan has various brands. So it depends on the market changes. We will change our portfolio and also the allocation of investment, and all the various brands are supporting our business. And the first quarter result may concern you for the local business, but excluding inbound, I'm not really worried about the local business. In other words, we have established a quite solid foundation to generate profit in the local market. Well, inbound on a full year, how much reduction have you implemented or expected? Inbound in the first quarter, reduction was around a high 20% reduction for the inbound. So this trend may continue in a full year basis or continues for some time. But we do not quantify such negative impacts by market. And overall, Japan overall growth rate is low several digits. That is the answer. Well, thank you.

Thank you very much. We would like to close the Q&A session. And with this, we will be closing the presentation for today. Thank you very much for your participation today.