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This is the consolidated financial results presentation for the 6 months ended June 30, 2018. I am Kenichi Yamauchi.
Please turn to Page 5. This slide shows the market status of consumer products in Japan. On the top left, the graph is the growth rate of household and personal care products market. SRI, represented in green line, is the POS data from retail outlets, which includes inbound sales. It was 101%. The other orange line is SCI, which is the purchasing data from consumer monitors. This data includes e-commerce, but does not include inbound sales. This was also 101%. Therefore, we can say that the market environment is fair.
The graph on the right is the growth rate of cosmetics market in Japan. SLI is the purchasing data of monitors. This is close to the cosmetics market of Japanese nationals. It was 100%, so unchanged. The green line is SRI. This is the data of retail outlets, so it includes inbound sales. This data shows growth for cosmetics at 102%, however, it doesn't include department store sales data, which could push the growth rate even more if taken into account.
The lower graph is the trend of consumer purchase price. It compares the current price levels vis-Ă -vis the index year of 2008 as 100%. Gradual increases have served from 100% to 103%, so price wise, the market environment is not so bad.
On Page 6, the highlights of consolidated financial results are shown. Starting from the top, net sales were JPY 729 billion, plus 1.6% year-on-year growth, including the effect of currency translation. Excluding the currency translation impact, the growth was plus 1.0%. Operating income was JPY 90.8 billion. It was up by JPY 3.4 billion year-on-year. Operating margin was 12.4%. It marked record high for the first 6-months results, both for net sales and operating income. Net income attributable to owners of the parent were JPY 62.8 billion, up by JPY 6.3 billion year-on-year. Dividends per share is JPY 60 as originally announced, which is a JPY 6 increase from the previous year.
Lower box shows our free cash flow at minus JPY 21.1 billion. This is after subtracting Oribe Hair Care, LLC's acquisition cost of JPY 44 billion to JPY 45 billion. Dividend payout was JPY 28 billion. We conducted JPY 50 billion worth of repurchase of treasury shares during the second quarter.
Page 7 is the sales breakdown by segment and by geographic area. The upper graph figures are the absolute sales value and the lower figures represent like-for-likes growth rate in percentages. Starting from the far left, Cosmetics, Japan, which is represented in pink, was JPY 99.7 billion, minus 1.7% year-on-year. Regrettably, the growth was negative. However, based on the new strategy put forward this May, we are making steady progress. Strong performing brands like SUQQU, Curél and RMK is marking positive growth. The mid-price range cosmetics is where selection in concentration is being pursued onto controlled costs.
Next bar is Asia, where the absolute value is smaller than Japan, but growth rate is quite high over the years and was plus 40% for the reporting period. Freeplus, Curél and Sofina were the brands that grew substantially mainly through the e-commerce channel.
In U.S. and European markets, Molton Brown is the main product. We're opening new stores and achieving moderate growth.
Next segment is our Skin Care & Hair Care business. In Skin Care products, Pyuora continues to grow steadily in Japan and Asia. However, Hair Care products growth is less notable. Our newly launched product, Rerise, is doing very well, but shampoo and conditioner product category is facing severe competition. With such background, the growth rate was plus 2.1% and plus 4.9% for Japan and Asia, respectively. Skin Care & Hair Care for U.S. marked plus 5% growth, but this includes the sales contribution from Oribe, which we acquired. Therefore, the growth was actually negative, excluding Oribe. Pyuora is the underperformer. Pyuora was very strong last year, but this year we are seeing fierce competition and its sales is down significantly from last year. In addition, our Hair Care brand, John Frieda, is not performing well. As for Europe, Hair Care is the main product category for the segment and here again, the performance of John Frieda remains to struggle.
Now moving on to Human Health Care segment. Japan was minus 3.6%. We have cut down on sales promotions in Japan so as to reduce the source for discount selling. This is restraining sales growth, but it is one way to counter reselling of Merries.
For Healthya, our functional drink, we are changing from mass-targeted advertising to e-commerce channel focus and sales is declining. Thus for Japan, net sales was down by 3.6%. For Asia, especially China, as I have mentioned during the first quarter results meeting, there is a rebound of about JPY 3 billion selling revenue recognizing the previous year. So if we exclude the cast off, Chinese growth is close to flat. We would have wanted to regain more growth, but inventory levels of parallel importers' caused price decline. And although Merries is not losing its market share, its performance may have somewhat being disturbed by such parallel importers' situations.
Laurier, our sanitary napkins brand, and other products are selling well in Japan as well as in Asia and their stronger performances is making up for that.
Next, Fabric & Home Care business. In the second quarter, we made some recovery, but still year-on-year basis 0.1% down. We still have some miles to go. But in July, business is going very well. Probably in the third quarter, we will make bigger recovery up until the second quarter being exposed to very severe competition from the peer. But going forward, we expect stronger recovery.
The next bar is Asia. In particular in Thailand in the first quarter, still we did not make such recovery, but now we are seeing a stronger recovery in Thailand. With the presence of P&G, our numbers went down temporarily, but we are looking at come back. But in Indonesia, our detergent business is not recovering yet.
The next part is detergent in Australia, small business, so I skip it. Next, move on to Chemical business, on the right-hand side. Demands are very firm and based on such firm demands, our selling prices are stable on a global basis.
On Page 8, we have consolidated results by segment. On the left-hand side, we have net sales by segment and on the right-hand side, operating income. As you can see, as to operating income, Cosmetics, is looking at improvement of JPY 7.5 billion, as shown at the bottom of the right, and upper slide is absolute amounts. In the second quarter last year, it was minus JPY 200 million, but this year we are looking at a significant improvement helped greatly by Cosmetics.
The next bar is Skin Care & Hair Care. In Japan, it is doing very well, but in the U.S., Bioré, and Hair Care in the Americas and Europe, those businesses are dragging the legs and so minus JPY 2.9 billion year-on-year.
Human Health Care, net sales were struggling, but Laurier and Healthya functional drinks, the operating income is improving in those brands compensating for the shortage, so we enjoyed slight uptick.
Fabric & Home Care, we are still exposed to some competition. And volume wise, it is yet to be increased. In addition, the works to dismantle the facilities is increasing, which includes non-IFRS extraordinary losses and increasing crude oil prices overriding decreasing natural fats and oil's price, which in turn impact bottling and package. And we could not recover the expenses, and the minus JPY 1.4 billion is the change year-on-year.
And as I mentioned earlier, the other chemicals, the demands are very strong and more and more our products are becoming value-added products, so we expect the Chemical business to continue to be very firm.
Moving on to Page 10, it shows analysis of change in consolidated operating income. Net sales are not increasing so well, so the contribution from the increase in sales volume to the increase in the consolidated operating income is limited to about JPY 1 billion, impact from change in raw material prices. Whereas in the case of Chemical business, there are some adjustments using selling prices and impact is limited to minus JPY 1 billion. So far back, the impact is not so great, but in the second half, the increasing oil price impact would be more evident. Total cost reduction, TCR, about JPY 3 billion and then SG&A expenses. Here we are talking mainly about the decrease in advertisement and promotional costs due to a shift to the digital media from TV commercials as well as marketing cost control based on the level of net sales. And so far, in the first half, net sales was not so good -- was not as good as focused. And in second half, we are in the phase of building up some energy. So in the second half, we are going to spend and increase net sales.
The freight/logistics expenses, as you know, it is on the increase, minus JPY 2 billion. And others include currency translation and the extraordinary losses, elimination and so on. And all in all, consolidated operating income increased by JPY 3.4 billion.
Moving on to Page 12. Major assumptions for fiscal year 2018 forecast, numbers remain unchanged. Net sales of JPY 1,540 billion is the target. In the second half, we will be more aggressive to increase net sales. Impact from change in raw material prices, net impact is expected to be minus JPY 5 billion, which we would like to cover with expense control. TCR, here it says JPY 6 billion, but we expect that the number will be better than this one. Other than that, numbers remain unchanged.
Next, Page 13. Consolidated operating results forecast for fiscal year 2018. Numbers remain unchanged. So just briefly, please look at ROE, which is currently better than the original forecast after share buyback. The ROE which used to be the order of 70% now stands at 18.5% if we can achieve near the profit forecast. Basic earnings per share is JPY 312.36. Cash dividends per share JPY 120.
Page 14. Sales forecast for fiscal year 2018. Cosmetics business and Chemical business are doing better than our original forecast. So we have revised upward slightly our sales forecast and revised downwards for Skin Care & Hair Care, Human Health Care and Fabric & Home Care. And we still target at JPY 1,540 billion as consolidated sales forecast.
I am Michitaka Sawada. On the outset, I like to offer my appreciation for your continued support to the Kao Group. Thank you for attending this meeting despite your busy schedule. Before I go into my presentation, I wish to offer my heartfelt condolences to the many victims of the recent torrential rain disaster that hit Western Japan. The damages and its aftermath is still ongoing. We, Kao Group, is offering support in various ways. We shall continue such endeavors so that we can contribute to restore peace of mind for the affected regions.
Now I'd like to start my presentation. The overall review was covered by Mr. Yamauchi in the previous presentation. So what I'd like to do is to offer a little more details on specifics and follow up on some topics to facilitate questions. And if anything is left uncovered, during the question-and-answer session, we have 3 members present to address your questions.
The reporting first 6 months of 2018 can be summarized as, despite the difficult environment, we were able to achieve results in line with projections. However, the level of progress differs by segments and geographical areas. Let me start by addressing that point. First, I want to review our initiatives for 2018. We are currently working based on these initiatives. Some are going well and others are not making good progress. I will come back to that point later.
The first initiative is to work as hard as possible as a group to enable solid growth despite difficult business environments. And we must achieve our announced forecast, so that we realize profit growth for 9 consecutive terms, renewing record high operating income for 6 consecutive terms and increase dividends for 29 consecutive terms.
Thirdly, in order to achieve the above, the stable growth of our growth businesses and the improvement of our businesses with outstanding issues must be pursued. For high profit margin businesses, ensure to maintain and increase market shares to solidify the foundation. So these are the 3 initiatives that we must address.
The growth businesses are baby diapers and skin care businesses. Businesses with outstanding issues are Cosmetics, Hair Care and although, smaller in size, Food and Beverages such as our functional drink, Healthya. High-margin businesses are Fabric & Home Care and Personal Health Care. These are businesses with margins of over 20%. We should diligently pursue such businesses.
In terms of geographical areas, growth in Asia, mainly speaking China and Indonesia, is to be accelerated. This is one of our objectives for 2018. As mentioned in the previous presentation, the European Home Care business is facing difficulties, but we intend to layout preparatory works so as to turn this business around next year.
The fifth point is innovation-based offerings and maximizing the impact. This year, we launched an innovative gray hair care product, Rerise. We also launched foaming toothpaste. We want to continue making such innovation-based offerings towards 2019 and 2020 and maximize their impacts, that's number five.
Number six is to undertake ESG activities, which are nonfinancial oriented in full scale and promote strategic introductions of advanced technologies utilizing AI, IoT, Internet of Things, and robots. We will pursue these efforts by establishing new business organizations.
We started the year along the directions of these initiatives and 6 months has passed. Following is the brief summary of our progress so far. On the first point of not to fail to achieve the forecast, after the first 6 months, net sales grew plus 1.6% with real growth of plus 1.0%. Operating income growth was plus 3.9%, whereas the growth for the second quarter was 11.2%. Despite the difficult business environment, after the first 6 months, both our sales and profit marked record high, which I think is a good thing. However, the full year net sales growth forecast is plus 3.4%, plus 3.2% excluding currency translation impact. Operating income at 14% projected operating margin needs to achieve a plus 5% growth.
It is often the case that our business tends to show stronger performance in the second half, but even so, growth of net sales for the first 6 months was weaker than what we had projected. On the other hand, profit was slightly above projection, thus the overall result ended in line with the projection.
For the second half, we need to increase sales so that revenue increase will generate profit. That is the main direction we'd like to aim towards. During the first half, including campaign products, we refrained from futile competition in order to determine the future direction in various businesses. We also shifted some marketing resources to digital platform from TV commercials to measure its effectiveness. Some businesses performed well in accordance to our strategy, but there were other businesses that the strategy didn't work. So based on the results of the past 6 months, we are expeditiously formulating and implementing different aggressive measures now that we're already in the month of July as we speak.
For the month of July, although we have yet to close the month, I feel that performance of businesses is rapidly aligning toward the direction that we had envisioned. Of course, it is partially owing to the weather, but I think this direction is what we can follow through. As Mr. Yamauchi mentioned in his presentation, we want to grow sales and profit even with some cost spent so that the growth can be more to offset such costs incurred. When we look at what is ahead of us, we are expecting the consumption tax hike in about a year from now. We must secure a certain level of market share in order to counter the impact, so our move can be regarded as a part of preparation for the upcoming event.
The weaker sales growth of the first half is mainly due to the performances of mass categories such as Fabric and Hair Care. We tried various new approaches from different angles during the first half for these large volume businesses, but many did not fit well, especially in terms of pushing up sales. So we are already starting to take measures to gain market share even if we have to increase our spendings. Especially for Fabric Care business, we had difficult times in terms of shares during the first half, but our market share is recovering nicely in June and July, so I hope to see these businesses make more contribution in market share growth. That is the overall situation.
Now I'd like to comment on each of the growth businesses, businesses with outstanding issues and high profit margin businesses. Starting from growth businesses. First, Skin Care. Bioré and Jergens are performing very solid and in some categories are quite strong. Bioré in Japan is growing at about plus 8%. July growth is even higher than that. Because of the hot weather, sheet-type products are very strong. We're working hard to maintain sufficient production. Bioré is growing in Asia as well, especially in the greater China area, so it is making a very good progress. However, in the Americas, where Bioré was very strong last year and was successful, is facing and withstanding competition during the first half of this year. The performance is down from last year. Market share of Bioré continues to rise and last year was exceptional. Even if that were to be the case for the second half, we will not stand quietly. We will implement various measures for recovery. Steps are already taken, so how effective should they materialize is to be observed going forward.
The other business is baby diapers. As briefly explained from Mr. Yamaguchi, partially due to the impact of last year's initial shipment in China, regrettably, net sales was not able to mark significant growth on year-on-year basis. It showed lackluster growth for the first half. Also, the issue of parallel importers at times selling at deep discounts remains. We had been advocating for establishing direct trading to maintain premium status to pursue our baby diapers business. This is not only applicable for Kao's products, but all premium diapers should maintain the premium status and let the consumers understand its quality and become users. You have to sell it that way, not all is cheaper the better. Of course, as the overall size of the pie becomes larger, general price level declines naturally accordingly. But we want to establish, not only for Kao's but for all of the premium brands, positioning. In order to achieve that, we sell through direct trades at appropriate price. We have been calling for and standing firmly to this conviction over the last 2 years, but not all businesses work in the direction that we wanted to work and that is why we'd gone through ups and downs and we are at where we are.
In any case going forward towards the second half of the year, we want to implement various measures for further direct trading. If you have questions regarding this matter of sales initiatives, Mr. Takeuchi will answer to such questions later. The sell out figures of Merries is firmly holding onto its #1 position. We're making continuous improvement to maintain its appeal. We made good products even better and persist on it as a premium status. That is what we'd like to continue in the future. In China, the percentage of pants-type diapers is increasing at a faster pace than we'd expected. Production wise, we need to steadily install equipments to meet the increasing demand of pants-type diapers. Capital expenditures are being approved at our management level to cope with that. But such production capacity does not come overnight. Even if the line is installed for high-quality manufacturing, you need to train certain level of workers. We're currently working hard to be ready for the expected increasing demand for pants-type diapers going forward. We hope to increase capacity in the near future, but I sense that the ongoing shift to pants-type is happening at a higher pace than our capacity plan. Also the percentage share of Chinese local manufacturers from high-end to volume-zone brands is around 43%, and it is still gradually increasing. This is another area that we have to consider how to address. The made-in-China Merries, that is manufactured in our Hefei plant, is performing strongly, but the number of lines in operation is still limited. And especially for Chinese market, we much pay attention to the overall baby diaper market and be step ahead in implementing our measures. I believe that will lead to stable growth. In the due course, there could be some ups and downs, but we're currently working hard to achieve stable growth.
Now, I would like to touch upon businesses with outstanding issues. Starting with Cosmetics business. Compared to last year, the profit has improved significantly with the operating margin of 5.7%. Last year, most of the profit was booked in the fourth quarter. And Mr. Murakami, who is now in charge of the Cosmetics business is aware of the importance of more balanced distribution of profits through the year, because that is going to make very stable business, and we have been making efforts for that, fortunately, with the presence of Curél, of course, that helps. From the first quarter, we enjoyed turnaround in the second quarter 5.7% margin. And this year, we are targeting at more than 6%, and probably, we are going to make it happen. In any case in 2020, we are targeting at net sales of JPY 300 billion with operating margin of 10%, Mr. Murakami explained to that effect and he has commitment for that. By the way, last year, the operating income of the Cosmetics business was JPY 5.1 billion. Now we are talking about 10% of margin of JPY 300 billion, that is JPY 30 billion. So for the years of 2018, '19 and '20, we are going to produce JPY 25 billion. This year, we already booked JPY 7.5 billion and still JPY 17.5 billion to go. And we are going to make those numbers in line with our strategies, focusing on G11 brands and R8 brands to make investments, so that we are going to establish the brands so that the 2020 onwards our Cosmetics business will continue to grow.
We have successfully made our expense structure more efficient one. That helped, but only about 10% or so contribution to the improvement of the profit. The big contribution came from the Cosmetics from Asia, SUQQU, RMK, e'quipe-related business and derma care Curél business, the big growth there helped more significantly. And we are going to improve the other mid-price range products in Japan producing financial resources and growing the highly profitable businesses. And ultimately, we need to establish high-value-added cosmetics brands not only in Japan but also outside Japan as well. Especially, we need to do work on G11 brands, in particular, on the high-end products. And I would say that we have made success there to some extent. So another JPY 7.5 billion in the second half, well, please do not ask that question because last year in the fourth quarter, Cosmetic business did very well. And this year toward the end of the fiscal year, the uptick will not be that big, but Mr. Murakami says that he's going to make utmost effort to better profit level. And if you have questions to him, he will be certainly available for you later on.
Moving on to Hair Care business. Mass Hair Care market is shrinking. In particular, that trend is obvious in shampoo and conditioner market, not only in Japan but outside Japan as well. And because of that, the Hair Care business in Japan, in Europe and Americas is struggling. In the second half, our core brand, Essential, is going to be significantly upgraded and [indiscernible] for the small mass market will be reinforced and plant-based Hair Care, Guhl Libatory from Guhl, has been launched in Japan with which we would like to create upswing momentum. The Hair Care business, not just only about shampoo and conditioner, for example, Rerise, the innovative gray hair care product, is selling significantly. And this is actually not categorized as hair coloring product. It has a potential to transform the hair coloring product market, and we're going to accelerate our R&D activities. Currently, the color is for black, but for female consumers, probably, we would like to add new color, say, brown, to change the society to cause innovation in the society. I cannot talk about specific timing, but we would let you know once we see clearly our direction of R&D.
Healthya, functional drinks, being designated as food for specified health users, we have narrowed down the list of sales channels to promote more efficient longer-term usage of the product, which pushed down net sales but profit improved greatly. And we'd like to promote marketing so that consumers will feel the effects and benefits of the product. And ultimately, we would like to lead this effort to the revival of food business.
Now I would like to touch upon the high profit margin businesses. Starting with Fabric and Home Care business, which includes laundry detergents, softeners and bleaches. As you know, in Japan, uphill battle continues in this area. In the first quarter, we struggled a little bit, but as I mentioned earlier, from around June we recovered some share and now we are beginning to take back some shares. In July, we believe that we can increase our share more in the second half, we will continue to make efforts to maintain or improve share. In Asia, we are looking at good recovery business in Thailand. As to Home Care business, it is moving on very firmly.
Another profitable business, Personal Health Care business, which is included in Human Health Care business, oral care, bath additives and MegRhythm, a thermal product, are very firm. And especially, the Pyuora, the foaming toothpaste launched this spring, is growing very steadily. We are hoping that this product is going to be part of new daily custom of the consumers. So that is by business segment.
And now moving on to areas, I would like to touch upon Asia, in particular, the growth in Asia. For that, growth in China is, of course, very important. The second quarter growth in China, as mentioned earlier, was 5% due to initial shipment impact and struggling baby diapers, but without the initial shipment impact, the 14% growth was achieved, double-digit growth is maintained. As to China, in the past, we were very dependent on business of diapers. When the Chinese business was very tough, Merries started to sell very well, the -- producing 70% to 80% of business in China. Of course, we would like to keep the steady growth of baby diapers. But what we would like to achieve is to be less dependent on diaper business. So we have been focusing on sanitary napkin products, skin care products and cosmetics. And our efforts are now paying off. And without being dependent on diaper business, our Chinese business is moving on very steadily.
Moving on to Indonesia. Laundry detergent business is struggling, but the baby diapers is showing double-digit growth. All in all, the growth is 8% in Indonesia. We'd like to make some recovery for detergent as well, and -- so that we can continue double-digit growth for years to come, because we are making lots of investment in this area. And we are going to continue our aggressive investments in Indonesia and in China.
Now I'd like to talk about innovation-based offering. This year, we launched innovative gray hair care product, Rerise, and foaming toothpaste, Pyuora. But that's not the end of the story. Innovation starts when we make efforts to make those products part of the daily custom and practice of the consumers, so that the consumers can recognize and fully appreciate the benefits of the product. And we needed to do a good work there communicating to the market using digital technology as well. What I am telling you here to the audience that we'd be felt more keenly by using digital technology. It will not be easy, but that's what we need to do. We don't want to stop at the launch of the products. We would like to work on each one of our products, so that those products will be part of consumers' daily custom and practice.
And here is what I'm thinking, namely we'd like to have an occasion where we talk to you about what kind of innovations we have in our minds by 2020. So that, in addition to the existing business, what kind of new business is going to be launched in the future. So right now, we are thinking about how to work it out. It might not be products, but we can talk about technology to support our products.
Now moving on to ESG organization and strategic innovative technology global. In April, we set up the strategic innovation technology global and in July ESG organization. The ESG is to improve long-term corporate value, to contribute to the society and to make Kao a company with a global presence. We have been focused on Japan so far, so now to be more global, we have assigned Mr. [indiscernible] to head the organization. In addition, we have the ESG committee reporting to the Board of Directors and I chair that committee. And we'd like to be aggressive in making some nonfinancial activities. There are 3 points here: ESG activity investment for the future, so it is not a cost -- the shift from cost to investment is important and Mr. [indiscernible] is going to head that effort and also global initiatives. We are going to have the focused vision when we work for Kao-style activities. In other words, curate action that is the key message. Our message is that Kao Group aims to create unique experiences and touch the hearts of all the stakeholders through products filled with passion. We also need to do good work for follow-up for the products delivered, including disposal of plastics and diapers. And as a strategic initiative technology global by aggressively utilizing AI, advanced technology or robots, we will build new core systems for wide areas such as sales, R&D, SEM, finance or HR and transform the existing model of the company. It is going to be a fundamental transformation. It is a grand design. It's not just about using AI slightly or IoT slightly. It is relevant to the transformation of the very core existing model of the company and, of course, it comes with some investment. But when we become successful there, then we would like to show you the vision as to how we are going to make Kao a company with a global presence by 2030. And Mr. Hasebe, the Head of R&D, is heading this organization as well. So much for brief explanation on progress based on 2018 initiatives. We are going to make utmost effort to achieve challenging forecast. Thank you for your support.