Shiseido Co Ltd

TSE:4911

Earnings Call Transcript 2020-Q4

[Takayuki Yokota, executive]

[Interpreted] Ladies and gentlemen, hello, my name is Yokota. I have been appointed CFO from this January. I would like to explain to you about the 2020 results and the 2021 outlook.

First, please have a look at Page 3, the P&L executive summary for 2020 Q4. Net sales is JPY 267.2 billion, minus 8% like-for-like. As difficult economic environment continues amidst COVID-19, the company was able to further recover the momentum from Q3. On top of the sales doubling for China Double 11 versus last year, the end of year sales in Japan being solid and the company's strategic growth areas such as e-commerce and skin beauty brands growth contributed to these results.

E-commerce sales grew by over 55% globally, and of that, Prestige grew by over 60% versus last year. Especially with the positive impact of Double 11, Prestige in China Mainland had a remarkable growth of over 150%. Makeup and fragrance continues to be in a tough environment, but skin beauty brands such as Shiseido, Clé de Peau Beauté and IPSA Group, contributing to the increase of skin care ratio globally by 3.4 points.

Operating profit was JPY 6.1 billion or minus 42.4% versus last year. As the company continues to execute the structural reform that we have explained in the Q3 earnings call, we pursued rigorous cost management, allowing the company to recover 66% of the gross profit to decline with cost reduction. The extraordinary income and losses increased by JPY 5.5 billion versus last year due to the sales of idle assets. Due to these factors, the net profit attributable to owners of parent for Q4 was JPY 2 billion, up by 82% versus last year. EBITDA margin stayed double digit, exceeding last year's number by 1.5 points at 11.9%.

Next, please have a look at Page 4, the net sales trends for 2020. Especially in Japan and China, the performance exceeded our outlook in October and November. Q4 outlook as of November was minus 10%, but the actuals landed at minus 8%. However, with the COVID-19 wave hitting all regions again, after December, the momentum worsened, especially in the EMEAs and Americas.

Please refer to Page 5 for the Japan business. As the impact of COVID-19 prolongs and the market recovery delays, we thoroughly acted on consumer-centric activities. Although there was an impact from cycling of drop in demand following consumption tax hike in 2019, the local sales exceeded our outlook due to successful increased promotions such as extending Cosmetics Day promotion, landing at a minus high teens percentage. Inbound was over minus 60%. At the same time, e-commerce sales centering around our retail partners, EC, grew by over 30%, allowing us to expand our shares.

Please refer to Page 6. I would like to introduce some of the initiatives that was done in Japan for Q4. As you see on this slide, we developed and launched new products in a short period of time to respond timely to changes in consumer demand from lifestyle changes due to COVID-19, such as skin care for skin irritation from masks and hand care demand. Also, we are enforcing consumer touch points by digital communication.

Next, please refer to Page 7, the China business. As for the China market, with the scale of Double 11 expanding, the overall growth was driven by Prestige, skin care and e-commerce. The total Shiseido consumer purchase was over 30% in growth. Of that, Mainland China growth was over 35%, Mainland China Prestige grew by over 75%. To highlight, the e-commerce sales ratio expanded to 50%, realizing a growth of over 70%, expanding its share.

The Shiseido group sales from Double 11 doubled from previous year, ranking third in the beauty market sales ranking published by Tmall for both China domestic EC and cross-border EC. For the brand ranking, Shiseido and Clé de Peau Beauté increased its ranking significantly. Furthermore, in the major skin categories such as lotion, sun care and eye care, brands such as IPSA, ANESSA and ELIXIR, ranked in the top 5, all contributing significantly to the growth of brand equity. Also, MAQUILLAGE and HAKU did a first Japan-China joint live streaming along the expansion of consumer touch points cross-border through new digital communications.

Please refer to Page 8 regarding travel retail. As the recovery of traffic continues to struggle due to the drastic cancellations of international flights, there continues to be growth in China, primarily led by the Hainan Islands. Consumer purchases online also greatly contributed.

In China, this market grew -- apologies. In Asia, this market grew by percentage in the high teens for Q4, especially brands such as Clé de Peau Beauté, IPSA, ELIXIR, had strong sales trends with limited skin care products. In the Hainan Islands, which have been seeing great growth from Q2, achieved significant growth on an annual basis of over 220% versus last year.

Please refer to Page 9, the recap for 2020. The fiscal year from January to December 2020 require the company to have speed and flexibility in management amidst the COVID-19 impact and uncertain business environments. Under such circumstances, the strategic growth areas, such as travel retail, Prestige, skin care and e-commerce for China and Asia exceeded the previous year's performance, expanding its growth.

As the total global sales declined, the skin care ratio grew by 1.6 points. Furthermore, the global e-commerce continued to grow that the EC ratio for 2020 was 25%, a growth of over 45%. Especially in Prestige, which was the growth driver, the EC ratio expanded to 30%, achieving a significant growth of over 60%.

Also, agile development and launch of products and response to new needs were executed with solid progress and business transformation initiatives further coupled with relentless cost management to adapt to the sales of volatility. The company also reduced inventory to a level far below what it was in 2019. This was achieved by taking agile measures, such as adjusting production as an overall company efforts of all business units, supply network and finance division working closely together to reinforce the importance of cash in these uncertain times of forecasting difficulties.

Page 10 is the executive summary of P&L for fiscal year 2020. As explained earlier, due to various initiatives and efforts, the company achieved positive net profit of JPY 15 billion, recovering by JPY 25 billion from the November outlook. Of minus JPY 10 billion in operating loss. As for the difference of JPY 25 billion to positive profit will be explained in detail on the next slide, Page 11. Out of the increase in profits of JPY 25 billion, JPY 5 billion was due to increase in gross profit accompanying net sales exceeding our expectation, mainly in Japan and China. Cosmetics Day was extended in Japan due to strong sales promotions. At the same time, Double 11 sales doubled in China resulting in our OP exceeding our forecast by fa. We have carried out all of the business reforms in line with the plan, but have minimized the business reform-related onetime expenses.

Marketing investments continued in growth areas such as China, but in other regions, we reduced costs in line with local sales fluctuations. Also by improving cost efficiency as a group, we were able to reduce costs by JPY 13 billion more than the initial outlook. Although it is difficult to forecast the demand, inventory accumulated reaching its peak in Q2, therefore, production adjustments were made in factories in Japan, EMEA and Americas, reducing inventory substantially. And amount of elimination of unrealized profit generated an impact of increase in profits by JPY 7 billion.

Slide 12, please. In Americas and EMEA, COVID inflicted losses expanded. In Americas, with an increase in filing for Chapter 11 long-standing department stores, off-line store sales were severely hit. Also, margin as a brand holder could not be enjoyed because of the deceleration of the makeup market globally, hindering recovery of the fixed cost in commercial based business and brand holder fluctuations.

Furthermore, fragrance business in EMEA continues to have high fixed marketing investment. Low profitability is a challenge in EMEA and Americas. We will address the low profitability issues in Americas and EMEA through business reform and others going forward.

Next is Slide 13. This is about market assumptions for 2021, pandemic is spreading globally, including in Japan and with issuance and extension of emergency declarations and lockdowns. Economic uncertainties are continuing. Excluding China and travel retail Asia, that are continuing to grow, we expect to see gradual recovery from the second half onwards. We have partially incorporated impact of the resurgence of COVID-19 since December, but we have not fully incorporated the impact of the emergency declaration in Japan, et cetera, on January 8 onwards fully. Although many countries and regions have emergency declarations and movement restrictions, et cetera, we believe the scale and the scope of impact will be relatively small compared to April and May 2020 when there was massive impact of lockdown.

Next to Slide 14. This is sales outlook by reportable segments. In all regions, we expect sales to increase versus 2020. However, other than China business, where we expect 30% growth, sales are expected to be below 2019 level.

Slide 15 shows the fiscal 2021 full year outlook. Like net sales growth is expected to be 19% at JPY 1.1 trillion. Operating profit is expected to total -- to grow 134% to JPY 35 billion. Net profit is expected to grow JPY 20.6 billion to JPY 11.5 billion, EBITDA will be JPY 110 billion, EBITDA margin of 10%. Dividend is projected to be JPY 50 for the year per share. First half will continue to be challenging, but we expect to see profits recover in the second half forwards. We are, therefore, projecting JPY 20 dividend for the first half and JPY 30 for the second half.

The breakdown of the operating profit increase will be explained using the next slide. We recently disclosed the transfer of Personal Care business. We are currently examining the impact on the consolidated performance. Therefore, the outlook for the fiscal 2021 does not include the impact of the transfer of this business. Details will be explained at the time of the financial results announcement for Q1 fiscal '21, which is planned in May.

Slide 16 shows the operating profit outlook versus last year. From the base of negative JPY 1.5 billion, excluding the impact of the cycling of reclassification to extraordinary loss on COVID-19, we expect like-for-like increase by JPY 36.5 billion to JPY 35 billion. On top of the increase in gross profit, accompanying mainly sales increase, COGS ratio improvement will be the driver for the profit improvement this year.

On the other hand, we plan to continue to make investments in key growth areas, especially for DX, we plan to make additional investment of JPY 30 billion versus last year. We do not intend to enhance digital marketing only, but also bolster system investments such as focus and enhancement of digital capability and talents related to DX. In 2020, there was a decrease in performance-linked bonus of JPY 19 billion. In 2020, we reduced bonus because of the decrease in profits, but we would like to be able to reward employees for their efforts in 2021.

Slide 17 is the outline of the Personal Care business joint venture announced the other day. Personal Care business consists of strong group of brands and has high growth potential. However, we have not been able to make sufficient investment for product development and advertisements. For further growth and development of Personal Care business, we have made a decision to set up a JV with CVC, which has financial resources and extensive investment experience. We will indirectly invest 35% and jointly operate with CVC, providing support for accelerating innovation for further growth.

I cannot mention the impact on our P&L at this moment, but we will be concentrating our resources on Prestige and premium cosmetics business and accelerate growth. At the same time, product mix, marketing ROI will improve leading -- on top of securing of cash for growth investments.

The last slide, Slide 18, is about scheme of company split accompanying the Personal Care business transfer. The part of the business operating in Japan will be transferred from a Shiseido company and our wholly owned subsidiary, Shiseido Japan and FT Shiseido through corporate splits to the new company that we will be establishing, followed by a transfer of all of the outstanding shares of the new company to Oriental Beauty Holdings financed by funds advised by CVC.

The transfer price for this transaction is JPY 160 billion.

For our overseas subsidiaries in countries and regions, mainly in Asia, we plan to transfer the assets and liabilities related to this business to Oriental Beauty Holdings in compliance with local regulations. Following the share transfer, we will acquire 35% of the shares of agent Personal Care holding, the wholly owned parent company of OBH and will cooperate with CVC to operate the business. Accompanying the share transfer, this business will become an equity method holding affiliate.

That is all for me. Next, CEO, Uotani, will explain the medium to long-term strategy.

[Masahiko Uotani, executive]

[Interpreted] Ladies and gentlemen, I'm the CEO, Uotani. So you have just heard about the 2020 and 2021 plan. Now I would like to talk about the 3-year plan, aiming for 2023 and beyond till 2030, the direction that the company will be heading towards. First of all, thinking about the external environment, the macro prospects. Of course, we do talk to many experts, and there's a lot of uncertainties in the world today. And the vaccination has started globally. And from COVID -- in terms of COVID-19, from the second half of the year, it won't be ending, but it should be slowing down a bit. And by next year, it will start to terminate or end. And that will be when the economy will start to pick up again.

But at that time when that happens, our industry at that time, there should -- we feel that there will be a big expansion of individual consumers, especially because of COVID sustainability or protecting the earth environment or the social value or heightening the social value, the purpose of the corporation or corporate purpose itself, the sustainability aspect should be quite big and important, and we feel that, that would continue to accelerate. And technology-driven society will continue.

And also for the house being -- staying healthy and having immune, so rather than the treatment that the health awareness should increase, and we feel that, that would link strongly with what we provide. And also the global geopolitical harmony. And the economic growth should start to recover as well. So these are the basic thinking that we see in macro prospects. And with that, the global beauty environment, we try to look at what has happened in the changes in global Beauty market.

As mentioned, awareness of healthy skin is going to be probably an important aspect. So of the skin care, the functional skin care or the clean, natural, sustainable, that could be a new segment, dermatological approach, so the dermatology area as well as beauty devices, cosmetology. Those are probably the growing areas. And also in terms of healthy, staying healthy, there's diet, sleep, but inner beauty, what do you eat? What kind of diet nutrition you intake? And how do you improve and heighten the quality of sleep that leads to all healthy skin?

They say skin is the barometer for your body, physical health and condition, and we feel the awareness of healthy skin will increase. And for the makeup, there's polarization that we can probably see Prestige versus cost-effective that will probably accelerate. Also digital, especially for personalization, customization through beauty tech, that will probably continue to move forward. So in this kind of environment, as for Shiseido, Prestige premium, one of the priorities that we see in the higher premium and Prestige price point categories in the mid- to longer term, we are expecting a recovery of plus 5% to 6%.

For skin care, most likely faster than average. And it's not written here, but Personal Care, looking at different data, is expected to grow by 3% to 4%. E-commerce in Prestige and premium category included will continue to grow. So with this kind of environment, for 2023, we want full recovery and to aim for full recovery 2023, we have set this midterm plan in 2023.

First, for 2021, it is a period of groundwork so that we are ready to prepare for post COVID and for 2022, to be back on growth track. And it just so happens that next year, Shiseido will be celebrating its 150th anniversary. So this will be an important milestone for us. And there is inbound recovery that we will be assuming to happen in 2022.

For 2023, skin beauty will be the core of our business. And with the net sales, we want to aim for about JPY 1 trillion. And of course, due to the different trends, the sales may drop slightly from now from 2019, but we do want to continue to aim for a higher OPM with high productivity. So for the next 3 years, these are the things that we would like to aim for.

And 2030 vision and onwards. I mean it is a very difficult timing to predict what could happen 10 years from now, but this is the target we have. The net sales of JPY 2 trillion, so 7% to 8% in growth. And OPM of 18% with higher profitability, so that we are globally a very competitive company.

Having said that, however, to achieve these, we need a longer-term investment in terms of brands, innovation, supply network, digitization and people. And this has to continue not in the short term, but in the longer term, and we will continue to invest in these areas in the longer term.

Now to elaborate a little bit more on the key strategies for WIN 2023. I won't go through all of it, but it goes into these 10. We want to continue to push through the fundamental reforms and increase the focus on the skin beauty, which has a high profitability and to continue to rebuild the business foundation, including the digitization. So these are the key strategies that we have in mind. For global business transformation, as we have mentioned before, we are on track to the schedule, and that's the key message of this slide.

Now we call it skin beauty, but what's important is for the significant strength of Shiseido, the skin care category. And there's a science in that, and there's also the dermatology area of that as well as sustainability, clean. So these are the new segments that are coming up, too. But this is what we want to do and cultivate within our own Shiseido brands as well as potentially considering M&As to enforce our premium skin beauty.

In sun care, one of the characters for Shiseido is that it has high skin impact sun care. And related to that beauty devices or make up to -- make up that has skin care impact. Those are the areas of innovation we want to continue to launch. And furthermore, there's ingestibles, the inner beauty category. So comprehensively, we call it skin beauty, but mainly around the skin care-related category. So sales ratio right now at 60% in 2019, we want to lift it to 80% in terms of sales ratio. So this is an important strategy or direction for Shiseido.

And to go into a little bit more detail with detailed brands, but some of the iconic brands, the Shiseido brand, we want to make it into a holistic beauty brand. The foundation of this is science, immunology or improving the blood flow. So based on life science, skin care, that is -- that has been one of the background of the big success of Ultimune, but we want to continue to improve on that.

At the same time, responding to men's beauty needs, we've had SHISEIDO MEN in the past, too, but we have renewed the beauty needs of SHISEIDO MEN, men's Ultimune consumer makeup products as well. So comprehensively, beauty needs for men's and we will deploy that in Japan and China. And to continue marketing and to heighten the brand power, we have decided to sponsor with FC Barcelona.

In China -- it's said that there are a few hundred million fans in China of FC Barcelona, so we think it could be sensational in terms of the marketing. And we have been mentioning this year repeatedly the Second Skin. We actually have the technology to be able to launch this. So under this branch Shiseido, we will be starting with Japan then to China in launching the Second Skin.

Also the sustainability using the Enmei herbs, the Japanese herbs, we will be launching products with that. And farm to face, the traceability of products, those kind of skin care. And the third point is this is a trial that we are doing, but Ultimune in the Ginza flagship store, if you bring the Ultimune, we will clean it, and we have a fountain that can refill the bottle at the store. And this is a pilot or test that we are doing, but we would like to do this and hopefully expand it to our retailers.

So very important also very important high end Clé de Peau Beauté brand is a hybrid of luxury and cutting edge science, so we will be renewing Synactif. And in the center here, the gold, 24-carat gold, is mixed for high oxidate efficacy as well as high-technology products and foundation with diverse skin color to answer to the needs of diversity and skin color. And we feel a lot of potential for IPSA. It's centering around Japan and China. But in the future, we would like to expand further in Asia as well as potentially in EMEAs and Americas. And 2 years ago, we acquired a Drunk Elephant. We would like to -- we did launch in Germany, and it is doing well, but we would like to accelerate launches in EMEA and Asia, including Japan, so we will be accelerating the launches for this brand.

Also, the Japan's #1 skin care brand, ELIXIR, this is already very popular in China. China and Asia, we would like to continue to expand. You can see Doraemon character at the bottom, and you may wonder what it is, but this is about sustainability to push the refill. This brand have been pushing refill in Japan, one of the early adopters in Japan. And we would like to try to deploy this into Asia through this multi-culture of Japan. So we will be partnering with Doraemon to push this refill culture.

And also ANESSA, we struggled last year, but as soon as people can actually go outside and hang out outside, we are sure and certain that this brand will recover. So we will continue to enhance and boost demand for ANESSA.

Last year, we did a test of this brand to 5 stores, BAUM. This is a very natural and it is using a package and -- sustainable packaging using leftover wood and materials to make the packaging. And so we launched this in Japan, and we will be launching this in China.

EFFECTIM. This is working with YA-MAN, a beauty device. We already did a launch event in China. It's causing a lot of buzz. In March, will be Japan and April will be China, which we will be launching this product or this device.

For digital, in the next 3 years, the digital capability, we would like to dramatically accelerate, and we want to be the #1 data-driven skin beauty company. That is where we aim for with our digital vision. The basic principle or thinking around this is Prestige and premium. The counseling at the stores, the beauty counselors are very important. And when you do research, even in Japan, the good diagnosis, the thorough diagnosis in consultation at the counter is very important.

However, when it's a repeat purchase, people do want to move to EC as well. So we need a hybrid model, which means the omni-channel experience is very important. retailer.com is 40-some percent of the overall EC, and that is something that will be -- continue to be important for us. And through these experiences, Prestige and premium areas EC ratio in 2023, we want to aim for 35% e-commerce sales ratio. 35%. Right now, we're looking at about 20% right now. So we want to heighten that to 35% by 2023.

In order to do so, we needed a total -- we launched a total digital transformation office that used to be in New York. Now we have launched in the Tokyo headquarter, and we have here Angelica, who will be -- who have -- who is the CDO in the headquarter, Tokyo, to lead us with technology innovation. So that we can continue to build the foundation for the data-driven company.

In terms of rebuilding the business in Japan, this is a very important aspect for us. I would like to elaborate on this slide a bit. In the past, we were -- we had merited from the huge inbound, and that gave us a big growth and boost in our business. But as you know from last year, the inbound has been declining significantly. And I think that was actually a good thing. What I mean by that is by losing the inbound or the inbound not coming to Japan, we were able to look at the -- we were able to completely separate the local P&L and inbound P&L.

So what is the sales for the local markets? What kind of money are we investing? What are we using? And as our business profit and loss, what are we looking at? And operating profit of 20% not on a consolidated basis, but to achieve the 20%, what is it? What do we need to do? And we were able to discuss by separately looking at the local inbound businesses.

And so right now, the business reports are completely segregated between local and inbound business. And if the inbound fully recovers, as a pure add on is what we have kind of -- we are able to do in terms of managing the business. And so in order to -- so we will be creating our plan based on this business and managing it separately. But we want to prioritize as a skin care-focused brands & company.

And a forecast for Personal Care business to be announced by the new company separately. And we also want to establish a dedicated brand value R&D team for Japanese brands. So we have a dedicated brand value R&D team for Japanese brands, the marketing person, the research and development members will be looking specifically at the Japanese brands for local market. What kind of sales, what kind of profit do we want? What are we trying to aim for. So we have a separate team that we have launched to dedicate to Japanese brands. We have a 200 and few members that have launched as this team.

And cooperate with key retailers and expand e-commerce. This is something that I mentioned earlier with the omni-channel strategy, especially for some of the specialty stores that we have had a long-standing relationships with in Japan. We Shiseido will be supporting them for e-commerce platform called Omise Plus, which is supported by Shiseido.

We have been doing this in the past, but we have had 500 stores say that we would like to participate in this to build this Omise Plus, and so this is the e-commerce platform that we are building right now, and we're hoping to start the launch by -- in about March.

And the sales academy, or beauty institute or the BCs, the beauty consultants, to heighten the knowledge and skill set as well as evolve the role, as you see on the right-hand side, digitally as well and promote the job grade HR system. BC is excluded from this, but we have introduced the job grade HR system. So that takes away the lifetime employment and meritocracy, but rather for each of the individuals to fully have responsibility for each of their jobs and positions. So that collectively, the company would be more powerful. So we have promoted this job grade HR system.

And as for this, this is as seen here for the brands in Japan, we want to do selection and concentration to say what we need to prioritize, what we do not prioritize. And for specific segments that we want to prioritize, we want to nurture hero products or star items to increase loyal users. So this is -- these are the ways we'll be launching the marketing plans. And BAUM, Effectim, Drunk Elephant, the Men's, Second Skin, these are the new brand development or new areas that we will be launching and developing.

Through digitization, what we want to create is for the consumers, to experience new experiences. So we will launch information through digital, that we will drive them or attract them to the stores, and we do counseling and diagnosis of skin and have the consumers purchase and after purchase a follow-up by CRM or point follow-up to make sure we heighten the loyalty users and repeat users.

Therefore, in the Japan business, digitization, digital transformation, DX is very important, and we could not do this just by ourselves. So we have decided to we have been discussing what we can do in terms of -- to work with Accenture. So we will have announced that there will be a strategic partnership with Accenture. We are considering a joint venture potentially, but it will be a significant sized resource that will be proposed from our side as well as Accenture for the next few years to even bring in external people from Accenture side to work on the digital transformation as well as, of course, using the Shiseido employees currently to heighten our digital area.

So these 2 companies working together and having a strategic partnership to fully work on the digital transformation, all of that should lead to innovation of business model in Japan. At the same time, the global focus of IT transformation as well as the ICT or ICT team. Our ICT division, we will be working with Accenture. So it will be a big global project. So it's a significant size 1 partnership with Accenture.

For China business, made in Japan, we want to make sure to push that Japanese brand as a presence and employ the local -- bring in the local marketing. And digital transformation, obviously, without saying that, that's very important in China, but e-commerce ratio, we want to in for over 50%. And strategic partnership with Alibaba in the past 4 years. Last year, it was a sell-out of over JPY 100 billion. So we would like to further enforce that and to -- and we have spoken with the CEO of Alibaba, that we will tighten and strengthen the strategic partnership with Alibaba.

And we want to cultivate even more and grow the talent organization, so we call it the Second HQ, headquarter. And last year, when the COVID-19 first broke out in China, it started with China a year ago, and we issued a Relay of Love project as part of the social activity. And that was to say that we did a campaign nationwide that -- with samples, that was beauty, we can empower people. And it wasn't really for -- it was not business driven, but it was really a social contribution activity. And I was hoping that, that would raise the corporate trust in China. But as a result, the Prestige brands, the Shiseido recognition -- people that knows the Shiseido brand, the Prestige brands, the corporate trust grew from 53% to 95%.

So if you look at all of this that we have done, China market, of course, is very important for us. But if you take a step back, with COVID-19 as it slows down and once the travelers are able to travel and if we assume that traveling to reopen again, the people from China will probably start to travel overseas again. And when we do research in China, it seems the country that they want to travel most, Japan seems to come high on the list. And everybody is very suppressed right now. So once travel is released or we are able to travel again, we feel that there will be a lot of visitors from China to Japan. So what we have here is really focusing on the cross-border marketing.

And what I mean by this is, in China, we will invest more in marketing, heighten the brand awareness and corporate -- the brand trust as well or the favorability. We would try to do that by investing more on the marketing. And once these people from China travel to Japan, anything that's issued from the KOLs in Japan or Japan exclusive products and promotions, they will purchase when they travel to Japan or travel retail, too, when they visit the travel retail stores.

Similarly, it would lead to purchasing our products. So it's building this cycle through the cross-border marketing. So we will invest in China, and that will lead to this purchasing cycle through Japan and Travel Retail. At the same time, Travel Retail, as you know, has had a -- with the Chinese government initiatives, too. The Hainan Islands have been very looming with this Travel Retail business. And we, too, we have the CDF, the China duty-free, or -- and Alibaba is wanting to go into this. So we will be working with this Travel Retail operators. We currently have 30 counters, and we plan to increase that to 60 counters by the end of the year.

Asia Pacific and Travel Retail, as I have mentioned, we are enhancing our partnership with the companies mentioned and EC partners, travel retail is, as I have mentioned. Now for Americas and EMEA, we need to improve the profitability. That is the biggest challenge or topic for us. In order to improve profitability, first of all, we need to look at the portfolio, review the portfolio, concentrate on Japanese Skin Beauty brands, Shiseido, Clé de Peau Beauté or in the future, the others. So we would like to focus on IPSA as well. So we will look at all the potentials of other brands and expanding Drunk Elephant and improve profitability in makeup and fragrance, fundamental improvement.

Europe, if you look at the U.K., the EC ratio is increasing, too. So we would like to continue to accelerate the e-commerce and also the reform and to reduce fixed costs, that would be the -- to transform the overall structure currently, and we're reviewing that right now so that we can improve on the fixed costs. And as Americas and EMEAs, we should be able to get the profit margin ratio of 10%, and we want to aim for that by 2023.

For innovation, we have established global innovation center. Various trials are being performed right now. And one point I would like to mention here is that R&D cost, we would like to continue about 3% against the sales. We would like to continue to make investments for R&D, and research institute has been fundamentally reformed. Basic research, seeds research. Long-term research will be undertaken by MIRAI Technology Institute and brands together with the business. Product development will be done by Brand Value R&D Institute. And the top -- this person is Shiseido brand's top, Mr. Okabe, and he will be the top management of R&D, and we're trying to merge further.

And in China, outside of Shanghai in the suburbs, we will be establishing a new innovation center. Together with outside company, we will collaborate. And in terms of supply chain, in terms of cost improvement, it is very important. Compared to fiscal 2019, we would like to make improvement by 2% for sure, and the new plant will start to operate. In 2022, Fukuoka Kurume plant factory will be completed. When the new factory will be completed, of course, there will be depreciation burden.

But on the other hand, we will be able to provide supply sufficiently. Where there's shortage before, we can enhance skin care products, we can do in-house manufacturing and especially Kurume factory uses IoT. This is the highest manufacturing efficiency in this industry. And we would like to continue to make efforts to improve COGS ratio. And with IT usage, we would like to improve accuracy of demand forecasting.

Taking such initiatives, what is important is talent who will be able to innovate. We need people from diverse professionals and background. So this is a very big change from the time when we had high growth. Global next-generation leaders should be developed, additional talent should be hired and developed, and globally unified HR system will be unified. And compensation will be unified as well. It's separate currently oversea sand Japan, but they will be unified. And job grade was mentioned earlier, overseas its job grade already, but Japan will introduce this as well.

And in terms of productivity improvements, what I would like to emphasize is that new work style, so as you say, the Work Style 2.0, we would like to improve work productivity by 30%. Remote work, shorter meeting, less paper documents, less hierarchy, speeding up committing time will not exhaust people. People will be able to spend time at home and their own time and to innovate and increase productivity. And for the leaders, we have executive officer system, and this is based on the government policy, 31.5% female ratio, overseas, executive officers and people, so the ratio is around 50-50. We would like to enhance diversity in the leaders. We'll be leading this executive officer system at Shiseido.

And there is a financial strategy page, and I would like to accommodate questions later, but JPY 1 trillion sales in 2023. Sales decreased and also skin care sales increased. So I think -- all in all, I think the sales will be around JPY 1 trillion. What is important is 15% OP margin; EBITDA margin, 20% plus; free cash flow of JPY 100 billion. So we have made massive investments for factories around JPY 150 billion.

R&D, a few tens of billions of yen of investments. And these investments will be completed around next year. So going forward, we will be able to increase free cash flow coming from the increase in operating cash flow. And this is what I have explained earlier before last time. So...

And now, I would like to take a rest. I would like to ask the CFO to explain this page.

[Takayuki Yokota, executive]

[Interpreted] So this page explains the major actions to improve the margin to 15% compared to 2019, product mix improvement due to skin beauty domain growth, expansion of in-house manufacturing, supply chain optimization will improve COGS ratio by 2%. We will aim to reduce SG&A ratio by 3% through marketing ROI improvements, cost efficiency improvements by operational reform. Compared to our global peers, we have challenges, especially in productivity and efficiency. We will further promote DX in all areas and enhance digital marketing and aim to double our productivity and efficiency compared to 2019.

As for cash efficiency improvement, we will improve demand, forecast accuracy and shorten lead time to reduce inventory turnover days to 200 days or less. This is a slide on net sales and operating profit margin by region. Left graph shows share of net sales in 2019 and 2023. Asia, primarily China will drive growth. By 2023, we want to have Japan, China, Travel Retail, Asia Pacific, make up 80% plus of sales.

OP margin is to improve in all regions. Compared to 2019, EMEA and Americas will improve by 10 points. China and Japan will improve by 5 points, respectively -- and Japan, 3 points; China 5 points. And realize consolidated op margin of 15%. Since establishing global transformation committee last year, we have had various discussions and created concrete margin improvement action plans per region, which we have already started. Going forward, in line with the road map, we will steadily take action.

This is a 3-year cash allocation. There are 3 major initiatives to maximize cash generation. One, through enhancement of skin beauty domain and business reform, we will improve OP and EBITDA and improve the underlying profitability. Second, we will enhance cash flow efficiency, along with the biggest opportunity of inventory optimization, we will sell assets. We will -- third, we will optimize our business portfolio to secure cash for growth reinvestment. Through such initiatives, we expect cash inflow exceeding JPY 500 billion in the coming 3 years until 2023.

We will first allocate this cash generated to reforms to rebuild the foundation. Details have not been decided, but we plan to budget around JPY 50 billion to make sure we can carry out business reform. We will further invest in talent development, which is essential for mid- to long-term growth. Also to build business foundation, we will invest in digital, IT and factories and for enhancement of skin beauty domain.

Furthermore, we will reduce our debt to create a stable financial base to bear the business environment with high uncertainties. By creating a strong earnings structure and securing future cash flow, we aim to increase total shareholder returns and maximize corporate value.

Last of all, this is the financial target to improve capital efficiency. Three years till 2023, will be positioned as a phase to rebuild the foundation to realize resilient financial base and to secure cash. There are 3 points. First, capital efficiency improvement. We aim for ROIC of 14% in 2023, ROE of 18%. Instead of improving ROE with excessive leverage, it is important to improve profit, generating capability and cash generation power. Therefore, the most important KPI will be ROIC. In line with ROIC improvements, ROE should improve as a result. This is how we want to be.

The second is to maintain A credit rating and net debt equity, net debt EBITDA of around 0.2, 0.5, respectively. We will first prioritize rebuilding the foundation and then gradually increase leverage.

The third is about dividends. Even under certain uncertainty, we aim for stable dividends. And then after that, over the mid- to long term, we would like to provide dividends in line with [ EPCS ] growth. Before we made investments decisions focusing on top line and P&L, but going forward, we will make investment decisions based on NPV and payback rates comprehensively. And furthermore, we will focus on working capital, especially on inventory reduction to maximize free cash flow to achieve our financial targets. And that is all from me.

Until 2023, we have these targets. And ahead of that, I would like to have your harbor images. So please bear with me for a little while. Shiseido groups. The society we want to realize, makeup is the power of beauty. It energizes people. And through such power, our basic value, a sustainable society where everyone can enjoy a lot time of happiness through the power of beauty. This is what we want to realize in a better world. Prestige. Based on that, around 200 million people's lives, and we want -- we believe we can enhance our LTV through such loyal customers.

And in terms of Shiseido, uniqueness, we have eastern concept. So we have healthy beauty concept based on diet. Mainly coming from cosmetics. And this is a beauty wellness business based on this wellness. And there are 3 directions related to sustainability, but I'd like to just talk about the direction. And for people, as I mentioned earlier, for our consumers, we would like to provide the power of beauty. And for cancer patients as well, we would like to provide empower them. And for society, as a leading company of diversity and inclusion in Japan, we want to enhance this furthermore. Empowering women 30% club, Japan, we would like to provide support to transformation of other Japanese large companies. And inside the company, in all layers at the Board executive officers and management positions, gender equality, 50%.

We would like to realize this at our company at all layers, not just about gender, but diverse background is necessary like non-Japanese. We aim to become a company where many people will be able to fulfill their likeliness. And for the planet, of course, we want to realize harmony with the environment. But what we can do specifically as Shiseido is the packaging, all the packaging, using refill or refuse, reduce recycle. We want to change all the packaging to recycled packaging. We want to innovate here. To be more specific, you probably know we have many initiatives. Especially women empowerment, the gender part? We would like to continue to enhance this. This is our priority, I think.

And at the bottom, we have hand-in-hand project. We will start Internet advertisement starting tomorrow. And this is a project. We start tomorrow this advertisement for -- we want to express our appreciation to people in the medical field. And in Japan, we have 21 products as described. When consumers buy these products, the marginal profit coming from them will all be donated to medical sites. We will receive cooperation from a distribution industry as well and retailers.

And 2023 and ahead of that, looking at 2030, personal beauty wellness company. This is what we would like to realize, each individual's needs. Healthy Beauty. Not just beauty alone, healthy beauty. We want to provide healthy beauty, wellness and beauty. So looking at the purpose of business, gain understanding of the body using various technology and what kind of solution can be provided. And including the stores, we would like to make proposals and provide consultation and lead to purchase. And the purchase can be done in various ways, I think. And these people will be our customers. And for example, subscription model is an option, they can become long-term loyalty -- loyal users.

And together with us, they can become partners. And to realize this, data-driven DX is what we would like to as such, VISION 2020, and since VISION 2020 was started, having a Japanese value become a global company. So via Google went over the Japanese heritage. That's how we want to be. And that's all for me. Thank you.

Now we would like to start the Q&A session.

[Operator]

[Operator Instructions] From JPMorgan Securities, Tsunoda.

[Ritsuko Tsunoda, analyst]

[Interpreted] This is Tsunoda from JPMorgan. So it's only one question. So the target for 2023, I have a question regarding that. The sales about circa JPY 1 trillion is the target. And this fiscal year's target is JPY 1.1 trillion. So sales, including the sales of Personal Care, the underlying business, the organic sales growth, how much are you looking at? What is the organic growth that you are assuming? And maybe sales of a specific brand? Are you going to offset something for the organic growth. But it almost feels like there's maybe some offsets too, but what is the organic growth and the future structural reform. How will that impact the sales going forward? I want to hear your thinking around that? And along with that, the margin improvement. By 2023, you want to aim 15%. EMEAs and Americas 10 points, China 5 points, Japan 3 points. So each of the improvement points you have clarified or mentioned. But starting with this fiscal year, for next fiscal year, this improvement margin, what are you looking at? Or what can we outlook for next fiscal year's margin improvement.

[Takayuki Yokota, executive]

[Interpreted] I would like to answer your question. First of all, for 2023 target of circa JPY 1 trillion in net sales is, as you have mentioned, the toiletry personal care has been mentioned, but the portfolio review, nothing's been definite yet, but part of that is included too. And of that, maybe, of course, it could be much higher than JPY 1 trillion. Or depending on the COVID-19 recovery situation, it is hard for us to do accurate forecasting or do a prediction.

So within the various financial simulations we have been doing, circa JPY 1 trillion seem to be the right number to announce to you at this point without any misunderstanding. For organic growth, we are -- we have the preassumption that we will be growing faster than the market as we do our simulation.

[Ritsuko Tsunoda, analyst]

[Interpreted] And the next point you mentioned about fiscal years -- next -- this year's fiscal year? No. So in 2023, you're looking for OPM of 15%. That would mean about JPY 150 billion of profit is what you're committing to. But in the other material, the improvement. You've mentioned about the margin of the improvements. So in 2020, one, saying 2021 is the starting point. 2022, what kind of increased -- points increased. So for EMEA, Americas 15% and 10%, China 5%, Japan 3%. What are we looking at for 2022? So for 2022, the margin improvement difference is what I would like to ask you.

[Takayuki Yokota, executive]

[Interpreted] I can't give you a clear number, but in principle, these things that we are doing right now, the actions that we are taking right now, sales -- if the sales recover as we assumed, these are the numbers that we can look at. Now 2022, as previously mentioned by Mr. Uotani, there is the COVID-19 situation continuing. So based on that, for 2022, we do not think that it will increase at the level of 2023. So I think there will be a certain range of improvements.

[Operator]

The next Morgan Stanley, Miyake.

[Haruka Miyake, analyst]

[Interpreted] This is Miyake from Morgan Stanley.

[Takayuki Yokota, executive]

[Interpreted] Sorry, we cannot hear you.

We can hardly hear you.

[Haruka Miyake, analyst]

[Interpreted] This is Miyake from Morgan Stanley. This is a good opportunity for me. So Personal Care, you will be transferring personal care. And I would like to ask you to elaborate on this. In this announcement, planning sales will be separated and manufacturing will remain with you for the time being, I think. And in the future, would this be separated and what is the timing? And there are brands that are growing very much in China, and they will be outside of your business. And by losing such brands, do we not need to think about negative impact because of that.

[Masahiko Uotani, executive]

[Interpreted] I would like to answer your questions. So there are 2 questions related to manufacturing and the other, SENKA is no longer there, would there be any negative impact in terms of sales and marketing. And as for manufacturing, Kuki factory's productivity compared to other factories is extremely high. And as Shiseido, 35% stake will be held by us. This means manufacturing supply will be continued. And for the users of the brands, Shiseido is manufacturing and this is a very big endorsement for them and this will become an independent business. But basically, our concept is to have Shiseido continue manufacturing and whether that will be split in the future or not that is not being considered now at this moment. Basically, when we think about the consumers, Shiseido, including quality, should be guaranteeing the products and also SENKA is selling very well in drug stores, but the sales activities for Personal Care is done through wholesalers.

So in the stores, the wholesalers, sales reps and cosmetics. Sales reps, they have separate negotiations, and there is no impact on the cosmetics side. SENKA is used by many consumers. It has high-volume sales, and that's how we reduce cost. On the other hand, looking at ELIXIR and upper level products, for continuances by consumers, by using loyal customers, ROI can improve. So the business model is different to start with. And by having this business become independent, each of the businesses for the key success factors, how can -- would they be able to enhance the key factors? So I don't think you need to worry about the combination combined effect of having SENKA in doing sales for cosmetics and personal care. And you talked about structural reform before. It's not that the business will be gone, disappear, but you want to go into common areas and cover there, for example, personal business, personal care, if it will be transferred, what kind of function will be able to reduce common costs, shared costs.

Well, basically, personal Care business will become independent and their CSA. And for Shiseido, we will be providing support so that this business will be successful. This is not about single year over mid to long term. How to streamline that? To say aside, this is what we need to think about together.

[Operator]

Going on to Citigroup Securities, Miura.

[Nobuyoshi Miura, analyst]

[Interpreted] Hello. This is Miura. Can you hear me well?

[Takayuki Yokota, executive]

[Interpreted] Yes.

[Nobuyoshi Miura, analyst]

[Interpreted] This is something I always ask, but your company, core brands prestige, I'm talking about prestige, Shiseido, Clé de Peau Beauté. These brands, competitiveness or brand power how -- what is that like? Can you explain to us about the brand power around that? That's it.

[Masahiko Uotani, executive]

[Interpreted] Okay. I would like to talk about that. Yes, brand power, brand equity, especially Japan and China brand equity or brand power, you often give us this question. One thing is the Shiseido brand or Clé de Peau Beauté, for example, last year Double 11 it dramatically had a dramatic growth, significant growth. At the foundation, I think there's the big brand equity or brand power. And in order to do so, we did invest a lot more in the marketing activity. So [ voices ] from the KOLs or limited products that we have developed. So from people in China, these 2 brands I think we're receiving a lot more support from the Chinese people for these 2 brands. And as Yokota has mentioned earlier, in December, there was a slight increase in the inbound. But as for that, it seems that the Chinese people, after Double 11, they thought they wanted more Japanese brands. So the purchase accelerated more. So that brand power, they can't come to Japan to buy, but it seems like that will to want to buy the Japanese brands are increasing. And brand awareness or recognition, the brand purchase rate, for the repeat ratio around these prestige brands.

Prestige is very important about how we accumulate the loyal users or repeaters, and that's going up and increasing. Another thing that I feel is very important and which we had been emphasizing is the corporate brand. Our company the corporate name and the brand Shiseido, both has the name Shiseido. But in Japan and China, which company manufactures it. Is it safe? Is it high quality? Those are more important aspects for consumers nowadays.

So as I had mentioned briefly earlier, but with this kind of global pandemic, like COVID-19, knocks off the world. As the world recovers, Shiseido backing that up or supporting that. That was part of the Relay of Love project that Shiseido did for the 6 months in each regions and all over China doing campaigns. And KOL digital impression, there was about 400 million impressions. Participants about 100 million people. So it grew to be a big size. And the corporate trust and the corporate favorability went up significantly.

In Japan, the Japanese housewives, for example, when they go to supermarket, is they say that Japanese people look at the back of a product to see where the product is made. And it seems that's a unique characteristic of Japan, but I think that will be even more important in Asia going forward. Where is it produced or manufactured, who makes it? And as we focus more on the skin care, whether it's technology or the efficacy and also the usability, or a company that knows Asian skin and brands that have that characteristics, and the corporate brand supports that. I think overall, putting that together is a very good direction for us and going forward, we would like to enhance on that even more.

[Nobuyoshi Miura, analyst]

[Interpreted] Just so I know looking at Q4 alone, the strong brands, the sales are positive. And it seems like the marketing investments are going up. So stronger brands, I feel like Q4 was when the strong brands really started to take off. And along with that, the brands really are recovering, too. So rather than looking at next fiscal year, I feel like already right now, there's already signs of this recovery and of it picking up, how do you see that?

[Masahiko Uotani, executive]

[Interpreted] Now I completely agree with you. I think that is completely true. The brand Shiseido, the global brand Shiseido until a few years ago, if you look at the counters, some of the store fronts, the counters it was getting old. So in VISION 2020, we had some of the marketing investments for counters and advertisements, too. And for all the beauty counters, in most of the beauty counters around the world, we renewed. So we invested in that so that we can refresh the brand. That requires investments. And I mentioned in the last earnings call that in the 3 -- next 3 years cumulative is JPY 100 billion. But that's what we need to refresh our brand to continue to keep our brands fresh and that contributed to the favorability of the brand. And as Yokota has mentioned earlier, in terms of profit and loss, sales increased by 19%. And the operating profit of JPY 35 billion. As for that, when you look at how do we look at the market, one thing is it's very uncertain to predict the market right now. And so we do think that there are certain risks, especially for the next -- the first 6 months, we do look at it with high risk, and we are careful about it. But at the same time, the marketing investment is over JPY 50 billion.

Digital investment quite significantly higher. So last year, we did hold back a lot, but now we are doing good and heavy investments in marketing in China and Japan, especially so that we can strengthen the brand power, the brand value. And so that hopefully, the profit could go up to more than JPY 35 billion, and it would take off even more and recover to higher than that.

So as for the direction then, brand and management is kind of going back to normal. And so that the return on investment, the return on investment is -- you're seeing a good feeling of ROI. And that -- we don't think the return on our investment was late or it's taking long. We feel that in the last time that we presented, we worked our return on investment work, but we are confident that this return on investment that we're doing right now will give us good come back of return in the future.

[Operator]

Next, Yamaguchi from Goldman Sachs.

[Keiko Yamaguchi, analyst]

[Interpreted] This is Yamaguchi. Based on what you just mentioned, looking at the sales plan this year, the initial guidance was pretty strong. And Slide 14 of the presentation, Japan and China's sales growth is expected to be 30%. It's pretty strong. Can you share the background to this?

As for Japan, please explain by channel. And also Chinese consumers Travel Retail should also be included. But Travel Retail is expected to grow just 10%. So China, Travel Retail, what is the balance? How do you think about that? So please share the sales output.

[Masahiko Uotani, executive]

[Interpreted] So I would like to talk about the assumptions for Japan first. The market itself in the first half will not recover so much, and we will see gradual recovery in the second half and annualize at maximum growth will be single digit, mid-single digit market growth. That's what we expect.

But looking at Shiseido's strong areas, so on the contrary, it was negative last year at department stores. Department store sales dipped and category in Sun Care dropped very much and plummeted. So the market is expected to grow mid-single digit. But looking at the category, the areas where we are strong will grow. And overall, it's expected to grow 14%. But by category, and by channel, more than the market growth can be achieved, and we want to increase our share in Japan. And numbers by channel, I would like to refrain from talking about that today, but the growth well, last year, there was a decline in department stores and specialty stores. And compared to last year, we have high expectation or high numbers because it's relative.

And so in retail, it's on par with the market, plus some small additions. And by category, base makeup point makeup from the second half of this year, we expect to see a slight recovery. So year-on-year, base makeup, point make should improve.

[Keiko Yamaguchi, analyst]

So this is like a revenge consumption.

You talked about that before, and that can be seen in the consumption going forward. But what about the inbound increase?

[Masahiko Uotani, executive]

[Interpreted] We believe it will be on par with last year.

[Keiko Yamaguchi, analyst]

[Interpreted] So last year, overall?

[Masahiko Uotani, executive]

[Interpreted] Compared to 2 years ago, it was around 60%.

[Keiko Yamaguchi, analyst]

[Interpreted] So in the first half?

[Masahiko Uotani, executive]

[Interpreted] Probably 70% compared to 2 years ago. And in the second half, probably 60% decline. So overall, it will be around last year. So it's around 60% decline compared to 2 years ago, I think.

[Keiko Yamaguchi, analyst]

[Interpreted] That's about Japan, right?

[Masahiko Uotani, executive]

[Interpreted] Yes.

[Keiko Yamaguchi, analyst]

[Interpreted] In China and Travel Retail including the balance, could you share briefly?

[Masahiko Uotani, executive]

[Interpreted] Okay. I would like to explain. China in Q4 had full recovery already. So that momentum will be continued in Prestige premium skin care. They will be driving the growth and as for China, from January 27, COVID-19 started to generate impact. And the impact of COVID-19 in February, March was very big last year, so annualized 30% plus. But first half, we believe we can grow more year-on-year.

And Travel Retail, Hainan, and China, Korea. So unless something goes wrong, I think it will be okay. But Japan's Travel Retail since last year, we have separated that from Japan business and Travel Retail is included in global. And from that perspective, last year was Haneda airport, Narita airport, I think you all know, there are nobody -- there's nobody. And therefore, there's a very big plummet in sales. And how much could it recover we want to wait a little bit more and wait and see. If in the second half, after the Olympic games, if COVID-19 can be contained and travelers increase, then Travel Retail, Japan's portion is pretty high. So this will be if there will be an addition coming from that, and it will contribute to profit because they are high margin. But we are looking conservatively to come up with the outlook numbers.

[Operator]

[Interpreted] Now to Mitsubishi USJ, Sato.

[Wakako Sato, analyst]

[Interpreted] Hello, this is Sato. Can you hear me?

[Masahiko Uotani, executive]

[Interpreted] Yes.

[Wakako Sato, analyst]

[Interpreted] I do have many questions, but since we are limited to one question, so this guidance that you have disclosed, Personal Care business. I believe that you probably can't calculate all the impact for Personal Care. But in the media conference, valuation of EBITDA of 11 -- about 11x multiple of 11, so I feel like there will be quite significant amount. So what kind of impact could there potentially be on the operating profit? And you have also not incorporated the declaration of emergency for COVID-19 in Japan. Why was that maybe it was difficult? Was there a specific meaning that you did not include the emergency declaration, maybe the impact with it or without it? If you could you elaborate on that a little bit more.

[Masahiko Uotani, executive]

First of all, I would like to start by answering the emergency -- the state of emergency in Japan. In January, Japan is starting to weaken with the state of emergency declaration. But in the other regions, it is able to offset the dip in Japan. So for January, it's pretty much in line with our plan. And so far, the state of emergency is planned to continue for about another month. So nobody knows what will really happen, but that's the plan right now. So within the big plan, we do not feel that, that is significant enough to change our current plan.

And the other question you asked about the personal care in the short term, the impact of Personal Care in the shorter term. As for that, as I have explained earlier, the timing of the business transition outside of Japan and the model of when we transfer the business, there are certain specifics that we are still discussing right now. So it has not been 100% concrete or confirmed yet. So right, as of now, we would like to mention more in terms of the personal care in the May earnings call.

[Operator]

[Interpreted] Next, Mitsui Sumitomo Trust, Koichi.

[Unknown Analyst]

[Interpreted] This is Koichi. Can you hear me?

[Masahiko Uotani, executive]

[Interpreted] Yes.

[Unknown Analyst]

[Interpreted] I would like to ask you about the transfer of Personal Care business. Mr. Uotani, has seen an issue with profitability. And it's for sure, a major restructuring. And at your Board, I think this is a good opportunity for me to ask about the functioning of your Board. And for this transaction, what kind of discussion was held at the Board? Could you share? Was there any good opinions or any perspectives from the Board regarding this transaction?

[Masahiko Uotani, executive]

[Interpreted] First of all, Personal Care business, it has a very long history. And I -- well, before I joined Shiseido, Shiseido is a cosmetics company even before I joined and toiletry business. How to position it within our company? At one point in time, TSUBAKI was introduced and it was treated as if this business became the core. But from the perspective of cosmetics business, how should it be positioned. As Mr. Tadakawa mentioned, the business model is totally different. R&D is different. It's cleaning R&D, cleansing R&D. So it's different from skin care, R&D for cosmetics. So I hear that a lot of discussion has been held even before I joined. And in VISION 2020, Prestige first, Prestige premium cosmetics, that's where we want to win. And when we think about that, the priority will be lower.

So it's not so simple. It's not that we thought we should split this business because of low profitability. But when we look at the numbers, and within Japan, which Tadakawa is in charge of right now. In order to generate profit, it's challenging, then advertisement for personal care business, it's a full type business. So it requires a lot of advertisement investment and reducing that and how can we have the personal care business contribute to profit? That's the kind of discussion we have had TSUBAKI at one point in time. We focused on TSUBAKI very much at one point in time, but in the past 2 years, we have not been able to launch much advertisements.

So I -- what is very important and what I regret is that I was not able to give dreams to people who are involved in this business. Personally, from Personal Care business, so it's different from counseling, providing counseling for cosmetics. Personal care is different. The marketing ratio against sales is 30-some percent, so it's totally different. When we think about that for new employees and for employees who are working here. How can I talk about dreams that they can harbor about this business. This is what I've been thinking about, so from a few years ago.

Well, the word will be restructuring, but for Personal care business, we want them to win. And for Shiseido, as a cosmetics company for us to be able to concentrate, how can we win, and we have had such discussions with the Board members a few times, a few years ago already. And back then, there is a manufacturing company who could become potentially become a partner came up, and we have thought about that at the Board and thought about cooperating. But the more we discuss with manufacturers, they basically have everything if they are global company. Then Shiseidos Personal care know how Personal's value cannot be exerted sufficiently.

So therefore, we reached a conclusion that transferring to a manufacturer, another company would be difficult. And when we brought down our discussions on a multiple number of manufacturers became candidates and M&A when we acquire as well. But with speed, we need to share with the Board. That's my intention. And this is because even without monthly board meeting, we can contact each other using e-mails. This is a very big asset acquisition or divestiture. Such actions are very important decisions for companies, and we have been in touch with each other. We have asked for other opinions. We have received very good suggestions as well.

And in private equity in the beginning, for us, was -- we were wondering how much they will be able to do but we have conducted various studies. We had discussed about this together and in the end, we reached a decision. So the Board meeting, we had multiple discussions on this topic. And for the global business reforms, this is a very important topic. So even outside the Board meeting, we have a board meeting discussion time, about 3 hours, everybody is busy, but we secure time for everybody to participate. We were very transparent in having discussions. So in the end, it's related to employees as well.

So in terms of Shiseido's value, it's not something that we alone should make decision. We would like to have opinions and value shared by outside directors, outside auditors. I think it's very important to share ideas with each other and therefore, held discussions. And for this Personal Care business transfer as well as others Board members, everybody's agreement and endorsement is received to reach conclusions. And today, we had a board meeting. And since the official announcement on February 3, I apologize, April 22. So there's a leakage of information. So our employees were very much affected, and we did our most to explain. And many of the things we cannot share until a final conclusion is reached at the Board and on February 3, we share this with the employees right away. Expectations for this business and what everybody we expect of them. And we want them to build their careers going forward as well, we shared such things. And Board members were interested in the response of the employees. So I shared the feedback from the employees to the Board meeting -- Board members. We are incorporating very closely. Thank you.

[Unknown Analyst]

[Interpreted] Thank you very much for explaining in detail. So based on what you said, the Personal Care employees they cannot harbor dreams. That was your concern. But by having a new scheme, they will be able to harbor dreams. Is that the decision to the conclusion you have reached?

[Masahiko Uotani, executive]

[Interpreted] Yes, exactly.

[Operator]

Thank you very much. It is almost time for us to close. So I would like to take the last question from Nikko SMBC Securities, Sato. Apologies, Sato seems to have exited. Seems Sato is speaking, we just cannot hear. [Operator Instructions] We can hear you now.

[佐藤 有, analyst]

[Interpreted] I apologize. One question. For Americas and EMEAs, so in your plan, for Americas, 29% sales recovery is the forecast. At the same time, 2020 due to COVID impact, the negative figures expanded. So for 2021, how much recovery are you looking at for Americas? And also the operating profit, OP, for Americas, EMEAs, improvement by 10 points is what you're looking at for 2023.

In detail then, what are you planning to do for Americas and EMEAs so that you can recover to that significant level? You mentioned that you will do a review of the portfolio. But for example, bare minerals, what's the current situation? And how will you be recovering that? Are you potentially looking at sales, sales of some of the brands? Could you give me some clarity around that?

[Masahiko Uotani, executive]

[Interpreted] First of all, for Americas, if I could answer. As you know, for 2020, the biggest impact, the market that was biggest impacted with Americas, over 30%. And with that, there's the Drunk Elephant, the growth of Drunk Elephant. And last year's April and May, the lockdown. It was the lockdown situation where we can hardly ship anything out. So with -- from that, there's a rebound or recovery, I should say, that we are forecasting. So including that recovery, too, rather than giving a ratio, a few billion yen worth of recovery in terms of sales and brand holder cost control recovery is what we are assuming or forecasting.

For EMEA, sales compared to 2019, still minus 11% and versus 2020, 12.4% growth. So we won't be near the 2019 level yet, but the operating profit will improve. But the structural reform is still underway. So to turn it into positive numbers will probably be difficult to achieve within 2021.

Also, looking at the profitability, Americas is aggravating as such. But the other thing to mention is the statutory -- it's also statutory, too. Meaning the brand holder cost, there's Europe and Asia and China, the activities -- there's marketing investment is in the Americas to the brand holder cost, too, that is done in other regions. So if you can keep that in mind. What's important is on the far left, Americas. Canada, Americas and South America. This market, we need to grow the sales and profit even more. So due to the characteristics of the Americas, we're thinking we would grow the makeup more. We acquired Laura Mercier. But looking at the portfolio, the Shiseido brand still is very much uncultivated or untouched. Clé de Peau Beauté, we finally brought it into EC, and it's growing significantly.

I think there's a lot more potential that we can do with this. Americas have many luxury or afford affluent segments in a consumer basis, so there's a lot more to do. And in the sales business, last year, it was a minus in terms of the sales business, but this great part in 2019, this can grow even more. And on the activity basis, the brand holder cost was more in the Americas, there should be more that -- so there's more brand holder cost structure that's calculated in the Americas. Drunk Elephant amortization for acquisition, that's a separate topic, but growing the profit from the business side. And with the digitalization and skin care portfolio, these 2 are the key aspects of the market growing this market. As we pursue the digital transformation, the sales organization that covers all of the U.S. doesn't necessarily need that kind of cost. So from last year, we call it the light sizing is what we have been pushing in Americas.

And for Bare Minerals, fundamentally, the boutique channel that we have been running the direct operated stores in shopping malls, it's pulling us back. A lot of the stores are negative performing. And we've been closing a lot of the bare mineral stores, and we will continue to close this year as well. So business itself, the operational profitability, how much can we improve there. And while doing that, we will seek to look at other options going forward in the future.

[Operator]

Now with this, we would like to close the Q&A session. Lastly, we would like to have a word from Mr. Uotani.

[Masahiko Uotani, executive]

[Interpreted] We are way past our time. So once again, ladies and gentlemen, thank you very much for your participation today. To say in summary, it's very uncertain times. And in Japan, it's a state of emergency and that's been extended. But as for myself, as I mentioned earlier, at some point, when we think about the slowdown of COVID-19 at some point in the future. And when that happens, our company, the beauty company, Shiseido has a great opportunity. If you don't go outside, you don't use a lot of makeup. And we can't do a lot of counseling without touching the skin, without looking at the customers or consumers. And we saw that in the trend of China and the expansion of Double 11. But as a company mission, and including the sustainability, as mentioned in the company vision, the power of beauty, the power of cosmetics, the power of beauty company, what we need to do and what we can contribute to the world, that's a big contribution, and that's something that we need to do. And that leads to the big growth in business through our social activities. So 2021, of course, looking at the current situation of this uncertainty, but where we know we have an opportunity to seize, we seize and we will definitely continue to invest in looking at marketing expansion as well into China, Asia and Japan and try to seize any opportunity that will arise in the future. Once again, thank you very much for today.

[Operator]

With this, we would like to close the earnings call. Thank you very much for your participation.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]