Lion Corp
TSE:4912
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1 206
1 870.5
|
| Price Target |
|
We'll email you a reminder when the closing price reaches JPY.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Lion Corp
You don't have any saved screeners yet
Welcome to our briefing. I am Kengo Fukuda. As was introduced earlier, I will be responsible for the earnings briefing from this meeting. Thank you very much for attending this meeting on our earnings despite your busy schedule today. And I would like to take this opportunity to thank you all for your tremendous support extended to our IR activities on a day-to-day basis. I will walk you through the financial results of the first quarter of fiscal 2022, based on the materials disclosed today and then entertain questions from the audience.
First, please turn to Page 3, where you can find the executive summary of the presentation. Simply put, in the first quarter, the net sales increased year-on-year, while for profits, the core operating income fell from the year before. That said, the results of the first quarter were more or less in line with our plan for January to March and in line with the expected progress toward our year-to-date forecast for the second quarter.
As you know, this year is the first year of the new medium-term management plan, where we give priority to growth. And as the first quarter was the first 3 months of the medium-term management plan, we were able to start off with increased net sales. On the other hand, in terms of the core operating income, we were affected by rising raw materials costs, slightly more than expected to which we responded through means, including cost reductions and passing on some of the increased cost to product prices. This resulted in our core operating income, managing to stay in line with our plan. We posted gain on transfer of a piece of land held by one of our subsidiaries in January this year, which helped us achieve a year-on-year increase of both operating profit and the profit for the period attributable to owners of the parent.
Before going into more details on the financial results, let me give you the overview of the entire market. Page 4 shows the trends of the domestic markets of consumer products with an overview of the major product categories. In one word, except for certain categories such as hand soaps, year-on-year sales values were up year-on-year. In the middle of the top row is the chart for beauty care products with red line showing body soaps and blue, hand soaps.
As you can see, the rightmost part of the plot shows the first quarter where you see the sales were gradually recovering to get closer to 100 million. In the table on the right bottom, you can find hand soaps in the third row from the top. Compared to pre-COVID-19 period, the market grew 134%. Another one that is characteristic is the pharmaceutical product category in the middle of the bottom row. As shown by the blue line, the market of antipyretic analgesics has been steadily expanding, partly due to the demand related to vaccination, though its performance has been going through ups and downs.
Page 5 shows the market trends of the overseas businesses. You can see the trends of hand soaps and laundry detergents for major countries. As shown here, hand soaps was mostly flat from a year before. But when compared to 2019, in other words, before COVID-19, markets showed strong growth of 161% in Thailand, 270% in Malaysia and 149% in South Korea, respectively. In the case of laundry detergents in Thailand, the lackluster consumption has been prolonged due to COVID-19 restriction hindering the growth of this market. So these are the distinctive market trends.
Page 6 is a summary of what was shown in the previous slides in words. And therefore, I will skip the slide and jump to Page 7. Page 7 shows the profit and loss for the first quarter. The net sales totaled JPY 87 billion, up 5.5% or JPY 4.57 billion year-on-year. Since the yen weakened during the relevant fiscal year, the growth would have been 4.2% if you exclude foreign exchange rate fluctuations. The core operating income went down by JPY 2.5 billion year-on-year to JPY 5.52 billion. The core operating income as a percentage of the net sales also decreased by 3.5 percentage points year-on-year. More details will be given later as well.
The operating profit increased by JPY 2.2 billion year-on-year, partly due to the gain on transfer of a piece of land in January this year, as I said earlier. EBITDA, which we have been regarding as one of the management indices to watch, since this fiscal year, was JPY 9.2 billion, down JPY 1.9 billion year-on-year. From the decreased core operating income, if the depreciation and amortization expenses are taken into account, this is what you get as a year-on-year change in EBITDA.
Turning to Page 8. The waterfall graph shows the causes for the change in core operating income from the previous year. As you can see, the most significant factor was the increase in raw material prices, which had an impact of JPY 2.9 billion. On the other hand, the increase in gross profit against increasing sales was offset by the addition of the depreciation and amortization expenses for the new toothpaste factory in Sakaide.
In terms of segment composition, the composition of consumer products declining has resulted in gross profit growing only mildly. As a result of these changes, core operating income for this fiscal year was JPY 5.5 billion compared to JPY 8 billion last year. Although there is no such thing as if it weren't for, I think that the impact of the soaring raw material prices is exceeding the amount of decrease in profit.
Turning to Page 9, I'd like to explain our results by business segment. As usual, the upper line shows net sales and the lower line shows sales to external customers. And as indicated in the notes, we have made changes to some of the segments since the first quarter of the current consolidated fiscal year. This is due to the completion of the toothpaste factory at Lion Chemicals Sakaide plant, which is a manufacturing plant basically for consumer goods. Hitherto, the entire company was classified under the Industrial Products segment, but we have decided to manage separately and divide the company into Consumer Products and Industrial Products. That is the background to this change. The data for the previous year is now presented after the segmentation change.
In Consumer Products, sales of hand soaps increased from the previous year, mainly due to the fact that the reactionary decline in sales post-COVID has run its course. In Industrial Products, in chemicals, sales of carbon materials for automotive batteries is trending strong, and these factors contributed to the increase in sales.
I will explain the overseas business in detail later. Although sales increased, as I mentioned earlier, due to factors such as the impact of higher raw material prices, segment profit was negative in all segments, including Consumer Products, Industrial Products, Overseas and others.
Next, Page 10 shows Consumer Products business net sales by product category. Oral care sales increased 1.9%. Beauty care sales also turned positive, thanks in part to increased sales of hand soaps.
In fabric care, sales of laundry detergents struggled, but fabric softeners, such as Aroma Rich, performed well, resulting in a year-on-year increase in sales. Only living care sales decreased due to a reaction to new product launches in the previous year.
Going on to Page 11. This is the overseas business results. In Southeast Asia, sales increased by 9.7% or 6.5% excluding the effect of exchange rates. In Thailand, where market recovery has been delayed, we have secured sales increase by strengthening sales promotion in rural areas, particularly for detergents. As noted in the notes, sales in Malaysia increased by an impressive 24.1%, thanks in part to the relaxing of restrictions which led to the activation of the market.
Northeast Asia net sales increased 12.4% or 6% in real terms, excluding the effect of exchange rate fluctuations. As written in the notes, total sales in China declined. This is due to a decrease in sales in terms of exports to other countries within the group resulting from adjustments within the group of production and sales locations. As for sales to external customers, we have secured an increase, but this too is seeing a temporary slowdown in growth due to it being in a transitional period of changing some of our EC or e-commerce distributors. We believe that this is transitory.
Next, let me explain the financial forecast for the full year. As you can see on Page 13, we have not changed our forecast for the full year. Although the impact of raw material market conditions has already exceeded our expectations, we intend to take various measures to achieve the targets set at the beginning of the year.
I will explain more about that on the next page, Page 14. Last year, raw material price impact was JPY 3.7 billion over the year before in increased costs. This year, we had anticipated a bigger impact of additional JPY 6 billion annually, and that was the basis of our financial forecast at the beginning of the year.
As you are aware, however, the market prices have been rising faster than that, and the yen's depreciation is not expected to be reversed in the short term. So we recognize that there is no doubt that the impact will be even greater.
In response to this, we have already begun to implement the 4 measures outlined at the bottom of the page, such as sustained effort to better control sales methods shifting to value-added products and controlling retail prices for domestic consumer products.
In addition, we will start to pass on price increases in certain categories in Japan and more broadly overseas, where it is easier to pass on prices and also for Industrial Products as well. We will also strive to absorb the risk of higher-than-projected raw material prices through additional cost reductions and cost containment. By doing so, we will continue to aim to achieve the targets set at the beginning of this year.
That concludes my brief explanation. Thank you very much.
Now let us move into the Q&A session. The first question is from Mr. Narikiyo of Nomura Securities.
Can you hear me?
Yes.
I would like to learn more about raw materials and additional measures. You said you originally expected to see an impact from the rising raw materials cost of JPY 6 billion for this fiscal year. But what do you now expect the actual result to end up with? And how much of that do you think you will be able to offset or absorb through various measures, especially by price hikes, which I am particularly interested in? If you can give me more details on that, that will be appreciated?
The initial forecast of a JPY 6 billion rise in raw materials costs, assumed at the beginning of this fiscal year was anticipated to materialize as year-on-year changes, mostly in the first half as the costs already started to go up in the second half of last fiscal year, with JPY 5 billion allocated for the first half and the remaining JPY 1 billion in the second half.
However, as seen from where things stand currently, the impact in the first half will probably be slightly larger than initially forecasted, and there is a risk of seeing as much impact in the second half as in the first half. Therefore, in terms of the full year, the impact could be at maximum 1.5x or twice the originally forecasted JPY 6 billion. That said, it is quite unclear exactly when the rising costs will be actually reflected in the raw materials costs for our company. But for now, that is the target level of cost increases. We are working to come up with responses to absorb.
Suppose you raise your prices now, would you be able to see the effects relatively quickly, like in 1 month or 2 months?
In case of Industrial Products, or those whose prices we can adjust through shipment prices, such as those directly sold, if we change their prices, we will see the effect immediately.
On the other hand, what is challenging is the domestic consumer products or toiletry products. Since they have wholesalers involved, we need to coordinate with wholesalers and retailers to review sales promotion measures, which makes it difficult for the effect to be felt immediately. Therefore, we are taking measures as soon as possible so that we can assume that we'll be able to absorb any rising costs that we may face in the second half.
The next question is from Ms. Kawamoto from UBS Securities.
Kawamoto from UBS Securities. I also like to ask questions about price increases. First of all, you said the full year impact could be 1.5x or twice the plan at the beginning of the year, which would translate into JPY 9 billion or JPY 12 billion in total or additional impact of JPY 3 billion to JPY 6 billion. Is that correct?
Exactly.
Then of this JPY 3 billion to JPY 6 billion, to what extent do you think you will be able to offset through price increases?
We'd like to refrain from commenting in detail the breakdown, but we believe we'll be able to absorb that much through a combination of those 4 measures.
Out of those 4 measures, will price increase be the largest factor?
Relatively speaking, controlling promotional expenses is expected to contribute more.
Okay. Aside from the question of whether the measure is good or bad, in terms of short-term effects, changing advertising inputs, for example, will lead to reduction in expenses. And if you regard this as one of the sales promotional activities, we believe we can secure profits through measures like that. Does that mean you will adjust competition-related expenses?
Yes. Reviewing promotions would mean reviewing them in a way to help reduce competition-related expenses.
You said selling price increases are mostly focused on overseas businesses. Does that mean you have already carried them out since the first quarter?
Yes. We have though partially.
Could you tell me specifically in which countries?
We'd like to refrain from mentioning specifically what in which countries, but price revisions were implemented, mainly in laundry detergents in Southeast Asia mainly.
What are some of the categories in Japan where you raised prices?
Well, I would say, pet-related products. And there are many other such categories. And one example is sand for use in cat's toilet. Their costs have increased significantly, and therefore, we have reviewed our shipment prices.
My last question is how much you managed to increase prices in the first quarter as I would like to estimate the probability of your success in price increases in the rest of the fiscal year? How much were you able to benefit from the price increases in the first quarter? As you said, you had implemented them in overseas as well.
We'd like to refrain from giving you specific figures, but it would be in the order of hundreds of billions of yen.
Hundreds of millions of yen, okay.
The next question is from Ms. Kuwahara of JPMorgan Securities.
Kuwahara from JPMorgan Securities. Raw materials cost rises are quite severe. And so I would like to make sure we are on the same page in terms of assumptions used in your forecast of the full year impact of 1.5x or twice as much. The slide I'm looking at is Page 24, which shows raw materials prices initially assumed, such as to Dubia crude, domestic naphtha and crude palm oil prices as well as foreign exchange rates. What are the assumed the figures, when you came up with the impact of 1.5x or twice more, if you assume the most recent prices to remain flat, that should be fine. But if you take for, say, crude oil or palm oil prices is different now. Could you explain more about them?
At the moment, our assumption is that the prices will remain most recent levels for the rest of the year. Then you may ask why you will expect 1.5x or twice more. As the crude oil materials transition to the secondary or tertiary raw materials that we actually use there are supply-demand factors involved.
And in some cases, there will be a significant time lag or we may take out foreign exchange forward contracts for hedging. Therefore, even if the most recent situation continues for the rest of the year. As far as this year is concerned, we will only see an impact of 1.5x or twice the forecast because of the time lag. But on the other hand, this implicitly suggests that we are running the risk of facing a delayed impact in the next fiscal year.
Then my follow-up question. You seem to be determined to achieve JPY 230 billion in core operating income, even by cutting the competition-related expenses. But if this continues to the next year, you keep reducing the competition-related expenses. Do you not expect an impact on the growth targets in your medium-term management plan? Are you having any discussions as a top management team at all?
Our efforts to secure short-term profits by suppressing expenses are designed to be limited only to this fiscal year. In the current medium-term management plan, our original aim is to grow businesses steadily and generate cash. Therefore, even though we may need to review some of our initiatives, we hope to gradually return to normalcy where we will be doing what we should be doing.
The next question is from Ms. Miyasako from Jefferies Securities.
Miyasako from Jeffrey Securities. I have a question on the domestic consumer products. Earlier, you said you did struggle with laundry detergents. I would like you to comment on any increases or decreases that you saw in your market shares?
Well, mainly speaking, the fabric care is witnessing its competition intensify. And so we need to watch out for the kind of strategy to merely go after increasing market shares in this business environment.
And as you said, the laundry detergent did lose some of its market share slightly. Those that increased market shares include hand soaps, where we managed to increase the market share for this year.
So we do see differences from category-to-category. And while considering the business profitability, we will continue to figure out in which category we will seek to win as we go forward.
What were you referring to when you said competition was intensified in the laundry detergent market?
That is not something that we started to experience recently as a new phenomenon. But originally, this is the kind of market where competitors are quite strong and engaged in the fierce competition, including in advertising. So I didn't mean that there was something that happened quite recently, in particular.
Kao is talking about its plan to reduce the product volume per package of its detergent attack. Do you not consider such possibilities?
If we are going to have a major product initiative such as turning the product into a new brand or a significant renewal of a product, which will change the added value of the product we may well take that timing to carry out such plans. But simply changing the product volume per package is not among the ideas for initiatives for the moment.
Does that mean the idea is not included in the additional cost reductions described on Page 14?
That is correct.
On a related note, have you seen any trends either in the domestic or overseas markets for a shift to lower-priced products, which may already be the case in Thailand, as the inflationary trend has been increasing globally during the first quarter?
No. We do not believe there has been an increase in the share of lower-priced products in the sales mix, either in our company or in our peers, particularly more recently. I don't think there is much change in the undercurrent shift to higher unit priced parks.
Do I understand correctly that you're expecting the current trend to continue at least for the rest of the year?
Yes, we believe that intentionally focusing on raising the share of higher value-added parts in our product mix will serve us as a hedge against the rising raw material costs.
Next question is from Mr. Saji from Mizuho Securities.
I would like to ask about the environment for price increases in both domestic and overseas businesses. In the domestic markets, your competitors are proceeding with price increases, but we are hearing voices saying responses from consumers are different from the past, especially in categories that are your main state, such as fabric care and living care, including hand serves, toothbrushes and tooth space.
How do you see the current environment in terms of possible price hikes? Moreover, you said you will implement price increases overseas. But in Thailand, Malaysia, China and South Korea, if you are to exclude them, do you expect them to penetrate in each of the markets? If there is any risk, please share your thoughts with us.
First, on the domestic market. Some competitors have announced price increases, but our understanding is that the products they have targeted for price increases are disposable diapers, facial tissues and toilet paper. In other words, paper products, which seems to be better accepted for their price hikes in the market.
In the product categories that we have presence in, for the time being, we have not heard much about price hikes in the field, including information on blanketly raising the shipment prices. And our take is that even for those companies who did announce price increases, the reality is that they are still negotiating with each of their customers for implementing the price hikes.
In product categories where we are a market leader, we may be able to have control over prices, but in many of the categories where we are being affected by rising raw material costs, we are not a market leader. So though we are closely watching the situation so that we will not be left behind when our peers do start to take actions. We want to be responding flexibly depending on our competitive positions. As for overseas businesses, it really depends on distribution, sales channels and product categories. There are sales channels where we can sufficiently afford to pass cost increases on to the product prices. And so we want to accelerate our preparations for implementation going forward.
You said the impact could be worth JPY 9 billion to JPY 12 billion for the full year. But how would you see the breakdown between the domestic and overseas businesses, roughly speaking?
We believe the overseas businesses will be slightly more affected.
So even though the impact will be less in the domestic business, while keeping an eye on how your peers are moving you will primarily focus on cost reduction efforts. And if timing allows, you may also carry out price hikes. Is that a fair statement to make?
Yes, we believe we need to secure the overall profitability for our businesses. And so in the domestic businesses, we like to carry out what we can, wherever we can.
The next question is from Mr. Hirozumi from Daiwa Securities.
Hirozumi from Daiwa Securities. There's only one question allowed, so it is a precious opportunity. I'm looking at Page 11. Sales in local currencies by country has not been disclosed previously, so this data is quite appreciated. I would like to know the sustainability of the momentum, such as 1.5% for Thailand, 24% for Malaysia as well as that for China and South Korea.
Though you said China was not doing so bad if you exclude the electronic commerce related businesses, but the numbers are so different from country to country. And I wonder how you expect these numbers recorded in the first quarter to be sustained or changed in the second, third and fourth quarters for each country?
My response may be a bit qualitative. But in Southeast Asia, as for Thailand, unless its tourism industry recovers, the market will not regain vitality. But it is expected to come back gradually as the overall economy recovers. Therefore, the growth rate is probably going to return to the previous levels going forward. As for Malaysia, the growth rate achieved in the first quarter was mainly due to rebound from the significant drop in the same quarter of the previous year.
And therefore, it was too high. But we believe we will be able to record close to 10% in growth rate going forward. In Northeast Asia, as for China, it just happened that we were in the transition period temporarily right after we changed distributors. So we did post a positive growth in external sales, but the growth rate slowed down compared to previous years. We do want to return to previous levels as soon as in the second quarter, if possible, but it may take a bit of time.
But if that is the case, we do not expect the business in China to remain low in its growth rate for the full year. So we do believe China will recover. That said, however, as far as China is concerned, the impact of COVID-19 lockdown in Shanghai has been reflected only towards the end of the first quarter yet. And therefore, if the lockdown is prolonged, this negative factor could become more significant. But things will really depend on the government zero COVID-19 case policy.
What about South Korea?
South Korea is returning to its normalcy in terms of the economy. The growth rate is higher due to the rebound from the previous year's lower levels. But we think we will be able to achieve the growth rate that we originally planned.
There are 2 follow-up questions. You mentioned the relaxation of restriction as one of the factors in relation to Malaysia. Can you elaborate more on that?
I was referring to the relaxation of the behavioral restrictions due to COVID-19. Then it led to the revitalization of the market.
Another question. In China, are you saying there was no impact from the lockdown in the first quarter?
No, there was not that much impact. The effects we're starting to show in March. And the current situation is that logistics and other aspects are being severely affected, and we have a marketing base in Shanghai, and the work of our staff will be affected. So we are a little concerned if the situation is prolonged.
Since your company's factory is in Qingdao, is it safe to say that the impact so far has been minor to date?
Yes, in the sense that we have been able to continue our operations.
But in terms of the Shanghai market, there is impact. Is that right?
Yes. Sometimes, we are unable to arrange for trucks. And in physical stores, even if we have our products on shelves, there aren't that many customers who visit such stores. So there has been some impact in those areas.
Next, from Okasan Securities, Ohana-san, please.
My name is Ohana from Okasan Securities. I would also like to ask about Page 14. The increase in competition related expenses for the first quarter was only JPY 200 million. And I think that the plan was to actively spend in the first half of the year. So the upper left item of revising promotion frequency, is that something that has already been implemented domestically? Or are they something you will be doing going forward?
In the first quarter of this fiscal year, the rise in raw material prices exceeded our initial expectations. So we are controlling domestic sales promotion expenses as part of our efforts to absorb this rise. Since the impact is expected to increase in Q2 and Q3, we will continue our efforts to control costs in this area.
Looking at the breakdown of competition-related expenses, sales commissions and promotional expenses have increased considerably, while advertising expenses have been reduced. Is this also part of the review of the number of sales promotions? Is it just a matter of reducing advertisement?
Advertising is no longer limited to airing commercials on TV. So advertising expenses now include various web-based measures as well. Another impact is that compared to the first quarter of last year, there were fewer major new products in the first quarter this year, whether that is a good thing or bad thing remains a question. But in that sense, advertising expenditures at the time of launch were less than in the previous year.
Okay. I understand the advertising expenses, but the sales promotion expenses have actually increased significantly. So is the review of storefront promotion frequency, something you already have done? Or is this something that you'll be doing in the future?
These are sales promotion expenses to secure shelf space, for example. That is being strengthened while we are trying to suppress promotion expenses for discounts, which are deducted from sales under IFRS. Therefore, the sales promotion expenses in SG&A expenses have not decreased.
Am I correct in understanding that sales promotion expenses, which are deducted from sales are decreasing year-on-year?
Yes, that is correct. Although there are still areas where we have not done enough, we're making efforts to control them, and we'd like to further strengthen these areas in the future, which will hopefully show up as an outcome of the measures in the upper left-hand corner on Page 14.
Next, from Mitsubishi UFJ Morgan Stanley Securities, Sato-san, please.
Sato speaking. Can you hear me?
Yes, we can hear you.
Thank you. I think you made good progress on operating profit for the first quarter. In your plan for the first half, core operating income was JPY 7.6 billion, and it was JPY 5.5 billion in Q1. I don't know what you are expecting in Q1 and Q2, but I assume it was good. I'd like to know what contributed to the better-than-expected results and how far ahead you are of the plan? And also, was the retail price better than you thought as a result of special sales revision by your company or Kao, if that was the case?
Yes. To be honest, we think our progress against the 2 quarters or the full year is in line with the plan. We don't think our progress is particularly good. The reason for this is that, as I mentioned earlier, the impact of the increase in the cost of raw materials could become larger and larger in Q2, Q3 and Q4.
So we have set a target that the profit in the first quarter be higher than that in the second quarter in terms of the composition of this year's business plan. So in that sense, we are in line with the plan. Therefore, if cost reduction results are better than planned, or if raw materials impact turns out to be less than expected, then we will be ahead of plan, and we'll have some margin toward achievement.
Excuse me, of course, it is natural that there is the addition of raw material impact. But in the initial plan, the operating profit for the first half was to be JPY 7.6 billion and the operating profit for the second half was to be much larger. So against the initial figure of JPY 7.6 billion for the first half, I think the progress must be better.
Well, actually, the entire group is currently undergoing a renewal of the mission-critical system, which went live in May. The depreciation cost for this system will be included from the second quarter. So we originally estimated the progress of the first quarter to be higher than that of the second quarter.
Core operating income for the second quarter would be about JPY 2 billion. Last year, it was about JPY 6 billion. But due to the high cost of raw materials, you originally expected to be about JPY 2 billion. Is that correct?
That's correct.
Then with the raw material cost increase, the forecast is that it will be less than JPY 2 billion. So between Q1 and Q2, the plan is that the profit will change significantly. Is that correct?
The depreciation cost will be a handicap. So if we look in 3-month blocks, it may appear to go negative when the depreciation starts. However, this has been the original plan.
How much difference is there between Q1 and Q2 in depreciation?
Excuse me?
How much will depreciation expenses increased in the second quarter?
The amount of depreciation expenses is a little difficult to say, but the same level of profit appears as that much difference in the progress. And also, please factor in that the impact of high raw material prices is larger in the second quarter than in the first quarter. In the first half, it's about JPY 2 billion, and the cost of raw materials will increase.
Now was the 13.5% growth in hand soaps in the beauty care category in line with your plan? I think the market for antipyretic analgesics was also very strong. So was that also in line with your expectations? Or were there things that were so bad that they canceled out the strong expectations?
Of course, there were products or categories that performed better or worse than expected. And products like antipyretic analgesics performed better than expected. Hand soap sales were impacted by the abnormal figures the year before due to the reaction to COVID. So even if we sold a normal amount, it appears higher or lower year-on-year. So we believe it is proceeding in line with the plan.
Okay. I understand. So you're saying that the change in retail prices is not having a positive effect?
Yes.
You're saying earlier that for those items where you are not the market leader, you will take a wait-and-see attitude. Now is there not a benefit being realized in Q1 of the market leader raising prices or reducing sales promotions? Or maybe the prices turned out better than you expected?
We don't hear that kind of feedback from salespeople. I don't think there has been that much change.
Next, from Goldman Sachs, Yamaguchi-san, please.
This is Yamaguchi speaking. On Page 8, you have sales, total cost reduction and raw materials and others. I think there were breakdowns for each. Can you share that, please?
Yes. First of all, regarding the change in gross profit due to the change in sales, normally, if sales increased by JPY 4.5 billion, gross profit would increase by more than JPY 2 billion. So indeed, it has increased by about JPY 2 billion impacted by sales.
But from there, about JPY 1 billion is booked for factory depreciation and amortization. In addition, there was a change in the segment composition and the growth rate of other segments was higher than that of consumer products this time. So the effect was canceled out by segment composition, resulting in JPY 300 million.
I think in terms of the total cost reduction, probably there was a slight increase in logistics costs.
Yes, we've taken measures to reduce costs by JPY 600 million, but logistics costs have increased by about JPY 200 million, and we estimate the total reduction to be JPY 400 million.
I'd like to know about raw material impact breakdown of domestic and overseas business.
The composition is JPY 1 billion domestic, just under JPY 2 billion, JPY 1.9 billion for overseas.
I think the breakdown of the annual raw materials impact showed domestic bigger than overseas. But as you mentioned earlier and also on Page 14 of the material, it says that Southeast Asia is in a very tough situation that materialized in Q1.
Yes, the detergent accounts for a very high proportion of our business in Southeast Asia, and we are trying to increase the composition of personal care products but it is not something that can be achieved overnight. In addition, many of the raw materials for detergents are purchased on a spot basis at overseas companies. So compared to Japan, there is little time lag, and the effect is felt directly.
But you said earlier that margin of upward revision is larger for overseas. But if the time lag is a factor, I wonder if it is Japan that has the larger upward swing since the effect of the yen's depreciation also comes into play. Why is the upward swing in costs larger for overseas? Do you mean for the full year as well?
Yes. If we break it down by quarter, the impact of Japan will become larger and larger. But since the impact of overseas is already twice as large in Q1, the amount of cost increase for the entire year will be slightly larger for overseas or will come out about even. That is how we see it.
Understand. One last thing, if I may. Concerning the sales factor of JPY 2 billion, I think that the spread of Omicron is behind the increased sales of hand soaps and OTC antipyretic. If that is the case, maybe they won't grow this much in the second quarter and onwards.
Well, I believe that the market and usage ratio for hand sops have increased to some extent, and with COVID gradually being contained, such customers may wane. However, we do believe that the market will continue at the expanded state to some extent. On the other hand, for antipyretic analgesics, there is demand generated from vaccines. So we recognize that just because the market has been good up to now does not mean it will continue to be good in the future.
Now we see a hand from Hirozumi-san, please.
You said that the market share of hand soaps is increasing, right? What's the reason why your company's market share is increasing, while the market is shrinking?
The shrinking market means the market contracted January to March of this year compared to January of March the previous year. Compared to the pre-COVID period, the market has grown to about 140%. I said that we have increased market share in terms of a trend for the year.
But I think that as the market expanded, the high affinity of our brand with the efficacy of sterilization and antibacterial effects have had a positive effect. The market share was down last year due to a temporary shortage of products. But now that the supply-demand situation has improved, things have returned to its original form and thus, our share has increased.
When the market grows rapidly and then contracts and after going through 1 or 2 cycles, the major companies with strong brands firmly take the market share. Is that correct?
Yes, that's right. I think that's how it plays out over the long run.
We have several people wanting to ask questions. But I would like to call upon Sato-san from SMBC Nikko Securities, who has not asked a question yet to ask the final question.
Sorry to take the last question. This is Sato from SMBC Nikko Securities. Can you hear me?
Yes, we can hear you.
I just have one quick question. I was just wondering about the concept of how to use competition-related expenses. And you mentioned that you are controlling competition expenses to counter the rising cost of raw materials and fuel. In Q1, you only spent JPY 200 million, but I think you were able to increase sales solidly. How do you assess you're being able to generate sales despite lowering competition-related expenses? Could you explain a little bit about how you use competitive expenses and how you increase sales?
Certainly, it is difficult to make a general statement here because it is related to the types of competitive related expenses and how they are used. But compared to before, we have diversified our sales promotion methods. And I think that the level of our sales management has improved compared to the past in terms of increasing sales while controlling costs. This is the reason why competition-related costs did not increase that much during the period from January to March, while securing an increase in sales. It will be great if we can continue this, so we will make an effort to try to continue this into the future.
Some of you have asked for a second round, but we have run out of time, so we would like to conclude the Q&A session here. We thank you very much for the many questions. This concludes the Lion Corporation conference call. Please be careful not to forget to hang up your phones. Thank you very much for joining us today.
Thank you very much.