Lion Corp

TSE:4912

Earnings Call Transcript 2023-Q1

[Kengo Fukuda, executive]

This is Fukuda of Lion. Thank you very much for taking time out of your busy schedules to join us today in such large numbers. I would also like to take this opportunity to thank you again for your long-standing support of our IR activities. I will explain about these 2 points let me now start. First, I will explain our consolidated financial results for the first quarter. This is the overview of the first quarter performance. We had an increase in sales and a decrease in profit. Although we believe that the overall performance was within the expected range indicated in our first half forecast at the beginning of the year, profits were down significantly year-on-year.

First, net sales increased driven by the overseas and industrial products businesses. As for our core operating income, raw material prices continued to push down profits in Q1 year-on-year and also one-off expenses related to the head office relocation and the amortization of new core systems that went live many of last year, increased year-on-year, contributing to a decline in income. Operating profit and profit for the period attributable to owners of the parent decreased due to the recoil from the gain on transfer of land recorded in January 2022. That is the overview in quantitative terms.

Before I continue with the figures, I'd like to show you the situation of the main markets in Japan and overseas. This chart that we always use explains the domestic market environment. As I explained at the time of the earnings announcement in February, domestic market for consumer products, as you know, has continued to show a downward trend in volume since the beginning of the year, and several categories have continued to show year-on-year declines in value terms as well. Overseas, there are large differences according to category. In the hand soap category in the middle, sales were down from the previous year, but they are much higher than before the COVID pandemic. On the other hand, sales of toothbrushes and laundry detergents on the left-hand right show year-on-year increases, but they have not yet reached 100% of the pre-covid level.

Against that backdrop, here are our business results. Consolidated net sales were JPY 90.8 billion, an increase of 4.4% or JPY 3.8 billion year-on-year. Excluding the effect of foreign exchange rates, the rate of increase was 1.5%. Core operating income was JPY 2.5 billion, a decrease of JPY 3 billion from the same period last year. Core operating income ratio against net sales was 2.8%, down 3.5 points from the previous year. Although net sales increased, core operating income decreased due to such factors as rising raw material prices and one-off expenses related to the relocation of the head office. Operating profit and below were affected by the absence of the gain on the transfer of land, as I mentioned earlier, EBITDA was JPY 6.8 billion, a decrease of JPY 2.4 billion from the previous year.

EBITDA margin was 7.5%, a decrease of 3.1 percentage points. Next, please take a look at the factors that impacted the core operating income. In this familiar waterfall chart, the total positive factors were JPY 1.9 billion, of which JPY 1.3 billion was changes in sales, product mix and others and JPY 0.6 billion was due to cost reductions, mainly in the cost of goods sold. The total of negative factors to the core operating income was JPY 4.9 billion. The impact of raw material prices continue to have the effect of raising costs against Q1 of last year, that was JPY 2 billion. increase in competition related expenses was JPY 1 billion, which was due to the increase in sales, especially in countries like China, leading to higher selling expenses. The increase in other expenses was JPY 1.9 billion.

This was mostly due to expenses associated with the relocation of the new head office, including moving expenses and 3 months' rent and amortization for the new core systems and expenses for some still remaining development. That is the consolidated company-wide situation and next, I will explain the results by segment. As usual, there are 2 lines. The upper line shows net sales and the lower line shows sales to external customers. For consumer products, I explained that the domestic market was somewhat sluggish during the period from January to March and this was one of the reasons for the decrease in sales to external customers.

Net sales was slightly up, while we view this as almost flat. Profit decreased due to the heavy burden of one-off expenses, as explained earlier for the entire company. In Industrial Products, both sales and profit increased due to strong demand in the chemicals sector for products such as additive agent for tires and carbon for rechargeable batteries as well as progress in passing on prices to customers. Overseas sales and profits also increased. I'd like to continue with an explanation of the Japanese market by category and overseas market by region. First, breakdown of the Japanese consumer products business. Overall, the market has been somewhat stagnant. Oral care sales declined this time this was due to our raising prices of low-end toothpaste, leading to its volume decline.

Sales in Beauty Care decreased by 7.7% with a reactive downturn from the previous year of Handok among others. In Fabric Care, the first quarter sales were weak, but sales increased slightly as a part of shipment of Ares, a softener launched in April was posted at the end of March. Sales in living care decreased due to sluggish growth of mainstay products of dishwashing detergent and household cleaners. In Pharmaceutical sales of mainstay antipyretic analgesics decreased year-on-year due to the reactive downturn from the previous year.

But due to the inbound demand growth, the product category sales increased. Sales increase in other is mainly due to the sales growth in the group among manufacturing subsidiaries, so they do not contribute to the consolidated total sales Overseas business results by region. Southeast and South Asia and Northeast Asia boat to sales and profit increases. The business group in previously enabled Southeast Asia has been changed to Southeast and South Asia since last year with the addition of Bangladesh. Sales in Southeast and South Asia increased 13.4%, and that constant currency, excluding exchange rate fluctuation, they grew by 2.7%. Segment profit increased by 133.6%.

In Thailand, in addition to the strong sales of body shop, we control the discount sales of laundry detergent and the profit increased. In Malaysia, partly due to the price of fence by competitors. Net sales at constant currency decreased year-on-year. But as it is affected by the exchange rate, in Japanese yen year-on-year change is positive. As for Northeast Asia below, net sales increased by 29.3% and at constant currency, sales grew by 21.6%. Segment profit increased by 41.1%. China impact is substantial here and since the second half of the last year, we have been strengthening sales in physical store channel and EC channel sales, which have been weak in the first half began to recover, and they substantially contributed to sales growth.

FY 2023 financial forecast. As for the consolidated financial forecast for FY 2023, those for the first half and for the full year remain unchanged from the initial announcement. As mentioned at the beginning, the first quarter results were almost within our forecast with some fluctuations. So we believe these forecasts are achievable, but we had some updates. So let me explain them on the next slide. This slide shows the revisions to profit forecast of change factors for the first half and the full year. Previously, we said that profit will decrease in the first half and the increase in the second half and the full year profit will rise year-on-year. And we updated the breakdown factors. As for the impact of raw material prices in the first half compared to the initial forecast, the recovery seems to be slower.

So from the initial forecast of minus JPY 0.5 billion, it was revised down to minus JPY 2.5 billion for the first half and we expect that it will turn to year-on-year positive profit factor in the second half. But the positive impact will be contracted by JPY 3 billion to plus JPY 1 billion for the full year. With more conservative forecast with a profit increase through cost reduction, growth in sales, in particular, effective cost pass-through and the sales and promotional cost savings will offset the decline and achieved a target for both of the first half and the full year. As for shareholder returns, it also remains unchanged. We returned profit to shareholders on a continuous and stable basis and pay dividend of JPY 26 per share.

So far, I have explained the business results and finally, let me cover 2 recent topics. First, as press release today on May 9, we decided to transfer part of the food with function claims business, including the lack faring business. which are sold online to Nisin Food Products Company Limited and signed a contract. We started the business in 2006 and started to fully deploy the Lagan business in 2007 and in the process of reviewing the entire business portfolio, we came to this decision. The transfer Nisin food product already developed the Health Food business online. And as a proactive player in sales and distribution, I'm convinced that it will generate synergy. Two companies will work together for the expected deal closing in November. Final one was press released on April 28, and it is about the reorganization within the group.

Lion Business Service, which deals with real estate management and employee benefit and in cordial support, which deals with personnel dispatch will be merged into the integrated company of Lion expert business in July 2023, identifying the common operation within the group, we'll standardize them and improve that productivity. In this company, we enhanced the support system for reskilling and promote the fulfilling environment for diverse human resources. This concludes my part. But finally, let me say a few words. The first quarter results were weak, though they were within our expectations. But given the profit squeezing factors will be disappearing from now and with a major product action planned in the second half, by leading it to the great success, we will strive to achieve the target for the first half and the full year, and we'd like to have your continued support.

With this, I conclude my presentation.

[Kengo Fukuda, executive]

We will now begin the Q&A session. First, Hirozumi.

[Katsuro Hirozumi, analyst]

This is Hirozumi. First question, I'd like to ask about the ups and downs on Page 14. You have a negative impact from raw material costs of JPY 2 billion in the first half and JPY 3 billion for the full year. Then you have changes in sales, product mix and others that offset that. Did you say that this is not an increase in sales, but a reduction in costs. Is it correct to say that you have not changed the core operating income forecast for both the first half and the full year because the higher-than-expected raw material costs will be covered not by increasing sales, but by reducing promotional expenses. In other words, I won't ask if there are no additional sales increase FX.

[Kengo Fukuda, executive]

The basic point is that there is higher-than-expected raw material cost of JPY 3 billion and saw positive impact to profit is expected to be smaller so we are trying to make up for it with changes in sales, product mix and others by JPY 2.5 billion. Changes in sales include a reduction in promotion-related expenses, the so-called rebates. So this includes everything. So we believe that we can overcome the negative impact by increasing sales volume, cubing promotional expenses and potentially some additional measures for cost pass-through. So I see various things are mixed together here. So you have JPY 3 billion in higher costs. That is not going to be made up for by strong overseas sales, but rather by additional cost pass-through and suppression of rebates, so you are significantly adjusting cost and the price increases to make the total unchanged for the year. Is that correct?

[Katsuro Hirozumi, analyst]

That is correct.

[Kengo Fukuda, executive]

It is not simply higher sales overseas, but rather, we are going to strengthen the price pass-through and suppress promotional expenses to try to capture profit here.

[Katsuro Hirozumi, analyst]

So for the full year, you are trying to cover the higher cost of goods sold by suppressing other costs. That's how this is structured.

[Kengo Fukuda, executive]

Yes, that's right.

[Katsuro Hirozumi, analyst]

Understand. That answers my first question. The other question is, I think you were initially looking at double-digit income increase in fabric care. My understanding is that you have areas and perhaps renewal of detergents and new products coming up, and that would lead to double-digit growth for Fabric Care in Consumer Products are you maintaining that forecast of double-digit growth? I wanted to ask you how the areas is starting up. That's the second question.

[Kengo Fukuda, executive]

First, it's only been on one, but we feel that the sales of Ares is going as planned, not above plan on par with the plan -- so for one thing, the results of this kind of product will be known only after the product is released, and the sales composition shifts from the initial bottle to the refill pounce. We have not yet reached that stage. So we're still in the process of assessing the developments, but the product has captured much more shelf space than our target, and the unit price has also increased. However, whether or not the sales of these products will reach the target will depend on how we shift sales to refill pouches in the future. The refill is what determines success, Yes, refill is quite important. So for example, the consumer sees a commercial and bus product, that's not enough. You have to see whether they buy the refill packs Yes.

[Katsuro Hirozumi, analyst]

That means you won't know until June or July.

[Kengo Fukuda, executive]

Yes, that's right. The reason I say that refill is the key is because fabric softness with many different preferences are launched, and there are customers who switch often among various brands, relatively large number of them. Therefore, we believe that loyal users are those who use the initial bottle and likes it and then goes on to buy refills over and over again. So that's the key measure in terms of assessing whether a brand will take root or not.

[Katsuro Hirozumi, analyst]

Sorry to dwell on this. I'm looking at the fabric care market trend on the far right side of Page 5. The red line is the fabric softener. Do you think this line will bend upward in April and beyond?

[Kengo Fukuda, executive]

We think we will -- it will rise for our company and I think the market as a whole will pick up led by us -- but I have to admit that the January-March period was more sluggish than we had expected.

[Katsuro Hirozumi, analyst]

So your company is going to work to lead this segment. I understand thank you.

[Kengo Fukuda, executive]

Thank you. Now Kuwahara, please.

[クワハラ, analyst]

I'm Kuwahara from JPMorgan Securities. Can you hear?

[Kengo Fukuda, executive]

Yes.

[クワハラ, analyst]

I'd also like to ask 2 questions. The first one is the change in how you view raw material costs. Sorry to dwell on this topic. In the later pages, you show assumptions such as crude oil and naphtha prices. But I wonder if it's simply that the market conditions have changed or if it is due to some other factors like the domestic material prices rising more than expected. Also, please let me confirm that the change here is mainly for the domestic market and that there is no change in the forecast for the overseas market.

[Kengo Fukuda, executive]

Thank you for the question. I think it is more the latter rather than the former. It's not simply a change in some indicator, but rather the supply-demand situation has changed and although the cost originates from crude oil, it was the OPEC production cut and the developments in the U.S. interest rate hikes that led the yen to not appreciate as much as we had expected. So it was not a matter of any specific raw material cost increasing, but rather the overall delay in costs.

[クワハラ, analyst]

I see. Which do you think is more significant domestic or overseas? Is it safe to assume that it is mostly domestic? Or does overseas also have an impact. There is some impact from overseas. But since there is the effect of exchange rates, domestic is still the large factor.

Overseas in the first quarter have contributed to cost reductions year-on-year Understood. Second question, I understand how each factor compares with the forecast. But for each business segment, i.e., domestic consumer products, industrial and overseas, how did they compare with the forecast? And also you mentioned that you are planning price pass-throughs for domestic products, but were you able to make such pass-throughs in this first quarter? If you could explain about that, that will be appreciated.

[Kengo Fukuda, executive]

Breaking down by business, as we discussed with Hirozumi's question earlier, we feel that domestic consumer products in general have been a bit slow. There was a lot of talk in the press about prices going up over the year-end and the new year holidays and so we think this may have led to households slightly reducing stock. But COVID has now been downgraded to Category 5, and we saw a large number of people going out during the Golden Week holidays. So I think things will start to improve a little from now on. As for the overseas markets, China did better than our forecast and Malaysia did worse. In Malaysia, price competition for detergents is getting tougher. So each country has its own pluses and minuses compared to the forecast. But in aggregate, we think that it falls within the range of our forecast.

[クワハラ, analyst]

What about price pass-on efforts you have been making considerable efforts since the latter half of last year, including cubing promotion expenses, and you said that you will strengthen such efforts this year as well. I guess this is included in the changes in sales section.

[Kengo Fukuda, executive]

Yes, that is correct. It is included in the gross profit impact of changes in sales, which is several hundred million yen. The main new initiative we have starting from the fourth quarter of last year is we had the master transaction price that goes from the wholesaler to the retail stores for the low-end toothpaste to be changed, and we are raising the storefront price.

[クワハラ, analyst]

I understand.

[Kengo Fukuda, executive]

Thank you very much. Thank you for that. Next, Kawamoto, please.

[Hisae Kawamoto, analyst]

This is Kawamoto from UBS Securities. In Unicharm financial results announced yesterday, they explained that the shelf space for COVID-related products has been shrinking in stores and since you have hands sold and disinfectants, I wonder if they would be okay going forward, are there any signs of inventory reductions by distributors I see on Page 5 that the market for hand subs for the first quarter was negative. But could you give us an idea of how your company's sales were?

[Kengo Fukuda, executive]

In the first quarter, sales of our hand soaps were also down. So we will have to say that COVID-related demand is declining compared to last year. Although the reaction is probably not as extreme as that for products like masks that Unicharm was probably talking about. The market for hand soaps and disinfectants is seemingly returning to their original state from a temporary expansion.

[Hisae Kawamoto, analyst]

How was your hand stop sales in the first quarter.

[Kengo Fukuda, executive]

We don't disclose sales percentages for individual products, but the decline in sales was about the same as the market.

[Hisae Kawamoto, analyst]

I see. In order to deal with that, I think that inbound international visitors are coming back, and I think sales of OTC drugs may be better than those of cosmetics for this inbound market. But what signs are you seeing in the current return of inbound demand?

[Kengo Fukuda, executive]

Inbound demand has been increasing as the number of Chinese tourists increases, so we have high expectations going forward.

[Hisae Kawamoto, analyst]

Could you give us an actual figure for the first quarter?

[Kengo Fukuda, executive]

In the first quarter, we think there was over JPY 1 billion from inbound visitor demand. However, even during COVID, we had about JPY 2 billion annually, so that number is not additive.

[Hisae Kawamoto, analyst]

I see. So in the first quarter, inbound sales were JPY 1 billion, which is an increase compared to the previous year.

[Kengo Fukuda, executive]

Yes, that's correct. I think it's about double the amount of the previous year.

[Hisae Kawamoto, analyst]

One more brief question. I want to ask you about China. This quarter, you grew 53%. Is it due to the good relationship with the new e-commerce channels? I see an acceleration from the fourth quarter, but if you could explain the sustainability of this trend.

[Kengo Fukuda, executive]

Regarding China, as we have explained previously, we changed the vendor for our online channel, and we started working with the new vendor in the second half of last year and sales at flagship stores have started to recover, and we were also conducting various e-commerce platform promotions and so from the previous dip, we are seeing a very high growth rate in terms of year-on-year growth, the first, second and third quarters of last year were periods of low growth, so we expect the growth rate to gradually decline, but we think that is the appropriate state.

[Hisae Kawamoto, analyst]

Thank you very much, that is all.

[Kengo Fukuda, executive]

Thank you. Now on Miyasako please.

[Mitsuko Miyasako, analyst]

This is Miyasako from Jefferies Securities. I'm wondering about the domestic market. I think you mentioned that it will see some recovery going forward, but what were the total figures for April in terms of value, price and volume.

[Kengo Fukuda, executive]

We don't have the market data yet, but are you asking about our sales?

[Mitsuko Miyasako, analyst]

The market or your company's sales, anything that is quantitative would be appreciated. I think there's a risk that the market will remain sluggish and that people will continue to be budget-minded, so I'm asking this.

[Kengo Fukuda, executive]

Yes, that is correct. Although the market data for April has not yet been released, one thing to keep in mind is that products in our category, such as toothbrushes, fabric, softness, bleaches are usually stocked at home and so consumers use that stock for a while and when that stock runs out, the volume base tends to gradually return to normal. With people becoming more active since spring, we anticipate that the sales will return though gradually as for our April sales, in addition to a slight upturn, there is also the effect of new products.

[Mitsuko Miyasako, analyst]

I think you said in February that you were not sure whether this was just consumers using their stock at home or really cutting down usage, but you think it's a drawdown of inventory at home and not cutting down in usage.

[Kengo Fukuda, executive]

Yes, that's right. In terms of full-fledged economizing, the category of daily necessities such that we are in may become a target for savings but not to the extent as food products.

[Mitsuko Miyasako, analyst]

So you expect that the market will start to calm down around May when household stock runs out.

[Kengo Fukuda, executive]

Yes, that is our thinking.

[Mitsuko Miyasako, analyst]

So continuing on from that, you have change in sales, product mix and others of about JPY 2.5 billion, and this includes volume and price impact. Is it correct to say that you are not lowering the volume but raising the price? I'm asking about the beginning of the year forecast. Do you mean for the first quarter against the assumptions made at the beginning of the year, I'm referring to the forecast revised this time. You mean the full year forecast.

[Kengo Fukuda, executive]

yes. I think we would have to achieve sales higher than forecasted to achieve this plus JPY 2.5 billion. So there is the effect of increased sales, but also other factors such as carbon promotional expenses and shift in product mix and also price pass-throughs to achieve this plus JPY 2.5 billion.

[Mitsuko Miyasako, analyst]

So just to confirm, the JPY 2.5 billion includes increase in volume as well.

[Kengo Fukuda, executive]

Yes, we are aiming to increase sales on a volume basis as well from the initial forecast.

[Mitsuko Miyasako, analyst]

Do you mean that you are also increasing sales in Japan, the volume increase will be mainly overseas. So for domestic, it will be flat.

[Kengo Fukuda, executive]

Yes, you haven't changed the volume Correct. If anything, I think the direction is to strengthen price pass-through during this year's operations.

[Mitsuko Miyasako, analyst]

I see. So you mentioned that the JPY 2.5 billion here includes controls for price, but in terms of weighting domestic or overseas, which did you increase.

[Kengo Fukuda, executive]

I think that the revision has been made more in the domestic market. Overseas, it is relatively easy to change our factory gate prices, and there are also categories like industrial products. So do understand that we are not just doing this in territory products.

[Mitsuko Miyasako, analyst]

I see. Then the price increase overseas and industrial product is larger than those in Japan and I was worrying that due to severe environment, it will be difficult to raise prices in Japan. Is that right? Well, yes, it will be difficult to do in a large scale. So for limited products, we are considering whether to revise the shipment price or not or raise price upon the product improvement for example, can you specify any it wouldn't be the mainstay product.

[Kengo Fukuda, executive]

Next, Sato, please.

[Wakako Sato, analyst]

This is Sato of Mitsubishi UFJ Morgan Stanley Securities. I'd like to ask about the Inbound sales. As for the hot selling products in the first quarter, well, the Inbound sales were JPY 1 billion in the first quarter. As I observed at the stores, your skin drug and Kokugikan, the cooling sheet for feet and legs were selling well. I'd like to know whether the Kokugikan is a category of pharmaceutical, and elect to know what products are selling well and popular trend by nationality.

I assume that Kokugikan Popular and Korean no Chinese customers. Would you give us some colors as to popular products and who are buying? And are they in line with your initial expectation? Sato-san, your assumption is mostly right. As for selling products, Per Acne is selling well for Chinese customers and the Kokugikan for fetal necks are sold well for Koreans and also Chinese customers better than the initial forecast.

[Kengo Fukuda, executive]

So you initially did not expect inbound sales at all. First, we need to confirm the definition of the inbound demand because they exist the so-called Chinese social buyer living in Japan and buy and send the product back home. And we are aware of them. So if that is included initially, we anticipated the flat inbound sales year-on-year. But the first quarter results were above that forecast.

[Wakako Sato, analyst]

I see is Kokugikan in pharmaceutical category. It is included in the pharmaceutical -- though it is not the pharmaceutical. It is included in the pharmaceutical category, right -- your initial forecast, antibiotic analgesic planned as plus 4%. But since February, you have been observing reactive move. Including this, do you think that the pharmaceutical business has upside potential. By quarter in the first quarter last year, vaccine business was relatively robust. So year-on-year number is negative. But even after the COVID reclassification to Class 5, government told people to take antipyretic analgesic and rest at home in the case of fever. So throughout the year, we expect a certain level of demand.

[Kengo Fukuda, executive]

I see are you taking any promotional measures for inbound now -- for the relevant products, we are enhancing the store sales of drugs, but noting any special scheme. I see. Eye drop is not coming in your case. In the first quarter, eye drop market was booming, partly due to the seasonal hay fever, and we do not have eyedrop for Poland allergy now. So we were not benefited by them. But partially, we had an inbound sales of eye drop. So eye drop sales also increased. Next Ohana.

[Yuji Ohana, analyst]

This is Ohana of Nomura Securities. I'd like to ask about the waterfall chart. Increase in other expenses. You said that most of them was relocation cost and depreciation cost of IT systems. Would you give us the breakdown? And when I refer to the profit by segment, adjustment was around minus JPY 1.6 billion, significant decline year-on-year. So how was it affected? Or was there no impact.

[Kengo Fukuda, executive]

As for the other expenses, the relocation cost is well off cost and the rent of the new head office is recurring cost, these are about the head office. As for the IT system, depreciation costs increased year-on-year. And a part of IT system maintenance cost still remains. Each accounts for 1/4 of the total, JPY 0.4 billion to JPY 0.5 billion, respectively. Therefore, relocation costs and the IT system maintenance cost will not recur in the second quarter onward. Depreciation cost remains in April but will not be posted in May onward. These are the changes year-on-year.

[Yuji Ohana, analyst]

Understood. Then in the second quarter onward, most of them will not be posted except for the rent. Is that right?

[Kengo Fukuda, executive]

Yes, a small part of the internal installation work cost will remain, but mostly yes.

[Yuji Ohana, analyst]

I see. Consolidated adjustment is minus JPY 1.5 billion. I think for the full year, you said that the core operating income will be almost flat year-on-year as plus number. But the first quarter minus is substantial. How should we see this?

[Kengo Fukuda, executive]

This is due to the quarterly time lag. There was a substantial unrealized gain in temporary inventory related to the product wood raw material is produced within the group, and we make the product and sell we plan large new products launched in spring and autumn this year. Prior to this, we had to have the construction work done in Golden Week in May and before them, we had to build up the inventory of existing products. So due to the transaction within the group, inventory was be up, and that affected adjustment in the second quarter onward, with the progress in sales and corresponding reversal it to be gradually eliminated.

[Yuji Ohana, analyst]

Understood. Second, briefly, as for the raw materials, in the first quarter, its adverse impact was already large and the second quarter negative impact will be limited to only JPY 0.5 billion or so. In Japan, compared to the forecast, the negative impact was considerably larger. So in the second quarter, can you manage the negative impact of small as JPY 0.5 billion.

[Kengo Fukuda, executive]

Contraction year-on-year decline was slightly slower in January and February -- but we do not think that cost was not declining, but it is taking more time than we expected. As for the latest number in April and May, the situation is not substantially deviating from the initial forecast. So as for our view for the second quarter per say, it is not so different from the initial forecast.

[Yuji Ohana, analyst]

I see. Then are you reasonably confident with this forecast?

[Kengo Fukuda, executive]

Well, there is uncertainty in foreign exchange but offsetting it with sales changes, we will strive to achieve the second quarter profit target.

I see 2 people waiting for the question. So let me appoint 2 people for final questions before closing. Mr. Yamanaka, please.

[山中 志真, analyst]

This is Yamanaka of Nikko Securities. I have questions about domestic and overseas business. One question for each. First, for domestic business, volume was more sluggish than expected. Looking at the post data in Japan, toothbrush, toothpaste, laundry detergent householder cleaners, those in your product portfolio showed a weaker volume trend than the other product -- some competitors are able to sustain the volume or take pricing.

But in our case, I think you control the sales promotion, I mean the weak volume trend to fill the shortfall in the third quarter last year, you said that the sales promotion control in our business was not permeating as expected. Is your revised plan challenging after some plus and minus Or do you think there are various ways to achieve the target? How should we see this? This is my first question.

[Kengo Fukuda, executive]

Thank you, from the fourth quarter last year to first quarter this year, we have been working to raise the effective retail price of low-end toothpaste and due to this, in this quarter, Oral Care shares decreased, which is rather rare but it delivered the results. The mix of low-end product has been decreasing narrowing down the focus target. We think we will be able to cancel some risks looking at the market. As for our product portfolio of toothbrush ordering detergent.

Those are where the household stock buildup and the first quarter seems to have been affected by that. In the second quarter onward, we expect to see the gradual recovery -- as for the full year budget of sales promotion cost in the first quarter, you spent firmly as JPY 1 billion and we will save the marketing cost or advertisement cost in the case of shortfall of volume. In the last year, cost increase was far more than anticipated, and we had to take that option. But this year, if possible, we'd like to avoid it. In particular, besides Ares, we plan the launch of the large new products in the second half. We'd like to spend the promotional cost generously for the development of those brands. Unless we had no other option, we do not want to cut the ad cost.

[山中 志真, analyst]

Second question about the overseas business is a simple one. Overseas business margin improved. Let us know the profit breakdown by country or region of JPY 1.6 billion with a large profit regional exposure, please and as for the profit increase factor, was there any other factor than the raw material cost decline.

[Kengo Fukuda, executive]

Margin improved due to the diverse factors, but it was due to the business growth in China and increased mix of personal care, including the oral and beauty care product in Southeast and South Asia and in the overseas business in the first quarter, cost began to decline, and that also pushed up the profitability then profitability was 3% or 4% in the previous year, but will be higher this year as we aim to achieve growth with profit, we'd like to sustain or aim higher level of profitability.

Next, Mr. Saji, please.

[Hiroshi Saji, analyst]

Brief question about the inbound sales. In the peak of 2019, it was about JPY 6.5 billion and within this, the social buyers part was JPY 4 billion or so relatively substantial. You mentioned about JPY 1 billion plus of inbound sales in the first quarter. What is the mix between the inbound traveler and the social buyer? Presumably, in 2019, inbound travelers, sales were about JPY 2.5 billion and now with a certain level of travelers, I think their contribution will be considerable.

So comparing to 2019, how far do you think the inbound sales will grow this time? And I'd like to have your comment on the travelers and social way separately. This is my first question. In the first quarter, inbound travelers purchase was about 1/3. Going forward, situation varies depending on the level of the packaged tour travelers -- so do you think that the JPY 2.5 billion of 2019 can be reached in the foreseeable future for the full year number?

[Kengo Fukuda, executive]

Yes, if the current condition continues. I see. How about the social buyers? We were informed last year that their contribution did not drop substantially from 2019 level. What is your current forecast about social buyers -- for the year, constantly, the sales are about JPY 3 billion or so. What modes is that whether we'll be able to offer appealing product or not and some people buy Japanese toothpaste in Japan, but others buy them in their homeland. So for the company of a size, it is not that the same products continue to sell well for inbound -- but the purchase by social buyers is relatively steady I see time is almost up. Thank you very much.

It is just time to wrap up. As we took all questions, we'd like to close Q&A session. Thank you very much for many questions. This concludes the financial results meeting for the first quarter FY 2023 of Lion Corporation. Thank you very much for your participation today. Thank you.

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