Lion Corp
TSE:4912
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
American Express Co
NYSE:AXP
|
Financial Services
|
| 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 |
|
Target Corp
NYSE:TGT
|
Retail
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
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
1 763.5
|
| 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 |
|
|
Estee Lauder Companies Inc
NYSE:EL
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Church & Dwight Co Inc
NYSE:CHD
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
American Express Co
NYSE:AXP
|
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 |
|
|
Target Corp
NYSE:TGT
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
Mueller Industries Inc
NYSE:MLI
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Lion Corp
Earnings Call Analysis
Q1-2024 Analysis
Lion Corp
In the first quarter of fiscal year 2024, Lion Corporation reported consolidated net sales of JPY 92.9 billion, marking a year-on-year increase of JPY 2.1 billion or 2.3%. However, when adjusted for foreign exchange rate fluctuations, underlying sales were slightly flat. The growth was driven primarily by a 16% increase in overseas sales, while domestic sales faced headwinds due to the divestment of certain brands and a strategic shift towards higher value-added products.
Core operating income increased to JPY 3.9 billion, an upsurge of JPY 1.4 billion year-on-year. This was attributed to various factors including price increases that collectively enhanced profitability by JPY 1 billion. Despite a competitive environment and rising expenses, actions taken to manage costs, such as SKU reduction and focusing on profitable segments, have started to show positive results.
The Consumer Products segment did not pursue aggressive sales growth; hence, its overall sales saw a decline, but core operating income was up JPY 1.17 billion. Conversely, significant growth in the Overseas segment led to improved profitability, showcasing a solid strategy in international markets. This includes a focus on personal care products in regions like Southeast Asia and Japan.
Though oral care and pharmaceutical sales grew, categories such as beauty care and living care struggled due to aggressive pricing from competitors, particularly in fabric softeners. Lion Corporation aims to refine its product portfolio, emphasizing high-margin products while discontinuing unprofitable lines. This strategy reflects a commitment to enhance operational efficiency and long-term profitability.
Management reaffirmed the fiscal 2024 guidance with a focus on a JPY 4 billion total price increase throughout the year, aiming to counterbalance rising raw material costs. They anticipate potential challenges in the latter half of the fiscal year due to global economic conditions but are confident in their Q1 performance to continue the upward momentum. The upcoming quarters are expected to see consecutive improvements as they roll out new products and strategies adopted earlier this year.
Lion Corporation has set a policy of progressive dividends, recently raising the dividend by JPY 1, marking the ninth consecutive year of dividend increases. This outlook underlines the company’s determination to enhance shareholder value amidst operational transformations and market challenges.
In conclusion, Lion Corporation's first-quarter performance indicates a strong start to fiscal 2024, with notable gains in overseas markets and strategic internal adjustments yielding positive results. Investors should watch for ongoing positions in product enhancements, pricing strategies, and overall market competitiveness, as these will significantly impact future profitability and growth.
You don't have any saved screeners yet
Hello. This is Fukuda of Lion. Thank you for your continued support of our IR activities. Also, thank you very much for taking time out of your busy schedule today to attend our financial results briefing.
The contents of today's presentation are the financial results for the first quarter and the fiscal '24 financial forecast.
I will start with the first quarter results. The next page shows the highlights, which is a qualitative summary. In the first quarter, both net sales and core operating income increased year-on-year, broadly in line with plan. In terms of sales in Consumer Products, sales of oral care products and pharmaceuticals which had new products, grew but overall sales declined. In addition, we sold some brands in the Functional Foods business last year, which also had a negative impact on the sales decline. In overseas, sales increased significantly in every key country, resulting in an increase in consolidated sales.
As for core operating income, we have been working on the recovery of profitability in the domestic business, as announced at the financial results briefing in February, which has resulted in an increase in profit. With sales also increasing overseas, core operating income increased year-on-year.
As for operating profit and profit for the period attributable to owners of the parent, as already announced, the sale of the topical anti-inflammatory analgesic, [indiscernible] closed at the end of March. And the gain from sales is accounted for in the profit increase.
This page shows the P&L. First, consolidated net sales were JPY 92.9 billion, up by JPY 2.1 billion or 2.3%. Underneath in the parentheses, it says minus 0.2%. This is on an underlying basis at constant currency, excluding the impact of exchange rate fluctuations.
When excluding FX impact, sales decreased slightly and remained broadly flat. However, as mentioned before, if the impact from the sales of the [ lactoferrin ] business were excluded, net sales increased on an underlying basis.
Core operating income was JPY 3.9 billion, up by JPY 1.4 billion year-on-year. Like mentioned earlier, operating profit and profit for the period accounts for the sales gain from the pharmaceutical brands.
EBITDA was JPY 8.6 billion, up by JPY 1.7 billion year-on-year, and the margin improved by 1.8%, reaching 9.3%.
Next, here is a waterfall chart showing year-on-year changes in core operating income. Yellow shows the factors that contributed to the year-on-year increase in income. The first item at the top is changes in sales, which had a positive impact of JPY 1.6 billion. To break this down, gross profit increased by JPY 800 million due to the effect of increased sales mainly overseas and price increases and other factors in Japan. Another JPY 800 million is attributed to changes in segment composition, et cetera.
The total cost reduction was JPY 600 million, and the impact of raw material prices was JPY 600 million positive. Japan is contributing negatively slightly, but overseas continues to contribute positively, resulting in net-net JPY 600 million positive impact. The increase in competition related expenses were JPY 1.7 billion.
When breaking this down between Japan and overseas, it was almost entirely due to an increase in sales promotion expenses in line with the increase in overseas sales. In other expenses, personnel expenses increased as well as costs related to the head office relocation last year. However, other expenses decreased overall, net-net by JPY 300 million. All in all, core operating income reached JPY 3.9 billion.
This page is a reminder of what we explained in February this year regarding our initiatives for this year and beyond based on last year's business results. Looking at the right-hand side in blue, regarding the Overseas business, we will strengthen growth measures that are already working.
On the other hand, in the domestic Consumer Products business where we faced challenges last year, we have started to take measures such as clarifying the separation of business fields in the portfolio, shifting to high value-added products so as to increase gross profit price increases and SKU reduction to improve business efficiency. We believe that some of these efforts are beginning to produce results.
The results can be seen on the following pages. This is results by segment. As usual, sales are broken down into the upper and lower lines. The upper line is net sales and the lower line shows sales to external customers. As mentioned earlier, we did not pursue excessive sales growth in Consumer Products but work to improve profitability, resulting in a decrease in net sales overall. But core operating income increased by JPY 1.17 billion.
As for Overseas, the sales growth rate was as high as 16%, and core operating income increased accordingly.
As for the Industrial Products business, which is in the middle, inventory adjustments, et cetera, were carried out by key overseas customers, which led to a decline in sales due to the tough circumstances this year.
Next, I explain domestic Consumer Products by category. As I mentioned earlier, sales of oral care and pharmaceuticals were up, but sales of beauty care, fabric care and living care were down. The situation is that the oral care business continues to do well. The new product, [ Optune ] was launched at the beginning of April so there were no sales in Q1. But sales of brands such as NONIO were strong.
In addition, sales of pharmaceuticals increased over the previous year with the launch of a new high-priced eye care product in March having a positive effect on sales.
On the other hand, in the fabric care category for laundry detergents, we launched NANOX one last fall and have been working to nurture this product, which led to higher sales. But sales of fabric softeners, especially the long-lasting fragrance type product, Aroma Rich, struggled due to aggressive pricing by competitors leading to lower sales.
In the living care business, [ bath ] detergents faced fierce competition. And for kitchen detergents, product renewals are scheduled in April and we discontinued sales of some products and those factors have led to lower sales in Q1.
Sales for others, one line above the total is down. This is almost entirely due to the absence of sales from January to March of the functional food business, which was sold last year.
As for the Overseas business, we break it down by region. Top line sales continues to trend steadily in major countries and raw materials is having a positive impact on profits, resulting in an increase in both sales and profits.
In Southeast Asia and South Asia, sales in Thailand and Malaysia, especially in Malaysia, were down considerably in the first quarter of last year due to price competition, but have recovered this year, resulting in a large increase in sales. In Northeast Asia, China and South Korea continued to do well.
Here is the situation by country, although I have just about explained everything in the previous page. In Thailand and Malaysia, sales increased due to growth in the top line of mainstay products and you see the sales composition of the personal care business on the right and that is gradually expanding. So we believe that our overseas growth strategy is generally on track.
In China, as we have been explaining from before, we have switched to local production for our main product, White&White, and we are going offline to areas where we previously didn't have sales channels so the situation is that we are continuing to achieve high growth.
So that is the explanation about the first quarter. And now I would like to briefly go through the forecast for the full year. We have not made any changes to the figures for fiscal 2024 that we announced in February of this year. We were able to have a relatively good start in the first quarter, and we hope to continue this trend. However, we expect that risks such as the foreign exchange rate and the price of crude oil due to the Middle East situation will become more severe in the second half of the year. So we will continue to make efforts to solidify our performance in the first half of the year. And also, we must work to ensure we have strong contingency planning for the second half of the year so that for the full year, we will definitely achieve a reshaped profit recovery.
Lastly, regarding shareholder returns. As announced in February, we have taken our policy a step forward in that we aim to pay progressive dividends. And this year, we have increased the dividend by JPY 1, making it the ninth consecutive year of dividend growth.
Going forward, we must implement our medium-term management plan with full consideration of stock prices and the stock market, and we will consider this matter based on our policy of increasing shareholder returns in a flexible manner.
This concludes my explanation. We are determined to achieve these results this year to launch us into the second stage of the medium-term plan starting next year. We ask for your continued support. Thank you.
As mentioned in the presentation and the slides, we are disclosing external sales figures for the 4 major overseas markets starting this fiscal year. Also, since we are trying to increase the composition of personal care business, in the reference material, we have shown the composition of overseas sales by business category. So please refer to those information as well.
We will now move on to the Q&A session.
So first person is Hirozumi-san.
This is Hirozumi from Daiwa Securities. Can you hear me?
Yes, we can.
I have two questions. First, as Mr. Fukuda mentioned, you were saying that business was not so bad, and you would like to keep it that way. So I was under the impression that consolidated business performance is exceeding the internal forecast. I was wondering how much the overall consolidated performance exceeded the forecast and how much of a buffer you were able to build? Can you share your view with us? That's my first question.
To be honest, we view that the first quarter was in line with our expectations.
In line?
That's right. We're not ahead of plan.
Okay. All right. Then can you give us some detail on what has been performing well versus what has not?
First, the Overseas business has been better than expected. For the Domestic business, we did not deviate that much from plan. However, we were not able to fully account for the decline in sales and income of industrial products due to the worsening environment. All in all, we were in line on a consolidated basis.
You mentioned, inventory adjustments by overseas customers for industrial products, didn't you?
Yes.
Tire adhesive agents for tire manufacturers and film adhesives for smartphones. We also have heard that conductive carbon for EV applications is weak as well.
So inventory adjustments are underway. Although it's not happening on a constant basis.
I understand. How about consumer products? Is it also in line?
Yes. Of course, there are positives and negatives by business field. But overall, the business is broadly in line.
So Consumer Products are broadly in line. Overseas is a little better and Industrial Products are a little worse?
Yes, that's right.
My second question, which partly overlaps with the first is that, I thought this year's theme would be clarifying the separation of business fields and profitability. So I wanted to ask you about the progress. I was wondering if you can explain a little bit more about this. Can you confirm whether you have actually seen improvements in profitability regarding your efforts around clarifying the separation of business fields and profitability and enhancement. That's my second question.
First, on a year-on-year basis, against the January to March quarter of last year, I would say that the results are about over JPY 1 billion in terms of price increases and changes in the value-added composition of products.
So did you say a little over JPY 1 billion?
This is accounted for in the JPY 800 million attributed to changes in segment composition.
I see.
There are several hundreds of millions of yen that were offset due to segment mix.
I see. So JPY 1 billion is accounted for in the JPY 800 million due to price increases and changes in the value-added composition, leading to better profitability in the domestic business.
Yes, exactly. In Q1, the results were clearly reflected. However, SKU reductions may result in inventory disposal or other losses over the short term. So we are proceeding while keeping a close eye on the balance between our efforts and business performance. However, we cannot quit immediately after making a decision because we have contracts with suppliers so we are currently working on planning how many SKUs we can reduce by the end of this year.
I see. So just to confirm, is the progress on track? Would you say that the progress on clarifying the separation of business fields and enhancing profitability is on track?
Yes, I would say so. Also, regarding sales of businesses, we did the sale of the Functional Foods business last year and closed the sale of [ Helix ] and are working on [indiscernible] for its close. But there are still a few more items that we are considering. I am not sure if we will be able to do this by the end of this year, but we would like to move forward with this.
The next person is Ms. Kuwahara.
I'm Kuwahara from JPMorgan. I would like to ask you two questions, too. First, I'm referring to the changes in income outlook for the year. When comparing the first quarter results, the changes in sales and sales composition was JPY 1.6 billion in the first quarter alone. And I believe the full year forecast was JPY 3 billion. it seems like you were making good progress just with Q1. But I would like to confirm whether this is because the improvement in profitability you mentioned earlier is going well or whether it's because the increase in overseas sales had an impact? Because right now, it looks like the change in sales, product mix and others is likely to exceed expectations.
One more thing about the increase in competition expenses, it is already exceeding JPY 1.5 billion, which was the full year target. Can we expect this to decrease in the future due to an absence of new products? Or are you going to continue to spend in order to grow the overseas business? Can you comment on this? It's my first question.
Thank you very much for your question. As you rightly said, Ms. Kuwahara, there are positives and negative factors. Because overseas sales were better than expected, sales promotion costs overseas came in higher than planned. Therefore, changes in sales were greater than expected from the beginning of the year and the increase in competition expenses were also larger than expected.
Local management implemented these measures in light of the competitive landscape overseas as peers were aggressively implementing measures. So that's how things turned out. The results for Japan were broadly as expected.
A follow-up to my previous question is, what concerns me is because you are determined to grow, I believe that for this fiscal year, the entire company will do its utmost to increase profits. But would there be a chance that competition-related expenses kick in first before sales increases? What I mean is, will the overseas business weigh on your efforts to enhance profitability?
We are controlling the balance based on the assumption that overseas profits will also increase. So it's very important that overseas does not weigh on overall profitability.
I understand. Then I will expect that you'll be able to have good control.
The second question is about what you mentioned earlier about living care. You were talking about stop selling some of your products in the future. So for living care, is this something new that came up? Or is it not new? And if you can, can you share with us what you are thinking of doing? Is it going to raise your profitability further? Or because you're concentrating managerial resources, does this mean that sales of oral or pharmaceuticals are going to grow? That's my second question.
I apologize that my comments were hard to comprehend. I wasn't talking about the future. The comment was about the reason why sales declined in the March quarter. So what I was trying to say was that we had plans to launch a new product in kitchen detergents, CHARMY Magica in April. Prior to the launch, we sorted out some low-priced products such as CHARMY [indiscernible] and discontinued sales. So I was just explaining that these measures resulted in a decrease in sales.
Okay, I see. So because you had the key product replacement slated for April, the sales promotion in the category was slightly weak, leading to a sales decline. If the replacement were not to happen, are you saying that sales would not have declined as much?
Well I think that the sales promotion in the category was a little weak due to the key product replacement scheduled from April. But even if this event were not to take place, we may not have been able to avoid a sales decline. However, in any case, we are planning to make recovery in sales with new products in place in April.
I see your policy is not to become involved in intense competition in areas such as beauty, fabric and living care. At this moment, even if you do not spend competition-related expenses, are you saying that you are not losing against competition and sales trends are in line with your plans? Are other companies trying to take advantage of this opportunity to gain market share?
To be honest, to some extent, we have to tolerate what they are doing. We have not been successful in the past when we were aggressive, trying to gain market share. So for this year, we think it's more important for fabric and living care not to go along with the measures of other companies that are implementing measures trying to gain market share.
I see. And so far, are you saying that your strategy is proving to be positive in terms of enhancing profitability?
Yes.
The next person is Ms. Mitsuko Miyasako.
This is Miyasako from Mizuho Securities.
I just wanted to follow up on Consumer Products. So may I go ahead with my question?
Yes, we can hear you.
So for Consumer Products. You were saying that beauty and fabric care are in line, and living care is also in line against plan for the full year. I'm looking at the market data for the March quarter. And when you compare your performance against it, even oral care sales seems a little weak. It appears that the market is a little stronger overall, but what is your view?
Also, you were saying, you have to tolerate what competitors are doing for fabric and living care. But for example, for fabric softeners and oral care where you need to do better, you appear to look weak overall.
Well, that is because overall, we are trying to move away from generating sales volume through the sales of products in the low price range. In oral care as well, since last year, we have weakened our promotion of products in the low price range and this has resulted in a decrease in sales. Looking at sales by brand, we are aware that the overall growth rate is slightly declining due to the impact of the sales decrease.
On the other hand, for fabric care. Fabric softeners are a category in which we must fight for survival. However, at this moment, we are losing ground to the competition over the short term.
Has there been any changes in what competitors are doing?
We have heard that P&G is lowering their prices. Last year, we carried out measures for Airis and Aroma Rich. And in Q1 this year, we have been promoting the deodorizer type of fabric softeners. And because the promotions were relatively for long-lasting fragrance products, we have been able to increase sales a little over the short term.
I see. So I'd like to confirm what Ms. Kuwahara asked earlier regarding your overall business, including oral and fabric softeners, are you seeing improvement in profitability by implementing measures that you were planning when you look at sales and profits for consumer products?
Well, of course. There are some cases where we are losing against competition such as in fabric softeners, as mentioned earlier. And in beauty care, too, with hand soaps. However, overall, our view is that we are heading towards the direction we intended for.
I think you mentioned that the price increase will be JPY 4 billion. How are things going here?
That's our plan for the full year. But in Q1, we haven't done any price increases of major items yet. There will be shipment price increases from Q2 and beyond, and we are planning to reach JPY 4 billion for the year.
So Q1 not making that much progress was also in line with your expectations?
Well, yes.
Okay, I see. I understand. Secondly, about raw materials briefly, looking at the exchange rate and the current prices of raw materials, do you think that the prices will be higher than expected in Q2 or beyond? And what do you think you can do as a countermeasure in the second half or beyond?
Well, because of time lag, it's likely that our raw material prices will reflect the current weekend and high crude oil prices from Q3 to Q4.
Considering this time frame, the impact on this year's performance is estimated to be a risk of a few hundred millions of yen, which can be sufficiently offset by promoting cost reductions and reviewing the sales mix.
The next person is Ms. Hamamoto.
You mentioned earlier that price increases had an impact of JPY 1 billion in the first quarter. Is that right?
I'm sorry, we're having a little trouble hearing you.
So price increases had an impact of JPY 1 billion in the first quarter. Is that correct?
I mentioned the year-on-year numbers. So the impact of what we have done since the second quarter of last year had an impact of JPY 1 billion in the 3-month period.
I see. And that is included in the segment and composition change in the [ OP ] waterfall chart?
Yes, that is correct.
Then for toothbrushes, fabric softeners, [ mold ] removers, et cetera, which were planned for this year, are you planning on executing the price increases from the second quarter?
Yes, we plan to take further price increases from Q2 and beyond.
How about any changes in the environment for price increases between 2023 and 2024? Do You see any difference in consumer reaction, volume or other categories from your company's point of view?
Are you talking about the impact of the price increase on consumers?
Right. Changes in consumer reaction.
Well, for this year, I do not think that the price increases or the series of price increases are going to cool down consumer sentiment. This is just my personal viewpoint. But I think, this is the difference between products that you compare and buy versus products that you buy wherever you are at your convenience.
Consumers buy products that are on the shelves at stores. The products we sell are not products people compare and buy at different stores. Moreover, there is also the general perception that prices are too cheap in Japan. So I'm not just talking about this specific category or business, but you know how there was a lot of media coverage of [ golden week ] and travel. Prices are so low in Japan that I think people are starting to feel psychologically that the positive spiral between wages and prices need to take root. Although this is my personal opinion, that is how I see the situation.
Yes. I looked at the market data and saw that only eye drops have declined unlike other categories. What has happened? And how was inbound trends in Q1?
As for eye drops, on a month-by-month basis, there is a month where it has dropped over the previous year. We view this as a part of ups and downs and resulting from base effects and understand it to be a short-term phenomena and not a trend.
I think that inbound demand is the same as last year or maybe a little bit higher. We estimate that inbound sales was about JPY 6 billion per year. And since the pace is about the same this year, we expect a contribution of about JPY 1.5 billion per quarter.
The second point is briefly about overseas sales. Overseas sales appear to be better than the market data provided. Would this pace continue? And are both sell-in and sell-outs equally strong. Can we expect sales and profit increases to continue in the second quarter?
For countries where we have been doing business for a long time, such as Thailand and Malaysia, I think the competitive environment will determine a large part of the results.
As I mentioned earlier, sales in Malaysia were lower in January to March last year, and there was a rebound from that. And so we expect things to settle down a bit there.
In Thailand, we believe there is still room to increase distribution of toothpaste and personal care products in rural areas. So it will be up to whether we can deliver on that.
In China, there is still white space or areas where we have not been able to distribute our products. So although there is still a risk of an economic downturn in China as a whole, we believe that we can enhance the growth rate by expanding our distribution.
Judging from that, we think that overall, we may not be able to sustain this pace forever, but we will be able to maintain our growth path.
Next, Mr. Miyazaki, please.
I'm Miyazaki from Goldman Sachs. Let me ask a few questions. The first one is about oral care. Could you give us an update on the status of the new products? How did the first shipment go? Your sense of how things are going at the moment, and how they are doing against the market? That's the first question.
May we assume that you are asking about the recent developments of [ Optune ], which was released in April?
Yes.
The current situation is that after actually rolling this out, we are finding out that there is a very large variation from store to store. As you know, we are rolling this out in stores and stores where we are able to have brand-based display, where we display multiple products under one brand together and do a campaign of fast or slow, which do you choose in those stores we are doing very well.
However, this is a brand of 2 items, each of toothpaste, toothbrushes and mouthwash. So if they are not displayed together, the impact of the commercials may not be delivered in full force at the store front.
The degree to which we can implement these storefront campaign differs from chain to chain and even within the chain between individual stores. Our sales are now working to bring all stores in line with the stores that have the winning pattern.
What was better than expected was that more convenience stores have decided to carry this product than in the initial planning. So we are hoping that this would form the basis of sales.
I think at the convenience stores, it is difficult to have the brand-based display and asking consumers to choose, like you mentioned. But are you saying that the winning pattern you are looking for is being implemented successfully at convenience stores? Or are you saying that, that is not the case. But that if your products sell well in the convenience store channel, then you could expect that to make a modest contribution? Which is it?
I would say, more the latter. I don't think it's possible to create such promotional sales space in a convenience store saying, which one is for you. But since convenience stores carry only a small number of SKUs in toothpaste, if our products are selected, it will become a viable option to many and will contribute to the sales space.
I see. Next question. It seems that what your company is aiming for this time seems to have manifested well, with overseas sales growing steadily and sales of consumer products shrinking a bit, but profitability improving.
Are there any discussions within the company to accelerate the pace of these efforts in terms of structural reform, such as by narrowing down or eliminating certain areas and by incorporating more overseas growth into the company as a whole while lowering fixed costs in Japan? Any such discussions that go beyond what you announced in February? Or are you thinking, what was discussed in February is yielding results for January, March? And it is premature to discuss about taking further steps? Could you please share your thinking about this.
How drastic should we conduct portfolio reform is a topic that we are always discussing. In particular, the fabric and living care categories are process industries. So up until now, we have focused on operating production facilities at full capacity. But from now on, we will be thinking about even lowering the valuation of facilities a little, maybe eliminate or dispose of some equipment and consolidate production lines to make it a business where we avoid competing for market share at the expense of profitability. Over the mid- to long term, we believe that is the direction to go so we are constantly discussing this issue.
Next, Ms. Sato, please.
This is Sato from Morgan Stanley. Can you hear me?
Yes, please.
I just heard a part of what I wanted to ask, but looking at the changes in core operating income and in response to an earlier question, you said that the increase in sales is mainly overseas, so marketing expenses are also increasing. However, the impact of increased sales and increased marketing expenses totally cancel each other. Changes in sales is plus JPY 1.6 billion, and competition expenses is minus JPY 1.7 billion, with a total of minus JPY 0.1 billion.
Considering this, you say unprofitable businesses in Japan are being discontinued, but I wonder if it's correct to interpret the first quarter as overseas positive, domestic business falling short of the plan. All in all, according to plan.
Also, if you do not clearly indicate the impact of the discontinuation of unprofitable businesses and sales of businesses, it would appear that the company is doing quite poorly.
Therefore, if possible, please clearly indicate how much sales fell as a result of discontinued or sold businesses, and also indicate the actual increase in sales excluding the onetime effects, or you will give a very bad image of where you are. If you can clearly state the actual apples-to-apples rate of increase in sales in Japan, I'd like to know. And I would like to confirm if my earlier assumption is correct, that overseas were positive, but domestic was below the plan?
I think you're right about your characterization of the first quarter, Ms. Sato. I think it can be said that overseas business exceeded the plan in the short term, realizing a positive result overall.
However, for our domestic business, our pursuit of contracted equilibrium does not apply to all categories and all brands. I hope you will understand that we are trying to expand those that need to be expanded. And the 3 months results show the results of those efforts. The impact of the sale of businesses, as I indicated earlier in the other section of the domestic consumer products segment was approximately JPY 700 million. You see the sales from January to March last year. So if you subtract that amount, you will see the actual results.
I see. Sales of businesses is one thing. But in cases where you reduced the SKU by not aggressively pursuing a product, like in detergents as you mentioned, you should show that or it will look like you are losing badly. Is that acceptable to you?
We are reducing SKUs by, for example, eliminating campaign products and selling regular products, reducing the number of fragrance variants and consolidating multiple refill package sizes. So I think it would be misleading to subtract past sales figures for only those SKUs that have been eliminated.
Our basic approach is that, there might be temporary impact, but basically, we try to make up fully eliminated SKUs with other SKUs and increase sales per SKU. So that is why we are not presenting such figures.
I see. I noticed you mentioned earlier about this in categories where your competitive advantage is weak, like in the case of you withdrawing from shampoo production in the past. I think that in the surfactants area where there is a lot of volume, I think utilization rate is rapidly declining. So I assume you are thinking of integrating and you mentioned a little about eliminating facilities. So I was going to ask about this. And then you talked about it so I thought, oh, indeed, you're going to do it.
Now is that amount included in your plan for this fiscal year?
We would like to do it within the scope of us being able to achieve our performance targets.
Are you saying that there will not be a separate extraordinary loss? Since this is [ IFRS ], may I assume other expenses may increase?
There may be other income to offset that. So we will be doing this as we monitor such gains and losses.
I see.
So that's what we mean when we say we will work within the scope of the performance commitment.
I see. So you are looking at the possibility of reorganizing your factories in those areas. But even if that happens, there may be other expenses and earnings so you don't expect a major revision of the current forecast. Is that how you see it?
Next, Mr. Ohana, please.
This is Ohana from Nomura Securities. I'd like to ask for two simple clarifications. One is overseas. Earlier, you mentioned that more than JPY 600 million of positive impact were generated overseas from raw materials. But excluding that, I think that there was almost no increased profit overseas from higher sales.
Should we take this positively and say that you are utilizing the benefit of lower material costs and spending a lot of money on marketing to capture sales? Or is it that you have no choice but to spend a lot of money because of the relatively harsh competitive environment?
On that point, the situation differs by country. Thailand and Malaysia in Southeast Asia, other markets mainly seeing impact of lower raw material prices. While China has seen the largest increase in competition expenses.
Therefore, in major markets in Southeast Asia, it is less about increasing the top line by fiercely engaging in price competition and more about increasing sales while securing profits and the increased sales is leading to higher profit.
On the other hand, in China, we are expanding our sales channels, so competition expenses are temporarily increasing as an upfront investment. So if we break it down locally, the past 3 months, you could say we were emphasizing the top line in China.
If we consider that profits were up in Southeast Asia by JPY 600 million in the first quarter where the low price of raw materials had a major impact, it would appear that you had to incur some amount of marketing costs here as well. Is that not the case?
In Southeast Asia, we are making new investments in Bangladesh and other markets, although the amount is small. You could say that if there was the benefit of lower material costs, the profit increase could have been larger. But our approach is that since we are able to increase profits in total, we are strengthening measures for future growth.
The second point is a bit technical. But in the first quarter of last year, I think there was a lot of internal elimination of equipment for Airis and others. But the amount of adjustment in the first quarter of this year is not so different from last year. What is the reason why the consolidated adjustment has not changed so much from last year?
The elimination of unrealized gain related to capital investment is gone, but there is a slight increase in inventory adjustments, so that is why the total has not changed much.
We are still working to improve business efficiency and inventories as a whole are still at a high level, and we need to reduce the level of inventory.
We haven't seen sufficient results on that front. May I understand that the inventory adjustment is for Japanese consumer goods?
Yes. That is correct.
We have just reached the scheduled ending time, so we will now conclude our questions-and-answer session. Thank you all for your many questions.
This concludes the first quarter financial results presentation of Lion Corporation. Thank you very much for your participation today.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]