Thank you very much for joining us today. I would like to now begin the presentation of the financial results for the second quarter of the fiscal year ending December 31, 2025. I would like to begin with a 20-minute overview of the financial results, followed by a Q&A session. The event is scheduled to end at around 11

00 a.m. Thank you for your time.

Once again, I am Takahara from Unicharm Corporation. Thank you for taking time out of your busy schedule to join us on this hot day. Let me sit down and explain. I would like to begin by referring you to the document at hand, page 3. Here is a summary of the financial results for the second quarter of the current fiscal year ending December 31. I will explain the details on the following pages. Please see page 4. Highlights of the consolidated financial results include sales of 464.2 billion, down 4.8%, and core operating income of JPY57 billion, down 22%. The main reason for the decrease in sales and operating income can be attributed to the reaction to the record-high profits recorded in the same period of the previous fiscal year. Secondly, there were several reputational incidents in feminine care in China, and we were also affected by the increasingly competitive environment in the Asian market. In response, we aggressively invested in strategic marketing and sales promotion, which also put pressure on earnings. We are aware that the reputational damage in China is transitory, but for the time being, that effect has disappeared. Third, there is also the impact of the soaring DX-related and logistics cost system reforms in Japan. These things will eventually become the building blocks for future growth, and we are already beginning to see signs of recovery. On the other hand, interim income attributable to owners of the parent company increased mainly due to the receipt of JPY5.3 billion in insurance income in India and the utilization of tax loss carryforwards related to this income. The details of the financial results will be explained on the next and subsequent pages. Please turn to page 5. As for the quarterly results, the second quarter of the previous year saw steady progress in expanding the penetration of value shifting. As a result, we had record sales, but for this year, the hurdle was high, which was also a reaction to the record sales. In addition, the sales of feminine care in China were below the previous year's level due to a combination of temporary effects such as the harmful rumors I mentioned earlier, but they have remained firm, and I believe that a recovery trend is definitely beginning to emerge. One of the reasons for the decrease in core operating income is that in addition to the very strong performance in the previous year, which was also very strong here, we made aggressive investments in the current fiscal year, especially in the online market channel, with a view to future growth in China and Asia. The effects of this investment will become steadily apparent from the third quarter onward. Please refer to page 6. Turning to changes in core operating income, core operating income decreased by JPY16.1 billion this fiscal year. The main factors were a 12.9 billion decrease in gross profit and a JPY3.2 billion increase in SG&A expenses. First, the increase in SG&A expenses was due to the accumulation of logistics, sales promotion, DX-related expenses, and labor expenses, which rose 1.9 percentage points from sales. Logistics costs have increased by JPY900 million in Japan, and are affected by such factors as a decrease in loading efficiency due to legal changes, an increase in contract unit prices, and an increase in the volume of goods. Sales promotion expenses also increased by JPY900 million, mainly in China. Strategic investments in growth channels, such as e-commerce, were a factor. In addition, labor expenses, which are essential for sustainable growth, increased by JPY1.1 billion. R&D expenses increased JPY0.6 billion. In other expenses, system-related expenses increased by JPY320 million and depreciation increased by JPY900 million. The total increase was JPY3.4 billion. The decrease in gross profit was due to the very strong performance in the previous year, as well as the one-time impact of the rumors in feminine care in China, which I mentioned earlier, and the one-time pressure on earnings from strategic marketing investments in Asia. The effects of these investments are expected to become steadily apparent from the third quarter onward. Please refer to page 7. As for segment information by geographic area, first of all, the Japan business achieved a 4.1% increase in net sales and a 2.9% increase in core operating income, the highest results ever recorded. We recognize that this is due to the value shift that we have been continuously working on and more than half of the effect of the increase in revenue and profit is due to the value shift, but we have also strengthened our in-store presentation, many of our new products have been mostly successful, and as a result, the increase in the sales mix of wellness care and pet care has resulted in a solid improvement in revenue mix results. On the other hand, expenses increased by JPY1.5 billion due to DX-related costs, development of apps such as SofiBe, and strengthening of the information infrastructure. In addition, distribution costs increased, but the Japanese subsidiary was able to absorb these costs while maintaining high profitability. This was primarily due to continued expansion in the penetration of the value shift in adult wellness care, which led to a low single- digit revenue increase and double-digit income growth of 7.6% and 7.1%, respectively. This was the driving force behind the overall performance of the Japanese business. Apart from this, the Japanese business also achieved high single-digit sales growth and double- digit profit growth for feminine care, with an 8.1% increase in sales and a 17.5% increase in profit. In Asia, net sales declined 14.5% and core operating income fell 69.4%, resulting in a very difficult performance, with a core operating margin of 4.3%. This is mainly due to operations in China, Indonesia, and Thailand. First, in China, in addition to the impact of harmful rumors about feminine care products, sales and profits declined significantly, largely due to aggressive strategic investments in response to diversifying consumer needs and investments in online growth channels. In Indonesia, the distribution side has been reducing inventories and competing with the aggressive distribution and pricing strategies of local Indonesian companies, resulting in a large decrease in sales and profit. In Thailand, in the baby care business, the premium standard brand MamyPoko is improving steadily, but the economy brand BabyLove is struggling. Overall, sales and profits declined. However, in these areas, the effects of the measures we have taken since last year are steadily beginning to show and recovery is underway. In Vietnam, in particular, performance has already recovered from the second quarter, and the start of this third quarter has also started off very well. Finally, for the rest of the world, net sales increased 2.3%, core operating income rose 12.7%, and core operating margin increased to 14.6%. This is driven by the pet care business in North America and strong performance in the Middle East and Egypt. In the pet care business in North America, in addition to cat treats, sales of dog treats, which were newly developed in the current fiscal year, have been growing steadily, and we continue to maintain high growth. We do not expect any impact from the tariffs in the second half of the fiscal year onward due to the tightening of tariff policies, and from the third quarter onward, when the impact of the tariffs will actually be reflected, we are beginning to shift the supply chain for pet collars and toys imported from China to the US and other countries, for example. Therefore, we do not expect tariffs to have any impact on costs other than fluctuations due to business confidence. As for the Middle East region, the value transfer of baby care and feminine care products, which has been ongoing since the previous fiscal year, has firmly penetrated the region, resulting in sales growth. Strong sales growth was achieved both domestically in Saudi Arabia and in exports. We entered the Egyptian market in 2010, and we have been steadily promoting the use of disposable baby diapers and sanitary products, and are steadily expanding our business. The demand for these products is increasing in line with the economic growth of Egypt itself. We believe that further growth is expected in the future. Please see page 8. This is a graph of core operating income margin by geographical segment. Although there are some fluctuations from region to region, in Japan, we have made progress in penetrating value transfer, particularly in wellness care and feminine care, and have maintained a high profit margin of around 20% on a stable basis. In other regions, such as the US and the Middle East, as I mentioned earlier, value shifting efforts are steadily producing results, and profit margins continue to improve. In Asia, as I mentioned earlier, there are some expenses ahead of schedule due to the one-time effects on China and ASEAN countries, structural channel changes, and competition with local competitors, but we expect steady improvement with sales from the third quarter onward. And you can call it a halt, but the graph shows a reversal of the profit ratio in each of the three quarters, and I hope you will understand that the effects of this trend are steadily emerging in the second quarter as well. Please see page 9. The graph here shows the ratio of overseas sales to total sales, which was 64.3 percent overall, with Asia accounting for 41.4 percent, due in part to the strong performance in Japan. Please see page 10. I would like to give you some information by business segment. First, in the Personal Care business, both sales and profits declined. As I have explained earlier, wellness care and feminine care are performing well in Japan, and the margin mix is improving as a result of value shifting, but the reputational damage of feminine care in China and the increasingly competitive environment in the Asian market are having an impact. As for Pet Care, both sales and income increased. Although sales to the domestic market increased, higher costs of raw materials and higher logistics costs resulted in an increase in sales and a decrease in profit. On the other hand, as I mentioned earlier, in North America, the advance of orders to deal with tariffs caused an increase in inventories, but this was absorbed and combined with value shifting, and resulted in an increase in both sales and income, with sales up 14.6% and income up 25.3%. We are doing very well. Please see page 11. As for the impact of the exchange rate on each currency, in the first half of this fiscal year, the appreciation of the yen had the effect of reducing sales by approximately JPY10.2 billion and core operating income by approximately JPY0.5 billion. Next, I would like to provide an overview of our forecast for the fiscal year ending December 31, 2025. Please refer to page 13. This is a summary of the earnings forecast. Compared to the forecast disclosed in February of this year, we have revised the forecast downward. I would like to explain the differences. As I mentioned earlier regarding the main factors behind this revision, where recovery in the Asian region has been slower than expected, and especially in Asia, and with respect to feminine care in China, the transitory impact of rumors has also had no small impact. As for the baby care business, the market is shrinking faster than expected due to the declining birthrate after the COVID-19 pandemic and the accelerating trend of trading down, coupled with the shrinking population. It has also led to changes in purchasing behavior across Asia, trading down, and increased up-front costs for e-commerce channels. On the other hand, Japan, North America, and the Middle East all performed better than initially planned, but the slow recovery in Asia had a significant impact, resulting in an overall gap between the forecast and the results. The total of Japan, North America, the Middle East, and the rest of the world accounted for 84% of operating income, so Japan and the rest of the world performed very well. Regarding the second quarter, I mentioned the country of Vietnam earlier, and we are beginning to see some signs of recovery, in Asia. We are aware that the bad news has been factored in, so we expect the recovery to proceed steadily from the third quarter onward. Please refer to page 14. These are the highlights of the revised consolidated forecast for the fiscal year ending December 31, 2025. This is the second downward revision since the company announced a downward revision in 2016 due to the rapid appreciation of the yen. We are very sorry for your concern. Finally, I would like to explain our shareholder return policy. Please refer to page 16. Our basic policy for shareholder return policy is to target a total return ratio of 50% or more, which is the sum of dividends and treasury stock. In light of the current situation, we intend to maximize shareholder value through a higher level of returns. Please see page 18. This is the change in the acquisition of treasury stock. In addition to the JPY12 billion of treasury stock already acquired in FY2025, we plan to acquire JPY10 billion of new treasury stock in the future. Please see page 17. This shows the trend of dividends per share. In fiscal 2025, we will raise our existing target of a 30% dividend payout ratio to 35%, and we plan to increase the annual dividend by JPY3.3 per share to JPY18 per share. This will be the 24th consecutive fiscal year that we have increased the dividend. As shown on page 18, as I mentioned earlier, we will be repurchasing an additional JPY10 billion of treasury stock in the future, aiming for a total return ratio of 50% or more. This concludes my presentation. Thank you.

Thank you. We would like to start the Q&A session. Well then, Kuwahara, please go ahead.

Thank you for your explanation. This is Kuwahara from JPMorgan Securities. It is hard to tell from the outside looking in, but in particular, when you say that you have taken steps to address Asia and that they are steadily having an effect, there is no certainty or certain things in this world today, but what kind of indicators are you looking at and do you think they are effective? For example, I would like to know about sell-outs, and also that your company has reduced its inventory considerably. Especially since you said that China would return for feminine care to profit margins of about 10% once in the second quarter, so what is the background and what has changed that made you dare to withdraw that and think that you have to invest expenses here? You said the distribution inventory will fluctuate like Indonesia. I think Asia is normalizing. I would like to ask how you are proceeding in response to this.

Thank you. First of all, which indicators confirm the recovery trend? Naturally, we are looking at delivery figures to retailers, but probably the most important thing is market share, albeit with a slightly delayed effect. The market share in each country, including China where we are concerned, has bottomed out and is on the rise, and the feminine care category is in a strong position because of the purchasing characteristics of the category, the local characteristics, the relative difficulty of brand switching, and the strong trust in the brand. Also, the impact of the new products on the overall business in Asia is certainly ahead of the cost, so it is a drag on profits, but we have nearly doubled last year's growth in both wellness care and pet care. Also, one situation for baby and feminine products is that the market share I mentioned earlier has remained very stable. Also, with regard to the fluctuation of inventory adjustment due to the distribution characteristics of ASEAN, Thailand is not a very large country, and the supply chain is relatively centered on traditional trade, so it should not cause much volatility. Rather, with price, when you want to maintain market share in a market that is not large in terms of market size, it is easy to have price competition with local companies, both baby and feminine care, so the countermeasure against this is basically to introduce new products rather than to compete with them on price. This is also a cost-intensive process, but we are seeing a trend of sales growth, especially in the fourth quarter. Thailand will introduce new products priced even lower than the middle class in terms of the price line, so full-fledged, not in the fourth quarter, but from the beginning of fall onward, there will be a positive effect from the impact of orders for these new products. And one more thing, sorry.

How do you manage the fluctuations in distribution inventories in places like Indonesia, other than Thailand? I understand Thailand. The supply chain is probably not very long. But what can you do about it? I am wondering if I should be surprised every time it appears.

Indonesia is by far the country with the highest percentage of baby sales, and there is not that much e-commerce, so we ended up competing on the ground. The distribution format has shifted from the traditional trade, of course there are still many general stores in terms of volume, but what is growing is the modern trade, which is called a "mini-mart," a mix of a pharmacy and a drugstore in Japan. This type of business is characterized by strong sales, but it is also extremely price-competitive, and inventory increases when plans are off. We can't just sit on our hands and do nothing, so we have to make firm proposals and offer them in various forms, but if sales do not meet the plan in a competitive environment, they will become inventory, and the current situation is that there is an extra promotional cost to dispose of them. To stabilize it, we are now working on re-enforcing very stable general storefronts, taking advantage of Unicharm's existing sales force in Indonesia. The margin ratio here is lower than in modern trading, and it is easier to take profits, and the prices can be very stable, so we will once again get back on board with such major general storefronts. Shifting away from swinging too much into modern trade with large volatility is the most important axis for regaining profits, although we have already begun to do so.

Thank you very much. Sorry, this is getting long. This is the last question. Just to confirm, if this is so, first of all, was it a good decision to withdraw the 10% profit margin you mentioned for the second quarter in China and to invest the cost, because you have to do this online? Because we cannot see it from the outside by any means, from the investor's point of view, you said 10% and that is being betrayed. Then, in the future, I am sure that there will be talk of not being able to trust even the second half of the single-digit percentages. I would be very interested to hear your rebuttal.

First of all, regarding unexpected rumors, because for feminine care, the brand is vital, that kind of thing was televised on national TV, and what's more, it was a fake product, not a genuine Unicharm product, not a real product. The response to this may not necessarily have been 100 points, though. This would coincide with the Chinese sales period, which would boost sales by about 30%. When 30% of high revenue sales fly off the shelves, a substantial amount of sales and profits fly off the shelves, since the operating profit margin is probably more than 20%. This is something that we had no way of anticipating, so the problem of treating discharged water, and the fact that it was made in a very unsanitary environment, there are definitely places where this is essential. Also, as Kuwabara mentioned, online is now the fastest-growing channel for feminine care, accounting for 20% of the total, and C-to- C and quick commerce have also grown to 20%, although their shares are not online. This is positioned as a TV advertising expense, not a variable cost promotional expense, but a firm contract. In e-commerce, we contract a large number of influential KOLs and influencers for online sales. That reputational damage, as I mentioned last time, would reduce sales by 20% or 30% due to the impact of not being able to sign contracts. Since that is no longer a factor now, we are working on that from the third quarter onward, so please understand that it is costing us profit and costing us money. Then there is quick commerce, which has also grown to 20% of the market. In the sanitary napkin category, Unicharm's Sofy has been making considerable headway, and now holds the top market share. But money is still involved. However, if it becomes firmly established as an infrastructure, royalties will be taken and then profitability will return, just like advertising on TV. Preemptive investment. This was a rather strategic or up-front investment, and the effects of this investment have been steadily reflected, supporting the bottom of the market share decline. We hope you understand that the transient cause was a bit painful and that we are standing up against changes in distribution.

I understand. Thank you.

Baby is also in the black, from the third quarter onward.

Is it okay?

We have narrowed our sales considerably.

I understand. Thank you.

Okay then, Miyazaki, please go ahead.

This is Miyazaki from Goldman Sachs. Thank you. I would like to ask you how you plan to grow over the medium term, but in considering this, I would like to ask you about the current momentum of the company. I was honestly wondering if the second quarter was more profitable than the first quarter, but the second quarter profit was even lower, so I was wondering if you had any clear explanations as to what pushed the second quarter down, such as a one-time cost drop due to upfront expenses, or if the reputational damage in China was actually pushing the second quarter down as much as it did. If there is any clear coherent trend that pushed down the second quarter, I would like to hear about it. For the second half of the year, you ended up subtracting JPY63 billion this time, which is a moderate return compared to JPY57 billion in the first half of the year. But you said that to a certain extent, the strategic measures taken in the first half of the fiscal year will have an effect, but I wonder if you are being a bit conservative or if you are taking a different viewpoint in your assumption of 63 for the second half. Is JPY63 billion the core operating profit for the second half of the fiscal year? If so, I would like to know if next year is 126, double the 63, or even better, so I would like to know your assumptions for the second half and full year, Q2, and if there is any cohesion that is pushing it down to something transiently worse.

First of all, the impact of the second quarter in China, due to the transient impact of rumors, was an increase of about 20% of sales in sales promotion expenses. So, in total, we usually spend about 20 to 25% on sales promotion, so about half of the sales, or 45% of the expenses showed up. In other words, we have to sell the products being prepared for a planned project, so the measure it took due to the affiliates’ inability to sign contracts was still to lower the price, so we used promotional funds to lower the price. The reason why the profit margin of feminine care, which was originally thought to be highly profitable and able to secure about 10% at a half estimate, turned negative is because of such a very significant background, and frankly, we would like you to consider it as a transitory phenomenon. As to why there is no rebound in the third or fourth quarter, I think that conservatism is certainly a part of the overall picture, but China as a whole is mostly feminine care for transitory lost profits. As for China, the revised plan is based on a 6.4% increase in sales and a 13% increase in operating income for the prior year’s interim period, the six-month period, the second half, so this is about right there, and this is what we expect. As you mentioned, the total consolidated sales are JPY509.8 billion, which is a 1.7% increase compared to the same period last year, and the operating income is JPY63 billion, which is still a 3.7% decrease compared to last year. Therefore, I think we are being conservative, but we are going to reset the situation firmly and work on it from the next fiscal year onward. I think it is unusually conservative.

Thank you. I would like to confirm that the series of stories centering on Asia and China, which were presented in the first half of the fiscal year, as if up-front investment costs were a burden, are not so much that we are looking at profits because these costs will increase in the second half of the fiscal year, but rather that these costs have been incurred to some extent and the effects will emerge. As you said, can we take it as a kind of conservative viewpoint?

Yes.

I see. Thank you.

We will continue to invest in the growing online market, not only in China, but especially in China, which is the largest market, because online and C-to-C are similar but not the same channel. However, it will be effective. In the form of advertising expenses, the effect will be gradual, as the effect, although delayed, will be felt from now on, and the effect will be to increase sales and profits.

I see. Thank you.

Thank you. Sato, please begin.

Thank you for all your explanations. I was listening to you because I thought that all the current Asian strategies make a lot of sense, but what I want to sort out is, is China really just about rumors this time, and not a price war or anything like that? Like in Thailand, I also believe that once the priority is to eliminate the opponent through price competition, and market share is important, but I think it is a great and attractive strategy to launch in the fall with low-priced products, products lower than the middle, but for China that is not necessary, it is just reputational damage. Is this really OK with you? Also, Indonesia is only about planning, and since there is still a lot of competition at low prices, I think it would be better to have a strategy like Thailand's to prevent overseas Chinese companies from becoming too big, but perhaps only your company can do this since Daio Paper Corporation and Kao Corporation do not often use such a strategy. I think it would be better to do it, but each of the three national factors was organized as reputational damage, this one as low price competition, and this one as planning, but I think it would be better to deal with the price competition more quickly, so I agree, but it is something to do. What do you think about that?

Actually, Indonesia has a low-cost brand to begin with, and there is a place where it is being undercut. In the case of Indonesia, after all, its economic strength is not relatively high in ASEAN to begin with, so the price line is very low along with the vulnerability of the exchange rate. So, the downside is very small for the price. This had become a barrier to entry, but the number of local manufacturers and Chinese companies producing in Indonesia was increasing, and they were able to undercut us on price. This will naturally have the effect of increasing the size of the Indonesian market pie, and since this will structurally return to Unicharm as the number one manufacturer, we would rather use our current low-priced brand than lower our prices too much, even though it will cost a little more. We will expand our sales channels and store coverage. This is the general storefront when I was responding to Kuwabara's question earlier. But the number is still the largest, with many stores that are like kiosks for general stores. We hired a new distributor and decided to reestablish the business, albeit at a thin profit margin. As you all know, we sell a lot of diapers and sanitary products in small packs with small quantities linked together called sachets, but the competition there is also muted, so the price was also undercut. That's what we do, we don't change the product, but it's price matching. We have been able to get sales back by matching. It is more of a product for people with low incomes to begin with to buy for their current use, so it also has the effect of a trial. I believe that the effect of absorbing costs, which are production decreasing costs, by returning sales is steadily now being felt.

For the first time in a long time, was this the first downward revision since around 2010? You said Indonesia at that time.

2016, I think.

In 2016, still in Indonesia, but because you were able to get through that price war, P&G is almost gone from Indonesia. So, this time again, I am hoping that if you work hard, someone will be eliminated, at least a little, I won't say where, but if you can eliminate some of the places that have bought local companies and various other places. I have a feeling that you will be able to settle down even if you don't suddenly return to JPY10 billion in operating income, so my impression is that if you work together with the other side, you will be able to get a better quality product than yours because the cost ratio is very high in this industry.

As you say, it is still essentially product development. That is because the number of users who buy premium types only because they are naturally cheap is decreasing all over the world. In Indonesia, there is a strong tendency for people to demand cheap products that are specialized in certain functions or have relatively high absorptive capacity. On the other hand, it is very thick and not very stylish, so young mothers don't jump into it, even those with low incomes. Compared to nine years ago, the structure of customers and channels has of course changed, but essentially, as you pointed out, it is a matter of making sure that the products are well marketed. Each segment, not just a price line, but a muting of the consumer's values. Breathability is also required, as is design, and they are becoming less and less commodity. As to your other question, whether there is any price competition in Chinese feminine care, this is always the case. However, price competition does occur in segments that are still growing. We know that it is not mutually beneficial to have a pie-eating contest. For example, right now, Unicharm is very much ahead of the curve, and for shorts-type products in China, they are called online brands in China, which are not in stores, but only online. Online only makes up 20% of the total in China, but there are various miscellaneous sanitary product manufacturers, with many brands, hundreds of them, just like in Japan long ago. I think the reason why we have been able to maintain a 16-17% share of the market is due in part to the characteristics of feminine care, which, like disposable baby diapers, consists of premium panties-type sanitary products, middle class, standard, and economy products. By doing economy, the need for daytime use has actually increased. We started out with a product for people to use at night when they sleep, because shorts-type products are heavy-duty. So, there are advantages as well as disadvantages to cheaper prices or the entry of local brands that appeal to customers with their prices. By accelerating the spread of the shorts-type category itself, which we have entered and developed, shorts-type products are difficult to produce and require a large investment. So, there is a basic policy of taking it to product competitiveness, and if entry-level users are attracted by price and come in looking online, they will use it differently, and that will bring them back to Unicharm, which has good quality. I would like to do this for these larger scenarios. Thank you.

Thank you. Well then, Hirozumi, please go ahead.

This is Hirozumi from Daiwa Securities. Thank you. To focus on one point, the range of the revision is different for core operating income, income before income taxes, and net income, and I would appreciate an explanation of this. Core operating income is down JPY26 billion, pre-tax income is down JPY15 billion, and net income is down JPY1.3 billion. I do not know whether that is insurance income or utilization of the loss. I wonder if that will change in the current fiscal year, and whether it will change in the next fiscal year and beyond with this kind of core, pre-tax and net income. Could you give us some background or reason for the reduction in this area?

Kondo, please.

This revision is where the Indian insurance proceeds are included in non-operating other income, so that part is affected. The other place where we have been able to achieve very low tax rates, Q1 and Q2, is the effect of the Indian insurance income that I just mentioned. The point is that India has a deferred tax loss, which has created a lower tax rate where it has been successfully allocated. The revised plan reflects that, so that is why I say that the lower part of the plan does not look so revised when compared to operating income.

Was the insurance payout JPY5.3 billion?

JPY5.3 billion. JPY5.3 billion, and the remaining amount is expected to be about JPY2 billion by the end of this year.

When I think about the next fiscal year, how should I think about the next fiscal year when you will lose the insurance benefit and also the tax rate?

The tax rate is now around 26%, but 27% or 28% would be the normal level. So, if nothing else, we plan to be around there when we come back around that time.

Should we assume that the tax rate is low only this quarter?

There is a part of this quarter that is special, as I just mentioned. The main focus will be on India.

Is it my understanding that next fiscal year, core operating income will fall straight to net income, and the tax rate will be normal if there are no insurance claims?

Yes, yes.

There is more but that is all. Thank you.

Thank you.

Also, we have not yet decided how we will receive the compensation for the system trouble, so whether it will be reflected in operating income or in extraordinary income. Regarding this.

The one that the president mentioned in the past, that you said you could get back.

Yes, there is.

Where does that come in?

We were actually going to go back to the interim period, but it will be after the third quarter. We are currently working on which benefit will depend on how it is received.

Am I correct in understanding that it is not factored in?

The numbers do not factor that in.

Not factored in.

Yes. Not factored in.

Thank you.

Billions of yen.

Thank you. Well then, Miyasako, please go ahead.

I am Miyasako from Mizuho Securities. Thank you. I would like to ask you about Asia, and there are a variety of answers that I have received so far, and I would like to go over them again, but in the second quarter, what did you spend your costs on, for future growth? The assumption is that there will be a recovery in the second half of the year, but what kind of things have been done and what results can be seen now, and is the assumption that there will be a recovery in the second half of the year? In Asia, I would like you to tell me again in an organized manner by country or product, and if sales do not go up, please tell us whether you consider the JPY120 billion operating income figure to be achievable.

First of all, I believe that operating income is achievable. I also mentioned Thailand and Indonesia, which are particularly affected in the ASEAN region. As for Thailand, the money spent was in distribution, in the online channel, and that is a growing channel, although traditionally the online platform has been very active. Unicharm itself hired KOLs, developed its own creative for online promotion, recommended products, and went through such a trial-and-error process. It came in the form of a TV advertisement. The effect of this has been evident since the third quarter, and Thailand is really doing okay for feminine care. Since sales have already returned to the same level as in Vietnam since the second quarter. Also, in the baby business, as I answered Sato's question earlier, we will add low-priced products in the fourth quarter, so we should be able to support the business. As for Indonesia, it is a change in channel structure rather than online. The majority are kiosk channels, so that is the area where the most profit and volume can be made. For those that had been developed using Unicharm Indonesia's sales force and sold there in small quantities, which were profitable and had stable sales, sales declined as local competitors have undercut our prices. We have already seen sales return to normal in the short term by lowering the price and adjusting the price accordingly. The problem is the mini-mart channel in Indonesia, which is a very growing channel, but it is difficult for manufacturers to make a profit. I think the game here is really about product planning. The consumers who buy there are also from a relatively high-income bracket and are relatively young in age. This is not only the baby business, but now Indonesia is also doing well in feminine care, and maybe, structurally, the composition of premium is increasing from the traditional Indonesian-specific cheap ones, so this trend is not changing. This is not only for the baby business, but also for the modern trade, such as feminine care or convenience items for mini- marts, so we have really hit the bottom. The structure is quite different, but it is still orthodox as far as Indonesia is concerned. Online channels are not making that much of an impact, good or bad. However, since we have just started the project, the cost for it is upfront, and the same is true for Indonesia, but I believe this will be paid back later. That's just how it is.

As for China feminine care, you didn't cut prices for 618 and so on, but you had to, so sales dropped significantly, and here too it was a temporary situation, and the second half of the year is supposed to recover, but with sales. Are you getting some kind of response there as well?

I think this is really transitory, the reputational damage, because the market share has come back and has been increasing for three months in a row. Originally, the Unicharm and Sofy brands were not damaged, so they were made to lose their sales plans, their sales opportunities. There are also many online brands, so it is difficult for us to control the fact that young Chinese users, who are very interested in various brands, buy them.

When you say that the current market share is returning, this is the last one, but does it mean that the overall market share in China, both online and offline, is returning?

Yes. For feminine care. Feminine care also stabilized at a low level.

Thank you.

Well then, Ohana, please go ahead.

My name is Ohana from Nomura Securities. I am sorry to say that I asking about the Asian market, but when I look at the Asian market as a whole, I see that prices are falling even when I look at the financial results of US competitors, and I wonder if there is a trading-down trend. As you mentioned earlier, since you are going to offer lower-priced items, I think that the rank of such items is also decreasing, but when e-commerce increases, even if the same items are sold online and offline, there will be places where e- commerce prices will be lower. Should we consider this in the future? When that happens, even if sales come back somewhat, will you continue to be in a situation where it is very difficult to raise margins? How should we look at this area?

Online prices are not much different from offline prices, and since price stability is the number one strategy, if it is difficult to stabilize prices, we change the products sold online and offline by changing the products or the pack quantity, so this ultimately leads to price stability. The online problem is how to get consumers to buy online, and how to create opportunities to gain a foothold and seize chances, such as with KOLs and affiliates. In Japan, we don't have to worry about these things, but TikTok has entered the market, and we are preparing properly from now on, though. In China and ASEAN, such online selling is not only about the convenience of traditional online and e-commerce, but also about the shopping itself, which is a kind of entertainment, where people buy on impulse while looking at their smartphones. How can we recommend them well, so that they understand the features of our products, become brand followers, and sell them like Unicharm employees? So, it costs money to find such KOLs and to have them speak accurately in a short time. The effect is still a contract fee or a percentage of the contract. However, since everyone is doing this, I am sure that we will eventually change the structure of distribution in China and ASEAN, since China is the most advanced in this area, in the long term. So, retailers that have real storefronts as assets will probably have a very tough time. We are in a world of aerial combat, and that's what consumers are looking for. If I say I think it's a lesson fee, I get scolded, but I must be forgiven for that, because this is a new winning pattern if I don't make it. We will use the money to create a strong network of KOLs. It's like a TV personality. It's like a talent contract fee, not as high as real TV, but the competition really has hundreds of such people, so it's like that. Ultimately, however, I believe that the product ultimately determines the success or failure of the project. It's these everyday items that you wear and use. If it was a bad product that was marketed in an interesting way, or cheaply, but did not lead to repeat business, even if there were trials. I think one of the proofs of this is that the market share has been maintained, and it has hit bottom and is coming back again.

I understand. Thank you. In the discussion sheets, the three major EC platforms in Southeast Asia are reporting that their sales are growing, which makes me wonder if offline sales are not doing as well as they could be. I think it's true that you need to strengthen e- commerce, but the ratio of offline sales is still overwhelmingly higher than online sales, so how should we look at a boost in this area, or how should we look at this area?

Steady results are being achieved in ASEAN, such as in Vietnam, as I explained earlier, but Indonesia is a large country, so its impact on the whole region is significant. Even so, 16% of operating income is now in Asia, now. 84% is Japan, the US and the Middle East. Sales are in the 40% range for Asia, [inaudible] earlier. Therefore, in order to maintain a solid profit, we have to strike a good balance, but I think Japan is also solid, probably the strongest in the market, right now. In the past 60-plus years. It is difficult for other companies to do business in the Middle East, so we are very strong. The Pet Care business in the US also now has more than 90% of the products that Unicharm sells in Japan, so we have a very unique positioning with the feeling that there really is no manufacturer in the US with a relatively similar product portfolio. We will also concentrate on toiletries, such as diapers and pet sheets, and pour them into the market. The US pet market is really seven or eight times larger than the Japanese market, so even if we narrow down the segments, I think we can say that we are on solid ground. So, we have not included many numbers for other areas. I think this is a buffer. In the revised numbers for the second half of this year, in fact. Talking about Asia, we are not leaving Asia alone because it is 14%, but we would like to use some of our profits for the future. Please understand that sales will always come back to us.

I understand. In this way, Asia's share of profits has dropped considerably, so in the short term, Japan and other overseas markets will pull you to some extent, and I am not sure if Asia will return to profitability next year or the year after next, but I think it is likely that profits will return around that time.

We will return to normal next year. It is not only the countries you are talking about now, and there is also India.

I understand. Thank you.

It is time to end, but since you are here, please ask your questions in a compact manner. Yamanaka, please go ahead.

You gave us a strong explanation that the plan has been lowered to the point of being lowered, and that next year we will see renewed growth, but in terms of sales in China, you said that there was a 20% sell-in increase in April, and from 5% to 10% in May and June. Then, even with the new products, it looks like they dropped quite a bit in May and June, and if the reason they were able to maintain their market share is because of a slight boost from the new products, the buyers and other relative competitors appear to be quite strong. If the e-commerce investment mentioned earlier is also being made by other companies, and your company has offline operations, is that a bit of a factor for being behind, and if the investment is completed in the second half of this fiscal year, can you be confident of renewed growth in the next fiscal year and beyond? One more push, and I would appreciate your explanation here.

As I thought, there was really no small amount of transient reputational damage. Feminine care really jumps like 20 to 30% in profit per year. It wasn't zero, so it didn't drop that far, but there were generally 618 or double eleven, or another one, 318, or about three big events, and it jumped about twice. Therefore, 20% of the sales are lost. Moreover, since it is a high operating profit margin, profits are also soaring next fiscal year, and if something happens again, I may have to make excuses for that too, but I can't assume that, since we are doing it in China. Therefore, although it may be a bit superfluous, we are also working on wellness care, which we have been talking about for some time, doubling compared to last year, and Pet Care, although the rate of increase is not so relevant because the pie is so small. Does this mean that the Chinese feminine care was extraordinary this year, this interim period, this quarter? It was a bad cycle, as the inventory from that project fell through and had to be solidified and sold out at a promotional cost. The trigger was rumors.

I understand. Thank you.

Kato, please go ahead.

Sorry, they were all Asia and China questions, but I dare to differ. I believe that the markets will all do well in Japan and in the US and the Middle East, which you mentioned earlier, in this second half of the year, but if there are any risks, could you tell us what they are?

Think about it less. I guess it’s protecting livelihoods. It could be that one that is extremely fundamental. We are often asked about the impact of the Trump tariffs on our business, but as I explained earlier, we do not export much to the US other than pets, so if the supply chain is adjusted slightly, it will not be affected, and since the weight of exports from China in the US pet business is small to begin with, it is not a problem. However, what may be affected around the world is that if business confidence changes and people start protecting their livelihoods, we believe that trading down, which may generate sales but lower profit margins and have a higher proportion of low-priced products, is a risk for both Japan and other countries. However, in the case of Japan, I believe that Unicharm is the only Japanese player that has two price lines, Moony and MamyPoko, for baby care, the segment with the highest price sensitivity, which is very strong. Whichever way the user moves, we can pick up both. It is breakeven in terms of revenue structure, so we are able to design it well now. Of course, premium is slightly more profitable. We are not tuning the feminine care line that much, but we have the large quantity pack Body Fit, a standard price line product that sells the most volume, and by having customers buy the value packs of this product, they will be the first to take up seats. Now, feminine care is also considerably more than 50% share, which is the best share ever. Almost, so there are both Kao and Daio, but I don't think there is probably any other company in the world that can take a 50% share in the feminine care category by a wide margin. It's so much that P&G and [inaudible] haven't even been able to get it. Therefore, Unicharm is a category leader that can always add a premium to its products, or respond when there are signs of trading down as I mentioned earlier, or when it is requested by retailers who are slightly more price-appealing. I will answer the questions, but I am not sure if I will be able to answer at all. If the mask market shrinks any further, I am concerned because it is a highly profitable product, and of course the mask market itself has grown 1.5 times in size compared to what it was before COVID-19, so I would like to use COVID-19 as an opportunity. The sales of the masks were down from last year, and the scale of the masks was originally about JPY130 billion. At JPY130 billion, that's bigger than disposable baby diapers. You'd be surprised, wouldn't you? So, I would like to mention as a risk that it would be bad if the market share of masks decreased any further.

Thank you.

Thank you. Sorry, I said all sorts of things.

Thank you. Ogaki, please go ahead.

I would like to ask again about the recovery in Asia in Q2, as shown on page 8 of the document. Up to now, you have said that the market share has stabilized, but I am also wondering if this Asian core operating income has reversed, and if this is simply due to a decrease in marketing and other expenses compared to Q1. Can you once again sort out Asia's recovery?

Is it the second quarter?

Yes, Q2's.

Not all areas are recovering in the second quarter, but countries like Vietnam and India, for example. Thailand and Indonesia have not yet fully recovered in the second quarter, but rather in the third quarter, since Thailand is firmly visible in July. As for Indonesia, I think it will take the second half total.

I understand. There are some shades of gray in Southeast Asia, but as a whole, are you aware that there is a recovery trend in Q2?

On the whole, it's still that.

Not the whole.

In the third quarter, I think we will be firmly on the road to recovery.

I understand. Thank you.

Slightly, but even so, profits will be a little more in the third quarter, because they will be negative compared to the previous year. However, sales will recover on a consolidated basis from the third quarter, and sales will also recover in the Asian region.

I understand. Thank you.

Thank you.

Thank you. Since the time has now passed, I would like to conclude the financial results briefing. Thank you very much for your time today.

Thank you very much. [END]