Ajinomoto Co Inc

Thank you for your attendance to the Ajinomoto's Interim Financial Results Presentation Meeting FY2024. This is Kaji, IR department, the moderator. First, I'd like to introduce today's participants from Ajinomoto side. Fujii, Representative Executive Officer, President, hello, nice to have you all. Mr. Shirakami, Representative Executive Officer, Executive Vice President. Hello, nice to have you all. Sasaki, Executive Officer and Senior Vice President, General Manager, Corporate Division. Masai, Executive Officer, Food Products Division. Hello, nice to have you. Mr. Maeda, Bio and Fine Chemical Division, Executive Officer. Hello, nice to have you all. Executive Officer in Charge of Finance and IR, this is Mizutani. Hello, nice to have you. Kawana, Supervision of Frozen Foods, Executive Officer. Quality Assurance, Sumariga, Executive Officer. Executive Officer, Diversity and HR, this is Kayahara. Nice to have you. Global Communication Department, Ogiwara. Hello, nice to have you all. So we have 10 participants from Ajinomoto side. Today, from Mr. Fujii, he will be talking about summary of financial results for the first half ended September 30, 2024, and the forecast and initiatives for enhancing corporate value. And we will have Q&A. The overall meeting is expected to be an hour and 30 minutes. Today's material is already uploaded on the website of Ajinomoto, so I hope you would refer to them. Today's contents would be recorded, and including the Q&A session will be uploaded on our IR website. I would like to have your understanding. So we would like to start. Fujiya-san, please.

Good afternoon, everyone. I am Fujie. Today, I'd like to thank you for joining us despite the busy schedule today, and I'd like to thank you for your continued support extended to us on a day-to-day basis. I'd like to take this opportunity to express my thanks. Let's get into the presentation. There are five key messages today. The first in the interim period of fiscal 2020, for both sales and business profits reached new highs, 113% and doubled as it goes, excluding currency transition. And the forecast for sales and business profit has been upward revised. And then electronic materials and others are recovering steadily. And CDMO biopharma service, including Forge Biologics, are steady and healthcare is leading the growth. And third, seasoning and food overseas achieved stable organic growth. And in Japan, the profit margin declined in food products, especially coffee in Japan and frozen food in Japan. Those are the challenges for us. And so we have to take further actions. Fourth, the upward revised operating cash flow as created and returned to the shareholders proactively and renounced the two-for-one stock split and repurchased shares up to 40 billion yen at the same time. And to achieve our 2030 roadmap, we intend to evolve toward a corporate culture grounded in our purpose, in which employees will take the lead in achieving our vision and taking challenges. Now, the interim results, we have achieved new highs in both sales and business profit. Up to 2023, four years in sales and five years in a row for profits, we have been achieving record highs. We would like to continue. So sales were 108% of the previous year or 105% excluding currency and Business profit, 113% of the previous year, 110% with currency translation excluded. And seasoning and the food overseas generated profit and functional materials also recovered and leading the overall performance. And 108% of the previous year was achieved or profit achieved to owners of the parent company. And this is analysis of the difference Page 7 is the difference in the business profit segment. And then page 8 is the food and quick nourishment and sauce and seasonings, breakdown of sales and factors behind changes in business profit. So I hope you can refer to that. And also in coffee, I will explain more about that. And then page 9, shows the revised forecast for four-year fiscal 2024. Business profit and sales have been revised upward, as you can see. And then functional materials in business profits and sales, we are going to revise upward. And as for coffee business in Japan, we have revised the business profit downward. And for future investments, we have increased shared company-wide expenses, and as for the net profit attributed to the parent, out there, a restructuring reform that has not been included in the budget is there, so we have not changed the forecast. And this is the changes in business profit by disclosed segment. And then source and seasons and quick nourishment breakdown of sales and factors behind changes in business profit. So there's one thing that has been revised. At the left bottom, we have reflected the higher cost of coffee beans in Japan, and so growth in profit in Japan has decreased by 2 billion yen. So let's start with page 12, talking about coffee business in Japan. So for Ajinomoto Group as a whole, in fiscal 2004, we have achieved increased sales and profit, and we have made upward revision, but there are some challenges we need to address. One of them is coffee business in Japan. The business profit margin has declined, and the cost increase, we have been addressing them. As you can see, right bottom graph, we have repeated price increase steadily. However, the raw coffee bean price increase has continued. And in September, we have carried out major price increases in multiple categories. However, they are insufficient to fully make up for the situation. So in the full year forecast for This fiscal year, we revised business profit downward by 2 billion yen, as I said. And so, right after the major price increase in September, we have to closely watch the coffee bean price. And then, if necessary, we would carry out further actions. On the other hand, as for Jinomoto AGF, regular coffee, instant coffee, we are taking the top share. However, we're not taking top share, but the AGF, even if sacrificing the volume, the repeated difficult price increase has been carried out with the communication with the market and consumers. So we kept taking on this challenge. So I think this is a reflection of the on-site capabilities improvement. So to some extent, we had been prepared for volume decline. So this is within our assumption. That's what I wanted to tell you. Page 13, in addition to short-term price increase, what are we going to do in the mid to long term? That's what is shown here. And coffee beans market price, we have to have a portfolio that is less susceptible to those coffee beans market prices. And the left top corner, regular coffee and instant coffee. So coffee beans cost as percentage of sales is a bit higher, relatively higher. So steaks and powder drinks where the coffee bean raw material percentage as percentage of sales is lower. So we are making the shift from regular or instant coffee to sticks and powder drinks. As for sticks coffee, it already represents 40% of total sales and 15% for powder drink already. So this is a mid to long term initiative. So in enhancing execution capability, we're carrying these out. so that we can turn around the coffee business. Page 14, the seasonings and food segments overseas. As you can see, there has been steady growth as the business profit margin, the pre-pandemic level has been surpassed already. So with this initiative, we're aiming for organic growth and maintaining high profit margin, business profit margin. Page 15, The second issue is the frozen foods in Japan. First of all, let me explain about overseas business first. So overseas business is in line with the plan. So in North America and other countries outside of Japan, we have experienced a decrease in profit, but in fiscal 2023, in the fourth quarter, more specifically January through March in 2024, we have made concentrated marketing investments and we have evened this out from this fiscal year, from the very beginning of the fiscal year and spent using this. So we are making progress in line with the expectation in terms of this profit. But the issue is in Japan, there were originally three pillars. The first one is to have a double digit growth in sales And then second is to recover top market share for Gyoza. And third is the proactive brand investments. And then increasing GP, that would exceed the increase in these investments. So the Gyoza top market share has been recovered, but frozen food sales in Japan actually remained at the level of the previous year only. And also the cacao and rice market and other raw materials have increased in prices and also there was a weaker yen so because of that cost increased and we have seen profit decline but desserts and others have been increased in prices we have already made an announcement for the second half and we have already carried out price increases so far but the point is the mainstay gyoza regrowth has to be accelerated. And to that end, in August, a high-volume gyoza product has been launched, and also the cooking method and health value. If there is differentiation that we can do, then we have been enforcing this ahead of others. And also, we have increased value add, so that GP margin and share would be increased So all the employees and top management are working together to address this. Next is functional materials. In last fiscal year, there was a big decline in sales and profit, so we caused concern for you, but we have been able to steadily recover this business. Sales and business profit have been revised upward, and for both sales and business profit, we would exceed the 2022 level where we had the previous record high, and we are expecting another record high for this fiscal year. And page 17, CDMO in the first half, business profit decreased by 600 million yen, but the forged impact was worth 4.2 billion yen. So in the existing business, we actually achieved a profit increase of 3.6 billion yen. And as we said in October IR, with regard to forged biologics in a single month basis, there were months where profit was achieved. So business operation has been progressing smoothly.

And ASV indicators, I explained on page 18. I hope you would refer to them. And on page 19 is the gross pass-by segment. And on page 20 is forecast for total assets. We have not made any revision. Net DEO ratio range is going to be raised from 30%, 50% to 40% to 60%. And we are going to control them with the policy. And next is cash, operating cash flow. We do have a lot of capabilities here. 20 billion yen was the upward revision, and it is about 195 billion yen. We would like to refine our earnings capability, and we want to actively return, provide shareholders return. Page 22 is the investment plan, which has not been revised. And turning to page 23 is the important management indicators on left top, ROE, which is 12%. Has not changed from the beginning of the fiscal year is one challenge, and 18% is a goal, and there is a big gap. We would like to improve the productivity, the margin, and by having the increasing financial leverage, we would like to raise the net deal ratio. And on page 24 is the ¥195 billion of cash. We would like to generate cash. And with the allocation policy, we would like to provide flexible shareholders' return. As for the specifics of the shareholder returns, explained on page 25. 40 billion yen share repurchase have been announced today. So already in FY24 we have done 50 billion, so in total this is going to be 90 billion yen size, the same scale as in FY23. With the normalized EPS and progressive dividend policy, We will be having 80 yen of the dividend payment. We have announced this last year. We would like to continuously provide this, and we would also like to accelerate our shareholders' return. And also we finance about two for one stock split. And from here, I'd like to talk about initiatives for enhancing corporate value. From left to the right, it explains about business profit growth rate. Excluding the forge impact, FY22 forecast, which was a roadmap launchpad, we were able to grow by 15%. And FY24, we're doing all right. The 160 billion yen, excluding Forge, is 11%. And from FY25, until FY25, our profit growth should be 10% to 15%. We are very ambitious in our targets, and we have been able to go for it. And we were able to execute all the plans and projects, and that is a reason why we were able to achieve the target as well as the plan. Turning to page 28, in the latter half of the roadmap 2030, we would like to have a mindset for further challenges, and I think we're ready for it. On the other hand, we were able to improve ourselves, but there are challenges as well that is the goal as well as the present, the gap between that. We would like to improve that and evolve. That means that this is going to be a chance for us to grow. We are steadily reaching our goals, and we have written them in detail. Page 29 explains about overseas food products, business. I think they are in a virtuous cycle for further growth. As you can see on the right hand side, DX has been used and that usage is going to be accelerated and we will have a firm ground and we will scale up. We would like to do that. Next is page 30. This is a Japanese food products business. Excluding coffee, the seasonings and foods margin, profit margin has been improved and increasing, but we have not reached to the pre-pandemic level yet. So in that sense, we would like to see price hikes and Ajinomoto thanks to Your effort is regarded as one leading food company in Japan, and people pay attention to our companies. We are able to, therefore, provide various communications. We would be able to provide a healthy inflationary cycle so that we can increase the wage as well as the price. And as a mentor group, we would like to provide a wage hike, and we want to contribute to a better environment. Ajinomoto's marketing people trying to come up with healthy inflationary cycle so that that will solve the societal issues. I think this will reach and lead us to ASV, Ajinomoto Shared Value to Society, and that is gradually being reached. On page 31, this is a roadmap. Including myself, executives need to take the lead, but at the same time, our employees, each individual, needs to exert their efforts for that. Not just myself, but all the executives and other leaders are trying to have more communication and dialogues with our employees at the site. But what I'm telling them is that Ajinomoto Group's purpose, amino science, contribute to the well-being of society and human beings. This is a very big and wide perspective. We need to think about overlap of the individual employee's purpose and the company's purpose. And if there are overlaps, then motivation and engagement of the employees will increase. So we are providing My Purpose workshops that has been expanded to the global organizational heads, managers, general personnel, so that our employees could find an overlap in the purpose of themselves and the company. And as it's written, our next phase, we're trying to evolve our corporate culture On page 33, we are talking about human asset initiatives. Let me introduce the preliminary results of this year's engagement survey. ASV realization process, which was introduced last year, scored 76 points, the same as last year. And this consists of eight elements listed here. In most of the cases, we have scored high, but Third from the bottom, enhancement of productivity. As to the employees, do you need a lot of approvals until your project is going to be approved? And here, there are the issues. Therefore, we believe that we have to review the approval process and also still we see some cultures that needs to build consensus. So we need to improve that. And so the last page is my message. First, the first half summary results. We continue to grow in the food product business and we are having a recovery in the bio and fine chemicals business from FY 2023. But on the other hand, second, food product business in Japan, there are rooms for evolution. So we're trying to come up with a healthy evolution. And also, our corporate culture, we would, and the management team and the employees should try to evolve the corporate culture. So that was a brief explanation from myself. about the result and the corporate culture. So from here, we would like to start the Q&A session. Thank you for being with us. Thank you.