Ajinomoto Co Inc

Thank you for joining Ajinomoto's fiscal 24 results briefing despite your busy schedule. I am from the IR department. I'll be moderating. My name is Kaji. Here are the attendees from our side. Representative Executive Officer, President and CEO, Mr. Nakamura. This is Nakamura. Executive Officer and Senior Vice President, General Manager, Corporate Division, Sasaki-san. This is Sasaki speaking. Executive Officer and Senior Vice President General Manager Food Products Division, Mr. Masai. This is Masai speaking. Executive Officer and Senior Vice President General Manager Bio and Fine Chemicals Division, Mr. Maeda. This is Maeda. Executive Officer and Vice President in Charge of Finance and Investor Relations, Mr. Mizutani. This is Mizutani speaking. Executive Officer and Vice President Supervision of Frozen Foods, Mr. Kawana. This is Kawana speaking. Executive Officer in Charge of Diversity and HR, Ms. Kayahara. This is Kayahara. Hello. So we have seven people from our side present. First, Mr. Nakamura will be explaining the fiscal 24 summary results and fiscal year 2025 forecast, as well as initiatives for enhancing corporate value. This will be followed by a Q&A session. We are planning for 90 minutes. for the entire webinar. Today's presentation materials are available at our IR website on Arinomoto's homepage. Today's content will be recorded, including the Q&A session, and will be posted on our IR website on a later date. So we would like to get started. Mr. Nakamura, over to you.

Good afternoon, everyone. I am Representative Executive Officer, President and CEO, Shigeo Nakamura for Ajinomoto Company Inc. I'll be talking about the forecast for FI 2025 and initiatives for enhancing corporate value. First of all, the FI 2025 our 2024 summer results and FY2035 forecasts, and then this will be followed by initiatives for enhancing corporate value. Today's message is threefold. Sales and business profit in FY2034 reached their highest levels since the introduction of IFRS in FY2016, excluding the impact of the forged biologics acquisition, business profit continued to double its growth, while profit attributable to owners of the parent company will be temporarily affected by factors such as the sale of the subsidiary, will accelerate transformation of the business portfolio to achieve vision for 2030, revenue and profit are projected to increase in FY2035 forecast too. Sticking to our ASV increase indicators for FY2005 milestones on the path to FY2030, we are aiming to solidly achieve the forecast. In the measures related to shareholder returns, we will work to increase dividends and repurchase shares in accordance with the policies to which we have committed ourselves in the roadmap. We have properly received the company's purpose from Mr. Fujii and by evolving these initiatives, we will enhance our corporate value and tackle the challenge of achieving the 2030 roadmap ahead of schedule. I would like to talk about summary results for FY2024 and forecast for FY2025. In our consolidated results, the fiscal year ended March 2005. We achieved new records in both sales and business profits. Sales were 1 trillion 530 billion yen, an increase of 60% year-over-year, 4% excluding the impact of currency translation. Seasonings and foods overseas continued to be strong, and healthcare and others recovered, leading to increased revenue overall. Business profit was 159.3 billion yen, an increase of 7.9% year-on-year, or 4.5% excluding the impact of currency translation. Excluding the impact of forge acquisition, we achieved a double-digit growth rate. The main factor behind the difference from the forecast of 160 billion yen was the delay in shipment in biopharma services. Profit attributable to owners of the parent company decreased significantly due to reasons including the recording of structural reform expenses for the sale of Althea and the recording of an impairment loss and structural reform expenses for the sale of Hayward plant for frozen foods in North America. This slide shows an analysis of changes for business profit in FY2034 and FY2033. The change in GDP due to the change in sales was an increase of 32.5 billion yen year-on-year and SG&A We are increasing the investments in intangible assets required for future sustainable growth in line with the strategies of 2030 roadmap. This slide shows analysis of changes for the business profit by segment in FY2034 and FY2033. For reference, at the bottom of the slide is analysis of changes to get the forecast for FY2034 and results for FY2033. As shown here, compared to the four-year forecast, we achieved solid profit growth in seasonings and foods, for which we had forecast a decline in profit. In healthcare and others, too, while the shifting of some shipments to FI2035 in biopharma services had an impact, we solidly increased profit primarily in functional materials. Frozen foods recorded an increase in profit in North America but struggled in Japan. We increased prices in March 2025 and are working to achieve a comeback. For sauces and seasonings and quick nourishment combined in both Japan and overseas, this slide breaks down sales into volume and unit price and further shows an analysis of change in business profit. In fiscal 2024, sales in Japan increased 4% year-on-year, breaking down to a 2% decrease in volume and a 6% increase in unit prices. Volume decreased in the coffee business due to numerous price increases in response to inflation in coffee bean prices. However, unit price growth compensated for the decreased volume and revenue increased. As will be discussed later, with coffee excluded, we grew both volume and unit prices. The waterfall chart at the bottom left shows that increased revenue was unable to compensate for the higher raw material costs. higher SG&A, resulting in a decrease in profit. Overseas, both unit prices and volume increased 3% from the previous year, with sales growth of 6% on a local currency basis. Business profit increased significantly due to factors including relaxation of the increased costs from the substantial inflation of raw materials and fuel prices. This slide shows our progress toward the ASV indicators under the 2030 World Map. ROE and ROIC declined due to factors such as structural reform expenses associated with the sale of ASEA. However, with those special factors and impact of the forge acquisition excluded, ROE and ROIC have increased solidly year-on-year to 14.7% and 9.8% respectively. EBITDA margin remained strong at 16.1%. This slide shows ASV indicators by segment. These are progressing well in seasonings and foods. ROIC fell year-on-year due to structural reform expenses associated with the sale of hayward plant in North America, as well as decrease in business profit in frozen foods. The negative ROIC in healthcare and others was due to the recording of structural reform expenses associated with the failover year. Excluding those one-time costs, ROIC has been improving since last year. For fiscal 2035, we expect revenue and profit to continue increasing. We forecast sales of 1 trillion, 618 billion yen, an increase of 5.7% year-on-year or 6.7% with the impact of currency translation excluded. Seasonings and foods will continue to drive increases overall. We expect business profit of 180 billion yen, an increase of 13%. In fiscal 2025, a significant increase in profit in biopharma services and ingredients will drive profit growth. It will also bring profit attributable to owners of the parent company, Backup, aiming for 120 billion yen. This is an increase of 70.7% from fiscal 2024. during which this profit had declined due to factors including the recording of structural reform expenses. This figure incorporates presumed profit from the sale of land and buildings at the head office, which is being announced today. Regarding impact of tariffs and other policy measures of the US, the direct business impact is minor, but we recognize the need to closely watch the macroeconomic environment. This slide shows a waterfall chart of our business profit forecast. By working to increase sales GP margin and GP or solidly increase investing in intangible assets within the scope of GP growth, we will grow business profit. This slide shows an analysis of the forecast changes in business profit by segment from the previous year to get the forecast. From the current fiscal year, shared company-wide expenses will not be allocated to specific segments but will be managed and disclosed as shared company-wide expenses. We are planning for continued profit growth in seasonings and foods and aiming for a solid recovery of profitability in frozen foods, a segment in which profit decreased in fiscal 2024. We're planning to add 17 billion yen in business profits through continued robust performance in functional materials within healthcare and others, as well as through a significant increase in profit in biopharma services and ingredients. This slide shows an analysis of sales and unit prices for sauces and seasonings and quick nourishment combined in both Japan and overseas, along with an analysis of changes expected in business profit to get our forecasts. We expect sales in Japan to increase 7% year-on-year, breaking down as a 2% decrease in volume and a 9% decrease in unit prices. The impact of increased unit prices and decreased volume in coffee is large. Excluding coffee, we'll grow both unit prices and volume as we did in fiscal 2024. Regarding the increasing costs due to substantial inflation of raw material and fuel prices, we will respond by solidly raising prices. Overseas, we plan to solidly grow volume while steadily generating unit price effects to achieve increases of 6% in volume and 3% in unit prices. In source and seasonings and quick nourishment in Japan, with coffee excluded, we plan to drive overall performance by increasing volume while steadily increasing unit prices. We will also carefully recover business profit margin over time. In addition to organic growth in existing brands, we will return our top line to growth through contributions to sales by new products and will work to reduce costs and improve the GDP margin through price increases and launch of high-value added products. Overseas, seasonings and foods continue to grow steadily, We expect further growth in fiscal 2025. While prices of raw materials have settled overall, we will take necessary actions including increasing the price of 3-in-1 powdered beverages in Thailand in May to address the soaring prices of coffee beans. We'll also aim to achieve unit price growth by increasing high-value added products. By increasing volume beyond the increase in unit prices, we'll work to achieve sales growth of 9%, excluding the impact of currency translation. We'll further strengthen existing brands, provide high-value added products that capture changes among consumers, accelerate the development of areas with potential in major countries and their neighboring countries, and continuously and steadily grow profit.

This slide looks at frozen foods. The segment achieved strong profit growth in North America in fiscal 24. In Japan, however, segment profit decreased amid high prices of raw materials and the impact of currency translation contributing to a profit decrease overall. Heading toward fiscal year 2030, we'll work to grow sales at a CAGR of 7% or higher by adding new businesses while solidly growing our existing businesses. At the same time, we aim to enhance capital efficiency. For frozen foods in Japan, we implemented price increases in March 2025 as a short-term countermeasure. In the fried rice and chicken businesses, we will consolidate the factories of the businesses into one factory and will drastically reform profitability. We have also begun commercialization of aete and other one-plate products, with steady progress underway. In this way, we will continue drastic strategy reviews and achieve a return to growth. This slide addresses healthcare and others. Looking first at functional materials amid an environment that included recovery in the semiconductor market and expansion of AI-related demand, electronic materials performed well in fiscal 24, bouncing back from a decline in fiscal 23. Assuming no major environmental changes in fiscal 25, we expect double-digit business growth. While the direct impact of U.S. policy will be minor, we will closely monitor the risk of economic recession developing as a result. Heading toward 2030, we expect market growth due to factors such as higher semiconductor performance. With ABF also supporting that growth, we'll work to increase the scale of the ABF business in line with growth in the semiconductor markets. For ABF to support the growth of the semiconductor market, we must respond to the market's ongoing expansion through increased production of ABF. Heading toward 2030, we plan to invest about $25 billion to address increased demand. As our first step, we constructed a new factory at the Guma plant of Ajinomoto Fine Techno Company. We are now moving forward with authorization by customers aiming for full-scale operation during fiscal 25. We'll prepare an ABF supply structure, maintain ABF's high market share, and shore up its position as the de facto standard in the industry. Next is biopharma services, or CDMO. We made the decision to sell Althea to accelerate our transition to a high-value-added business model, capitalizing on the superiority of our original technologies based on amino science. While the sale of Altia will have an impact in fiscal 25, areas based on our original technologies will accelerate growth. Heading toward 2030, we will aim for dramatic growth by expanding areas such as Agiphase, Agicap, and Forges gene therapies. This slide looks at the status of biopharma services, CDMO services by area. In Europe in fiscal 24, we had sales nearly on par with the previous year and significantly increased business profit. Products with high business profit margin, not only medium molecules, but also small molecules contributed, and we expect revenue and profit to increase in fiscal 25 as well. In Japan in fiscal 24, sales were flat year-on-year due to delayed shipment of Aji phase. With the added recording of structural reform expenses, business profit decreased. In fiscal 25, we're planning for increased revenue and profit for Aji phase, as well as a degree of revenue contribution from Aji cap, as will be discussed later. Orders in fiscal 24 were strong for Forge in North America, with sales roughly doubling year-on-year. In fiscal 25, we're planning to increase sales dramatically and break even in EBITDA margin. One original technology based on amino science is the antibody drug conjugates, ADC technology, AgiCamp. Our ADC drug discovery support and manufacturing services have adopted a reduced asset business model centered on AgiCamp technology licensing. Licensing agreements have been steadily increasing in recent years, and we expect sales to reach billions of yen in fiscal year 2025. By expanding applications for AGICAP and by strengthening collaborations in North America, where demand is the greatest, we will continue to increase the number of licensing agreements. This slide shows progress toward our ASB indicators under the 2030 roadmap. Regarding ROE and ROIC, there was a decrease in bottom line due to the recording of structural reform expenses in fiscal year 2024 and fiscal 25. In addition to not having this impact, we're expecting a solid increase in profit and the further recording of profit from the sale of fixed assets to deliver a significant recovery. Excluding the impact of the FORGE acquisition in particular, we're planning for ROE of 19%, exceeding the 18% originally planned at the time the 2030 roadmap was announced. We expect EBITDA margin to reach the regionally planned value because it is continuing to expand steadily. ASB indicators by segment are shown here. From this fiscal year, shared company-wide expenses are not allocated to individual segments. Accordingly, the plans for ROIC and EBITDA margin for fiscal 25 shown in the 2030 roadmap have been revised to values that exclude the impact of shared company-wide expense allocation. Note that company-wide, in addition to ROIC by segment, there is a shared company-wide expense ROIC of minus 3.5%. In fiscal 24, total assets decreased due to initiatives to reduce inventory assets and the impact of currency translation. Up to last year, we used net debt ratio 40 to 60% as an indicator of financial discipline. From fiscal 25, we are replacing that with net interest-bearing debt divided by EBITDA ratio of less than 2. This indicator has been disclosed by many other companies in Japan and globally. While growing EBITDA, we will control the ratio to under 2 when utilizing net interest bearing debt leverage. Despite the changes in indicators, there is no change in our policy of utilizing appropriate financial leverage. Operating cash flow in fiscal 2024 exceeded our revised fiscal 24 forecast of $195 billion to hit a new record of over $200 billion in cash generation. Although profit before tax decreased by over $30 billion, impairment losses due to structural reform, the main cause, involved no cash expenditure. And at the same time, we reduced... Corporate taxes and tax effect accounting, which boosted operating cash flow. Initiatives to reduce inventory assets are also making contributions. In fiscal 25, we will enhance our capability to generate cash by improving working capital and are expecting operating cash flow of over 220 billion yen. In fiscal 24, we made growth-oriented capital investments worth about 96 billion yen. We also enhanced our investments in intangible assets, bringing the percentage of investment in intangible assets to about 45%. In fiscal 25, we're planning capital investments of over 110 billion yen and expect intangible asset investments to remain in the low 40% range. This slide shows key management indicators in the purpose-driven management by medium-term ASV initiatives 2030 roadmap. ROE and ROIC were temporarily weighed down by the recording of structural reform expenses in fiscal 24. With the impact of the forward acquisition excluded, ROE in fiscal 25 is about 19%. higher than the initial target in the 2030 roadmap. ROIC is projected to be about 12% within distance of our challenging initial target of 13%. Normalized EPS based on business profit also rose solidly in fiscal 24. The advantage of this indicator, which does not reflect extraordinary profit over conventional EPS, has been demonstrated and leads to an increase in dividends, as will be explained later. In fiscal 25, we're expecting to create about 220 billion yen in cash flow and are aiming to reduce cash and deposits to 90 billion yen. We will also actively engage in shareholder returns, as noted in today's announcement, of 100 billion yen in share repurchases. Next, I'd like to talk about shareholder return. As noted earlier, with the adoption of dividends based on normalized VPS, which is not affected by extraordinary fluctuations in profit, dividends will not be affected by the decline in profit stemming from impairment losses associated with the structural reforms in fiscal 24. We will plan to increase the annual dividend by 8 yen to 48 yen in fiscal 25. We repurchased 90 billion yen in shares in fiscal 23 and 24 and today announced the repurchase of 100 billion yen in shares. More than in past fiscal years, we'll continue to actively, with agility, engage in shareholder returns.