Ajinomoto Co Inc

Good evening, everyone. Thank you very much for taking a precious time to attend Ajinomoto's fiscal 2025 first half earnings call. We thank you very much for your time this afternoon. I am Kaji of the IR office. I'll be serving as moderator. Let me first introduce the participants from the company. We have representative executive officer, president and CEO, Mr. Nakamura. Representative executive officer and executive vice president, Mr. Shiragami. Executive Officer and Senior Vice President, General Manager, Corporate Division, Mr. Sasaki. Executive Officer, Senior Vice President, General Manager, Food Products Division, Mr. Masai. Executive Officer, Senior Vice President, General Manager, Bio and Fine Chemicals Division, Mr. Maeda. Executive Officer and Vice President, in charge of Finance and Investor Relations, Mr. Mizutani. Executive Officer, Vice President of Supervision of Frozen Foods, Mr. Kawano. Executive Officer in Charge of Diversity in IHR, Ms. Kayahara. Corporate Executive General Manager, Biopharma Services Department, Bio and Fine Chemicals Division, Mr. Otake. Nine members from the company are present today. For today, at the outset, Mr. Nakamura will explain the overview of the first half results for the year ending March 26, and also the corporate value enhancement initiatives, after which we would like to move on to the Q&A session. We expect to finish the entire meeting in about one hour and 30 minutes. The materials to be used for today's presentation is already posted on the IR information site of our corporate homepage. Please look at them as adequate. Please be advised that this session will be recorded, including all the way to the Q&A session, to be posted on the company's IR site later. Now, without further ado, we would like to begin the meeting. Mr. Nakamura, the floor is yours.

Now, I myself, Nakamura, I will make presentation. What I would like to talk about is two points. All sales and business profit in first half of FY2035 remained at the level of previous year. While progress toward the full year plan is slightly behind schedule, we are quickly addressing the issues faced in Q2 FY2035 and aim to steadily achieve our forecast for FY2025. In our efforts for further growth and evolution of ASV initiatives, we have identified issues, set out a direction for actions, and worked out concrete strategies. We will evolve our activities to achieve the 2030 roadmap and will tackle the creation of innovation to achieve sustainable growth over the medium to long term. This slide presents a digest of first half of financial results of FY2035 sales was 738.8 billion yen, nearly unchanged year-on-year. Revenue increased in healthcare and others with the impact of the sale of althea excluded as well as in seasonings and foods but decreased in frozen foods. Business profit was 86.7 billion yen, nearly unchanged from the previous year. Profit attributable to owners of the parent company increased 2% from the previous year. We are thoroughly committed to achieving bottom-line profit as well. This slide shows an analysis of the changes in the business profit in the first half of FY2025 and of FY2024. The change in GP due to changes in sales decreased by 2 billion yen due to decreased revenue. The change in GP due to change in GP margin in both the food and healthcare and other businesses contributed to improvement of the GDP margin and GDP increased by 10 billion yen overall. In line with our 2030 roadmap strategy, we'll firmly control SG&A expenses while undertaking investments aimed at future sustainable growth. This slide shows a year-on-year analysis of changes in business profit by segment for the first half. For reference, at the bottom of the slide is analysis of changes for the full-year forecast from the previous year's results. In the first half, profit decreased in seasonings and food and the frozen foods businesses. Profit increased in the healthcare and other businesses. While progress appears to be lagging versus the four-year forecast, we expect an increase in profit in the second half. Looking closely at the two businesses where profit decreased, the seasonings and foods was affected primarily by a profit decline, umami seasonings for processed food manufacturers, and oversupply in the market due to increased production and new entry by major Chinese manufacturers. In the frozen food business, key reasons for the decrease were the inability of home-use frozen foods in Japan to fully meet the diversifying needs of consumers, and the loss of mainstay product market share to private brands, etc., following price increases with the result of sluggish sales. Later slides will look at the current situation and our comeback strategy. In healthcare and others, business profit increased significantly in functional materials. Profit also increased in biopharma services and ingredients. This slide shows our forecast for FY2025. Due to the shift of promotional activities for frozen foods in North America to the second half and expectation of a significant profit increase for CDMO business in the second half, sales and profits are projected to rise in the second half. In umami seasonings for processed food manufacturers and frozen foods in Japan, as areas in which progress is behind schedule will act agilely to recover sales and profit in the second half. At the same time, amid positive market conditions, both sales and business profit in the functional materials grew to 120% of the previous year's levels in the first half. We will continue to accelerate growth in the second half. We aim to achieve our forecast for the group overall. This slide shows progress toward ASV indicators of the 2030 roadmap in the first half of FY2025. The organic growth rate remained 1.9%, but EBITDA margin steadily grew to 17.5%. These are the ASV indicators for each segment. This slide breaks down sales into volume and unit prices for sauces and seasonings and quick nourishment both in Japan and overseas with an analysis of change in business profit. Sales in Japan in the first half were 107% and volume was 94% and unit price was 113%. Within this, sales of coffee grew to 120% versus the previous year due to price increases despite a decrease in volume. Consumer frugality increased and second quarter was also affected by extremely hot weather, but sales of food products in Japan, excluding coffee, exceeded last year's results, achieving 101% in overall sales, with volume at 99% and unit price at 102%. responding to high raw material costs and the weekend with price increases. Overseas sales increased to 103% versus the previous year. Volume remained flat while unit prices rose to 103%. Volume in sauce and seasonings achieved low single-digit percentage growth. In addition to umami and flavor seasonings, both exceeding last year's levels in terms of volume and unit price, we achieved solid growth for menu-specific seasonings. We realized unit price growth not only through price increases but also by increased sales of high-value added products. On the other hand, RTD coffee, sensitive to economic trends, saw a decline in volume. Industrial expenses, we focused investing in advertising to enhance our future brand value. As a result, business profit increased by 2.5 billion yen, coming close to our full year forecast of 3 billion yen. Now I will look at results by sub-segment, beginning with combined overseas and Japanese results for the sauce and seasonings business. This business, a cornerstone of our group, is resistant to changes in the macroeconomic environment and is steadily growing sales. Business profit margin fluctuated significantly during the COVID-19 pandemic and the FI 2022 fell to the level of 10 years earlier due to soaring raw materials prices. Due to initiatives such as repeated price increases and increased sales of high-value added menu-specific seasonings and also introduction of new products, business profit margin in the first half of FY2025 exceeded that in FY2019, which was before the pandemic. We will continue working to increase sales and profit margin to support the stable growth of food products business. This slide looks at umami seasonings for processed food manufacturers. In the first half, revenue and profit decreased in MSG and nucleotides. This was mainly due to post-increased production and new market entry by major Chinese manufacturers, leading to oversupply in the market. This business has suffered drops in profit in the past due to increased production by competitors and high prices of raw materials and fuels. We see the decrease in revenue and profit shown here as Originating in a cyclical phase, not a change in business structure, we believe we can restore a business foundation that generates stable profits. Umami Seasonings for Processed Food Manufacturers is an important business that supplies main ingredients for B2C seasonings. In April of this year, we established the MSG Business Collaboration Promotion Department as part of our food products business orchestration and further strengthened the linkage between B2B and B2C. By centralizing the management of B2B and B2C businesses to optimize company-wide operations, MSG Business aims to achieve sustainable growth and maximize profitability. We also actively engage in protecting our intellectual property, including filing lawsuits against infringement of our MSG manufacturing patent, an intangible asset of our group, to maintain our competitive advantage. We also use our proprietary technologies to enhance productivity and cause competitiveness. With these measures, we will secure our competitiveness and advantageous position to grow continually. Next, the frozen foods. The issue in frozen foods in Japan is sluggish sales of home-use products. Strong performance continues in restaurant and industrial-use products, for which we have narrowed our product strategy targets and channels, as well as in the AET frozen lunchbox within D2C services that meet niche consumer needs. In particular, AET is expected to achieve goals with annual sales projected to reach billions of yen. However, our home-use products, which enjoy strength in mass production, have been slow to fully meet the diverse needs of consumers. Following price increases, our mainstay Gyoza products lost over 10 percentage points of market share, primarily to private brands. Amid increasing consumer frugality driven by rising living costs, since September, We have been revising our pricing strategy under awareness that we have not been providing products at prices that meet the needs for cost-effectiveness. Results have quickly become apparent. In September alone, following a strategy revision, we regained the top share with an increase of over 2 percentage points. By recovering market share, we will further increase points of contact with consumers to enhance corporate value for the Ajinomoto brand. In our mainstay Gyoza products next spring, we'll introduce revised products intended to balance product strengths with profitability. We'll work to recover, share and strengthen our profit structure. In the medium to long term, we'll reinforce the consumer perspective for Gyoza and for home use products as a whole, expand a new line-up of products with those that meet consumer needs and revitalize the business. Heading toward 2030, this business will contribute to the growth of the food products business by increasing sales to a CAGR of about 3% and business profit to about 7%. This slide deals with frozen foods in North America. In the first half, both sales and profit declined year-on-year, even on a local currency basis. The main factors are transient, the U.S. tariff policy, and a timing shift in customer sales promotions to the second half. We believe that we will be able to grow sales and profit in the second half. North American frozen foods is essentially a local production for local consumption business. However, some products are imported from group companies in China and have been affected by higher tariff rates. We have already responded with price revisions to these products and believe that we can improve profitability in the second half. Performance was also affected by the fact that sales provisions in large-scale distribution channels carried out in the second half of the previous fiscal year were not carried out in the first half of the current fiscal year and are planned to be carried out in the second half. The North American business structure has evolved into a stable one with structural reform and initiatives to expand TTC margins. while quarterly fluctuations may occur, will solidly expand the business throughout the year and in the medium to long term. Previous slides looked at current status of the food products business and action taken. We recognize that in the first half, we faced the issues in the frozen foods in Japan and umami seasonings for processed food manufacturers, who strictly manage these areas. As CEO, I recognize the importance of properly assessing the true nature of the issues, in addition to a return to growth Through actions to address frozen food business in Japan and umami seasonings for processed food manufacturers, we'll achieve steady volume growth in the food products business overseas, and with the recovery of profit margin to the pre-pandemic level in the food products business in Japan, we'll work to achieve the 2030 roadmap.

Next, about the healthcare and other segment, I'll begin with functional materials. In the first fiscal 25, there was no change in the environment, i.e., the strong sales for IR servers, the recovery of PCs, and general purpose services continued from 2024. Both sales and business profit grew year-on-year in excess of our expectations. Assuming no major changes in the environment, we expect to maintain strong momentum in the second half as well, sustaining a trend from the first half. We will grow to work to grow our functional materials business, including in areas peripheral to the Ajinomoto build-up film, by solidly fulfilling our responsibility to supply and meet demand, by undertaking next-generation and next-generation development within the ecosystem with the end-users included. This shows the current status of biopharma services, CDMO, by geographic area. Europe continues to perform well. India is also receiving many recoveries and contributing to profit. There's no change in the status of orders, and we expect this momentum will continue in the second half. The results for Agiface in Japan are below the previous fiscal year. This is due to the shipments being moved back compared to the previous fiscal year when shipments were concentrated in the second quarter. However, the progress vis-à-vis the full-year target remains unchanged. In the second half, we expect growth in agiface shipments and agicap to make a profit contribution. In North America, FORGE is performing well. And I'll explain the details in the next slide. This slide is about FORGE, the North American gene therapy CDMO that we acquired in 2023. Within the advanced medical care field of gene therapy, FORGE has won the trust of customers and increasing its sales on the strength of its proprietary technologies. Projects are also focusing smoothly as sales grow dramatically and customers steadily increasing. The number of projects that have obtained IND approval, that is the US FDA approval for the start of new drug clinical trials, has also increased significantly following our acquisition. There are also projects aiming for early commercialization. Funds to cover the expenses of preparing for commercialization, which are scheduled for next year or later, are being used earlier than planned. While this will weigh down short-term profit, we will pay these expenses ahead of schedule as investments to accelerate future growth and will aim for early commercialization. We will work to achieve the target of a positive EBITDA during the current fiscal year by doing our best to absorb these upfront costs through increased sales. And Mr. Otake, who is a member of the forge management and well-versed in on-site operation, is present today, so we welcome your questions. AgiCap is a proprietary antibody conjugate ADC technology based on amino science. Our ADC drug discovery support services and manufacturing adopt an asset-light business model centered on AgiCap technology licensing. Last month, we signed two new AgiCap technical license agreements. One of these is with an undisclosed overseas companies, and the other is with Astellas Pharma Inc. And we will continue to conclude new license agreements with companies in Japan and overseas with both major and venture enterprises, and will contribute to develop AgiCap as a growth driver. With the aim of maintaining financial soundness and maximizing capital efficiency from 2025, we are changing our fiscal discipline indicator from previously net DE ratio to now net interest-bearing debt over EBITDA ratio. We will continue to keep our financial leverage at an appropriate level, one that can contribute to organic growth and capital efficiency. Operating cash flow in the first half fiscal 2025 was 93.2 billion yen, about 11.5 billion yen higher than the first half of 2024. We will continually strive to improve our cash generation capability. As reported in our recent release on the construction of a new factory in the Philippines, We will steadily invest to grow organically, and we will also proactively invest in intangible assets that can create innovation. These are the key management indicators of our mid-term ASV management 2030 roadmap. We will aim to steadily achieve the guidance for fiscal 2025. Based on our foundation of sustainable business growth, we are working to further strengthen our cash generation capabilities or our earnings power. Building upon these achievements, we are promoting resource allocation with a focus on capital efficiency in line with our roadmap. To further improve capital efficiency, we are actively implementing shareholder returns and striving to enhance our corporate value. In addition, we remain committed to achieving the goals set out in our roadmap of tripling EPS in 2030 compared to the 2022 level, and we will continue to make steady progress towards this target. Based on this approach, in addition to the 100 billion yen share buyback announced on May 8th, We are pleased to announce a new share-buy-back program of 80 billion yen, with the acquisition period starting from December 1st and end until November 2026. Going forward, we will continue to enhance shareholder returns as we strive to further improve capital efficiency. From this slide, I would like to talk about the progress of our initiatives aimed at further growth of the Ajinomoto Group and the evolution of ASV initiatives. After I took office as CEO, we implemented a 60-day program from April to address the issues identified through cross-SWOT analysis and constructed a framework for identifying management issues and clarifying the responsibility and what actions to take. The outcome was that we were able to lay the groundwork for change. Since July, we have discussed concrete strategies and actions based on this framework in what is called the Ajinomoto Group Executive Seminar, or AGES, with a focus on executive training for all executive officers, corporate executives, and corporate fellows. And the content of this is described on the next page onwards. At the AGES meeting, we discussed seven topics. We first focused on the creation of the new businesses that will drive our mid- to long-term growth, and we discussed concrete strategies and actions in four key areas, healthcare, food, and wellness, ICT, and green. In the future, we will deepen discussions from the angle of three Cs, continuity, change, and challenges. I recognize that creating new businesses that comes after ABF is my duty as CEO, and I will establish an R&D budget that we can flexibly utilize, and I will leverage my experience of commercialization ABF to nurture the seeds of new businesses. At the AGS, in addition to the four topics that I mentioned, we discussed three other topics aimed at maximizing management resources, strengthening corporate brands, strengthening global management structures, strengthening data-driven management. For example, with respect to strengthening corporate brand, we examined the ways to increase brand value, and so that it can lead to business expansion, taking into account the different conditions in each market and regions. Furthermore, to strengthen data-driven management, we will further promote the advancement of management through the utilization of data. We will confirm our progress on these topics at the executive committee meetings and lead it to actions. Our group will work as one to increase our corporate value. The Ajinomoto Group is working steadily to achieve a 2030 roadmap by evolving our ASV initiatives while making regular course corrections to our medium- to long-term plans and group-wide strategies aimed at addressing the management issues. Also, drawing on the discussions at the AGES meetings, We plan to begin discussions of our long-term vision during the current fiscal year, which is one of the seven important management matters for the Board of Directors, and we'll make those discussions on the starting point for the post-2030 by looking at our strategy for achieving a 2030 roadmap with the post-2030 plan, and by agilely making course with corrections, we will drive innovation and endeavor to create new businesses that can come after ABF. Here, I intend to demonstrate the leadership as positive energizers promoting this linkage. Next, about our human assets. Human assets are the most important intangible assets for the Ajinomoto Group. We are currently in the phase of strengthening our ability to plan and execute. The evolution of our human assets organization and corporate culture is vital in supporting this. During the time of former CEO Fujii, we broke down the silos in Japan and achieved growth for the group. During my time, we will advance global integration and aim for further growth. Towards this end, we will appoint diverse human resources, regardless of gender or region, to overseas assignments or key positions. We will also develop career paths that cut across business departments, such as food products and bio- and fine chemicals, and functional departments, such as technologies and sales, to achieve further diversity. Evolution into a truly global company That is the future that I envision for Ajinomoto Group. The preliminary scores for the 2025 engagement surveys are shown here. For ASV realization process, there were increases in every category, a two-point increase from the previous fiscal year to 78 points. The score of empathy for our purpose rose to 94 because of the activities to promote empathy with our philosophy, which tied the purpose of individual employees to the Ajinomoto Group's purpose, contributing to the well-being of all human beings, our society, our planet with amino science. We see this increase as an indication that activities are steadily taking root throughout the group. The score of enhancement of productivity, which has been an issue, improved by 9 points to 28. Although the score remains low, we added a new question this fiscal year. I believe the unnecessary approvals are kept to a minimum in my daily work when making decisions. This question received a favorable response score of 78. While there are still many approvals required before decisions are made, we have confirmed that a certain number of employees do not necessarily perceive these approvals as unnecessary. We will continue to analyze the engagement survey and work towards further improvement. Innovation for the future is created by our human assets. Through the creation of ASV, we will strengthen our human assets and aim to become a company that can continue to create new innovation. This is the last message for myself. Even in uncertain environment, we will properly recognize change, respond quickly, and aim to achieve our 2025 guidance. in a steadfast fashion. We will endeavor to achieve the 2030 roadmap ahead of schedule through sustained growth in the food product business and dramatic growth in the healthcare and others business, always maintaining a healthy sense of urgency. Aiming for growth beyond the 2030 roadmap, we will further enhance corporate value by creating concrete strategies for realizing a vision and by sustainably driving new innovations. I believe that creating new innovation is my duty as CEO. The assumption that the present state will continue is the most dangerous thing that we could do. By always maintaining a healthy sense of urgency, we will sustainably grow the group. That's all for myself. Thank you very much for your attention.