Ajinomoto Co Inc

Good evening, everyone. Despite your busy schedule, thank you very much for your participation to the FY25 Final Result Briefing of Ajinomoto. I'm Goto of IR Office, playing as a moderator. First of all, I would like to introduce today's participants. New executive structure from April, of which eight members are here with us today. Representative Executive Officer, President, CEO, Nakamura. Representative Executive Officer, Executive Vice President, Kaho. Representative Executive Officer and Senior Vice President, General Manager, Food Products Division, Sakakura. Executive Officer and Vice President, General Manager, Biofarm Chemicals Division, Arashida. Executive Officer and Vice President in Charge of Finance, Mizutani. Executive Officer and Vice President, CTO in Charge of Quality Assurance, Sumurita. Executive Officer, Supervision of Frozen Foods Business, Komura. Executive Officer in Charge of IR, Kaji. Today, CEO Nakamura will make presentation on FY26 Forecast and Initiative for Enhancing Corporate Value, followed by Q&A. The overall briefing is complete. scheduled an hour and 30 minutes. Today's material could be found on IR page of Ajinomoto's website. Please refer to the material. We will be recording today's contents, including the Q&A session, and at a later date will be uploaded on the IR website. I would like to have your understanding, so we would like to start. Nakamura-san, please.

Hello, my name is Shigeo Nakamura. Thank you very much for attending today. And I would like to make a presentation. Today, I would like to discuss four major points. In fiscal 2025, as in the previous fiscal year, we set new records for both sales and business profit. Business profit continued double-digit growth. In healthcare and others, the functional materials and biopharma services and ingredients businesses saw significant increase in profit. The food products business overall, combining seasoning and food and frozen foods, also saw increased profit. In our fiscal 2026 forecast, we expect to again post new records in both sales and business profit. We are planning for growth in the seasoning and food, frozen food, and bio-infinite chemicals businesses. Although the situation in the Middle East from the end of February 2026 could affect cost and procurement, we as a company will respond flexibly and minimize any impact on our performance. Under a new executive structure instituted in April, we will further raise the human resources and organization capabilities of the group as a whole. evolve ASDB initiatives while enhancing the execution capabilities of our management and continue endeavors to achieve the 2030 roadmap ahead of the schedule. This slide presents a digest of financial results for the fiscal year ended March 31. For the full year, Both sales and business profit increased enough to set new records. Sales were 1 trillion 583.7 billion yen, 103% the level of the previous fiscal year, or 102% with the effect of currency translation excluded. Revenue increased in seasoning food in Japan and overseas. In healthcare and others, revenue for functional materials increased significantly. Amino acids for pharmaceuticals and foods and CDMO services, excluding the effect of sales for Altea, also increased. Business profit was 181.1 billion yen, 113% of the level of the previous fiscal year, or 111% with the effect of currency transition excluded. Profit increased in season food in Japan and overseas. In health care and others, profit increased significantly in functional materials. Profit also increased in amino acids for pharmaceuticals and foods and CDMO services. Profit attributable to the owners of the parent company was 134.6 billion yen, A 40.6 million gain on the transfer of the head office land and building was recorded in other operating income. This slide shows an analysis of the difference in business profit between fiscal 24 and 25. Higher revenue in coffee in Japan, functional materials, and in sauce and seasoning in Japan and overseas contributed to an increase in gross profit due to increased sales, which was a factor behind the 19.1 billion yen increase in profit. Improved gross profit margin in sauce and seasoning overseas in coffee in Japan and biopharma services, CDMO services, contributed to an increase in gross profit due to increased gross profit margin, which was a factor behind the $27.3 billion increase in profit. As for SDN expenses, we are increasing investments in intangible assets in other areas, aiming for sustainable growth in line with our 2030 roadmap. This slide presents the analysis of differences in business profit between fiscal 25 and 24 by segment. As a reference, the bottom half of the slide shows an analysis of the difference between the revised 25 forecast announced on February 5 and our previous year's performance. Looking at seasoning and food, although revenue decreased in solutions and ingredients, we secured increased revenue overall by growing revenue in sauce and seasoning business in Japan and overseas and in the coffee business in Japan. As a result, business profit increased by 8.9 billion yen, exceeding our revised forecast for the full year. In frozen food, although overall sales were on par with the previous year, business profit Business profit decreased. In North America, a number of temporary factors arose from the first quarter through the third quarter, such as the impact of tariffs and the restrained food purchasing due to the SNAP program for low-income groups under the federal government spending freeze. Also in the fourth quarter, in North America, cold waves weighed down the sales, and some products were subjected to recalls. In healthcare and others, business profit had a significant increase year-on-year of $20.5 billion. In addition to a significant increase in profits in the functional materials business, profit also rose in the amino acids for pharmaceuticals and food business and CDMO services. This slide presents combined sales for salt and seasoning and quick nourishment broken down by volume and by unit price in Japan and overseas. Data on Japan is shown on the left-hand side. Sales for the fiscal year were 111% the level of the previous fiscal year, breaking down to volume 96% and unit price 115% of the previous fiscal year, excluding coffee. Sales growth to 105% of the previous fiscal year level. Volume 104% and unit price 101%. In coffee business in Japan, volume declined under repeated price increases in response to the rising prices of the coffee beans. However, unit price growth made up for the decline and sales increased significantly to about 120% the level of the previous fiscal year. Revenue also increased in menu-specific seasonings and soups. In addition to strengthening sales promotion at stores, we rolled out a special menu campaign for CookDo, which offers cooking ideas not bound by standard recipes. We are promoting demand growth through the creation of variety in home cooking and the expansion of new usage scenarios, even in an environment where consumers aim to cut costs. Furthermore, there was a contribution from the robust sales of new products and market share growth in mayonnaise, so sales were growing overall in a very strong manner. Overseas data is shown on the right-hand side. Sales for the fiscal year were 104% the level of the previous fiscal year. Volume, 102%, and unit price, 102% of the previous fiscal year. Umami seasoning, flavor seasoning, menu-specific seasonings, and other products are showing steady growth, primarily in the main countries where we operate, also in the neighboring countries of the five key countries. They also made contribution to overall sales growth, such as higher sales of flavor seasoning in Peru and Cambodia. This slide shows the progress of ASV indicators vis-à-vis the 2030 roadmap. ROE was 17.7%, and ROIC was 11.8% for fiscal 2025, significant increases from the previous fiscal year. Excluding extraordinary factors such as the Forge Biologics acquisition and the sale of the head office land, ROE was 17.7%, and RORIC was 11.2%. EBITDA margin improved from 16.1% in the previous fiscal year to 17.1% for fiscal 2025. This slide shows the ASV indicators by segment. Overall, we are making steady progress towards our 2030 roadmap. This slide presents our forecast for 2026. We are planning to achieve new records for both sales and business profits, reaching 108% the level of the previous fiscal year. We expect increased revenue and profit in all segments of seasoning and food, frozen foods, and healthcare and others. We expect profit attributable to the owners of the parent company to be 120 billion yen, and in fiscal 2024, profit was boosted by recording the 40.6 billion yen from the transfer of the head office land With that factor excluded, profit ended up with a double-digit increase. Note that the impact of the present situation in the Middle East is not incorporated into this forecast. There's a possibility of impact in the areas of procurement costs. By responding to these flexibly, we plan to minimize the impact on our 2026 forecast presented here. Details of the specific actions are presented in the next slide, so let me explain using the next slide. Changes in the situation that has existed in the Middle East from the end of February 2026 onward could result in a certain amount of impact on the procurement cost in the forecast for 2026. Assuming that the crude oil prices remain at about $110 per barrel, and the exchange rate remains at about 150 yen to the dollar, Levels seen at the beginning of the fiscal year, we currently envision that the potential impact to be on the scale of about 30 billion yen or so. First, about the risk in the area of procurement. There could be restrictions on the procurement of packaging materials and other inputs due to tightness of supply, primarily in the food product business. To address this, we will diversify the sources of supply and work to secure stable supplies. There's also a risk in the area of costs. In addition to increases in prices of main raw materials, sub-raw materials, and food ingredients, increases are expected for the price of NAFTA and the energy prices, such as electricity and gas, and also logistics and transportation costs. To address such impacts, we were engaged in ongoing, wide-ranging, solid cost reduction and worked to minimize impacts through flexible pricing geared to the market environment. We will provide quarterly updates with respect to these impacts on the materialization of these risks and explain the progress of our actions to address them. This slide is a waterfall chart of the business profit in our forecast. The effect of increased revenue and increase in GP margin will steadily bring about an increase in gross profit, and by solidly investing for growth, we will work to sustainably grow our business profits.

This is analysis of the difference by segment for business profit forecast against the previous year's results. In seasonings and foods, we expect increased revenue from overseas. Sauce and seasonings and coffee in Japan, which will offset proactive strategic expenses such as marketing costs aimed at future growth, resulting in a planned increase in profit. In umami seasonings for processed food manufacturers, we anticipate soft market conditions to remain significant. and plan for profits to be largely unchanged from the previous year. In frozen foods, we anticipate increased revenue driven by higher sales volumes, primarily of Asian category products in North America, and plan for a significant overall increase in profit. In Henske and others, in addition to increased profit due to the continued strong performance of a functional materials business, we expect significant increase in profit in the biopharma services and ingredients. This slide breaks down the projected sales growth for the combined sauce and seasonings and quick nourishment into volume and unit price components for both Japan and overseas markets and identifies the factors contributing to changes in business profit. In Japan, sales are projected to reach 106% of previous fiscal year with a breakdown of 103% for volume and 103% for unit price. Overseas, sales are projected to be 107% of the previous period, with a breakdown of 105% for volume and 102% for unit price. To achieve medium to long-term growth, we plan to invest in strategic expenses, including marketing, while steadily increasing volume to drive sales growth. Yet, should the situation in the Middle East have an impact, in addition to cost-cutting efforts, we will implement flexible measures such as price increases and other actions as required. This slide shows the trends in sales, business profit, and business profit margin for the entire seasonings and food business, which includes source seasonings, quick nourishments, and solution and ingredients SNI. This business consists of source and seasonings and quick nourishment, B2C operations in Japan and overseas, as well as the B2B SNI business, and aims to achieve sustainable growth over the medium to long term. In FY 2025, the B2C business secured growth in both sales and profits, driving the growth of the entire business. Meanwhile, regarding the assumption for the FY 2026 forecast, we anticipate that the sluggish market condition for SNI umami seedlings for processed foods manufacturers will continue for some time. We will also closely monitor the risk of rising raw materials and fuel costs against the backdrop of falling prices for fermentation, raw materials, and fuel. In light of the situation in the Middle East, approximately 80% of the umami seedlings for processed foods manufacturers produced by our group are used as raw material for intra-group B2C products, and the soft market conditions are having a positive effect on the B2C segment in terms of raw material costs. We will manage B2C and B2B business as an integrated whole, enhance our competitiveness through productivity improvement achieved by introducing new technologies and realize sustainable growth for the entire business over the medium to long term. In FY26, based on this business structure, we will continue to pursue growth while the group as a whole would absorb the growth in the B2C segment and changes in market condition into the B2C B2B segment. Next, I will explain the growth trends of our B2C business, the overseas soils and seasonings, and quick nourishment businesses. We present data for five key countries where we operate, Thailand, Indonesia, Vietnam, and the Philippines and Brazil, using bar charts to show sales and business profits and line charts to show business profit margins. The breakdowns of sales in the bar chart on the left shows the bottom section representing combined sales of umami seasonings and flavor seasonings, while the top section represents sales of menu-specific seasonings, cooking sauces, cook nourishments, and others. As you can see from this chart, Umami seasonings and flavor seasonings have shown steady growth. In addition, you can see that sales of other products have been expanding, particularly in recent years, contributing not only to revenue growth but also to improvements in business profit and margin. In this way, by combining the stable growth of our basic seasonings with the growth of other values, we are achieving sustainable growth in our overall overseas B2C business, in these five major countries where we operate. In this way, while expanding sales of products other than umami and flavor seasonings, we are also developing products that cater to the diversifying needs of the consumers in the flavor seasonings and other products. Here is an example of our product in Thailand. In Thailand, our flavor seasonings lineup has traditionally focused on pork-based products aligned with local food culture. However, in recent years, we have expanded our product range to accommodate consumers' diverse values, including halal-certified chicken-based products and vegetarian-friendly options. Furthermore, in menu-specific seasonings, we are advancing the launch of premium varieties tailored to local dishes, such as Palo and Lab Thai Salmon's Meat Salad. In recent years, we have been actively promoting amino-vital products, to target people engaged in sports. Next, let's look at the neighboring countries of the major five key countries. This chart shows the trends in sales and business profit margins for the neighboring countries, excluding the five major markets where we operate. As you can see, sales are growing strongly even in countries outside those five countries. In FY 2025, sales in neighboring countries accounted for more than 20% of our total overseas sauce and seasoning sales. In neighboring countries, such as Peru and Malaysia, have already grown to a scale rivaling that of major markets, and as these countries increase their presence and emerges growth drivers following the major markets, their growth is accelerating. To date, our group has expanded our overseas business by building local trees and establishing sales networks led by local staff to offer products rooted in local food cultures and preferences. Currently, in countries and regions with food cultures similar to Thailand, such as Laos, we are expanding our business into those new markets by exporting products manufactured in Thailand, utilizing an asset-like business model. Furthermore, we are strengthening our local staff structure in line with business growth and enhancing sales capability through efficient marketing initiatives, including the use of social media and other channels. In this way, we are advancing our expansion into neighboring countries by evolving the Ajinomoto Group's existing model for overseas business development, which centers on establishing products rooted in local food cultures and preferences, and locally-led sales networks, and we will use this model to drive medium to long-term growth. Next slide shows the frozen food business. In fiscal year 2025, combining Japan and overseas markets, overall sales increased slightly, while profits declined. This was due to the several temporary factors in North America. Impact of tariffs in North America during the first half of the year reduced grocery spending, resulting from the suspension of the supplementary Nutrition Assistance Program SNAP for low-income households, which was affected by the federal government shutdown, as well as the impact of cold waves in Q4, and recalls of certain products in North America. I would now like to explain the recall situation. In February of this year, we received inquiries regarding class fragments found in specific products sold at chain stores in North America. We immediately reported the situation to the U.S. Department of Agriculture. USDA, and conducted an investigation into the cause. The investigation revealed that minute glass fragments, too small to be detected by inspection equipment, had been mixed into some of the raw materials used in affected products, which were subsequently shipped. In response, we promptly recalled the affected products and provided a detailed explanation of the cause and our response to all relevant customers. who have expressed their understandings. Furthermore, in light of this incident, we have reviewed our inspection processes and strengthened our quality control systems to mitigate the risk of foreign object contamination. We're also moving forward with introduction of inspection methods capable of detecting foreign objects that are difficult to identify through conventional inspection methods. In addition, we have conducted a comprehensive review of our entire quality control process and are working to prevent recurrence by enhancing the precision of management at every process from manufacturing to shipping. During fiscal year 2025, there were periods when products were not available on store shelves while we provided explanations. However, we have now resumed shipment of all products. Expenses incurred in fiscal 2025 in connection with this matter were recorded under other operating expenses and we anticipate that the impact of this recall on sales and profit in FY2026 will be minimal. Over the past 25 years, our group has steadily expanded the sales scale of this business, both in Japan and overseas. In 2014, we acquired the current Ajinomoto Foods North America, Inc., and have been actively expanding our North American operations. Since then, we have strengthened our business foundation through the promotion of an asset-like strategy, For FY2026, we anticipate increased revenue and profits in Japan and overseas. In North America, the Asian food category is expected to grow at a rate exceeding that of the overall North American frozen food market. We will aim to return to growth and expand our business by launching new products, primarily Gyoza, and further strengthen the Ajinomoto brand. We view the frozen food business as a key pillar of our group, both in terms of enhancing our corporate brand value and contributing to our customers' well-being. In Japan, frozen foods, including gyoza, serve as a key touchpoint between consumers and Ajinomoto brand. In addition to our standard products, we offer microwavable gyoza as well as Aete, a line of nutritionally balanced frozen meals featuring approximately 60 varieties, striving to balance convenience with health benefits. In Europe and the U.S., we are also promoting Japanese-style Hane-style gyoza as a new offering, contributing to well-being through a wide range of food choices. Ajinomoto brand awareness in Europe and the United States has reached approximately 10%, expanding to a level where we can reliably reach specific target demographics. Most recently, the largest premium retailer in the U.S., which operates approximately 600 stores, decided to adopt our group's frozen foods. This outcome is the result of our continuous product proposal, which have led to the recognition of the value of our Japanese food offerings, and we believe it will serve as a footfall to further enhance our expansion. We view this development as evident that opportunities for higher value-added expansions are growing in U.S. market, and we recognize this as a positive step leading to the future initiatives. Given this brand value and expansion of our business foundation, this slide outlines our mid- to long-term plan for enhancing corporate value in the frozen food business. Looking ahead to FY30, we aim to achieve an ROIC that exceeds the current level by approximately 3%. At the same time, over the medium to long term, we will work to transform our business structure so that we can stably maintain an ROIC that sufficiently exceeds our cost of capital. To date, we have steadily strengthened the business foundation of our frozen food business through continuous sales growth, the expansion of our North American operation, and the promotion of an asset-like model. We recognize that this frozen food business makes a significant contribution to enhancing the brand value of the entire group. Given that our products have been selected by premium retailers in North America, we believe we can continue to achieve growth through business expansion primarily in overseas markets. Based on this current situation, our future business strategy will focus on three main directions. First is innovation in deliciousness, driven by technological lead. We will apply the deliciousness technology cultivated in our seasonings and fruits business to frozen food business as well, Further refining deliciousness and enhancing our competitive advantage by differentiating ourselves from competitors. Second is improving productivity through the thorough pursuit of a pressure excellent. We will apply the production management methods such as process control and know-how for improving efficiency, develop the Ajinomoto frozen foods, our primary domestic frozen food business entity to achieve a balance between profitability and capital efficiency across the entire group. Third, we will further strengthen productivity our business foundation, we will enhance our ability to adapt to growth markets while advancing the sophistication of our business management to establish a framework that supports sustainable growth. Through these initiatives, we will raise ROIC by FY30 and evolve our frozen food business into one capable of creating values that exceed the control or capture of other meat to long-term.