Ajinomoto Co Inc

Thank you very much for participating in Ajinomoto's earnings call for the first quarter of fiscal year 2026. I am your moderator from the IR division. My name is Koto. For today's telephone conference, we have executive officer and general manager of IR, Kaji, is present. We are planning this meeting to be 60 minutes. First, Kaji will explain, conduct the presentation based on the disclosed material, and after that, we'll go into Q&A. The material is posted on the homepage IR site in Ajinomoto's website. Kaji will mainly conduct the explanation based on the presentation material. Please refer to the outline of the consolidated results and revised forecast presentation for your reference. Today's presentation is going to be recorded and is going to be posted on our IR site. Please understand. Let's start. Kaji-san, please. Thank you very much for participating in the earnings call for Ajinomoto. I am Executive Officer, General Manager of IRR Kaji. Before we start the presentation, I would like to offer my heartfelt sympathy to the people of Kumamoto who have suffered from the earthquake. We are praying for the earliest possible recovery and restoration. As a group that focuses on food and health, we will offer all the support that is necessary. Let me start my presentation based on the financial results material posted on our website. So please turn the page to page three. These are the key points. In this first quarter, sales, business profit, and profit attributable to owners of the parent company all set new records for the first quarter. Business profit grew 127% year-over-year, setting a new record for a single quarter. By segment, in food products business, the seasonings and food business, which includes sauce and seasonings, quick enrichment, and solutions and ingredients, saw increased sales and profits in Japan and overseas. Healthcare and other segments saw significant increases in both sales and profit, with the functional materials continuing to perform well. In addition, the biopharma services and ingredients business as a whole also posted higher sales and a significant increase in profit. Regarding the full year earnings forecast for fiscal year 2026, we have reflected the impact of the Middle East situation that we have not factored in at the start of the fiscal year while maintaining the forecast with the overall food products business. Furthermore, in light of the strong sales performance in the functional materials business, we have revised the forecast upward for this segment. Consequently, we have revised the company-wide forecast upwards with sales, business profit, and profit attributable to the owner of the parent company. We will absorb the impact of the increased costs resulting from the situation in the Middle East by taking agile measures and aim to achieve the revised earnings forecast. We will further enhance the group's human organizational capabilities to advance the ASV initiative and continue our endeavor to achieve the goals of the 2030 roadmap ahead of schedule. Next, please, to page four. This is a digest of the first quarter results. We achieved strong growth with sales up 113% and business profit up 127%. Profit attributable to owners of the parent company increasing by 113%. We remain firmly committed to profit attributable to owners of the parent company and will strive to achieve a revised earnings forecast for the current fiscal year. Please turn to page 5. This page presents an analysis of the changes of the business profit for the first quarter. Changes in the gross profit due to the changes in sales, this is second from the left, which contributed to the 18.4 billion yen increase in profit. This was driven by contributions from seasoning and food products, functional materials, and amino acid for pharmaceuticals and foods. And the next graph, change in gross profit due to the change in gross profit margin factor, which contributed to a $7.2 billion increase in profit, which was driven by overseas seasoning, domestic coffee, and other quick nourishment products, production materials and amino acids, or pharmaceuticals and food. Regarding SG&A, we continue to expand investment in intangible assets such as human resources, marketing, and R&D to achieve sustainable growth in line with the 2030 roadmap. Turning to page 6, this is an analysis of changes in business profit by disclosed segments. For the seasoning and food segment, compared to the full-year profit growth target of 2.8 billion yen, an increase of 4.7 billion yen was achieved in the three months from April to June. However, this increase includes a one-time positive impact of approximately several billions of yen resulting from a decrease in the elimination of unrealized gains. The frozen food segment posted a ¥600 million decrease in profit compared to the full-year plan of ¥3.7 billion increase. In the healthcare segment, profit increased by ¥9.7 billion compared to the full-year forecast of ¥13.7 billion. Turning to page 7, I would like to turn to the key points of the financial results by segment. Overall, combining the food products business, this combines the seasonings and foods and frozen food segments, both sales and profit increased. First, the pink colored area, this is for the seasonings and foods business. In the domestic market, sales increased for coffee and soups, and solution and ingredients also saw higher sales, resulting in an overall sales increase. Business profit rose significantly for coffee in addition to higher profits in seasonings, resulting in a substantial increase in profit overall. So going to overseas, sales increased in all the sub-segments in overseas, resulting in a significant overall sales increase. Business profit saw a decrease in quick nourishment and solutions in ingredients segments, But this was offset by the increase in the seasoning segment, resulting in an overall increase in business profit. Next is the frozen food segment. In Japan, sales increased overall, driven by strong performance in a mainstay gyoza product. Business profit decreased by 300 million yen overall due to the impact of raw material and logistics costs. Asia, which bears some of the manufacturing base, combined basis with Asia, business profit decreased by 100 million yen. In the overseas market, sales increased overall, mainly in North America, partly due to the Forex effects. On the other hand, business profit decreased by 400 million yen overall due to a somewhat delayed recovery from the impact of product recalls and rising costs for raw materials and logistics. Going to page eight. This page covers the bio and fine chemical businesses overall. Functional materials reported sales and profits increase across all of its businesses, which are the functional materials, amino acids for pharmaceuticals and foods, and CDMO, resulting in the overall strong growth in both sales and profits. In the functional materials segment, Electronic materials continue to perform well, driving a significant increase in both sales and profit. Amino acids for pharmaceuticals and foods saw an overall increase in sales and profit, driven by high value-added amino acids for biopharmaceuticals and culture media. The CDMO segment saw an overall increase in both sales and profit, driven by small molecules and gene therapy. I will explain the detail later. Going to page 9, this is the revision of a forecast for the fiscal year 2026. So please refer to the material, a revised earnings forecast by segment for fiscal year 2026 posted on our website. The revised earnings forecast incorporated the impact of the situation in the Middle East, which has not been reflected at the start of this fiscal year. In addition, based on the performance of the functional materials business through the first quarter, we have revised the forecast upward for this business. Consequently, we have also revised our company-wide forecast upward for sales, business profit, and net profit. Specifically, we have revised our forecast upward by $9 billion for sales, $5 billion for business profit, and $3.5 billion for profit attributable to the owners of the parent company.

Regarding the Middle East situation, if you look at page 10, This is something we covered during the earnings presentation in May for the full year of 2025, and the impact of the Middle East conflict and our response policy is also stated here. At the beginning of the fiscal year, with respect to the incremental costs resulting from the escalating tensions in the Middle East, we anticipate a potential annual cost increase of 30 billion yen in terms of business profit. However, after scrutinizing the future impact based on the first quarter results, maintaining the assumptions of $110 per barrel for Dubai crude oil and an exchange rate of 150 yen to the dollar, we revised the projected annual cost increase to approximately 25 billion yen. To 25 billion yen. To address this impact of the rising cost, we will take measures such as price adjustments and cost reduction, responding flexibly to absorb the cost within the current fiscal year, and we will strive to steadily achieve our revised earning forecast. Page 11. Here I will explain the impact of the cost increase caused by the escalating tensions in the Middle East on our overall food product business, including seasonings and food and frozen food businesses, and how we plan to respond to them. The slide here presents the first quarter results, the impact of cost increase in the second quarter and the second half due to the Middle East conflict, the revenue growth effect from passing on the cost increase to the prices, The cost reduction measures and their overall impact on the business profits. So the image of all these things are illustrated here. The orange part represents the effect of increased revenues and cost reduction, and the gray portion represents the impact of the increased costs. As for the first quarter, as of the first quarter, because the impact of cost increase caused by the Middle East situation was still limited, as you can see here, and also because we were able to offset this part of cost increase to some extent, so consequently, as we presented on page six, the food product businesses overall, including frozen food, recorded a profit growth of 4.1 million yen. On the other hand, for the second quarter, as the cost increase impact due to the Middle East is expected to kick in in full scale, we continue to implement the offsetting measures including price hikes. However, especially in the consumer segment, we need to anticipate a certain time lag before the effects of cross-pass-through materializes. Therefore, whether we can completely offset the cost increase caused by the Middle East conflict with these offsetting measures remains to be seen. For the second half of the year, in addition to the effects of the cost pass-through, we will steadily build upon the increased revenue effects and cost reduction measures to absorb the full-year impact of rising costs due to the Middle East situation all within this fiscal year and thereby deliver on our full-year guidance. Now turning to page 12. This slide presents an analysis of the changes in business profit. The upper section shows the variance between the revised forecast versus last year's performance, while the lower section shows the variance between the initial cost versus previous year's actual results. As I mentioned earlier, healthcare and others segment reflecting the strong first quarter performance of functional materials, we revised the business performance Profit forecast upwards by 5 billion. Page 13, let us talk about the sales breakdown of sauce and seasoning and quick nourishment. First, on the left, this is about Japan. Coffee saw a significant increase in sales, partly due to the price revision in response to the rising bean costs. Excluding coffee, The combined sales for sauce and seasonings and quick nourishment for Japan as of the first quarter stood at 101% of the previous year's level, with volume at 102% and unit price 99%. The slight decline in unit price was primarily driven by the setback from the introduction of the two new products under the Kiwami series Introduced in the last fiscal year, which resulted in a shift of sales mix between the premium and other mix over the past three months. Next, the right-hand side, the overseas market. Sales stood at 103% of the previous year's level, with volume 102% and unit price 101%. Let me add some more comments regarding the situations of the five key markets. Please refer to the page three of the document titled Ajinomoto Inc. Consolidated Results for the First Quarter Ended June 30, 2026, which is available on our IR website. In the three months from April to June, Thailand achieved an overall growth of 1%. Coffee products underperformed slightly, but on the other hand, seasoning category achieved sales growth in the mid 2% range. Indonesia grew by 6% and Vietnam, 7%, maintained their favorable momentum. The Philippines, on the other hand, for the first quarter, remained broadly unchanged from the previous fiscal year. In the first quarter, there was a temporary production issue with the umami seasoning in the time frame of around April and May, which prevented shipments from meeting the planned schedule. However, when umami seasonings are excluded, the combined sales of flavor seasonings and menu-specific seasonings achieved a 9% growth. In Brazil, partly due to The impact of inflation in the domestic market. In the April to June period, in that three months, the results were affected by the move among the wholesalers to reduce inventories in distribution. However, the final demand, again, continues to be robust. Next, page 14. Let us turn to the healthcare, so another segment and the functional materials in particular. In the first quarter of this fiscal year, we achieved significant increase in sales and profit compared to the last period. Last year, sales was 150% business profits, 170% demand for ABF or high performance applications such as those for AI servers and networks remained robust and the product mix also improved. In light of these first quarter results, we revised our four-year forecast upwards. Turning to page 15. As announced today, together with the results, we issued a press release titled, Notice Regarding the Basic Policy for Absorption-Type Merger of Ajinomoto Fine Techno Company by Ajinomoto Inc. We have initiated the preparations to absorb Ajinomoto Fine Techno, our wholly owned subsidiary, and the core of our electronic material business into Ajinomoto Co Inc. with an effective date of April 1, 2027. When we formulated the 2030 roadmap, we positioned ICT as one of the four key growth areas. And ever since, our group has continuously evaluated the optimal management structure to operate business growth and we started the concrete studies on this acquisition from early 2025. Driven by the advancements in AI, the semiconductor industry is currently growing at a pace exceeding expectations and the business opportunities are expanding significantly in the ICT area, a key driver of our group's growth. Given this business environment, we determined that by combining our management foundation and the control capabilities with Ajinomoto's fine technical speed and execution capability, we can further enhance the competitiveness of the entire group and drive the mid- to long-term growth of functional materials business. We anticipate that this absorption type merger may have a positive impact from a tax perspective, We will conduct a detailed review going forward and promptly announce any matters that require disclosure.

Turning to page 16, the CDMO business.

Overall, the first quarter results showed an increase in both sales and profits. By modality, small molecules and fours, the gene therapy business recorded an increase in both revenue and profit. Meanwhile, regarding the middle molecule, agiface, revenue and profit declined due to the impact of shipment timings for the first quarter, but the progress was in line with the initial plan that we have developed in the beginning of the fiscal year. Leveraging our unique technological strengths and by expanding our communication with customers using the Ajinomoto Group's network, we expect to achieve a significant increase in profit this fiscal year in the CDMO business. Page 17. Finally, here is the progress of the ASV indicators by segment. For the first quarter, on a company-wide basis, organic growth rate was 5.7%. Business profit growth was 27.3%. and the EBITDA margin was 20.3%. For the full year, although uncertainties remain in the business environment such as the impact of the Middle East, we will unite the forces of the entire company and take agile measures to achieve a full year profit targets at all levels. We look forward to your continued guidance and support and thank you very much for your attention. That's all for myself.

We now move to Q&A. Let me inform you how to ask questions. Those who have questions, please press the star on the telephone and after that press 1. I will call out your name and if your name is called, please ask your question. If you want to cancel your question, please press the star on the telephone and press the number 2. If There are some cases that there are many people who want to ask a question, so I may not be able to call all of you, so please understand. The people who are listening in through the English line, you can ask questions in English. We will use simultaneous interpretation service. Let's start the Q&A. First, from Mizuho Securities, Saji-san, please. Thank you. I want to ask about the functional materials. This is my only question area. So the 54% increase in sales in the second quarter to the fourth quarter, after the upward revision, 10% increase of sales. So it was 79.2 last year and 87.5 billion this year, so it's a 10% increase. So it means that the 10% increase is not that different from the initial forecast. The growth of the first quarter and the second quarter onwards growth What is the difference? And maybe a word on what I'm going to say. You have the tax benefit coming from making the AFT, 100-page subsidiary. What is that specifically? In terms of functional materials, in the first quarter, results was very good. And that is the reason why we have revised a full-year plan. So, based on the macro environment and the risk that may appear. So at the initial forecast, it was quite conservative, but with the second quarter onwards, we have maintained that stance in terms of our outlook. On the other hand, for July to September, we are seeing a very robust demand situation is continuing. So in terms of the fine techno, the absorption type merger, and what is the tax effects coming out of this, well, currently, we have just started the deliberations. The details, if something is decided, we will inform you. But I think a considerable level of impact can be, is it possible that type of impact may be seen. Thank you. Another follow-up. So this July to September, very strong demand is continuing, you have said. In your business presentation, the post-quarter 42% sales increase, the strong situation has been continued, and then this time around it's about 54%. This strong demand is continuing, this 42%, 54%. If that is a level, is it the same level of growth is continuing? Well... In terms of the actual growth numbers, I cannot mention about that, but let me say that we think that this very strong momentum can be maintained. That is our expectation. Thank you.

Mr. Saji, thank you very much for the question. Now moving on to the next question. This would be from Goldman Sachs. Miyazaki-san, please begin your question. This is Goldman Sachs. Miyazaki is my name. Thank you very much for appointing me. So my question relates to CDMO. Roughly speaking, you said you're in line with the initial plan, but this fiscal year, significant revenue and profit increase. In biopharm... Functional materials, I think you are talking about expecting that, a significant increase in revenue. So rather than, in addition to the organic growth, are you expecting something more? That's the point that I wanted to confirm. And also for the first sector, have you seen any of them materializing in the first quarter already? Mr. Miyazaki, thank you very much for the question. I would like to add some more comments. I think you asked me to add more comments and give some more color for the health care and others business, I think. So for the guidance for this fiscal year, organic growth is reflected in the initial guidance and that has been maintained this time around as well. And also, this fiscal year, as far as CDMO is concerned, as of May, The revenue growth, in terms of the size of the revenue growth, the third quarter, then the second quarter, the fourth quarter, and the first quarter. That was the order of the revenue size that we mentioned during the earnings call in May. And going forward, depending on the circumstances, the quarterly shipment may change. There is a possibility that shipment timing may change, but basically I think it's It is expected for this fiscal year. That's our projection. And I think you can expect that to happen. And also, if I add more summer color to that, in the first quarter, originally, we had assumed that the nucleic acid shipment timing and this revenue impact was in line with our projection. But when it comes to small molecule and forge businesses, They have been maintaining a very favorable momentum of late. So we are well positioned to achieve the guidance that we have given to you. We are very confident about that. When it comes to the amino acid for pharmaceuticals and food, of course, there are some forewarnings due to the foreign exchange situation. Thank you very much for that explanation. As far as AgiCap is concerned, the licensed revenue I think that incremental revenue from license fee, I think that was my understanding at least. But what about the progress for the first quarter? Is this going to be the driver for the revenue and profit increase in the second half of the year? Can you talk about the progress of AgiCap? Okay, thank you very much. As far as AgiCap is concerned, in the first quarter, we have steadily achieved revenue from the licensing of this business. And if you look at the quarterly trend, as we go quarter by quarter, the amount is increasing every quarter. Okay, then the pace is not going to accelerate all of a sudden, but you are rather expecting a steadfast increase on a quarter by quarter basis. And now Forge, How significant is the growth of Forge business? Is it similar to last year or is the hurdle becoming higher? Are you expecting a slowdown in that? Can you give us a hint on the pace of growth of Forge? As a general trend, the momentum has not changed significantly. The favorable paces are maintained. Okay, thank you. Understood. Thank you very much for that.

Yes, excellent. Thank you very much for your question. Next. So from the English side, we have a question from Einstein, please.

Hi, thanks very much for taking my question, Kaji-san. Firstly, on the ABF segment, you've obviously had very strong margin expansion in the first quarter. Can you help us to understand a bit more about the mix of drivers that delivered that margin expansion? To what extent was this about volume and scale leverage versus improved product mix? And was there any benefit from price increases in the first quarter?

Hello?

Can you wait a bit? Can you wait a while? There has been some breakup in the audio, so would you please wait? So we're going to hear the interpretation from now, so would you please wait? Okay. So it seems to be the case that there has been some issue with the line and the connection with the line. Mr. McLeese, maybe we can come back to you later. So, excuse us and apologies, but we'll get back to you later. So we will continue with the other questions. From Taiwan Securities, Igarai-san, please. This is Igarashi from DiverSecurities. I do want to hear some comments about the expectations for the upward forecast. I think basically you talked about in terms of the revision, it was just about the functional materials. But in the first quarter, in terms of the Japan and in terms of the sauce and seasoning, it was good. At the beginning of the year, you talked about the investment in the human capital and et cetera. And in terms of the cost, I think basically you are anticipating a decrease in the margins But you are spending, but at the same time, you have been able to improve your margins. So I would like to hear about the sustainability of this momentum. Thank you very much. For the first quarter, in line with the initial plan, in specific categories, we have been investing actively in marketing. On the other hand, overall, so in terms of the seasonings and foods business, We have been able to see good results in the first quarter. So some forex following has been enjoyed and some Middle East situation. In terms of the cost increase in the first quarter, we didn't see much of the impact coming from that. So going forward, the impact of the cost increase will become stronger. So initiatives against that. We have implemented various initiatives in each market, each category to respond to that. And we have started to execute those initiatives. So that is the situation. So I do want to say that this momentum is going to be maintained, but depending how the Middle East situation is going to be, there may be some changes in the costs. So we will incorporate the impact right now. At the same time, we are committed to steadily achieve our targets. So that will be the core of initiatives. Thank you very much for that answer. So the marketing investment and these type of expenses, you are spending as planned, but at the same time have been able to grow. Yes, that's true. So from the first quarter onwards, In terms of how the course is going to come out, depending on that, we will be flexible and agile in terms of our responses. So we will flexibly conduct various initiatives to respond to the ever fluid situation. Thank you. Thank you.

Thank you, Mr. Igarashi, for the question. Now moving on to the next question. This will be for Morgan Stanley, MUFG. Kumayama-san, please begin. Hello, thank you very much for appointing me. This is from Morgan Stanley. Hello, everyone. So I also have a question regarding the impact from the Middle East and also your thoughts about food, seasoning and food business. This 25 billion impact of the pandemic Are there any difference by region? Can you talk about that? This 25 billion yen impact? Can you just give us a breakdown of how you arrived at that number? And also, and the countermeasures you said, that you are making progress with respect to price hikes, if you can give us some more color on that, that would be appreciated. And also, In the first quarter, I think it's about Asia, but I think the baseline is coming down. Brazil, I think. Is that something unique to Brazil? If you can comment on that point as well, that would be appreciated. Thank you. The impact of the Middle East, of course, our projections for the future may change. depending on the circumstances in the region. However, at least from the first quarter towards the second quarter, I don't think there's a skewed impact by region. It's about the packaging material cost, and it's about the logistic cost, and also, in our case, amino acid fermentation-related, production-related raw material cost fluctuation relating to that, and also the sub-materials. So those are the cost risks that we are looking into. It's not really skewed or there's a difference by region, but depending on the production volume, the actual cost will vary depending on the business or depending on the region because of that. As for the Americas sauce and seasonings, if you look at the page three, There is a decline of 700 million yen. This was mostly driven by the umami seasonings for processing. That was a major factor behind this. So it was not really the inventory adjustment, but that was for the umami seasonings for processed food. Yes, for Brazil, Of course, there was an impact of environmental adjustment at the distribution channel, so it was flattish. That's what I mentioned during the presentation. But the major drivers behind the decline in the profit was the umami seasoning produced in Brazil, because the market condition remains very tough. That's the reason why they are suffering from a decline in profit. Just as a confirmation, so in the seasoning and food, as for net fiscal year, In the second half of the year, a cost increase will be made so that you can absorb the cost for this fiscal year. So that is the basic approach, right? Is that correct? Yes, it's too early to talk about next fiscal year, but it's all about how the cost situation will change in the future. So, of course, our mission is to try to maintain our margin and improve the margin on a continuous basis, and we are taking measures towards that goal constantly. Okay, thank you very much.

Thank you very much for your question. Next. B of A Securities, Mube San, please. Thank you. That's Mube from B of A Securities. Thank you for taking my question. From my side, I would like to follow up to the previous question. So I would like to hear more about the impact of the costs coming fundamentally situation. So I do understand it's difficult to separate it segment by segment. So you put in measures in the second quarter and the third quarter onwards, the profit is going to be improved. I think that is your plan. So currently, right now, you are increasing prices and putting in measures to reduce the cost. And I think you do have specific initiatives So currently, can you explain more in detail that these are the measures that we're putting in? So that is the reason why we'll be able to absorb this 25 billion yen of cost. So in terms of our measures for this cost, so I think the major theme is that we do have to respond by pricing. And already in the first quarter, we have putting initiatives, but first to reduce cost. These two combined, overall, this fiscal year's predicted cost increase coming from the middle situation, we think we'll be able to absorb all that.

For instance...

So when things settle down, in terms of food and frozen food profit, how is this going to trend against your plan? Do you have any idea about that? So this is quite difficult. So today, if you look at page 11 of our slide, as we have shown on page 11, within this slide, what we're talking about is that The cost increase coming from the Middle East situation and what we are doing against that specifically for the Middle East situation. In the first quarter, so the gray portion is larger, the cost increase, and in terms of the recoveries, maybe about half against that. But actually, besides that, there's some impact coming from the increase of sales. So that is the reason why we have been able to see increased sales and profit for the first quarter. and the second quarter for this specifically if you look at the Middle East situation for the second quarter we'll not be able to cover all of the cost increase that's the current prediction but for the other initiatives that we are implementing there's those and depending on that is because maybe you should consider the other initiatives that we'll be taking in the second quarter for instance so if this is the case this 100 in terms of the 110 dollars of I think it will be very, you know, in terms of the oil prices, $110, I think it's quite conservative. And maybe if you'll be able to increase your top line, then maybe there's some expectations to overperform. Well, yes, I do hope that we'll be able to perform as you are expecting us to do so. Thank you very much. I understood well. Thank you.

Thank you very much for your question. So the English channel was disrupted earlier. So I'm sorry for the inconvenience. So the chat channel is now recovered. So Michael Lish, if you can raise your hands once again, because your question was stopped in the middle. So as we wait for him to call, we would like to take the next question. So we'll go with Ihara-san of UBS Securities. Can you ask your question now? This is Ihara from UBS Securities. Thank you very much for this opportunity. Hello, good evening to you. It's a very awkward timing to say whichever, hello or good evening. So I have a question regarding the cost relating to Middle East situation. As a countermeasure, you are talking about cost reduction and the price revisions. So do you have a breakdown between these two? And also, Compared against 2022, I think the environment for you to raise prices is becoming increasingly difficult. In reality, do you think you are capable of implementing these price revisions? And also this $25 billion impact, I'm so sorry for repeating this question several times, but the raw food, raw materials, and also when you talk about the raw material, fuel prices for fermentation, can you give us a breakdown of that? And The last piece of the question regarding the food raw material and also the fermentation related costs. The fermentation, because we are using the things that we have created through fermentation, so it's very difficult to distinguish whether to. So if I talk about the countermeasures, the cost reduction initiatives will work on this quite rigorously, but I think the effect from the cost price revisions will become larger compared to cost reduction efforts. That's our basic thought. The amount, we have the amount for internal purposes, but this will also have an impact on the price revisions, and so we would like to reserve any details pertaining to the breakdown in terms of amount. And also, the second question, whether it is possible for us to revise the prices just like the last time, but the capability of implementing this. Thank you very much. If the fuel prices for fermentation is too high, because the intensified competition, your profit has declined this much. So if you cannot achieve the prices, I think this will drag. What is your view on that? Well, in the first quarter, if you look at the results for the first quarter, the fuel prices... Thank you very much. are steady measures, including those efforts that I just mentioned. So the umami has declined in Brazil, even though you have taken these measures. So this competitive environment, the market conditions is not really turning to the better recently. So therefore, Please consider that the momentum is still continuing in the first quarter. But then from here, when the fuel prices and the raw materials for fermentation increases in the future, this could become a very swing factor for your performance. That's how I view it. So should we consider that as a potential risk? No, not necessarily. and the raw material cost for fermentation and also the processing umami flavor, umami seasoning increases. I think that will have a positive impact because this is about B2B. So everybody will pass on the cost. Yes, so I think we believe we can have a rational relationship with our B2B partners. But the B2C cost may likely increase. So including that point, that's the reason why we We have included this cost increase analysis and therefore we are planning to implement the offsetting measures in order to address those cost increases. Is it better for us to understand that this will be a trigger for you to raise the prices? Well, this is something that we cannot tell at this point of time clearly because we cannot talk about how the cost situation unfolds in the future. I'm not in a position to comment on that. That is a possibility that we cannot rule out, so we would like to take proper measures in order to respond as appropriate. So I'll stop here. Thank you.

Ihara-san, thank you very much for your question. So we would like to go back to the question. Michael Lish-san from Bernstein, would you please ask a question once again? Apologies.

Hi, thanks very much for coming back to me. I have a question about ABF and a question about Forge, please. So on ABF, you had very strong margin expansion in the first quarter. So can you help us to understand the main drivers of the margin expansion? To what extent was this about increased volume and scale leverage? How much of it was about improved mix? And was there any impact from price changes at all?

Mr. Michael Lish, thank you very much and apologies for the suspension back at time. So the first question was about ABF. So the current volume and pricing impact is well balanced and that has been both contributing to the growth of sales. So at full year results, Nakamura, our CEO, has mentioned about this. Still, in terms of the ABF, the cost of the raw material cost of ABF hasn't gone up that much. So currently, there's no necessity for us to try to increase our prices. The margin improvement in the first quarter was mainly coming from the high value added ABF sales has grown. That has been the main driver and the mixed improvement was the major reason.

Okay, that's very helpful, thank you. And then over on FORGE, it seems that you've been announcing more and more new customers for FORGE. Can you maybe talk a bit about the mix of your customer base between preclinical customers and customers who are already in clinical trials? And just help us to understand how that mix has been evolving over the last few quarters and where you've seen that going in the coming quarters, please.

Thank you very much for your question. So this is your question about Forge, I understand. So in the first quarter, the new customers has been increasing very steadily. And including these customers, I think basically there'll be a different perspective. So in terms of the, I think what we're providing right now, the states will be different. For the existing customers, we have seen a very These are the types of the customers that we have right now. How important is this move to clinical trials in terms of...

The revenue growth, is this like the critical tipping point to get to clinical trials or is it more about just getting more and more development customers?

So both are important. Specifically, in the pre-trial stage, in terms of those types of customers, We are able to improve our sales and profit. As the stage progresses, it means that the volume will increase. So if the volume increases, it means that for us, our business scale will improve. So the more the volume increases, the production efficiency will improve. So if the stage progresses at the customer side, of course, that's good news for us

Are you able to give us any sense of the kind of percentage mix between clinical and preclinical?

Well, yes, we do have that number, but we have to refrain from disclosing that.

Okay, thank you very much.

Thank you.

Mr. Barclay, so sorry for the inconvenience relating to the connection, and thank you very much for your question. Since we are running out of time, the next one will be the last question for today. This is from Morita-san from Nomura Securities. Please begin your question. Hello, this is Morita from Nomura Securities. Thank you very much for the opportunity. Now, I have several confirmations relating to the numbers. In the beginning of the presentation, you said that when it comes to the, there was a positive unrealized gains of one million plus when you talked about the Thank you very much. Region is divided over many different regions. So so it's dispersed over many regions. Yes, correct So double digit okuyen. So is it about 1 billion yen or so or is that yeah, that is the about right? That's a ballpark, right? And also the foreign exchange impact you said is large according to my interpretation but when it comes to Asia, I thought when it's currency neutral, what was the revenue and profit improvement? Let me just confirm the numbers. For Asia, right? You talked about only Asia. Correct.

Asia.

On a currently neutral basis, a mid-single-digit improvement for revenue. What about profit? A double-digit percentage increase for profit. I think apparently it looks like 12% for Asia. If you look at the Asia segment, it's 12%. And foreign exchange, in fact, was about 10%. So then two-digit growth? Yes, you're talking about, I was mentioning sauce and seasoning right now. Okay, so you're just asking about sauce and seasoning of Asia, and then that was a double-digit growth. And what about solution ingredients? Solution ingredients was negative growth. So if you mix them out altogether, Asia was flattish, or just slight increase by segment. So Asia profit increase was single or low, low to mid single-digit growth. Okay. So it was a growth. Okay, understood. Thank you very much. Thank you. Thank you. Mr. Morita, thank you very much for the question. With this, we would like to finish the Q&A session. Finally, Mr. Kaji will have some final words to conclude the meeting. Thank you very much, everyone, despite your busy schedule to attend this conference call. Going forward, We will try to respond to the expectations of the market participants and achieve growth. So we look forward to your continued support and patronage. Thank you very much for your attendance today. With this, we would like to finish today's conference call. We thank you very much indeed for your participation. With this, we would like to finish today. Thank you.