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.