Ajinomoto Co., Inc. (2802) Earnings Call Transcript & Summary

Good evening. This is Nakano. Thank you very much for taking your precious time to attend this conference call. Without further ado, I would like to briefly explain the results using the materials, as well as the forecast for fiscal 2022. If you look at the PowerPoint material and start with Page 5, I would like to start from Page 5. First of all, this is a digest of the results. In fiscal 2021, JPY 77.9 billion was the revenue increase we achieved, and we achieved a profit increase of JPY 7.7 billion of business profits. Sales came in at JPY 1,149.3 billion, which is the highest level since we started using IFRS. Business profit was the highest on record. The second bullet point, for fiscal 2022, JPY 160.6 billion revenue increase is projected and profit increase of JPY 3 billion is planned. The raw material prices and fuel prices remain very high, so that poses a very big challenge to our business environment, but we would like to increase the unit price and also increase the sales price to overcome this difficulty. ROIC for fiscal 2021 was 7.9%. In fiscal 2022, we will try to achieve a medium-term target of 8%. Fourth bullet point. Operating cash flow for fiscal 2021 was JPY 145.5 billion. Of course, there was some impact from the currency translation and there was an impact from the raw material prices and fuel prices. However, for the three-year target between fiscal 2020 to 2022, we are making greater progress than the JPY 400 billion planned for this period. Finally, shareholder returns, JPY 52 is the annual dividend that we have decided. Also for fiscal 2022, JPY 58 of dividend is planned for fiscal 2022. Moving on to Page 6. This is the summary of our financial results. Sales came in at JPY 1,149.3 billion or 107.3% of the level of the previous fiscal year. Organic growth excluding the impact of sales business transfer and currency translation increased by 6.8% year-on-year, achieving a steadfast growth. Especially this growth was led by Sauce & Seasonings overseas, Frozen Food overseas, Bio-Pharma Services, and Functional Materials. Business profit reached a record high of JPY 120.9 billion despite the significant cost increase in the fourth quarter caused by high prices for raw materials and fuels. Though it came in at JPY 120.9 billion, which was our record high, on a full-year basis, the Seasonings and food -- and Frozen Foods were expected to achieve a profit decrease, but we believe the Healthcare and other business will achieve a significant increase and strengthen our business structure. Page 7. These are the factors behind the changes in business profit. Overall, fermentation, raw materials, and fuel, as well as food ingredients, were affected by the sharp increase in cost, particularly in the fourth quarter, which left a net negative impact of JPY 10 billion, as you can see in the box there. The detailed impacts include increase in personnel cost and logistic cost, as well as a decline in factory utilization caused by the COVID-19 pandemic in some areas. Next page. This is the factors Leading to the changes in business profit by segment. In the seasoning and food segment, profit decreased mainly in Sauce & Seasoning in Japan, as well as Quick Nourishment, especially soups, as well as the umami seasonings for processed food manufacturers. So those were the areas where we reported a decrease in profit. Profit decreased significantly in Frozen Foods because of the establishment of a new factory, as well as the cost increase. For Frozen Food in North America, there was a significant decrease in profit. For Healthcare, Functional Materials and Bio-Pharma Services reported a significant revenue increase, and therefore we achieved a significant profit increase for Healthcare and others. With respect to the gap with the forecast, I won't go into the details of the material, but if you look at the overview on Page 2, compared to the forecast, the sales -- the revenues came in in line more or less with the forecast, but in some business there was a slight decrease, however. But business profit, the Quick Nourishment, such as soup for Japan, as well as the instant noodles for overseas, due to the cost increases compared against the forecast, there was a 2% shortfall in these areas. And also for the Frozen Food for North America, there was a significant reduction compared to the forecast, but we were able to overcome this with the favorability in other areas. And that's the reason why we achieved this number. From next page, I would like to talk about the forecast for fiscal 2022, and the assumptions used here [ for ]. We had difficulty in forecasting the assumptions for the raw material and fuel prices in developing the forecast. Compared against the fiscal 2021, we continued to see a -- we are expecting to continue to see raw material and fuel prices to remain high, but this level has even exceeded our expectations due to the invasion by Russia into Ukraine in late February. In response to this, we have built a mechanism to make monthly updates to the information on the effects of raw materials and fuel prices and our measures to address these issues. So in the initially formulated forecast, we reflected the measures such as the consolidation of the effects of raw materials and fuel prices, as well as the price increases to counteract these issues. And therefore from March to April we updated the forecast twice already. We also examined the risks, including the reduced volume due to price increases, and created a business forecast incorporating these risk scenarios. The next page. According to our current assumption, we believe the price hikes will continue in fiscal 2022. If you look at the green box on the right, especially in the first quarter and second quarter of fiscal 2022, we are expecting to see strong impacts from these price hikes. We will continue to shift toward the creation of a business structure that will be less affected by the changes in the raw material prices. We see a need to make this transition. The next page, Page 11. If you look at the past 15 years, because we receive a question frequently about the impact of price raises on the quantity, so we have looked back at the long-term trend. As you can see here, we have raised more than -- our prices for a total of more than 50 times for the 15 main products in five major countries. But still, we were able to achieve a long-term -- medium to long-term growth and be able to strengthen our business structure as a result of the price hikes. On our next page, in fiscal 2022, in the major countries and major products, we are planning to continue revising our prices again. And the effects are likely to manifest towards the second half of the fiscal year. In the first half of the year, the increase of the raw materials and fuels will continue to have a negative toll on our business performance. Then as a result, as you can see on the next page, sales for fiscal 2022 is estimated to be JPY 1,310 trillion, 114% of the previous year's level. If we exclude the translation impact of currency, it will be 110% of the previous year. Business profit is expected to be JPY 124 billion. For our sustained growth, for the short term, the price hikes will be the primary measures that we will rely on. But we will factor in the countermeasures against these raw material prices, and we are also factoring the risk scenario caused by the price hikes and the impact on the sales volume, and we believe we have set a business profit target that are reliably attainable. There are drastic changes in environment for the raw materials and fuels and for supply chain, so we will make quarterly updates. And just like the first year of COVID-19, we will incorporate these factors into the future business forecasts. Next page. These are the changes in business profits. First, the currency foreign exchange situation remains unstable on a continuous basis with a very strong downward pressure on the yen. But at present, however, we are using a conservative exchange rate forecast, JPY 120 to the dollar. For the full year, the net impact of JPY 10 billion will result from the rising cost of fermentation raw materials, as you can see in the box there. So that is going to be the net impact from the raw material and the fuel and the food ingredient costs. We will further accelerate the value enhancement efforts and also seek cost reduction and other efficiency improvement efforts to counter these. Roughly speaking, throughout last year, in one year period in 2021, the raw material and fuel prices cost, and this is attached to the material, a JPY 27 billion increase was reported last year, of which JPY 17 billion was already offset so there still is a negative impact of JPY 10 billion. For fiscal 2022, we will look at the raw material prices as of the end of March, JPY 40 billion or so impact from raw material and fuel prices increase is already witnessed. So, the price increase impact is larger compared to last year, especially ammonia in our case and various types of acids and those auxiliary raw materials price increases -- and also palm oils -- those are the material cost increase that is remaining at the high level. That's still plateauing. So, reflecting all these trends in fiscal 2022, we believe the cost increase will be significant for fiscal 2022. Next page. This is the changes in business profit by segment. When we look at the forecast by segment here, in seasonings and food, we expect a decline in profit for Sauce and Seasonings, Quick Nourishment, and Solution & Ingredients across the board. So, all of them are planned to implement some price hikes, but in each area we are expecting to see a decline in profit in each of these categories. In Frozen Foods, of course I'll come back with an explanation later, but due to the impact of the business structure reform, we are going to implement price revisions in a proper and steadfast fashion. So we are expecting a profit increase on Frozen Foods. And on the next page, please. As for the important KPIs, priority KPIs, there is no changes for the structural targets. In fiscal '22, we will achieve the structural targets of the medium-term management plan. Especially ROIC, we will be able to achieve this goal. And next page, please, I-7. For this segment, by segment in the same way, we have not changed our targets. And going to the next page on Page 18, as for structural reform, fiscal '22 and fiscal '25, we would like to definitely achieve the ROIC targets. So, we need further structural reform and that is necessary for us to do. What is the impact to PL? Fiscal '21 was JPY 10 billion for the assumption. So it is indeed JPY 10 billion. This is the cost. And for the fiscal '22, similar amount, JPY 10 billion. Structural reform is going to take place in advance for the '23 to '25, the fiscal years, so we will be having it more in advance. Going to the next page, what is the progress of the structural reform, Frozen Foods business? In the frozen food business in North America in fiscal 2021, we had personnel costs soaring compared to other regions, and amid such situation after the year we had the Omicron variant of COVID-19 spread and we had to stop some operation in some factories. So the profitability declined, but for the production has recovered and stabilized. And the skill of the workers, so we had issue there. So with the costs, it's still high there, but we had additional price hike plan to cope with the situation. In fiscal '22, toward achieving 5% ROIC, we want to address this issue and carry out a study of structural reform measures, and thus we think we will be able to achieve this target. From next page and onwards, we have explained how to achieve this organic growth and how to drive the business. Next is about the seasonings and foods business. Especially in addition to the organic growth in existing areas, we would like to focus on reduced salt, reduced sugar, ingestion of protein in the health and nutrition value businesses, and therefore through those works in overseas we would want to grow our business. Moving onto the next page for the Electronics Materials business of fiscal '22 to '25, the shipment volume is scheduled to be 18%. Up until now it was 15%, but this has been changed to 18% now, and therefore we can expect high growth area in this field. Next page, please, is the factor. On the right-hand side, it says here area of packaging substrates, number of ventilating layers, and the performances that is required. So the high added values have been increased volume-wise as well as unit price-wise. I think we can keep and improve the added-value portion. Moving on to the next page. So far, this has been already explained, but the fundamental technologies that we have are based on this. We have new businesses, that is Biopharma Services, and that is accelerating the growth of this business. And explained on the next page is especially the oligonucleotides field in particular; the market is expected to grow significantly in the future. We possess and own unique liquid phase synthesis technology. We are good at and strong at mass production using this technology. So we would like to enhance this pipeline. Going to the next page is about assets and liabilities. By asset reduction and resource allocation, we have steadily progressed in streamlining total assets. But for fiscal 2021, because of the currency translation, a very big impact, the assets was increased. There was about JPY 65 billion of impact. Excluding that, we were able to reduce JPY 40 billion, but because of the currency translation, it increased. But the cash generation, this looks going down compared to fiscal '20 to '21 because of the more inventories due to raw materials, and also we have currency translation impact as well. But basic cash generation capability is being enhanced and increasing. And moving on to the next page, as you can see, the strategic investments. We are shifting investment from tangible assets to intangible assets, we're doing this clearly. And then moving on to the next page, the yen depreciation, raw material and fuel cost increase. Those were the difficulties, so we would like to improve those important management indicators. The last two pages, cash flow generation, growth investments, shareholder returns. What I want to say here is that we have cash flow generation and plans. On the right-hand side is the investments, strategic investments, growth investments, and the shareholder returns. Any case, according to the fiscal '20 to '22 plan, they are along the plan and I think for those areas, they would exceed the assumption. And as is written here on the next page for fiscal 2021, we purchased and retired JPY 40 billion worth of treasury stocks, and for dividends in the second half, it was raised to JPY 28 per share. So for all of the whole year, it is JPY 52 per share. For fiscal '22, our plan is to raise to JPY 58 per share. So we would continuously expand dividends and shareholder returns in a stable manner. So that was very quickly, maybe a bit difficult to listen, but that is all from me. Thank you very much.

Thank you very much. Now, we'd like to go into the Q&A session. The first question will be from Fujiwara-san of Nomura Securities. Please begin your question.

Thank you very much. This is Fujiwara from Nomura. Hello. This is a question relating to the price hikes. Let me ask this question to you. Nakano-san, you just talked about the fuel and raw material costs will be offset by price increases. And according to your plan, as it turns out, the net impact is on par with last fiscal year, about JPY 10 billion for fiscal 2022. So you said that you are going to monitor the raw material and fuel prices on a monthly basis, but there are some deviation from the plan. So, how would you look at this? That's my question. Also, with the price hikes, the price hikes are now rampant overseas and also in Japan. What will be the impact on the quantity of sales? That's my question.

Fujiwara-san, thank you very much for the question. First of all, this JPY 10 billion impact in fiscal '21 and '22 again, in both cases, because there are some elements that we will not be able to offset because there is a time lag, and that's the biggest factor behind the reason why we still have a negative impact. Of course, assuming this, to the extent possible, we have accelerated and front-loaded the timing of implementing price hikes, and also the range of price increases has been maximized. We are asking more each region to address this and all the entities to address this. But in order to implement the price hikes, we have looked into the sales plan and also the strategy and the marketing efforts, all this has to be done in entirety. Of course, it is impossible to raise the prices immediately overnight, so therefore there is always a time lag. That's one thing. And also, the time lag is large, especially as we have been pointed out from before, for the restaurant and industrial products used for our processed food, because there is an annual contract in many cases for those uses. The negotiations for those price hikes concentrate towards the end of the fiscal year in many cases. That's one factor that we have to take into consideration. On the other hand, the price increases could affect the sales volume. Of course, this is an issue that we are carefully looking at ourselves as well, but as for now, the fiscal 2021, if you look at the fiscal '21 numbers in each country, we have conducted price hikes in each country, but seasoning and food, in this area we have not suffered any decline in sales volume. The quantity was increased, and still we successfully implemented price increases in many countries. Of course, in some area for beverages, such as powder beverages, there was a temporary decline in the quantity. And of course, due to the impact of COVID-19, those coffees and all these products, there was a temporary decline in the usage there, in the consumption there. But as far as that we look at the numbers for fiscal 2021, in most cases we have not seen a decline in sales volume, rather we have achieved a sales increase in many cases.

Okay. So Nakano-san, you just talked about the JPY 124 billion that you said that this is the -- a reliably achievable number. So, I hope that you will shrink the negative impact as much as possible, so and you are going to take measures for that, right?

Yes, we too. Initially, in the beginning, in the initially created budget, we had an aspiration to aim for a larger number, and that was the initial target. So we would like to come close to that target as much as possible. Of course, in this JPY 124 billion, not necessarily all of the countermeasures are incorporated. And their price hikes might be front-loaded in some cases, and in each region we are reviewing the possibility of front-loading the price increases. So using that as a baseline, we would love to raise the prices as much as possible. So that's the common understanding of everyone, and we are working towards that goal.

Next question, Mr. Saji from Mizuho Securities.

I have one question about the Functional Materials. What is the assumption of the materials? The margin is 50%, it is quite large. Of course, 14% of double-digit growth of sales is expected. So what is the business environment there as well as from the global perspective supply chain? There is a complex, and there are some users effects for your company. What are the risks and what are those impacts? Can you comment on this?

Yes, thank you. Thank you, Mr. Saji. How we have made this plan? We have the orders and scheduled orders, as well as the customers' production plans. We have received information from our customers, and based on that we made the plan. But for fiscal '21, there were a bit of changes and fluctuations. And for fiscal '22 CAGR, like we have made this assumption, but for -- compared to fiscal '21, what would be reduced is that for PCs and game demand, there will be less demand, so reduction there. And looking at the order from the customers, I think we see -- of course we are a bit conservative, but basically, in fiscal '21, we probably would have similar trends in fiscal '22 as well. There was some trouble of supply chain, but always we're checking with that. As for shipment, the impact, we do not have any impact or influence. It means that we are making a shipment along with the customers' production plan.

And how about the 50% increase of margin?

Yes, as was mentioned earlier in the explanation, the slide explains that the high added value, we are trying to make it more high value, especially package substrate, the area here. For servers and networks, we will have more in demand. So I think it will increase. And as for the insulating source, if you have a different source, the layer number will be different. So, server for networks, we will have more percentage of such demand, and then we are able to increase the unit price as well. Thank you very much indeed.

The next question will be from Daiwa Securities, Morita-san.

This is Morita from Daiwa Securities.

Yes, thank you for the question.

All right. I also have a question regarding our philosophy behind your price hikes on a longer term. For the year ended, JPY 10 billion was the net negative impact, and also there's net negative impact for this fiscal year is estimated to be JPY 10 billion. Then, I think you're trying to catch up from next fiscal year onwards, but next fiscal year, then, for the last two years, for this JPY 20 billion that you were not able to offset, you are going to recapture that through pricing. Is that the image that you have? Or this JPY 20 billion, you might not be able to completely offset that impact? So what is your guidance towards the desired profit level for the future?

Well, thank you very much for the question, Morita-san. This year, JPY 10 billion will be the net negative impact, and some of that as a result of time lags, especially the products for industrial and restaurant use for our processing food, but for some seasonings and food we have been able to already achieve positive outcome. So in the fourth quarter, the bottom line will increase significantly and the raw material prices has [indiscernible] significantly in the fourth quarter. So at the end of the day, next year, all this net negative portion that we were not able to recapture, this JPY 10 billion portion will be reflected in the price hikes planned for next fiscal year. But again, additional price hikes will have to be implemented so that we have to do another JPY 10 billion in price increases in the future. So on Page 10, as you can see on Page 10, the raw material and fuel prices increases. It all depends on the progress of these price trends. In the fourth quarter, in the [ first ] towards the second quarter of this year the price of the raw material and the fuel will continue to increase, and thereafter the uptrend will continue, but although the pace of increase will be more modest and milder. So in fiscal 2023, next fiscal year, if this [ pace ] further continues, we have to take additional countermeasures. But rather, if it stabilizes this year, with the slowdown of economy in the background, then if the prices stabilizes sometime this year, I think that effect will kick in for the full year in fiscal 2023. I'm so sorry for this ambiguous answer, but your approach, well, of course, the raw material prices is unpredictable. It may come up. It may decrease. To be honest, it was unpredictable.

So once the raw material prices stabilizes, what is the margin, the desired margin, the ideal margin that's the capability for you to generate profits, how significantly will that be after things stabilizes?

Yes, we do not publicly disclose this information, but before COVID-19 set in, well, the raw material prices were quite low back then before COVID. At that point of time, the GP margin that we had back then is something that we, each entity, and each business keep an eye on. They are aware of that level in developing many plans, different plans. So we [ brought the prices through ] after the COVID-19 emergence.

But you are always aware of the level prior to COVID-19. Is that correct?

Yes. That's the level that we would like to aspire to achieve. But the raw material and fuel baseline level has increased significantly, so whether we can pursue that level is something that we have to discern going forward. But in each business area, the GP margin that we always keep an eye on is that level, so it will be around 12% or so. Right?

Next, from SMBC Nikko, Ms. Takagi.

This is Takagi speaking. I'd like to ask about biopharma in the fourth quarter, and also for this year's assumption. Fourth quarter, the sales, it seems to be decelerating and the profit is declining. Can you explain about this background? And for this fiscal year '22, the top line is quite strong, this 19% or 10%. Can you explain about this? For this year, the profit is declining. What is the background for this?

Thank you very much. In the fourth quarter, the slowdown is the customer's order and the shipment timing; the gap between that. Some has been moved forward to April this year. Including that for sales biopharma and ingredients was 117%. As for BP, is 15%, 90%, 95%. As for the pharma, the amino acid, we have the cost, increase the fermented raw material. We have that impact strongly and the Bio-pharma Service Business itself, BP, is in the latter part of one single digit. So we are thinking about assuming increase in profit. Bio-Pharma Services itself, you said?

Yes.

According to the -- it says there are some plan. Biopharma Services -- the business profit is Bio-Pharma Services & Ingredients, so, amino acid for pharma and all added up. If you add them all up, then fiscal '22 compared to the previous year is down to 95%. The reason for this decline is the pharma and food amino acid portion. Bio-Pharma Services itself -- CDMO business itself, I mean, is in the latter part of a single-digit growth. You mean profit?

Yes. Increase of profit. I'm talking about the top line. You mentioned some have been moved into April and there's gap.

Are you talking about CDMO or amino acid?

This is mainly biopharma CDMO business. Okay, and CDMO and top line, this is 17% for this year, how do you see the growth rates compared to CDMO and amino acid?

Yes, so for all, this is 117%. For CDMO only, more than this.

So 17% is going to be 22% or so. Can you say it? More than 20%?

Well, yes. So, maybe more than that, the CDMO.

So CDMO top-line base has not changed from the past?

Yes, hasn't. The basic trend has not changed, but for the profitability growth, it's less than the top-line growth.

You mean there is a gap there, right?

Yes, that means that in case of CDMO, we take orders, and depending on the prices, so that we take the profit that changes. So, for this year, this is going to be profit that we assume.

Okay. So compared to the previous year?

Yes. The European side, the personnel costs, the fuel costs. Such costs have increased so we were affected. Amino acid profit declined.

If you should raise the price to transfer the cost, can't you make the profit?

Yes, for the mid and long term, we want to transfer the cost to a price hike, and we're doing that. But as for pharma and food, amino acid, we have key accounts. They're very large customers, so we have longer contract terms. So that is going to be, I think, showing up from the next year. Of course, if we can do it, we will do it.

Yes. So please do so.

Yes. Thank you very much indeed.

The next question will be from JPMorgan Securities, Yoshida-san.

This is Yoshida from JPMorgan Securities. Thank you for your appointing me. So let me begin my question. I also had a question relating to the price increase for the food business. Actually, there are some elements that are not implemented in the plan, and [ for those areas ] you will work to implement the price hikes as quickly as possible. When you do so, what is the key of implementing that? Will that be the reaction from the retailers? And also, by each region, maybe there might be differences for some properties depending on the region.

Thank you very much for the question. As I mentioned earlier, basically, we are primarily expanding into ASEAN and also the Latin American region. For those regions, their response to price changes are quite favorable. They are quick in responding to prices. But once we decide to raise the prices, the competition, the moves on the part of the competition will have to be monitored. We keep an eye on that and raise the prices at an appropriate date. And we make sure that we won't lose market share significantly, so we have to conduct marketing activities in a proper fashion that is necessary for us to do. And a simple price increase, again, is quite difficult and not really attractive on the part of consumers. So we will make sure to increase the volume and raise the prices. That is the strategy that we employ. By doing so, we try to make sure that our price increases are well accepted, and of course, we have to discern the right timing of price hikes, so increasing the quantity and also raise the price at the same time. That is the strategy. We'll try to penetrate these initiatives. And in order to do this, we have to spend a certain degree of marketing expenses. Did I answer your question?

Okay. I understand. Thank you very much. Have you seen any changes on the part of the competitors' movements? And other than in some Latin Americas, I'm sure you have repeatedly conducted the price hikes, but are there any countries where it is easier for you or more difficult for you to implement price increases in those markets?

Generally speaking, the competition, in countries where the competition is quite fierce and in markets where we have not secured the top market share, in those countries price hikes are more difficult, because it is very difficult for us to take the initiative in deciding the timing of introducing price increases. In that regard, Japan is a very competitive market, and of course, we are sure that the consumers' mindset have changed significantly considerably, but we have not been able to implement price hikes across the board for all products. And among the ASEAN market, Vietnam is quite tough because the seasonings and flavor upward market is quite fierce in terms of competition. It's a crowded space. Of course, this is my personal observation, but that's how I view it.

Okay. Thank you very much. So depending on the region, I think some numbers, although it may not be implemented in the plan, you might be able to implement price increases, is that correct?

Well, the price increases may differ depending on the market, but this time around, including the raw materials, including auxiliary raw materials, the price increases is quite fierce and quite rapid. So we are basically planning implementing price hikes in all markets.

Okay. I understand. Thank you very much.

[Operator Instructions] Takagi-san from SMBC Nikko.

Yes. Thank you. As for Frozen Foods, you mentioned that this year is all right, but I think I want to make sure, what is the difference between the previous year and this year? You mentioned that we'll recover the profit, made the calculation. What is your ground for that? Can you explain about that? Thank you very much.

Well, there are some ways that we are not able to achieve, so maybe sometimes we're not trustworthy. There are some worries, but for fiscal '21, the problem issue here, first, as for sales, yes, we were able to achieve increased sales. Of course, because of the less operation, we were not able to come up with the orders with some products. But the market and our sales have grown on a steady basis. That's one thing. And the price hikes, for the time being in North America, the economy is favorable. And for price hikes, I think, including our competitors, we will be able to raise the price positively and are able to do so and has not impacted anything of the consumption. So the price hike, I think, is able to be done. The environment is all right. So for fiscal '21, for price hike, we were able to penetrate this. So the challenge of fiscal '21 was the cost, especially the price hike gap or difference was less than what we had expected. But the personnel costs increase and the raw material increase was more than what we had expected. There are labor shortages. It was difficult for us to get enough labor. And in addition to that, we had the Omicron variant, the COVID-19 effect, and that created some trouble. So, if we are able to improve that situation, yes, we have already achieved the price hike to a certain level of percentage. So, once again, we have already, starting from this April, we have already increased the price for home use products and we are now considering what to do with others. So if we can achieve the price hike, we are able to recover this market and we are able to do so.

So that means that your price hike was not able to catch up with the cost increase and there were some worrying issues there, but for this term, you are able to catch up the cost increase with your price hike. Is that the reason?

Yes. To be more specific, the increase, the cost increase of last year, we were able to recover that with our price hike, but the logistics and personnel cost, those cost increase, including the difficulty how to address those issues, that portion was not enough. That was not enough reflected to the price hike. So that is the reason why we're planning the price hike. Of course, we are planning that from the past, but the production system was not complete, so was that the reason and one reason? Yes. In addition to that, yes, we had the Omicron variant and the production operation slowed down. That was unexpected. So that's additional factor that we had seen as trouble. Thank you. Yes.

One more, very briefly, marketing investment, I think, this term, it is going to increase, as was mentioned earlier. Together with the price hike, you're going to increase the volume, so why do you have to spend more for this marketing?

Yes, as you say, price hike this time, when you look at the sales increase, yes, we will be having a certain degree of level of price hike and the numbers are planned. So in order to penetrate this and achieve this, we need a marketing cost, and that's being recorded on the books, but naturally, looking at the sales, we would have to control those marketing expenses as well. So we will not spend more than what we need.

Rather than brand investment, this is the sales promotional cost to penetrate your price hike?

Yes, I think there are more of that factors this time. Yes.

We are running out of time, so the next question will be the last question for today. The question will be from Mitsubishi UFJ Morgan Stanley Securities, Tsunoyama-san.

This is Tsunoyama from Mitsubishi. Let me ask this question to you, just briefly. Two questions, actually. One is about the foreign exchange impact, not only the dollar/yen rate, but most recently, we have seen a lot of heavy fluctuation in the foreign exchange rate, so, well, do you think the current foreign exchange rate positively affecting you or negatively affecting your guidance for this fiscal year? And this assumption of JPY 120 to the dollar, if the yen becomes weaker, let's say to JPY 130 to the dollar, would that be a positive development for your company? Can you share your philosophy for this? And also, my second question is about the Thailand fourth quarter sales, which slowed. Is there any particular reasons behind this performance in Thailand?

Well, thank you very much for the questions. First of all, regarding the foreign exchange, in fiscal 2021, if you look back at the situation what has happened in 2021, and this is described in the financial results material, JPY 28 billion altogether, JPY 28.7 billion, that was a positive impact in terms of revenues, and JPY 3 billion in the business profit impact. And the Brazilian real has appreciated. So that was one factor behind this. But as for the currency translation, weaker yen rather has a positive impact on our performance, relatively speaking. So that's the basic impact. However, any steep changes in the currency rate, especially as far as Japan is concerned, because of the fuel and raw material cost increase, will be linked quite closely to the currency, so that will have a negative impact on the profitability because we have to raise the prices. But basically, weaker yen has a basically positive impact on our financials. And in fiscal 2022, again, as versus the business profit, a JPY 5 billion or so positive impact is estimated, JPY 5.5 billion in particular. And to be more precise, if you look at Page 14, if you look at the upper box there on Page 14, that is the positive impact that we are foreseeing for fiscal 2022.

Then, if that is the case, given the raw materials, you are using the conservative projection for the foreign exchange impact?

Yes, certainly. Right now, when we look at your opinion, everybody is projecting a weaker yen, and we consider that is highly likely, including the possibility of changing the interest rate. So JPY 120 is the forecast that we have, but we will be monitoring this and revise it on a quarterly basis. And if need be, we will revise the rates. And as for the fourth quarter performance of Thailand, in the fourth quarter of last year, the Omicron variant patients increased. And therefore, there was a period where the infection rate increased due to the [ toxicality ] of the Omicron variant around January, February. But now in April, all the restrictions are being lifted, so the tourists are now returning to Thailand and they are freely able to cross the border. But this factor was most significant in the fourth quarter.

So you're saying that the situation is improving in Thailand. I understand. Thank you very much for your explanation.

Thank you very much, ladies and gentlemen. This is Nakano speaking. The plan that we have disclosed has not won that level of satisfaction for us. And of course, the raw material and fuel cost increase seems to be included, must be included, we believe. So we need to do that. And internally, what we are discussing now is that -- not a simple price hike. Of course, short term, it is necessary, but for consumers, of course, need to think that they would have to pay, ready to pay for that kind of product that we offer. We're now making this discussion. So to enhance the value of the product within this difficult environment with raw material and fuel material price hike, we need to think about that seriously. Thank you very much indeed.

Thank you very much, sir. This concludes the conference call. Thank you for your participation. Thank you. Bye-bye.