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

Ladies and gentlemen, good morning. Thank you very much taking time out of your busy schedule to attend our briefing -- financial results briefing for FY 2021. My name is Kaji from the IR Group. First, let me introduce our attendees: Representative Executive Officer, President and CEO, Fujie-san; representative Executive Officer and Executive Vice President, CIO, Shiragami-san; Executive Officer and Senior Vice President, General Manager, Global Corporate, Sasaki-san; Executive Officer and Vice President, General Manager AminoScience, Maeda-san; Executive Officer and Vice President, Deputy General Manager, Food Products Division, Okamoto-san; Executive Officer and Vice President, Supervision for Frozen Food, Kawano-san; Executive Officer and Vice President in charge of Finance and Investor Nakano-san; global Financial Manager, Mizutani-san. Those are the 8 attendees attending the session. The overall briefing session will be 90 minutes. Today's presentations are posted online on the IR website. Please have a look. Also, this session is recorded, and a video, including the Q&A, will be posted on the IR website. Please be advised. Now we'd like to begin forecast for FY 2022 and initiatives for enhancing corporate value. We'd like to ask our CEO, Fujie-san, to present the material. Fujie-san, the floor is yours.

Ladies and gentlemen, good morning today despite your busy schedule. Thank you very much for joining us today. On 31st of January since the press conference of becoming the CEO, I'm very happy to have this dialogue with you since then. Today, we have the results announcement as well as the forecast for fiscal 2022. And we would like to also show you the direction where the new management team is heading for, so those are the things that I would be explaining today. I'm sorry for the noise. So I will spend about 40 minutes, but I would like to have a both way dialogue with you all, so I'd like to have your cooperation and participation. Next, please. What I want to talk today. Next, please. For this recent days, the environment surrounding our business is extremely challenging. But fiscal '21, we have increased profits and expecting increase in profit in fiscal '22 as well, and we want to do the sustainable growth. Second, of course, short-term measures are very important. But medium- to long-term structural reform and growth strategy execution will also be very important and continuously done. Undertaking this opportunity of this challenge, we want to make a resilient business foundation. We are thinking about up to the level of physical remodeling. That's what we're talking about amongst our management team. The new administration began from April 1. In order to achieve the vision, "Purpose x Passion x Operational Excellence or OE", and "Speed Up x Scale Up". Through those efforts, we want to enhance our corporate value from medium- to long-term perspective. Next, please. First is about the important financial results. Fiscal '21, we have enjoyed the increase of sales and gross profit. Sales was JPY 1,149.3 billion after we used IFRS in 2016, we've recorded the highest, and also the business profit setting a record high for the third year in a row. For fiscal 2022, although it's difficult, we want to improve and upgrade the price and also increasing the voice, we want to increase both sales and profit. ROIC is going to be -- was 7.9% in fiscal '21, but we will definitely achieve 8% in fiscal '22. Operating cash flow was JPY 145.5 billion in fiscal '21. We have been exceeding the level of what we have announced already. And also for the dividend. For the interim forecast, it was JPY 48 per share, but we've decided JPY 52 for fiscal '21. And for the fiscal '22, we're expecting JPY 58 per share. Next, please. This is a summary for the 2021. As was mentioned to you earlier, business profit for the 3 consecutive years, we've recorded the highest level. As for sales for the home use, especially overseas was very favorable. And for restaurants and industry use partially recovered. Bio-pharma Services & Ingredients, Functional Materials were the driver for all, and we were able to increase the sales compared to the previous term, it was 107.3% increase. Excluding that of the translation, it was 107.3%. So it was 103.9%. And next is about the business profit. As you can see, the changes we are seeing the raw material and fuel cost increase, it is about JPY 27 billion. In some forms, we were able to make this to reduction of JPY 17 billion. But it was minus JPY 10 billion for the raw materials. But having various contracts in terms of actions, we were able to make this sales and business profit. Next page, please, seasons and foods. The domestic seasonings, especially soup and nutritionals and Umami for the processing, they were minus negative of the profit. And Frozen Food, it was a negative of the 29, but health care was 170 -- sorry, JPY 17 billion of surplus. Next page, please, here are the things that would influence the performance. In 2011, the material cost was highest, but now it is exceeding that level. Ukraine situation is unclear. But instantly, we had launched a team to address the vendor. Wheat and the other things, the raw material directly being hit by Russia and Ukraine situation. Including also the crude oil price and commodity price, we have included all the cost increase and visualized the impact to each of the items. Earlier price hike, alternative consideration are the countermeasures, especially every month for the raw material and energy costs. We are compiling all the information to this team, and we will be reflecting to results, and we're trying to come up with countermeasures as quickly as possible. These are the price changes of the raw materials. Of course, for the seasonings, we need to reduce the cost, and we have been revising the cost to contract. But especially for the Foods. In order to reflect these efforts to our performances, we will have a certain time lag. So at a certain, a onetime level, BP ratio would go down. But the absolute value of the business profit, we are able to maintain a certain level. And by addressing these issues continuously, I think we will be able to recover and increase the profits. Next page, please. As for the overseas seasonings volume, well, we will be making a price hike. There may be some concern that we may be able to not have increased volume, but in the past 10 years, we have been increasing the prices, but the volumes have been also increasing. I myself, from my experience in China, Philippines and Brazil, what I can say is that our capability to revise the prices have been improving steadily. And from the future, we would like to improve this capability more in the future. Next is about the costs and how are we going to counteract. As you can see, we will have Ukraine's event impact of the raw material full price hike. But is showing up from fourth quarter of fiscal '21, rapid reaction have been taken, and we've been recovering. But that could not be all offset in fiscal '21. We want to have showed this effect definitely from the second half of fiscal '22. Next, please. This is the forecast for fiscal '22. Throughout the year, we are expecting sales and profit increase. As you can see, within appropriate measures, we want to achieve organic growth. We want to strengthen the business foundation and lead to sustainable growth. For net sales, we are expecting JPY 1,310 billion. This is 114% increase. So for the unit price increase of 6%, volume increased 4%, other things included. For the business profit, a JPY 124 billion, 102% increase. And next page, please. This is the factors behind the changes in P&L. Regarding fiscal '22, the cost increase of fuels and raw materials has amounted to JPY 40 billion. And of that, JPY 35 billion will be offsetted by implementing measures at this point in time. However, there are some extra JPY 10 billion that is not incorporated into this forecast. And foreign -- ForEx is JPY [ 90 ] billion. So JPY 124 billion is our clear target that we are committed to attain. And regarding the ForEx, this is a very conservative assumption at JPY 120 to the dollar. Next slide, please. And this is disclosed by segment forecast for each business segment. Regarding Seasonings and Foods, especially in Japan, profit decline is projected. But for Frozen Food, in overseas profit increase or structural reform effect will increase the profit. And under Healthcare, thanks to booming demand, we expect project profit increase. Next slide, please. These are the key KPIs for our consolidated results for the entire group. In order to meet the MTP targets, we are making steady progress. And please look at the 2022 forecast, ROIC 8%, organic growth 11%, and a sales ratio of 71% and PI of 8%. Those are the clear targets that we committed to achieve. And we'd like to ensure this -- we are implementing major projects to attain these targets. And let's look at the projection by segment for you for perusal. Next slide, please. This is the progress of our structural reform. As you can see, our progress has been made according to the plan. And for fiscal '22, ROIC -- in order to attain a ROIC target of 2025, asset-light policy will be partly brought forward or added in order to further our effort of structural reform. Next slide, please. And this shows the Frozen Food structural reform progress. During the Executive Committee where this has been the priority of our Executive Committee, and ROIC 5% in '25 must be met. Therefore, we are implementing measures that are listed here accordingly. And under the '21 review, we suffered a significant predicament. However, in the North America, we already announced a price hike that is reflected in the first quarter. And then -- we are addressing the furthering fuel and raw material cost increase accordingly. Then the diversion of assets are being accelerated. In Japan, rice product factory is being aligned and OEM outsourcing of noncore domain is -- will be advancing. And to obtain ROIC 5%, there are 3 points. One is Asian product, which is a core domain. We need to focus further on this particular core domain. And then for the noncore part, we will downsize or realign to accelerate the diversion of asset into Asian products. Number three, to ensure growth in the core domain that is highly profitable to supplant or offset the reduction in the noncore business. And then this is our effort towards organic growth in Seasonings and Food. Regarding the existing business, while adding value, we will attain both volume growth as well as price increase. And then to meet the unmet needs, we would like to create new businesses in the adjacent fields in each country. By doing so, we'd like to expand our health and nutrition value provision business to enhance the level of growth for the entire business. Next slide, please. This is how the business model transformation is driving growth. Let's cite an example of electronics materials. As you can see, there is robust demand that is likely to continue. From '22 to '25, this is a shipment CAGR on the left. 15% used to be our forecast, but now it's projected to be 18%, which is an upward revision. So the high growth is likely to continue. And in order to meet this robust demand, in '22 we will spend JPY 1 billion. And after '23, we will spend JPY 17 billion to ramp up the production, in order to ensure we can address the robust demand. Next slide, please. And this is the -- whether the electronics business is likely to continue growing, especially for the data center servers and network, ABF growth is being contributed from those 2 elements. And added value and higher performance ABF will see greater demand going forward. Therefore, we'd like to further drive in this particular area. Next is Bio-pharma Service. In the past few years, electronics materials business has been the central growth driver for Ajinomoto. But now we see that Bio-pharma Service is a new growth driver. Going forward, to anticipate the future growth, we make necessary -- additional -- we made necessary R&D investments so that Bio-pharma Service can further accelerate its growth. Next slide, please. And this is a particular area we are focusing on: Oligonucleotide market, whose size is shown on the upper right panel, which is expected to grow significantly in the next few years. Our proprietary liquid-phase synthetic method will enable us to mass produce this product. And this is the strength we'd like to cultivate in order to grow our model -- business model. Next slide, please. Next is about the assets and liability. We have been rationalizing the assets for fiscal '21. Because of the currency translation, the total asset has increased. Fiscal '21 was about JPY 65 billion effect. But if we exclude that, we have reduced JPY 40 billion worth. We will be properly managing them in the future as well. Operating cash flow in fiscal '21 resulted JPY 145.5 billion. We have more and more cash generation capability. Through CCC improvement, we would like to further generate cash. Next, please. As you can see, strategic investment. As you can see, for tangible assets, we would be timely investing a growth area like the electronics material business. But for R&D, marketing, DX business model development, HR, such intangible assets we are shifting our investment to those areas strategically trying to lead to the corporate growth. As you can see, in the past the tangible asset used to be 60% to 70%, but non-tangibles were 30%. But in the future, we would like to make this 50-50. So more and more investment will be made into the intangible assets for the coming years. Next, please, the important management indicators. Through steady growth of business profits, all the important management indicators are improving for fiscal '22. Because of the deterioration, there will be limited portion. But onwards from fiscal '23, we would be improving this. Next page is how do we think about the shareholder return and growth investment. We have shifted our investment from tangible to intangible assets. And we would be exceeding the operating cash flow of JPY 400 billion. Next is about the shareholders' return. Fiscal '21, we've repurchased and retired JPY 40 billion worth of treasury shares. You're all aware of this for dividends. We've increased our dividend from JPY 24 per share projected for the second half to JPY 28 per share, increasing the dividend for the year to JPY 52 per share. In fiscal '22, we plan to raise this to JPY 58 per share. So we hope to continuously expand the dividends and the shareholder returns in a stable manner, especially 2022. The total return will be more than 50%, and the single year payout ratio will be 40%. So we would like to do good shareholder returns. And this is going to be part 2 of my presentation, management policy of our new management team and initiatives for enhancing corporate value. I'd like to explain to you the important points here. Next page, please. Ajinomoto group vision, we have not changed this. We would like to steadily realize this so that we want to realize this. Next page, please. at the announcement in January 31 to all the consumers around the world, we want to provide happiness. And we want to develop the company in such a way -- and this page explains about that. Amongst that, you can see intangible assets. We want to enrich this and the corporate culture, which would enrich intangible assets. We want to improve this and we want to make this -- so from the soil that we get nutrition, we see the roots. And this is regarded as intangible assets. We want to enrich this, the financial assets, the value of the company needs to be enhanced through this. Next page, please. This is the former CEO, Mr. Nishii's organization and what we will be succeeding from him. One is ASV management. And the second is the Purpose, Passion and OE. Purpose means that through the usage of amino acids, we want to solve the issues of health and food issues. This is the purpose. And we want to have this purpose and have a passion of our employees to support this. In addition to this purpose and passion, OE or sophistication, meaning that employees and partners and stakeholders with a certain level of tension would polish and sophisticate their strengths. What we want to evolve is Speed Up and Scale Up. These are the things that we want to evolve more. For Speed Up, I'd like to explain to you, we want to change the culture and appropriate top-down and bottom-up, stop and reduce to earnestly tackle what we want to do. For Scale Up, Ajinomoto Group, we have a standardization of successes inside and outside our company. And we want to create a next-generation business through transformation. Next page, please. So for this -- towards the Speed Up and Scale Up, under this new management team, we have formulated a specific action plan. By 100 plan, we mean that in this new management team from the first of April, where we started 100 days, the first 100 days, what we will be specifically doing. And there are 3 things that we will be doing: One is that within this 100 days, we want to make and show the results; second, make a specific clear road map; and thirdly, we want to come up with challenges and see the troubles that we need to tackle. So by 2030, we have a vision in order to realize that vision, we want to show you the direction -- strategic direction, where are we heading for? How are we doing -- going to do it? We want to show this in this plan, and there are 7 things underneath. On the left-hand side, this is directly related to ASV outcomes, and the functional themes that accelerate and support the pursuit of ASV. So in 100-day plan, already 40 days have passed. In order to speed up the management itself, we have changed the gears definitely. I myself feeling that way. Next page, please. Next slide, please. This is the strategy for investment. As you can see, this strategy is going to buttress our sustainable growth, and we need to ensure this is executed fully to secure as well as drive growth and to pave the way for our growth in 2550 -- after 2050. So there are 6 core business areas where we would like to concentrate our investment and need to ensure that we execute this plan. Within these 6 core areas, we need to narrow down on which area we particularly focus on. And also for each area, each of the 6, we need to define the concentration of investment later. Next slide, please. This is our corporate value enhancement as a way as an initiative to enhance corporate value to the value creation of value enhancement for all stakeholders need to be synchronized in lock-ins lock steps. And we'd like to establish a system called Value Creation Advisory Board in order to further enhance our corporate value. This is an advisory board serving the CEO and CIO, and the members will be invited from external professionals. And that we've already selected 3 external personnels:, governance as well as corporate brand and corporate value, those are the key materials. Up until now, the Executive Committee members used to focus on core -- discuss this core value enhancement, corporate value enhancement. But now we'd like to incorporate these external perspectives in order to further involve our management. And the discussion is already being placed. Next slide, please. This is a topic of Speed Up or increasing speed. After the shareholder meeting last year, the corporate organization changed -- structure was changed, and we became a company with Nomination Committee. And the overall direction is decided by the Executive Committee and the BoD provides this comprehensive supervision. And much was delegated from the BoD to the Executive Committee members. So by exerting appropriate leadership and bottom-up approach where Ajinomoto excels, we need to combine the 2 styles in further management. Next slide, please. Regarding the Scale Up, how are we going to expand our scale? There are 3 layers for us to consider. First is the overall -- well, 6 core businesses. We need to further implement concentration and selection to strengthen our organic growth in these core 6 areas. Second is through DX by integrating food and AminoScience, we need to drive growth. And then regarding the third is picture of the future. And then back cast from there, to define 4 innovation areas: Healthcare, food and wellness, ICT and green. Those are the 4 innovation errors identified so far as a next-generation business for us to pave the way for future growth. Those are the 3 layers we'd like to consider. Next slide, please. As I said earlier, those are the 4 innovation domains, and these are the concrete measures that are implemented already. Next slide, please. Regarding intangible assets, we will have created a 50-50 ratio between intangible and tangible. Especially on the HR value or HR assets, we would like to implement management to enhance HR value, diverse talent as well as their expertise will be harnessed through the initiative of inclusion in order to drive further competition. And now management that raises the HR, not only our commitment will do, therefore, we need to visualize this through a major KPI. One is to own ASV. In line with the process visualization, as it is listed on the left, we need to visualize the entire process to measure the progress of ASV attainment through engagement survey. Next slide, please. Next is the brand value of intangible asset. Fortunately, our purpose branding was rated highly and our brand value has grown significantly. According to Interbrand's Best Japan Brands 2022, Ajinomoto was selected. But as of 2020, we increased our brand value by 30% in '21, and we'd like to further grow our brand value. Next is the nutrition initiatives. At international forums in '21, we disseminated the information about healthy food -- importance of healthy food that is also sustainable. And international agencies as well as government gave us full recognition on Ajinomoto's activities. Next, on environment. Ajinomoto Group aims to realize carbon neutral by 2050. And we submitted a commitment letter in 2022, March. And then within 2 years, we'd like to set a clear goal. And also, we are committed to having GHG by 2030. For that, during Scope 1 and 2, we are likely to achieve that target. Next is the MSG Ecosystem construction in Thailand. This is an initiative that we will be implementing as well for you to have a look later. And this is the summary chart. This is a message as CEO. As is listed here, we would like to earnestly pursue ASV under the new organization and the new team. ASV management and purpose and passion times OE was inherited from the former CEO, and we would like to further increase both speed and scale. To this end, through the 100-day plan, we'd like to change gears and jump start. The entire company will work together to realize solving food and health problems by unleashing the power of amino acid and provide the essence of happiness to consumers all around the world. Through that, we'd like to realize continuous and exponential enhancement of corporate value. To that end, we had an open discussion -- we are going to have an open discussion with stakeholders, and we truly look forward to continue that dialogue with you. There may be inadequacies with my management. However, I'd like to dedicate my entire self to this effort. And for that, I'd like to solicit your continued support. So through our business growth, we'd like to keep delivering the essence of happiness to you all, and would like to seek your continued support. Thank you very much.

Thank you very much, Mr. Fujie. So we would like to move on to the Q&A session. [Operator Instructions] The first question, from Nomura Securities, Fujiwara-san, please.

Hello. This is Fujiwara from Nomura Securities. That was a very strong and passionate presentation, thank you. So as for the management, I have a question about Scale Up. Slide #40, I'm looking at the slide, Page 40 from here. This, of course, your existing business will grow, and you will have business model transformation, DX usage and integration of Food and AminoScience. We can imagine a bit. We want to be more concrete and specific image for your company, business transformation. How are we going to do it? What would be the result for this BMX that you're referring to? So this is my question.

First, I have discussed about the whole image. And CIO Mr. Shiragami will also supplement afterwards. So Fujiwara-san, thank you very much for your question. Ajinomoto Group, one of the challenges that we face is the growth capability, that's what I feel. At the fact, we have 3-layer model here, and we want to use this. So for the definite growth, steady growth, we have unit price increase and volume growth. For unit price hike, we want to do the price hike steadily. We want to shift to the products that have higher values. Those are the 2 measures. The second, BMX business model transformation, in Ajinomoto Group, we have very excellent success stories. To be specific, in the AminoScience, we have been doing this BMX. And as a result, for fiscal '21, AminoScience business, the business profit is JPY 43.3 billion, and CAGR for the past 5 years, 26% growth. Bio-pharma and electronics material were the growth drivers. So I think there is a good format or standardization of BMX 0, 1, 2 or 3, 1 to 10, 10 to 100. So we have this type of capability, and we want to strengthen this capability. So we're trying to adapt this BMX to other areas as well. So in that sense, not just AminoScience, but for the Foods business, this BMX can be done, and we're doing it, especially food and AminoScience integration. So Mr. Masai became the Head of the Food business, so as AminoScience. Mr. Maeda, who is good at food, and Mr. Kojima who is good about the food research and development. So trans-functional things have been done. And Mr. Shiragami would like to explain and supplement my comment.

Thank you very much for the question. Let me expand on the matter. Regarding the 4 innovation areas, those are identified as our next-generation businesses. Let me expand on this matter. One is food and wellness innovation. Delicious and health and your own lifestyle, that is where Food and AminoScience as well as digitalization can contribute to. In order to personalize nutrition as well as health and well-being value to -- for 1 billion people, this is a new business model. And we'd like to accelerate the shift from the current business model to the next-generation business model in this particular area. One is the dining/cooking routine, which is enabled by digital technologies to prevent the diseases and provide well-being lifestyles, not only Ajinomoto but also through external corporations, collaborations. To realize this future, we are creating this ecosystem to realize this new business innovation. Another example is Green Innovation. This is to contribute to the environment. And also a food system needs to address 1 billion people -- excuse me, 10 billion people. And Green Innovation amino acid synthesis and carbon neutral cycle as well as eco-friendly supply chain and local consumption -- local production and local consumption, co-creation value with consumers, those are what we'd like to innovate in this field. Our time is limited during this Q&A, but we hope to provide more better picture of that later.

So in the past few years or in 3 years from now, regarding this BMX, new business seed, will the new business seed to be visible? In what particular area? Is there anything on the horizon?

Thank you for the additional question, Fujiwara-san. Bio-pharma is one. Through BMX, which is already generating this Bio-pharma, oligonucleotide is emerging. We have already created 1 and complete a cycle of 1-10, so now we are entering the phase of 10 to 100. That is the BMX for this oligonucleotide arena. So we'd like to drive this in to -- grow this into next-generation pillar following the electronics materials, and we hope to provide a bit of image of that on the IR, on a separate occasion through IR activities.

So the next question from Goldman Sachs, Yamaguchi-san, please.

My name is Yamaguchi from Goldman Sachs. I have 2 questions. As for food centering on that, you have a cost issue. As for this term, gross cost increase is going to be JPY 40 billion from JPY 27 billion. But for counteract is going to be JPY 30 billion from JPY 17 billion, so this is the presumption. As for this JPY 40 billion, what are the largest source-end factors here? That's one question. And how much is it hedged for this term? This is the important point. This is the risk factor for this year. This JPY 30 billion vis-a-vis previous year, you have to counteract. How certain is this counteract effect? Of course, you have detailed calculations, I believe. But every country, what months -- is this the accumulation of all the figures? Can you be more specific about the details of those figures? My question is, a simple question is, can you really achieve this? So can you elaborate on this point?

Thank you, Yamaguchi-san. As for raw material price hike, yes, very detailed that we've been analyzing the major raw material and the secondary raw materials are being seen. For major raw materials, this is sugar and tapioca. As for crude sugar, we have a small increase, rather, because Brazil, India, Thai are the major source. And the weather was very good, favorable last year. So there is no risk from the weather -- bad weather. As for tapioca, the corn price had -- the tapioca chips for ethanol were higher. But the demand here is leveled at high level. So for major raw material from fiscal '20 to '22, there will be no large price hike. But the large price increase is seen in ammonium. This one is very, very high now. But we are assuming this. And that is incorporated, and this is a major part included in our calculation. But looking at the current situation, now it's leveled at high level, and there is a little bit of trend of going down. But as you are all aware, we are very conservative. Very conservative. So this high level -- and we are assuming that it may increase. This portion is included. And for domestic raw material, et cetera, for fiscal '21 to fiscal '22, there will be no big changes and impact. But the material prices are being kept at high level. Under such circumstances, last year, JPY 27 billion counteract JPY 40 billion. This year is that we have an increase of cost of JPY 40 billion to JPY 30 billion. So how are we going to be certain with this counteraction? We have this raw material high, but we are now clear with them. So we want to first reduce our costs and expenditure. And also, we want to carry out price increase or price increase, price hike each countries for each product, the timing, the raw materials related to it, the price hike gap, the rounding situation and environment surrounding that. We have this Excel sheet all calculated, 10 pages or so, very detailed calculation by country, by product. And we have been analyzing more in detail. So every month, we will review and we will be seeing whether we are coping with the situation. At the management level, once a month, we have this concentrated information, looking at it, whether we are good at addressing the situation or not. So the management level is well aware of the fact. So as for counteractions that you are concerned about, what the management can say is that we are fully aware and we can counteract. One thing is about the Frozen Food in North America. Price hike is scheduled, and we have already been told -- the customer has been already told, but they have accepted it. And 30 out of 40 could be counteractive, but more could be realized, I believe.

In the first quarter of December announcement of various companies, I think they have been having lower raw material costs. But so for you, it means that all the 70% to 80% of our raw materials have been hedged. Is my understanding correct?

Yes, yes.

The second is about ABF. This time, the CAGR, '20 to '22 was raised from 15% to 18%. Why is it? Can you tell us about this background? And you mentioned this term is 14% increase. The term ended was 8%, but it ended at 30%, so you have a big difference here. Maybe you are too conservative. So can you tell us about your assumption? And I would like to know the reason why you have differences with the former -- the previous year.

Yes, from 15% to 18% CAGR have been revised upward. The reason for this is that the personal computers and the game markets, we had continued adoption of this product in those areas. And in the data centers and servers, we have more and more demand. So because of those reasons and because of that outlook, we thought that we can grow more in this field. So the businesses as well as the management have confirmed this. So we have made the announcement of CAGR of 18%. So with this very robust demand impact, I think it is backed by that. As for upward revision, in that sense, we would have to have a capability to look at the future and analyze it well. But at the same time, there are different shipment timings. And as you're all aware, recently, we have the logistics, the marine transportation and confusion in that area. So we've been very conservative up until now for making the forecast. But amongst ourselves, the management team have been discussing that the capability of the rolling forecast, of course, we want to start to do the rolling forecast. But we want to raise this capability. By doing so, quarterly, we want to have more clear vision so that through IR, we can provide more detailed figures close to the real and without a volatility on the announced figures. So with your expectation we would like to have a year further scoldings or maybe and encouragement.

15, 18 is the volume, I guess, -- so you have robust demand. And at the same time, I think the upward revision of the ended year is volume and I think unit price, right?

Yes, yes. Yes, we have more added value and more products of such kind.

And which is more difficult to make outlook?

Well -- well, the difficulty of making the outlook. So we would have to nurture this capability to see the future, I think.

Next question is from Saji-san from Mizuho Securities.

This is your first day and the stock price went down. However, we'd like you to recover the stock price, thank you very much. On Page 17, regarding the price increase as well as volume grows that I'd like to delve into. Last year, seasonings and food and frozen foods only are listed here. However, for overseas consumer products, the price increase was 3.5% for seasonings and food, and organic growth was 4.9%, so there is a gap of 1.4%, so the volume was solid in a sense. And then frozen food was up 2%. And regarding this year's projection, the gap will be 3% or even negative minus 1% for frozen food. So regarding seasonings and food, volume-wise, you mentioned that the price is going to increase, but the volume will be up too. But what is the background of this, of your projection? That is my first question. And second, price is solid, including the price hike. Last year and this year, in seasonings and food, channel mix, or the perception of channel mix, presumably, both for home channel as well as the industrial channel, the channel is being diversified or changed, I believe. And what does that impact on the price increase? So those are the 2 questions I'd like to ask you.

Thank you very much Saji-san. So regarding the stock price, well, it's the assessment of the management, top management. So I'd like to make sure that with strong determination, I'd like to fully work towards better stock price.

And regarding the volume growth, what is the background you've [ raised ]?

Previously, in 2007, we shown the evolution since 2007. And despite the price increase, the volume remained growing. That was the result of the survey we conducted. And also that is the background for our assumption or our forecast. In addition, for this year, sales and marketing expenses earmarked quite more than the previous ones. So we spent, allocate more on the sales and marketing side to realize volume growth. Having said that though, as you are aware, depending on the country, some countries are more amenable to price hike and others aren't. Especially in Japan, it is difficult for us to conduct price hike. However, through our company-wide effort, as the fuel and raw materials rises, we would like to pass that cost increase to the price. And in a positive way, we'd like to create a virtuous cycle to reward workforce through better wage. That is the virtuous cycle we'd like to create in Japan. That is my view. In that sense, as a food company, Ajinomoto will do all we can, by ourselves. Also regarding the channel mix. In 2020, for the industrial channel, some will recover. That is our assumption. However, this does not have a negative impact on the growth, because the home products tend to be higher than the industrial food products, the unit, price wise. However, overall, this doesn't impact on the unit price growth. That is our assumption. Did I answer your question?

Thank you. And I would like to ask a follow-up question. On Page 11. For major countries, for Southeast Asia as well as Brazil, you are conducting price hikes in each of these markets. But volume-wise, there was a concern, and there will be a concern this year. So is that your assessment? Especially -- this week, we saw a consumer report and the Brazil has a severe inflation. There is a concern that the violence might outbreak because of the inflation. So if you keep hiking the price, how does that affect volume-wise outside Japan? Do you have any concerns associated with the possible or another round of price hikes?

On a relatively speaking, for major seasonings products, we don't have any concerns. Well, I understand that the economy may suffer, but overseas seasonings, in these difficult times, people start tend to cook more at home and consume a lot of vegetables to bring down the cost per meal. That is the consumer general tendency. So even in hard hit, bad economies, the volume is likely to grow for seasonings. In 2016, when I was assigned to work in Brazil, that -- the country was in a serious economic situation. And then the company said 9% price increase is demanded by the company. And would you like to sign 9% price hike for flavor seasonings? I wondered whether that was [ logistic ] enough or made sense. But there were certain reasons and good arguments the local entity said, well, sought my approval and I signed that document and approved. And then gradually, the volume grew even despite the price increase. Especially for basic seasonings, that is the generic trend we see in other countries as well looking back our long history. Therefore, we are confident that the volume can grow despite price increase. Thank you very much.

Thank you very much, Saji-san. Next, Morita-san from Daiwa Securities, please.

Morita speaking from Daiwa Securities. The first question is related to Saji-san's question. If the economic situation deteriorates, you mean if you have the stagnation, how much do we have to think about the downward effect? That means from Page 11, you have the menu-specific seasonings, flavor seasonings and Umami seasonings. Is there any chance of seeing this growth reversed? And I think you mentioned that you would like to do well with the added value products, I can understand that. But is this premiumization in this inflation a good way to solve the issue? That's one, question number one.

Thank you very much, Mr. Morita. Yes, as for food, there are some evolving stages as a certain here. For example, we have this Umami seasonings at the base and then goes to the flavor seasonings. And then you go to the menu-specific seasonings like [ cuptus ]. And then we have the processed food, for example, frozen food and so forth, or chilled foods. So we have this evolution for the food business. Add to that as for many specific seasonings is value added. But we have things high-end. But in many specific seasonings, we have low-end as well so that the general consumer can use. For example, in Japan, in the -- if you have a downward -- downtrend economic situation, then the menu unit price per food is going to be lower. For example, [indiscernible] -- you have the cabbage. If this is cheaper, people can use the cabbage and the pork and use the seasonings and per unit, per menu is going to be lower. You have bean sprout, we have the Cook Do menus, and that is going to be sold well. So from a customer viewpoint, a consumer viewpoint, how are they going to lower the unit price per menu and endure this economic difficulty. So I think that's the way a consumer would think. So for the menu specific seasonings, of course, here, there may be some wind against, but this is not going to be a down trend. So it's going to be reversed and going back to Umami seasonings and flavor seasonings. So no, that is not the case, because the menu is evolving. We have -- this is irreversible. So there is not such a big trend as such occurring.

Okay. Second question is that under your explanation, I think there is a time lag to pass on the raw material price hike -- to your price hikes. So when you had -- did not have any time lags how much business profit, I think, would be able to be achieved -- what is the discussion amongst management? And if you think about the real capabilities, are you able to achieve that level in the next fiscal year? And with your real capability, if it has not been achieved, is there any risk of such factors? Can you talk about this?

Yes. In that sense, fiscal '21, JPY 27 billion and '17 was JPY 10 billion. And in the fiscal '22, we have a gap between JPY 40 billion and JPY 30 billion, meaning JPY 10 billion. So fiscal '21 budget from the beginning of the year, we have formulated with various calculations. But at that time, JPY 40 billion we were not having this figure. But from JPY 27 billion though, it was jumping to JPY 40 billion. And with that, we have reviewed and remade this forecast. So the counteractions, we have been making it. And those we are definite that we can counteract is JPY 30 billion. And that is the business profit reflecting it, which is JPY 124 billion. So within these calculations and analysis, we are providing this. We would like to achieve the increase of our price hike. And we have, in this 100-day plan under the management leadership, we are thinking thoroughly. And we want to exercise all the plans. We want to have more colors. I think this is not focused on the seasonings and foods. But according to last year, 20% was BP, but this year's guidance is 10%. I think 2 years ago, it was 14%. So your capability -- actual capability when you're actually able to transfer the price hike, what is the BP rate, actually. Yes, we want to return to the before COVID rate, and grow from that. That means that not just seasonings and food. But for Frozen Foods, we want to do various countermeasures. You are concerned about probably the Americas overseas. For North America, we have done the structural reform. And also, we were able to make the price hike penetrated for fiscal '22 forecast. We are definite that we can achieve that target. ROIC 5% in '25 in we need to achieve that definitely, we have to plan thoroughly. So we would have to just exercise and implement that. And after achieving it, we can see further evolution. So that is a challenging target that we have internally.

This year, yes, I can understand that you will exert your efforts. Our worries are from the next year, going back, can you really go back to the previous BP margin? Maybe 12.9 or 12.7. Are you assuming that? Are you definite? And in the new year, I think the absolute value will being close to JPY 90 billion. Is that in your mind? If there is any risk, what are the risk that you can assume. This is going to be for the future. Can you comment on that as well?

I think when you turn to Page 12, I think it's easier to understand for you, especially the countermeasures to address the cost issue. For the first half of '22 to '23, the pink portion is the counteract, and the gray portion is cost increase. For the first half of '22 -- we cannot actually offset. But from the second half, we are able to offset. And in the second half of fiscal '23, we are definitely able to counteract. So in that sense, 12-point several percent, I think we're not going to disclose this publicly. But internally, through those contracts and by definitely exercising them, I think we can promise to achieve that figure.

Thank you for the questions. Next question is from Takagi-san, SMBC Securities.

This is Takagi speaking. Your stock price went down. But this shows the rather high level of expectations under made a solid performance. However, investors are not satisfied. Fujie-san can produce more. And the performance is not increasing profit. Therefore, the expectation, your bar is very high, Fujie-san. That is a level of expectation from investors, and that prompts my question. Regarding Bio-pharma, the top line is strong. That is likely to continue this year. But the profit is going down. Therefore, going forward, in a midterm perspective, profit growth must catch up or even exceed the revenue increase. In order for this to be served as a growth driver, and this is not -- well failing to produce the -- achieve that target. That is my first question. Thank you very much for the question.

We'd like to make sure that we can meet your expectation. Regarding Bio-pharma, which is positioned as the next-generation growth driver within Ajinomoto. And then in '22, the forecast has it that, as you rightly pointed out, the fuel and raw material rising costs as well as sea transportation costs are rising as well. Therefore, currently, solid measures, countermeasures, are yet to be implemented fully under the situation. That is why we've formulated the guidance for Bio-pharma, but we will accelerate the initiatives to counter the situation, to be in line with your expectation at the end of this fiscal year.

So that's for this year, right?

Yes.

So regarding -- excluding the cost increase, the product mix is good. So excluding the cost increase, you can accumulate your profit to as much higher level. Is my understanding correct? And then from next year and onwards, could you please comment.

Regarding this year, yes, as you rightly pointed out, we could have accumulated more profit. And then starting from next year, there is an internal solid plan to ensure business growth with Bio-pharma. And on the right occasion, we'd like to provide a better image of that, regarding their actual situation of Bio-pharma and our clear road map towards further business growth on a separate occasion, going forward.

And amino acid as well as CDMO could you please expand? And could you please add some color to this?

Regarding amino acid, sea transportation, marine transportation as well as the fermentation resource cost increase caused the cost increase for amino acids. Regarding CDMO, marine transportation is a significant portion for the cost increase. And then regarding amino acid, I'd like to add that in the last 10-year business model transformation, about 10 years ago, we were barely unprofitable. But now the business has grown significantly over the last decade. I spoke about the business model transformation earlier. Amino acid has grown so significantly, and we created a good success example of best practice that can be deployed elsewhere within Ajinomoto. Regarding CDMO, in Belgium, OmniChem formula is growing faster. And for the -- our concern in the North America, structural reform is underway steadily. Therefore, the recovery in the U.S. business will start and merge, or take effect after the second half of this year. And there is a General Manager for AminoScience, Maeda-san attending here. And if he has any additional comments, I'd like to ask.

Thank you very much, Takagi-san, for your question. In answer to your question regarding amino-acid and CDMO Bio-pharma, Starting from amino acid, raw materials are sold our products and very close to food materials, therefore, highly impacted by the rising raw materials. And likewise, we are negotiating with our customer for the possible price hike, but there is a time lag. Now for this year, we would have to endure a certain price, for some time lag. And regarding CDMO, which is described on 24 -- and Page 24 and 25, this is a new business. And on a trial basis, the blue portion is being accelerated or brought forward than the plan. And the yellow portion will come from the solid growth of OmniChem. So we don't have any concerns with this yellow portion. Therefore, amino acid will be -- the rising raw material for amino acid will be the concern for this year, and there will be a time lag in order to catch up with the price increase.

So the blue portion of CDMO, this year and last year, oligonucleotide medicine is the driver. Is that right?

Yes.

For the last year and this year?

Yes, oligonucleotide. And then -- which is followed by protein as well as antibodies.

Another question, if I may. Last night, Nakano-san talked about a cost increase. And Ajinomoto needs to shift to a business structure that can withstand the cost increase. What was the intention? Or what measures you are taking? Could you clarify? Fujie-san, could you please comment? For example, annual price hike negotiation, but there has to be a time lag. And there is a significant portion that you cannot offset with the price hike because you are too late to revise the price. And is it being transformed?

First, annual price hike negotiations to reduce the cycle, that has already started. And also, to date, business structure centered around commodity is now shifted to specialty centered. And the measures are already taken. So we can have a business structure that can better withstand the price increase because commodity is more volatile and vulnerable to the price increase. By adding value or shift the focus to a high-end product, we can withstand a cost increase, possible increase going forward. In that sense, price hike or price increase is a very important indicator. If we can hike the price smoothly, that means we are adding value. So to what extent we can achieve this, that is a very important indicator for us to measure our success. And in addition, each business in each country has its own best practice or success model that needs to be visualized and transformed into a template, that which can be shared across the company.

And this is my last question. Regarding Food, to add value on food, Ajinomoto has to produce results for foods. You are up-trading of your existing products, but you're not adding value to food products. Under your new leadership, Fujie-san, would you like to do it differently to produce results for Foods?

I used to be the leader of Food division last year. And including my own responsibility, there are certain challenges that is the growth capability of Food business. I understand, and I exchanged views with members of Food business. Whether we accumulate our existing products, that -- well we need to harness our strength that has been built accumulated with the existing ones. But we need to start collaborating with the external experts as well. So regarding the add value, Value Up Advisory Board establishment, that includes marketing and branding experts. So we are hiring those external professionals on this matter. And later, I'd like to ask a personnel to comment on this topic. But for the first time this time, Okamoto-san was appointed as a marketing division. And he is providing marketing supervision, which used to be divided in silo for each business. So we were operating in silo. However, now we are trying to introduce elements to increase corporate -- across divisional collaboration within our organization. Including that, within food, especially in Japan, we'd like to start generating results in Japan for food. Okamoto-san, would you like to comment?

This is Okamoto speaking. Thank you very much for the question, Takagi-san. As you rightly said, and as Fujie-san mentioned, the growth potential with the Japan food, I share the view. In order for us to keep generating new products, Ajinomoto model was once excelled at this capability. But we need to actually regain that capability. So we are to create a template source for us to create -- start creating new products. And we started to take -- create template, and the communication channel needs to be cultivated anew so that we can approach the consumers in Japan as to how to communicate this. And also how to communicate, how to deliver our products EC is rarely used for food products. But now the situation is changing and double-digit growth is being felt not just in Japan, but also elsewhere as well. So we are trying to create a new business model, especially with food in Japan. Thank you very much.

Thank you very much, Takagi-san. Next question. Miura-san from Citigroup Securities.

This is Miura from Citi. First question is about the teamwork. In the past 3 years, the profit is increasing. But looking at the past 3 years, Ajinomoto I think, has a better management capability for the coming years. Mr. Fujie, I think in order to accelerate the growth, how are you going to transform your organization teamwork? You have elaborated on this in your explanation. But for this, what is the direction? What is your thoughts about your transforming the teamwork? That's number one. Second is a dream. This is a word that I like. This is the source and essence of the happiness. When you look at the portfolio of the company, you have the breakfast, 60% sales and the 20% is the profit. In the coming 10 years -- 5 years, what is going to be the proportion of the in-home use deliveries?

Yes. Thank you very much, Miura-san. Thank you. As for the management capabilities in Mr. Nishii's administration we have enhanced, we want to succeed and improve that. For the teamwork, the important point here is that the appropriate management leadership. Ajinomoto, we have very serious employees and in the field with the passion dealing with their works. When the total optimization to provide amino acid-related product, the management needs to form the direction and under appropriate leadership go through that direction. That is important. So under such an environment, I have formulated 100-days plan. We want to shift the gears and exercise various plans. So in the Executive Committee, we want to seriously pursue ASV thoroughly, and we want to be serious in doing the discussion. So compared to the previous system, we want to be more serious in those areas. And the second point, 5 years after, 10 years after, how should we be? Yes, all to all the consumers, we want to provide essence of happiness. So that's the most important thing. And in that sense, the Food and AminoScience, we have 2 different segments. But in, myself, the segmentation are happening. But from the consumer -- I cite then from the employee perspective, food and amino acid to solve the issues of the food and amino acid of the issues. That's the reputation that we have. So food and amino acid integration, I think that is very important and will be the source of growth of our business. And that is going to be happening in the years at '25 and in the 2030s. So from fiscal '22, '23 to '25, we have midterm indicators, how we want to be in 2030 and doing such discussions amongst our management. And we received various advise, what would be the structure that we want to have with this company. We would have to have more discussion internally, and we want to also communicate that to you as well.

Thank you very much for your input. Thank you very much. And this is a beautiful story, but the business is quite tough. So to pursue the happiness and your dream. I think that posture, the 100-day plan that you have shown, and I think you're going to execute that. But to your employees, under you, how are you going to communicate and penetrate your message? And how is that mechanism in your company?

Yes. As you say, it's beautiful, but we need to communicate that and we need to show the result. That is very severe. Yes, I have that determination. So in that sense, with the full determination, the management team needs to exercise and implement it. But to communicate our will and desire, the mechanism, I value discussion and dialogue. Of course, from Mr. Nishii's system, we have had that dialogue -- CEO dialogue, maybe 50x a year at minimum with the people in the field. I want to dial -- have dialogue. Mr. Sasaki, Maeda-san, and one more, the 3 executives have already started dialogue. And all the heads of the businesses had started their dialogue with our employees. So through those dialogue, we want to communicate our way of thinking to the employees up to the very end -- and penetration. So in that sense, I reflect a bit in the past that as a management, we -- I think that I have already communicated, but not the full message have been communicated up to the very end. So today, yes, I have will to communicate, but I don't know how much of my will have been communicated to you. Maybe not enough. So the word that I want to value that I heard from others, he said Mr. Fujie, yes, when this is fully communicated, understood, that's when it is communicated. So I would like to value the words and communication. And to those stakeholders who share the purposes, I want to also have more dialogue and communication. I think with the investors like this, more than ever, we would like to have more communication and dialogue.

Lastly, about the performance. Globally, in the consumer table, downtrend has happened in U.S. and Asia as well. Is this a following win for you? I think your volume is going to increase by 4% this year. This is going to be positive. And next year, you have more. I think that's a cycle that you have in mind. For next fiscal year, volume is going to grow. You are going to have price hikes as well. So I think your future is quite bright. How do you think about this?

Yes. Yes, I think our future is bright. I myself think so. And what I did value is chance opportunity is a pinch or risk. But if you are at a risk of tender, then this may turn to opportunity. Of course, if you have a target, but if you have the risk, you have to think about how to solve it. And that is going to turn into a chance or opportunity. So from the second half of '22 to fiscal '23, we want to improve and grow and enhance our corporate value under my leadership. And together with all the members, we want to form one team and exercise all the plan. One teams -- the word "one" is very important, towards the same purpose, with passion. And all individuals should upgrade their capabilities. That's a very important thing. So Speed Up, Scale Up is also important. Thank you very much.

Thank you very much for the question. There are remaining a few questions, but unfortunately, time has come to conclude this event. Therefore, we'd like to invite one more question before concluding this. Yoshida-san from JPMorgan.

This is Yoshida speaking. We passed time, but let me ask a brief question. So on the low -- short term, Frozen Food business, as was pointed last night, whether you can certainly achieve the business profit target. And by doing so, ROIC 5% will have better prospects for ROIC 5%. So what will drive the profit growth this year for Frozen Food? Is that 0 price increase? And if you have a smooth price increase, then are you likely to achieve the profit target for Frozen Food. And regarding the labor force shortages, how are you going to secure the labors or workforce? And what are the risks on the horizon with frozen food?

Thank you very much for the questions. I'd like to provide an overview and which will be expanded by the Kawano-san later. For the fiscal 2022, the figures we presented earlier were very conservative, especially for Japan. North American price hike is already being finalized with the consumers in terms of the negotiations. And that's factored in already. And pertaining to Japan, structural reform is making progress as planned. That is the assumption for the forecast. Speaking of risks -- any huge headwind worldwide is a risk. This year, the figures we have shown so far, we are certain that we can achieve a minimum requirement. Or this is a commitment level at the minimum. But even more, we have set an internal target to surpass these minimum targets. And if there is a strong headwind, which is greater than that, the risk scenario is already formulated. And Kawano-san would you like to add some color to this?

Thank you very much for asking a question regarding Frozen Food. As Fujie-san mentioned, this is not a challenging budget or a high toll for us. This year, the profit was scheduled to be generated this year. But next year, we are certain to achieve that. And regarding the negative forces this year, the surge of inflation after COVID and Omicron variant caused labor shortages, and we were -- we failed to address those issues flexibly. However, we already implemented price hike as we announced earlier. And for restaurant use products, we already increased the price. And for home products, we will start hiking the prices come May. And regarding the labor shortages, there is only one factory that is suffering labor shortages. And to address this matter, low profit product lines are being shut down temporarily to deal with the labor shortages. So the basic workforce, the required headcount will be reduced. And once we go through this pandemic, we can provide a sufficient technical support from Japan to save labor going forward. So we'd like to hit this minimum target as Frozen Food.

This is my last question. Is there any headwind perspective? What is your assumed tailwind going forward?

Well, Ukraine is the biggest concern. Well, we are dealing with food and raw materials, our agricultural produce. So the feed and food price, once they go up, they can increase our raw prices, raw material prices. We already factored that in into our forecast, but it could even surpass the level of our expectation.

And that concludes the Q&A session. And we'd like to invite Fujie-san to give us a closing statement.

Thank you very much for taking time out with busy schedule to attend our business results briefing. Today, because of our limited time, we have to conclude here. However, we'd like to carry on this active dialogue with you going forward. That is my motto. And for that, I'd like to solicit your continued support. From the top management, we -- the entire company will work together to provide solutions for food and health issues, and we remain committed to that. So we'd like to solicit your continued support. Thank you very much. And that concludes our briefing session. Thank you very much for your participation.

And that concludes our briefing. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]