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

Good evening. This is Nakano speaking. Hello, everyone. Thank you for joining the call despite your busy schedule. So without further ado, we'd like to get started. And I'd like to jump into the PowerPoint presentation. So for Page 2, there are 3 points that are mentioned here. But for today, I will be talking about the summary results for the first half ended September 30, 2022, and the forecast for the year. This is the part that I will be covering. So for #2 and #3, tomorrow, Mr. Fujie, will be explaining. So please turn the page to Page 3, where it says today's message. So first point is -- in the first half, we were able to achieve an increase in both revenue and profit. Sales and business profit on a half year basis were the highest since the introduction of IFRS in fiscal 2016. In Seasonings and Foods and in Frozen Foods, even though we raised unit prices, we were unable to offset the impacts of cost increases, resulting in a slight decrease in profit. Conversely, growth continued in Healthcare and Others driving performance across the group. Profit also increased due to the depreciation of the yen. Thirdly, in the full year forecast for fiscal year 2022, we have upwardly revised both sales and profit. We decided to increase the dividend and repurchase shares as a measure to strengthen shareholder returns in anticipation of enhancing our sustainable cash generating ability. Fourthly, -- for the fourth and fifth bullet point, Mr. Fujie will be explaining these points. But for the fourth bullet point, we are talking about further clarification and speeding up implementation of measures and continually realizing the enhancement of our corporate value. And we will also talk about the 2030 Roadmap under point 5. And we will formulate this. And for the progress around our ASV initiative, Mr. Fujie will be providing an update. So turning to Page 5. Here is the digest for the results. So first of all, sales were JPY 659.8 billion, up 119.9% from the previous year -- compared to the previous year. Organic growth, excluding divestitures and foreign exchange effects was 11.2% in the second quarter on a cumulative basis, up from 9.9% in the first quarter. So we were able to further grow this rate. In addition to the foreign exchange impact, sales growth was driven primarily by sales increases in the Seasonings and Frozen Food segments helped by price revisions as well as strong sales growth in electronic materials and Bio-Pharma Services & Ingredients in the Healthcare segment. Business profit was JPY 74.3 billion, the highest on a half year basis. Excluding exchange rate effects, business profit was 97.1% compared to previous year's level. But in the previous year, it was 96.2%. Therefore, we were able to see improvements. And Seasoning and Foods and Frozen Foods were impacted by higher raw material fuel and logistics costs, but Functional Materials and Bio-Pharma Services & Ingredients posted significant gains. As a result, as you can see on the right-hand side, net income attributable to owners of the parent company was JPY 47 billion. So compared to last year, it has declined, but there were extraordinary items last year regarding the divestments of some assets. So if you exclude that impact, we were able to see an increase in profits. So let's turn the page, where you see a waterfall chart. Overall, the cost of raw materials, fuel and food ingredients had a net negative impact of minus JPY 8 billion. Price hikes were aggressively pursued and SG&A expenses, when you look at logistics costs, they increased. However, even for SG&A expenses, they were under control within the expected range. So accounting for the FX impact, we were able to see an increase in profit. And on a cumulative basis, you could see the increase was significant at JPY 5 billion in Q2. And in the first quarter, it was plus JPY 1.5 billion. So the degree of the profit increase has been expanded as well. Turning the page. This is by disclosed segment. This might be hard to understand. So I would like to verbally communicate some items. When you think about how we were in the first quarter, Seasonings and Foods was minus JPY 300 million. Now it's minus JPY 2 billion. So -- and Healthcare was plus JPY 2.5 billion, and now it's JPY 8 billion and Other was zero. And Frozen Foods in the first quarter was minus JPY 600 million. So for Domestic Seasonings and Foods, there has been a larger degree of decline in profits, but Healthcare saw an increase in profit. So overall, we were able to see an increase in profits. So turning the page where it shows items that impact business results. So this is around raw materials and fuel. So for the main fermentation raw materials and sub fermentation raw material prices, especially for ammonia and green, we have been seeing prices settle down. However, for our main fermentation raw materials, especially for chemicals and so forth, currently, we are seeing higher prices. So for cost increases, as you could see on the right-hand side graph, they are expected to continue in the third quarter and beyond and stay at high levels. So the impact from raw materials and fuel is expected to be ongoing from here on as well. With that as a backdrop, turning to the next page. For the overall Seasonings and Foods business, you can look at this later, but on Page 59, we show specific commentary around our price increases, but we have been quite aggressive in raising prices and from October and beyond, we are planning for further price increases domestically. It is already underway, or we are planning for an additional price increase. So the minus impact from cost, as you could see on the right-hand side of Page 9 is quite substantial. But by leveraging our strong branding power, we would like to promote price increases so that business profitability can steadily recover in the next fiscal year and beyond. Also turning to Page 10. Here is our forecast. For the Seasonings and Foods segment, through steady organic growth and effective price increases, this should be accounted for in our forecast. And we expect strong growth to continue in the Healthcare segment. Therefore, sales have been revised to JPY 1.367 trillion, and for business profit, we have revised our expectations of JPY 133 billion. Turning the page. Here, this is an annual waterfall chart. Regarding raw material, fuel and food ingredients cost impact, the annual gross amount is expected to expand. But by taking measures to offset this more, we are expecting a net negative impact of minus JPY 5 billion. I mentioned that it was minus impact of minus JPY 8 billion for the first half. So we would like to shrink this down to minus JPY 5 billion. For the exchange rate, we have revised assumptions the JPY 135 to the dollar and we're expecting an impact of a total of JPY 12 billion for the year, which is a positive impact. And for the next part, looking at the bottom first. I'd like to also verbally speak about this. But for Seasonings and Foods, at the beginning of the year, on a year-over- year basis, we are expecting minus JPY 4.7 billion, and this -- but like the bar chart, it is now at minus JPY 100 million. And for Frozen, we were anticipating plus JPY 3.3 billion. But now we're expecting minus JPY 2.5 billion and as compared to last year, JPY 800 million. And for Healthcare, originally, we're expecting -- we were expecting a positive effect of plus JPY 4.1 billion, but now it has been revised up by JPY 8.2 billion reaching plus JPY 12.4 billion. So for Seasonings and Foods against the beginning of your forecast, the profit increase is JPY 4.5 billion. But when you look at the top, as you can see, it is now at minus JPY 100 million. So -- and that we have been able to offset the cost increase. And for Frozen Foods, compared to the beginning of year expectations, the decline in profit is minus JPY 2.5 billion. And compared to last year, it's minus JPY 800 million -- it's plus JPY 800 million, and for Healthcare due to the growth in electronic materials, we are expecting a profit increase of JPY 8.2 billion, reaching JPY 12.4 billion up year-over-year. So on Page 13, you could see our forecast for the key KPIs. If you look at the right-hand side, middle, ROIC of 8.0%, 11% organic growth and 70% of sales from core businesses and a -- for overseas consumer goods and price increases, we are anticipating 12% and this is a flash figure, but for the employee engagement score, 62% is what we're expecting for the year. And these numbers are pretty much come in line with the numbers we set forth in our midterm plan. On the next page, we show KPI progress by business segment. So it's as stated on this table. And if you turn to Page 15, you will see the progress in structural reform. During this fiscal year, we will continue to promote business asset reductions, resource allocation and sales of cross-shareholdings and we expect to achieve the targets set already in the midterm plan. And in fact, we would like to accelerate from loans as much as possible. And on the next page, as you can see, with regards to the structural reform of non-core businesses, we are making progress in #2 and #3. We will continue to aggressively promote this shift in portfolio in the next plan as well. So with regards to the structural reform, it will be embedded in our next plan -- midterm plan. So Page 17, this page onward. I would like to describe that current situation of Seasonings and Foods business in Japan and overseas as well as Frozen Food and electronic materials. Now on Slide 17, with regards to Japan's Seasonings and Food business. For home use products, we see the rate of at-home dining continuing to decline, and we see a trend towards inflation defending lifestyles and a rebound from the trends during the pandemic. Meanwhile, we have increased our sales, along with the recovery of restaurant and industrial use products. So on an overall basis, we have been actually increasing our sales, in particular as you can see in the picture here. We have been promptly addressing the issues through the launch of new products and proposals that meet the needs of consumers in the food service industry and we will also maximize the effect of price increase in the second half. So revenue-wise, we are still facing challenges, but we have and we will reflect our countermeasures. And on Slide 18, with regards to overseas, by leveraging our strong brand power, we are quite aggressively increasing our sales volume by aggressively raising our prices. And as you can see, among the 112% in the sales of Sauce & Seasonings, quantity volume is 105% and unit price is 107%. And on the next page. So in particular, and we have giving you an example of Thailand, but our main state Umami seasonings and flavor seasonings have continued to show strong growth even under the changes that occurred in the various past environment. While a slowdown in the global economy is expected, we believe that we can continue to demonstrate our strength. Next, on the Frozen Foods on Page 20. As you can see here, we are promoting structural reform. Meanwhile, we were impacted by COVID. And from the end of last year until this year, we have seen strong impact from inflation, and that is why we have seen decline in BP. Against us, we have been implementing improvements in productions, rearrangement of portfolios and rebuilding our production, which we have actually been carrying out from before. So these things have been implemented, but cost increase has been larger than our assumption, along with repeated price rises, and this includes the competitors as well, but we have seen a slowdown in the volume growth, in fact, slight decline. So we need to implement additional measures. But as you can see on the bottom right corner, this -- the details are yet to be refined, but we will carry out further reform of, for example, exiting from low-profit products. So we will need to accelerate restructuring of the production. So these are sort of the further structural reforms that we will be considering. But having said that, on the next page, the market itself, especially in the markets where we are especially strong in where we are appreciated for, which is the Asian category, we foresee that this will continue to grow. So we want to be sure that we are concentrating on the core categories and accelerate growth. In fact, if you look at Page 22, these are the products, as you can see on the slide, if you look at Gyoza, as you can see in circle 1 and circle 2 in the last 5 years. And of course, we were impacted by weaker yen, but we have doubled our sales in 5 years. And also, this year, overseas Gyoza sales will surpass Gyoza sales in Japan. So we see a high potential for Gyoza. It's a high value-added product, and we will work to expand this. And on next page, on 23, this is basically what I have already described, but this is the significance of our Frozen Food business, especially in the next plan, we position this as a future growth driver in order to achieve ASV. I think these are strong drivers. So next is on the electronic materials business. If you look at the current PC market -- market, we have seen greater-than-expected drop. In the first half, we have had strong server growth, market growth and the 5G market. So we have been able to achieve 130% year-on-year by offsetting it with those growth areas. But at this point in time, because of the greater-than-expected drop in the PC market, we will possibly see the temporary slowdown in the growth momentum. So that has been priced in. However, as you can see, with regards to 5G, we will see continued growth. And as you can see on the next page, if 5G market expands, then it's not just the devices for the base stations for 5G, but we will also see the need for data centers as well. So as for CAGR, 18%, we're expecting today, we believe that this will progress in line with our plan. And since the future demand is expected to increase, we have decided to carry out some construction work for the capacity expansion ahead of schedule. On Page 26, we have laid out our assets and liabilities. With the cash generation, we have seen the decline in net D/E ratio. As a result, we have decided to do additional buybacks, JPY 30 billion of our shares in this fiscal year. We believe that it was necessary, and we believe it was -- we can do -- we can, it's possible. So that's what we did. On the next page, we can see that is cash generation on this graph. It seems as though it's actually declining. But in FY '22, in particular, we saw soaring raw material prices and weakening yen, we have seen increasing balance of accounts receivables and inventories. And therefore, we saw a temporary decrease in working capital, but this is all within our assumption. So we will continue to firmly manage our cash conversion cycle. With regards to strategic investment, we will shift our investment from tangibles to intangible assets and accelerate growth in the future growth areas. And we believe that this will be an important topic in our next midterm plan. And on Slide 29, you can see important management indicators, as described in particular, EPS. We expect this to surpass JPY 150. And Slide 30, we will return to the shareholders above the level of original plan as we see increase in cash flows. And this is our final page. So based on the revisions of business profit, and depending on the cash flow situation, we have decided to increase our dividend and also increase our buyback, our shares, and we plan to retire them in principle. So this is it for my explanation. I went overboard with time. But within 5 minutes or so, I would like to briefly explain the situations of Food and Seasoning business overseas. So for Quick Nourishment and Seasonings, kalamata faces up until Q2 due to price increases, we've been able to see unit price increases and volume increase due to the recovery in the food services industry. On a local currency basis, we were able to see a significant increase in revenue. As for Seasonings, for countries that have a high and outstanding rate, menu-specific seasonings dropped off because of the recovery from COVID. For Umami seasonings and flavor seasonings, that -- those 2 led growth. And also for Quick Nourishment, the overseas instant noodles, powder beverages, we were able to see revenue increases across the board. And for key countries for Thailand, for powder beverages, they struggled. But for the food services industry because it was recovery -- it was going through a recovery. We were able to see a single-digit increase. And for beverages, we were able to see growth as well. And for Umami seasonings and instant noodles, there was an impact from increased unit prices. So overall, on a local currency basis, we saw top line growth by 5%. When you look at the results overview, I forgot which page I was, 3, I believe. On Page 3, we show revenue by country. For Indonesia, on the other hand, because in-house dining increased in demand in the previous year, menu-specific seasonings ware slightly weak, but for Umami seasoning even after the price increases, sales increased steadily. So on a local currency basis, Indonesia saw top line growth by 2%. For Vietnam, due to the normalization of economic activity, there was risk demand related to food services and in-house dining also was firm. So for Umami seasonings, flavor seasonings and menu-specific seasonings, all increased substantially at the top line. And overall, on a local currency basis, revenue increased by plus 22%. For the Philippines, like Indonesia, the transfer is the same, where due to the high in-house dining demand increase in the previous year, menu-specific seasonings were relatively weak. But Umami and flavor seasonings were firm. And therefore, on a local currency basis, we saw top line grew by 4%. For Brazil, price increases were ongoing from the previous year. And flavor seasonings is the core part of their business, but we have been able to steadily increase sales. And on a local currency basis, sales grew by 9%. So finally, for the revised forecast by segment, there's an A4 chart that is in yellow as well as in green. So compared to the initial forecast, we show which -- the reasons why we have been revising the forecast. So first of all, upper half is revenue or sales. So with regards to sales, Sauce & Seasonings -- excuse me, Seasonings and Foods. This is plus JPY 36.3 billion. So this is Sauce & Seasonings and S&I. This is for processing. We have seen improvements in unit price and currency effect. That's reflected. With regards to Frozen Foods, this is plus JPY 5.28 billion. This is the impact of currency. Healthcare, this is plus JPY 15.68 billion. This is in particular Functional Materials improvement and also Amino acids have been affected by currency again. So that's been reflected. So against this backdrop, business profit, what's positive here is Seasoning and Foods, and we have shown this by graph earlier, but this is JPY 4.5 billion positive. So overseas Sauce & Seasonings and S&I, they have seen increase in profit. Domestic Sauce and Seasonings and Quick Nourishments, this has reflected the increase in cost, therefore, reduction in BP. For Frozen Foods, this is minus JPY 2.5 billion. Particularly in North America, even though we have been able to increase prices, we have seen decrease in volume. And also, we have reflected the cost increase. As for Healthcare, this is increase of JPY 8.2 billion. This is the mix effect of amino acids and increase in sales of Functional Materials. So that is all from me on the explanations. So we would like to move on to Q&A from this point onward. Thank you very much.

Now we would like to start the Q&A session. First of all, this is from Nomura Securities. Fujiwara-san.

This is Fujiwara from Nomura Securities. May I go ahead?

Yes, we can hear you.

Nakano-san, my question is regarding Frozen Food. For Q2, like the first quarter, profits declined. So 3 months ago in the call, you were talking about the North American business. And because of price increases, you were expecting a profitability improvement, but it seems that profits declined instead. So can you talk about the recent slide? And if you're sure that Frozen Foods can turn positive in the second half? That's my first question. My second question is for ABF and Functional Materials, Q2 continue to be at risk revenue-wise. And for the second half, according to my calculations, Functional Materials revenue is expected to go up by 17%, but that's a deceleration. So if you exclude FX impact on a real basis, are you assuming that you're going to experience volume growth or otherwise? So please let me know.

Okay. Thank you very much for your questions. First of all, regarding Frozen Foods in North America, on a local currency basis, or on a dollar-denominated basis. Q2 increased in double-digit volume and for the first half of Q1, or on a first half total basis, sales wise, we saw a double-digit growth. However, volume-wise, it was in the high single-digit range. So there was a deceleration in growth. So that is one reason why we had to reduce our expectations. Price increases have been ongoing on a continuous basis and including competitors, they are seeing some impact on the consumption of products. That's one thing. And another thing is that this cost increase is continuing longer than we originally expected, meaning costs are continuing to rise. So when you look into the situation for logistics costs, they have apparently settled down compared to onetime, but for meat, vegetables and food ingredients, as such, cost increases are ongoing apparently. So those are the main factors. So as a backdrop, we're trying to reduce production loss through cost reduction. We will -- we are engaging in cost reduction on an ongoing basis. So if these efforts continue, we should start to see a pickup next year. I forgot which page, but we show by 2025, we have a target in place, which we are not planning to change yet. And we are viewing that we will be able to achieve the targets we set for 2025. So although the current situation is a little tough, going to the second half of the year as well as moving towards next fiscal year, we do believe that we'll be able to head towards recovery. Also, for ABF, 17% growth in top line was observed. If you exclude the FX impact, I believe that it's going -- the growth rates would be in the low teens instead of 17%. So from that standpoint, for the second half of the year, we are expecting a slowdown. One of the main factors being in the first half of the year, there has been risk shipments underway. But currently, we haven't seen a demand decline for PCs, meaning a contraction in the market. This impact is expected to be ongoing. However, for next fiscal year onwards and until when the situation is going to persist, we are not sure at this moment. But other applications of risk demand is ongoing for other applications, which we believe can offset the decline of PC demand and with that, we believe we can maintain an 18% CAGR. Thank you.

Regarding one number, ABF for the first half, on a volume basis was a little bit over 20% growth rate wise, and you're expecting the teens for the second half?

This is a nondisclosed number, so I can't really say, but that's the image. Yes.

So we would like to take the next question. Yamaguchi-san from Goldman Sachs.

My name is Yamaguchi from Goldman Sachs. First question, which is Page 11 on the handout and Page 6, I'm comparing the 2 pages. But in principle, so this is double the first half in some areas. But if this raw material, if increase reflected here, then BP doesn't seem as though there's a big decline here. So what is the assumption for these numbers? Because I would like to know if you could provide us with the gross cost increase as well. And the second point -- no, please. Okay. Then let me continue my second question about shareholder return. So you have done buybacks. And on top of that, you have increased your dividend payout. And I believe this is the show of your confidence for next year. So this leaves us with good impression. So you will announce your next midterm plan in February. So this 50% in shareholder return payout ratio, is this something that is sustainable?

Yamaguchi-san, thank you very much for your question. So first of all, with regards to your first question, so it's JPY 21 billion. We haven't seen much change here. And the reason is because it reflects the offset. And with regards to the increase in raw material costs, and also fuel costs. In initial expectations, we were looking at about JPY 40 billion on a full year basis, and we will be able to offset about JPY 30 billion. So we initially thought that we had about JPY 10 billion that was not visible to us. And I think that's what we had explained at the beginning of the year. However, if you look at this on a full year basis, on overall, we thought maybe there will be a slightly more increase. That's our assumption. In the -- when we finished our first quarter, Mr. Fujie explained that there's some that has been falling. But having said that, like I said earlier, among the fermentation raw materials, chemicals, in particular, and also caustic soda and energy cost, so this is impacted in European plant and also Japan and maybe going forward, Southeast -- I mean, Asia as well. But the cost of energy continues to be on a rising trend. So when you reflect these factors, we are assuming slightly more. So then we need to offset even more so that we can, on a net basis, about minus JPY 5 billion. So that's our assumption. And your second question about shareholders' return? Yes. Going forward, if cash flow -- there's a slight impact of increase in raw material and fuel costs. But I think we have this established ability to generate cash. So -- and I think we will be able to reflect this in the next midterm plan. So we would like to continue to increase our dividend and also payout ratio, we want to be proactive and buyback of our shares. So we will be more aggressive in utilizing buybacks for excess cash. And this is sort of our attitude that we have been promoting, and this remains unchanged. So we hope that we can meet your expectations.

That is all for me. There's just one follow-up here. A disclose -- on the disclosure so far, JPY 21 billion, I think you had this net cost increase of JPY 5 billion that you have referred to today. So if you were to offset this, what is the gross amount? What's your image? Because in terms of projection, I think you're not very firm here.

Well, we are not very proactive in disclosing that figure. But we said JPY 40 billion at the beginning of the year, and we think that there will be an additional JPY 10 billion in cost increase perhaps. And against that offset, we were saying JPY 30 billion before, but now we should be able to offset by JPY 45 billion. This is the calculated amount based on the information we received from all our affiliates and subsidiaries. So that's the plan is based on.

So what I don't understand is that in the first half, you had a lot of impact from the raw material cost increase. But the second half, your increase in prices will actually surpass that -- exceed that increase in raw material costs. So that's the difference between JPY 20 billion and JPY 21 billion?

Yes. So even up until now, we have been accelerating the price increase. So the effect will onset for a longer period.

The next person is from Mizuho Securities, Saji-san.

I have 2 brief questions as well. One is about Page 9 in your presentation, where you talk about the image for Seasonings and Foods. In your new forecast, business profit is expected to be 12.2%, going down by 2%. So for next fiscal year, considering that costs are going to rise quite considerably as well for next year, are you expecting margins to improve? Or are you expecting something like fiscal year '21? Do you think there is space for improvement to reach those levels? That's one confirmation point.

Thank you very much for your questions, Saji-san. On Page 8, bottom left, there is a diagram where it's -- the margins have been going down and our plan for fiscal '22, the business profitability that is. So we are feeling a sense of crisis amongst management members. We share the sentiment and the price increases we've been taking so far, we are questioning whether they were sufficient. So we are trying to evaluate the situation and currently, we are considering the necessity to take additional price increases. So we're in the middle of considering these things. For the BP margin and making them pick up again for Seasonings and Foods, sales-wise, on a volume basis as well as on a value basis, as we are able to grow both, improving the margin of the business is extremely important for us when you look out into the future. So we do recognize this, and we would like to work on it.

So for 2020, 2021, looking at the arrow, it seems that the profitability is going to go back up to somewhere between 2020 and 2021.

Well, we were debating about this to make the arrow move up a little bit higher or maybe even a little bit lower, but we adjusted it at this level.

So my second question is, you -- for ABF investments that you said you decided upon, Fujie [indiscernible] last month made an announcement about coatings and...

Where capacity is likely to increase. Are you talking about that?

And in the production process, do you need to make any additional investments? In the middle of last year, you were saying up until 2024, you're pretty much covered. So compared to 2025, are you going to accelerate your efforts and do it in 2024 instead? And for supplier investments. Is that going to have any margin impact on your side?

Well, first of all, regarding investments, for what's already been announced regarding our supplier and their investments, there is -- should be a linkage to increase capacity on our production processes as well. So we did accelerate our efforts. And we decided to expand the increase in capacity. So that's what we decided to do. So that's one thing. And regarding the margin impact due to these initiatives. To that end, we still have some idle capacity, but we are still reaching full capacity, having said that. So -- and this additional investment will be made. So it will have a impact by a certain degree, but if we're able to maintain CAGR over the medium to long term, it would be an irrelevant item. We'll be able to go back up again to the original level. But we haven't yet done a specific analysis.

Could you more [indiscernible], they're saying JPY 13 billion in investment. But how about yours? I guess it's not going to be as high.

Well, this is a nondisclosure item at this point in time.

And also starting construction in 2023, 2024, the capacity increase is going to happen on their side. So is your schedule -- does it coincide with theirs?

Basically, in principle, yes, we are working in line.

When in 2024 would this be?

It's a nondisclosure item. But during the fiscal year, I guess, is what I can say to you. So it's a little bit earlier than originally planned. Thank you.

Next question, please. Takagi-san from SMBC Nikko Securities.

This is Takagi speaking. So my first question on first, Healthcare, Bio-Pharma Services & Ingredients. Can you provide me with -- I think there was a JPY 2 billion upward revision. So can you explain the reason more in detail? And in the first half, your sales have grown significantly but your profit, if you look at amino acid's performance, it is just slight increase in Bio-Pharma Services and slightly decreased in the second half, it is expected to actually go down. So what is the change here? And based on that, can you give me some qualitative view on what would you expect in the next year -- in next fiscal year? So that's my first question.

Thank you very much for the question. Yes, what you want to ask is Functional Material -- excuse me, Bio-Pharma and Ingredients. Against this increase in sales, why is the profit suppressed? I think that's your point. With regards to the segment, a few things I want to say is -- first is CDMO and also amino acids for Pharma and Foods. We need to separate the reasons here. So with regards to up until the second quarter, amino acids for Pharma and Foods, double-digit growth continued in second quarter. And for Bio-Pharma Services, we have seen double-digit increase as well. Excuse me, but we have oligonucleotide and also antibody drug conjugates. The demand are quite aggressive, and we're receiving a lot of inquiries and we see this trend goes continuing. So there's no concern in that sense. Having said that, if you look at first half and second half, profit may not grow as much in the second half or maybe cost reductions may not come down as fast. Maybe that's your concern. But in the first half, because it seems that the shipment has been front loaded in the first half, I think that's why we have decided to set up the number like this for the second half. So in the first half, the shipment has been shifting more towards first half. And that is why first half in terms of profit, it wasn't as large and that is why second half, you will see improvement, and that is why you made upward revision.

Can you give me the reason for that?

So JPY 2.4 billion -- no, excuse me, Bio-Pharma Services & Ingredients, right? BPS and Ingredients. Let's see. Because of product mix, it's hard to say precisely. Let's see. So we had the impact of upward revision of sales and also the improvement of product mix. And based on that, we have projected improvement, upward revision in profit.

So product mix improvement is in amino acid for Pharma and Foods, maybe you have been able to increase the percentage of cells of oligonucleotide? Or I mean what are the reasons?

It's not just that, but there are products with unit -- higher unit prices, in particular, with regards to cell culture media, Mr. Fujie will explain more in detail tomorrow, but we are expecting growth in cell culture media. So that's reflected as well.

And what about profit generation. More than first half, you expect to see further profit growth in second half? And what's the reason for this?

This is improvement in the mix. We expect that to be realized, and we can project that from the orders we have received so far.

So that product mix improvement will be manifested more in the second half. Now if you look at it on a full year basis, Bio-Pharma Services & Ingredients in terms of profitability compared to the previous year, your plan is slight deterioration. But what about next fiscal year?

Well, we have one issue of product mix and with regards to price increase because these are not existing products. We have to -- there's not some -- there isn't so much we can do about cost increase. But we -- having said that, we are impacted by energy cost rise in Europe. So if we can reflect that in the prices, then we should be able to see further improvements. In particular, at the budgeting stage, we have discussed this quite in detail about how we need to improve this. So that is also -- that will also be reflected.

I understand. So we will be able to see increasing prices and also that will catch up with cost increase.

We believe that's necessary. Yes. Are we running out of time?

The next question will be the last question. From JPMorgan, Yoshida-san.

This is Yoshida from JPMorgan. Earlier, in your explanation at the beginning, you ran us through the food business and revenue trends. I'd like to ask once again about your key markets, especially in the overseas markets, Thailand, Brazil, Indonesia, the Philippines and Vietnam? And what kind of consumer trends you are seeing after the price increases? How has the recession been? Are there any markets where they are becoming conscious towards prices and so forth?

Thank you. Thank you very much for your question. Environment wise, we're in a complicated situation. So it's hard to explain. One thing is the resumption of the economy from the pandemic, because of the hiccup in the market, people are eating out more. Therefore, there are some positive factors. On top of that, another thing we're seeing is the impact from price increases. Gradually, but firmly, we are starting to see the impact materialize. On the other hand, for cost. It hasn't stopped rising compared to developed markets, it seems that the costs are likely to continue to rise as a trend, especially for main ingredients or materials, we are seeing costs settle down due to some impact from the Chinese economy, I -- we presume. But in the key markets, we are seeing prices there steady which are likely to stay steady. But for energy prices, they are on an upward trend, and they're still in the middle of going up. So for consumers, for luxury items, I think they're holding back on consumption. But for coffee in Thailand, for example, the recovery from COVID is stronger in impact. And in the second quarter, other trends were extremely strong. So going into the second half as well as next fiscal year, with high inflation in place and continuing against inflation for these countries, wages are likely to rise. So costs are likely to rise even more. Therefore, price increases will probably be needed. And for volume, in the example of Thailand, I gave you an example earlier, especially for Seasonings and flavor seasonings of Ajinomoto. The trends of the sales are resistant -- defensive against economic trends. But -- so we're not expecting a significant volume decline. But what we need to be cautious about is cost increases, including personnel cost increases in order to ensure that our margins recover. So I'm sorry, I went all over the place, but -- and it might have been vague, but that's my explanation. Thank you.

So when costs continue to increase, you will need additional price increases. But with the reopening of the economy, demand tends to be strong. But for your products, your view still remains intact that you're defensive against economy. Therefore, you're not that worried about the price increases, but it's more about shortening the time lag after costs go up, I guess, is that the case?

Well, of course, we will continue to monitor what competitors do as well. But we would like to grow the business whilst we recover the margins. That will be our imminent challenge. Our greatest challenge. Thank you very much.

So that concludes the Q&A session. We apologize that we were not able to take all of the questions. After this call, we hope you can forward your questions to the IR group. So Mr. Nakano will say a short comment at the end.

Thank you very much for your attendance today and your questions. We are in the midst of discussing and trying to develop the basic framework for ABF. So I hope that you will look forward to this new midterm plan. But with regards to this plan for upward revision, we want to be sure that we will accomplish this, achieve this. So I look forward to your continued support. Thank you very much for your attendance despite your busy schedule. With this, we end this conference call. Thank you very much.