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

[Interpreted] Good evening, everyone. Thank you very much for taking the time to attend Ajinomoto's Fiscal 2023 Results Presentation despite your busy schedule. We thank you very much indeed. I am Kaji from the IR office of the company. Let me first introduce the participants from the company. Representative Executive Officer and President, Mr. Fujie.

[Interpreted] This is Fujie. Thank you for being with us today.

[Interpreted] Representative the Executive Officer and Executive Vice President, Shiragami.

[Interpreted] Shiragami here.

[Interpreted] Executive Officer, Senior Vice President and General Manager of Corporate Division, Mr. Sasaki.

[Interpreted] This is Sasaki.

[Interpreted] Executive Officer, Senior Vice President and General Manager of Food Products Division, Mr. Masai.

[Interpreted] This is Masai. Thank you very much for being with us.

[Interpreted] Executive Officer, Senior Vice President and Chief Digital Officer, Mr. Koda.

[Interpreted] Hello. This is Koda.

[Interpreted] Executive Officer, Vice President and General Manager of Bio and Fine Chemicals division, Mr. Maeda.

[Interpreted] Maeda here.

[Interpreted] Executive Officer, Vice President, In Charge of Sustainability and Communications, Ms. Morishima.

[Interpreted] This is Morishima. Thank you very much for being with us.

[Interpreted] Executive Officer, Vice President, In Charge of Finance and Investor Relations, Mr. Mizutani.

[Interpreted] This is Mizutani here. Thank you.

[Interpreted] Executive Officer and Vice President of Supervision of Frozen Foods, Mr. Kawana.

[Interpreted] Hello. This is Kawana.

[Interpreted] Executive Officer and In Charge of Quality Assurance, Mr. Smriga.

[Interpreted] Thank you for being with us. This Smriga.

[Interpreted] Executive Officer and In Charge of Diversity and HR, Ms. Kayahara.

[Interpreted] Hello. This is Kayahara here. Thank you very much for being with us.

[Interpreted] Executive Officer, Deputy General Manager Foods Product division, Mr. Kamiya.

[Interpreted] This is Kamiya here.

[Interpreted] So altogether, 12 members are attending from the company. Today, Mr. Fujie will give you an overview of the results for the year ended March 2024 and forecast for the year ending March 2025 and the initiatives for enhancing corporate value, followed by a Q&A session. That is going to be the flow for today's meeting. We expect to finish the entire session in about 1 hour and 30 minutes. Please be advised that the materials to be used for today's presentation is already posted on the IR information page of the corporate website. So please take a look as adequate. Please also be advised that this session will be recorded all the way into the Q&A session to be posted on the company's IR website later on. Now without further ado, we'd like to begin the meeting. Mr. Fujie, the floor is yours.

[Interpreted] Fujie speaking. Thank you very much for coming today in spite of your busy schedule. And on a day-to-day basis, thank you very much for all of your help and support you have given to us and the company. The script has some listening to. So I would like to give some simple highlight points. And as much as possible, we would like to take the Q&A time. Now please, what we would like to have as a message for today, and there is the highest record level of sales and business profit since we introduced IFRS and excluding impact of acquisition of Forge Biologics, business exceeded 2023 forecast grew by 12.7%. And also the dividend payout shareholder returns have been increasing. And also we will have a purpose-driven management and corporate values have been enhanced continuously. Please turn to Page 5. Digest of FY 2023 results will be measured here. Sales, as you see here, is 105%, 5.9% sales of the previous year and 101.7% with the impact of currency translation and JPY 1,439.2 billion has been achieved. And we exceeded JPY 150 billion, excluding Forge acquisition and food business has been driven the business in [indiscernible] Healthcare that you have impact in the fourth quarter. And excluding acquisition impact, there is -- the business profit year-on-year is 150% of the level of previous year, and it has recovered to that level. For the profit. Net profit, there was the Kawasaki sales of the land and Nigerian naira sharp decline, and it became 92.6% naira supply and also the sharp decline of the ForEx translation has occurred. Please turn to Page 9 next. Road map, as we see indicators are shown here. 2023 result is, as you see ROE, ROIC, organic growth, EBITDA and business engagement score and corporate values have been taking a very good start. On Page 11, ROIC numbers have been revised. So management accounting, by which -- by segment ROIC formula has been revised. Therefore, please refer to this. On Page 12. March 2025 forecast is shown here. Continuously, growth in profit and revenue is expected, and sales against the previous year is 106.1% and business profit is JPY 158 billion or 107% of the previous year's level. And excluding Forge 110%. JPY 158 billion is a commitment. So we will work hard to achieve this. As shown in 2030 road map, the high goals outlined would be achieved, and we are committed to that. For FY '23, there were some owners of the parent company profit to be JPY 95 billion, 109% of the previous year's level after a decrease, and we will raise the top line and promote further efforts to reduce the effective tax rate. And net profit in line with the business profit will be well controlled. On Page 13, the PL by factor is shown here. For the fuel and oil prices, there are some declines shown. On the other hand, there may be some points that will lead to increases. So for FY '24, it is more or less in line with the previous year. Page 14 is per segment business profit and also the GAAP analysis is shown. For seasonings and foods, consumers is steadily growing, but B2B business had the processed food and unit price seasoning decline is a risk, considering that totally it is forecast of JPY 100 million for seasonings and food and JPY 1.9 billion additionally. And for electronics, there will be the general server gradually recovering and also pharmaceutical and customer inventory adjustments occurring and CDMO. In the fourth quarter of FY 2023, there will be a recovery to be achieved. So this will be continued. And Forge company initial investment will be covered up, and we increased profit in order to lead FY '24. And excluding Ford, 110% of growth continues towards the FY '25 ASV indicators and business will be managed in that manner. Then moving on, on Page 16, the seasonings and foods and expanded market shares and overseas sales. So I'll talk about the 2023 tack record and the initiatives planned for 2024 from here. In each market. The unit price and also the volume will be increased and thereby in order to -- we are making progress in the market share expansion as well as a result of these exports. Because of the previous reflections, we had a tendency to reduce advertising expenses, which sacrificed our brand power. And therefore, we have decided to specify that advertising expenses be invested in brands so that we can also strengthen the advertisement in digital media so that we can increase our brand power and lead it to increase market share. Next, what is interesting is written on Page 18. This is a very interesting initiative. In March -- April 2023, we launched the marketing design center. And together with the business units, we are engaged in many interesting initiatives. What we call the swinging the bat is going to be -- has been a keyword, and we have encouraged many interesting ideas. So the interesting ideas have been hammered out as a result of these measures. This is the case in which we collaborate with Takashi Yamazaki, a very renowned International director. Before he has received this very renowned the international award, we have short video of Foodlosslla. So please access this video from the QR call listed here. We appreciate your cooperation. Now on Page 20. This is about the new products in Japan, and we have this what is called Cook Do For Kiwami (Premium) Mala Mapo Tofu, this has received great reputation. And also the Pasta Cube that was launched in February. And I'm going to show you a commercial film. This is one-pan pasta. It's simplicity and convenience, which allows users to prepare a dish with rice in frying pan has become very popular. So these are the new initiatives that is enjoying great reputations. On now Page 2022 (sic) [ Page 22 ] , this is about the frozen food recovery in the North American business and talk about its future growth. In fiscal '21 and '22, we caused you concerns, but we have decided on the directions to be and conducted reform and now the business has entered a phase of regrowth -- growth again. And Gyoza product, together with other Asian frozen foods, we have decided to make this core product and expanded its sales. At the Rose Bowl Stadium, we had this tasting event, and we will show you one -- this -- we will have this 1-minute video here. So please take a look later. [Presentation]

[Interpreted] All right. So thank you very much for watching it. So just like you saw, the Americans are also enjoying the Gyoza food, as you have seen in the video. So is Gyoza X is something that we like to deploy globally going forward. And then on Page 23, the functional materials. In fiscal 2023, the inventory adjustment was affected the performance of this business. But in the fourth quarter onwards, we have seen this business entering a recovery phase in fiscal 2024. Maybe the market believes that Ajinomoto is too optimistic, but we have given a stern look at the market outlook. So we believe the PC materials market will gradual recovery and also the generative AI-related materials will also see demand growth and also the materials for general-purpose servers is also going to see a modest recovery. So therefore, previously, the rate was expected to be 18% up to 2030, but we have revised this to 14%, making a downward revision. in fiscal 2023, we have seen a short-term adjustment phase, but there is no change to our mid-to long-term growth story. We'll try to return to the growth strategy of our road map as quickly as possible and aim for further heights. Page 24. This is about the pharmaceuticals, amino acids for pharmaceuticals and foods. In fiscal 2023 because of inventory adjustment, the performance was not that favorable, but now that inventory adjustment is over, we believe that the sales will begin to recover in fiscal 2024. However, we were insufficient in the assessment of customers' inventory. So this is a point that calls for a review. Therefore, we will like to promote supply and demand control more properly and establish assessment -- speed up our assessment for customer -- customers' inventory status and take actions to address fluctuations. At the same time, although the sales volume has declined, the share of high value-added amino acid is rather increasing. And we believe our quality and service enjoy a great reputation amongst the users, especially when it comes to the pharmaceuticals that have already been certified, it's very difficult to change the raw materials after the certification is given. So we have already built a very strong entry barrier. Towards 2030, we would like to drive the growth of this business going forward. Now next one is on Page 25, Bio-Pharma Services. In fiscal 2023, the inventory adjustment continued in North America and OmniChem's oligonucleotides asset. We had to do this conversion of some equipment in Europe. So that led to a decline. However, in areas where we have a very strong profit technologies such as AJIPHASE, AJICAP and Forge's gene therapy, the orders from these businesses has started to increase. So we would like to facilitate the growth of these businesses going forward. The next page, Page 26, this is the -- in the fourth quarter of 2023. Bio-Pharma Services existing business demonstrated a very strong recovery, as you can see here. Excluding impact of Forge acquisition in both Europe and Japan, we have seen a business profit driven by these 2 regions. And also in North America, the pace of profit decline has slowed. Therefore, we would like to achieve a full-scale recovery as early as possible in fiscal 2024. In 2023, we were able to solidly sow the seeds for the future growth, including the acquisition of Forge. On Page 27, this is the first time we show this slide to you. This slide indicates the sales prospects by different modalities of our business. Five years ago, small molecules accounted for the overwhelming portion of the total business domains, but this is expected to come down to less than 60% in this fiscal year with more media molecules accounting for 1/4 of the total. By 2030, we would like to grow the medium molecules, the bio and gene therapy significantly so that we can achieve a business portfolio in which our proprietary technologies can hold a strong competitive advantage. Now Page 29. So this is what it shows. In 2023, fourth quarter, the sales is JPY 1 billion and business profit is minus JPY 3.5 billion. This on an annual basis, FY '24 forecast sales is more than JPY 10.1 billion and business profit will be minus JPY 7.5 billion. And these negative scale from the fourth quarter of 2024, the ratio has been reducing. Therefore, sales is growing steadily, especially customer numbers and acquisition has been increasing. Its 45 companies and 3 projects have entered clinical trials. Synergy team has already launched. So the technology conversion and the priority and advantageous position will be reinforced. The next page is cell culture media for regenerative medicine business. It became profitable for the first time in FY 2023. On Page 31, ASV indicator progress is shown. ROE and ROIC impact of Forge in 2023 occurred. But in 2024, the numbers will be improved. FY '25 target until then, there are some gaps, but bottom line profits will be attended to, and we will effort in order to reduce denominators such as by reducing inventories and we will work to achieve our targets. For organic growth in FY '24 excess of 5%, and we will look towards FY '25 so that we can achieve our ASV indicators. EBITDA margin is expanding. As you see on Page 20 -- 33, the inventory and also there will be a reduce of the assets and net D/E ratio being in the range of 30% to 50% will be raised to 40% to 60% will be controlled accordingly. Page 34, the cash generation. In FY '23, the record JPY 168 billion has been achieved. And in FY '24, JPY 170 billion and more of the cash flow is expected. Next, on Page 20 -- 35, strategic investment. In FY '23, intangible assets is 40%. In FY '24, the CapEx is JPY 100 billion and more and organic growth will be supported and intangible assets will be also enhanced. And we expect 45% of the ratio in intangible assets. On Page 36, there are important management indicators in purpose-driven management. Please refer to them. Next is Page 37. Returns and investments to growth. So in FY '24, the cash generation of approximately JPY 175 billion will be worked. And today, we announced the JPY 50 billion in share buyback. And we will actively engage in shareholder returns. Page 38. I would like to talk about shareholder returns. Normalized EPS is the basis and dividend payout will be maintained. In FY '24, JPY 6 annual dividend to JPY 80 of payout will be made, and there will be JPY 50 billion of the share buybacks that has been announced. Next from here on is the initiatives to enhance the corporate value. Please refer to Page 40. In FY '23 road map for 2030 1st year occurred, and the start was quite successful and Forge impact excluded, the expected JPY 150 billion is exceeded and JPY 152.4 billion will be reached road map launch, which means the forecast of FY '22 being JPY 133 billion, compared to a 15% growth has been achieved. For FY '24, JPY 150 billion of the FY '23 forecast compared the ForEx impact will be negative, but 10% of growth will be worked for. And as soon as possible Forge company contribution to revenue will be worked on and higher challenges towards 2030 will be worked. Speed up and scale up concrete contents have been requested. Therefore, there is a list that summarizes it. On the left-hand side, there is a speed up initiative, a thorough visualization and confirmation of progress where North American frozen food and global raw materials and fuel prices increases global days inventory outstanding and optimization of SKUs and bad news first will be worked on so that initial operation will be accelerated is the initiative ongoing. Through external parties, we will collaborate for example, for frozen food delivery businesses, business startup and speed acceleration will be materialized. And in addition to that, AjiPro-L and ASEAN EC businesses, collaboration with partner companies will be accelerated, too. Innovation strategy team will be launched. Intelligence capabilities will be strengthened to new business generation speed up is worked on. For scale up, we'll horizontally deploy the model practices. So the electronic material high-speed development system is what we have as a model, and this may be applied to other business areas, Brazilian gyoza launch and collaboration with key accounts in the food product business and Brazil Ajinomoto Infinity Cycle, which is a work improvement system will be used. In ASEAN, the rolling forecast has started. It will be deployed on a global basis and it had been done in FY '23. Asian wind and model of import and export will be scaled up. In addition, for the results, as you see, there may be some companies in business that fell into difficulties. And it has already been explained about the activities we have progressed for them, 2-digit [indiscernible] and exceeding that new sales of new products will be shown in the food businesses and also corporate brand will be increased. On Page 42, there are various communications and exchanges and discussions that has been in various levels conducted. In March, there was the global road map presentation on a global basis. 92 people participated. In April, there was a resort one-night day where in relax environment, we exchanged various directors exchanges. So this has been put in one minute. [Presentation]

[Interpreted] Thank you very much in this way. In one team, we have decided to have a discussion in a frank manner, so that we can talk about the fundamental challenges and the countermeasures against them. The next page shows the various initiatives. And that is going to be driven by a very important human resource assets. So based on that idea, we have decided to facilitate a voluntary actions by the employees, for example, we have what is called the try and a-cross initiative. We solicited many things and ideas from many different organizations and having the employees voluntary participate in this project while working on their original jobs so that they can appropriate 10% of their time concurrently serving all these projects so that they can work for those cross-functional initiatives. So we have started receiving applications for these kind of activities. So please also access the QR code so to see the video of these initiatives. Now on Page 44, having said that, however, the environment changes constantly. And therefore, we have to respond to these ever-changing environment and also the risk associated with that. So the initiatives have been defined, as you can see here. And then on Page 46, supply chain management. We have to -- we are going to reform this so that the cash conversion cycle during the COVID days, we had to carry an extra level of inventory in order to fulfill responsibility for supply. But under Koda-san's leadership, our CFO, we have decided to share information universally on a monthly basis around the globe so that we can focus on the best practice so that Koda-san and also myself can disseminate the information and ideas and strengthen initiatives undertaken such as price hikes and also the visualizations of raw material. So this model will also be deployed supply chain management as well. On Page 47, we have this risk management and governance. Under the -- immediately under the Executive Committee, we have established what is called the Management Risk Committee, which will decide on the very important risks that could heavily affect the management of the business because these are issues that are drawing a lot of attention. So we would like to respond this properly in order to ensure proper BCP as well. We have Mr. Miro here today, who is also Head of the Quality Assurance. So he will share with us the quality assurance activities undertaken by the company. Miro is also a member of the Executive Committee, so bad news first is the slogan there. So all the bad news will have to be identified as early as possible so that he can take leadership in addressing those risks and in also the executive meetings, he shares the awareness about the importance of the quality issues. So he is taking a very solid and stern measures and attitude towards quality. So Mr. Miro, please begin your presentation.

[Interpreted] Okay. Thank you very much. I would like to talk about the quality assurance structure of Ajinomoto because this is very unique and customer-centered. And we believe this is a source of value proposition to customers. So I would like to share with you using next 6 minutes for our structure. The basic structure is built on 4 pillars here. From upper right, as you can see, we have this ISO 9000 international standard. So based on this, we have established appropriate quarterly assurance system called ASQUA. But not only that. That is not enough in order to motivate people's mindset. So therefore, under the leadership of the management, each and every employees' operational quality improvement is something that we are addressing on a constant basis. As you can see at the pictures there, Fujie-san and Shiragami-san are attending the quality assurance meetings and having a dialogue with the employees. And for other leaders, when they visit the site, they always talk about and have a dialogue with the quality assurance. That is the requirement for them. And of course, if you look at the bottom left-hand side, the third pillar is the development stage and the quality assessment based on the different development spaces. And finally, the most important pillar from my viewpoint is the safety and quality of the final product, but also the customer satisfaction. That has been one of the major pillars for us to drive quality assurance. So with these 4 pillars, we have established the culture of the company. I would like to give you more details about ASQUA, but because we don't have such -- so much time today, I would just like to talk about the most important issues facing the company. The video that's shown here is the video of the Kyushu amino acid plant. So in the quality process, we have a lot of human involved here -- human error is involved here. So to eliminate those errors, we are now the making conversion into robot operations as quickly as possible. The robot is now checking up the descriptions here and based on the description read by the robot, the profit products and proper procedures are followed. So with this conversion, we have been able to completely eliminate those description-related errors. In the next 2 slides, I would like to just briefly talk about these 4 pillars that I just alluded to. As you can see here in the middle of the slide, from the [indiscernible] see here, after the introduction of ASQUA, the number of complaints and the number of recalls that can heavily affect the performance of the company has reduced significantly. On the back of this, of course, this is supported by many different activities. But one of that is, as you can see from the upper right, this is about the risk-based audits on the raw material suppliers, which we do a very -- we have a very stringent process here but these activities are not intended for external parties. But as you can see from the bottom right panels, the right blue boxes, we are also promoting the education for our own employees. The number of people who have received the lectures have increased year by year. So right now, once in 2 years, each and every employee will have to go through this education sessions. And as a result of that, the responsibility of product quality, as you can see from the right-hand side has increased significantly. This is the Ajinomoto Group's 33,000 people's voices are reflected here. Compared to other global leading companies, the score is very high at 93%, which pleases me a lot. The next page, please. As I just mentioned, Ajinomoto's Groups quality assurance structure has many different distinctive features, which -- one of which is to focus on customers' voices and customer satisfaction. The Ajinomoto quality assurance system is not only about the defensive tools, but also -- we also have offensive tools as well. And as you can see here from the slide, the quality assurance customer voices are reflected. So those are reflected in the product improvement every year and every year in and out. In the last 3 years on average, 72 products have been improved as a result of customer feedback. A good example, as you can see here on the right-hand side is the frozen gyoza product. This frozen gyoza stuck on the fried frying pan. So we received this voice. So we collected 35,00 (sic) [ 3,500 ] customers skillets and conducted verification as reflected in our speed development. So this is not only about quality or safety, about quality assurance, but this is the quality improvement initiative aimed for customer satisfaction, better satisfaction. What I'm proud about is listed up in the middle part here. As you can see here. The group affiliates. After identifying the -- they listen to the voices of customers, but all these voices are also double-checked by the headquarters quality assurance department. So there's no leakage of information or there's nothing missing. So we are able to -- we have a mechanism in place to check all the voices without anything missing. And all the 400,000 cases have been reported to the quality assurance department in fiscal 2023. And these voices cannot be analyzed properly only by human brain. So we have actively employed artificial intelligence technology to analyze these voices. And we have a 4-stage product assessment process, as you can see from the bottom, and this assessment is done in 4 stages, employing different teams and varying -- different views. So this is another process that ensures no omission. And what is distinctive about Ajinomoto is early global deployment. In the case of Japanese companies, best practices are usually difficult to export from Japan to overseas. But as far as you know to quality assurance is concerned, we have basically a global approach. So Philippines, Ajinomoto Philippines, Inc. quality assurance manager is here, and you can see this is a smiling face behind us. That's all for myself.

[Interpreted] Thank you very much. So as you have just heard, we have a very stringent defensive structure, including all the executive committee members and myself included no matter how strongly the request comes in. If it's -- the answer is no, it's always a no. So we have this kind of very stringent process in place and also an offensive mechanism place. So we would like to work on both the offensive side as well as the defensive side. And this is an issue that is subject to constant changes. So we'd like to work on this in a constant fashion going forward. So 3 messages at the end. We will continue to refine the road map for 2030. After 1 year after the announcement, we have -- during this time, we have been working on discussions to improve this. And I think we have made good progress. But aspirations for 2023 is not achieved yet. So we would like to reach the Mount Everest level. I'm feeling a very tangible improvement, but I think we can aim for further heights in some aspects of the company. Second point is about the ability to execute. This has to be enhanced on an ongoing basis. So as I said, compared to the previous practice of centered on plans only, we would like to continue brushing up the execution capability. The third one is the driving force of all this will be purpose, passion and empathy, including all the stakeholders. So we would like to continuously drive improvement of the corporate value through these initiatives. Thank you very much for your attention. So now we'd like to open the floor for Q&A so that you can deepen your understanding and provide us with a proper advice for our business. Thank you very much.

[Interpreted] Thank you very much, Mr. Fujie and Mr. Smriga. We would like to entertain questions from now on. First of all, I would like to explain about the method to ask questions. [Operator Instructions]. There are a lot of people who would like to ask questions and sometimes we will not be able to nominate everyone, please be prepared for that. [Operator Instructions]. Mizuho securities, Saji-san please.

[Interpreted] From my part, there will be interest in bio-pharma businesses. The fourth quarter organic business and the recovery for that to be more elaborated and also sustainability is what I'd like to confirm about. And I'm very interested in the fourth quarter, January through March, bio services and ingredients, it's reduced by JPY 4.7 billion. Out of that JPY 3.5 billion is due to the impact of the markets and it's still declining continuously, I would consider. The sales is steadily recovering excluding the quarter. And what is the impact of the decline? And will it recover within this fiscal year? This year sales, excluding that is 5% to 9% or thereabouts. So the way you look at the sales and top line and recovery sustainability for the sales is what I'd like to know about.

[Interpreted] Thank you very much. I told you the general story. So Maeda-san will give the details.

[Interpreted] Mr. Saji, thank you very much for your question. As written on the document, fourth quarter on, the forecast is that we recover strongly. And it is indeed recovering well. We are very much relieved. On Page 27 of the material. For the first time, the low molecule and medium molecule mainly from AJIPHASE and bio and genes businesses have been listed. Within 2023, the medium molecule AJIPHASE AND AJICAP have 2-digit growth, which is very strong. The low molecule consignment businesses are having a lot of difficulties, but it is recovering significantly in the fourth quarter. The reason is that there were some inventory adjustments and biopharma industry had the cash control until December being very much in difficulty, but it recovered gradually out of that. North America had a lot of difficulties, but North America, especially. As written on Page 28, there is a pie chart there. North America, comparatively in the small venture businesses, customers who are predominant here had given us businesses, and we had secured sales from that. Bio pharma funding was impacting these small players. Therefore, North America had a lot of difficulties. If this continues for some time. We will see that in the fourth quarter, ALC Europe and also Japan will be recovering very strongly. Overall, in FY '24, the growth trajectory can be reached in North America, although a little slower than that, will also recover. Does this answer your question?

[Interpreted] January through March, CDMO has hit the bottom, and I would understand that biopharma is what we consider as recovery and also JPY 1.2 billion of decline in revenue has occurred. So pharmaceutical food and amino acid decline still seems to be continuing. Top line going to the bottom and bottom line declines in revenue continuously, and there are some gaps between them. And I would like to confirm the background for that. And next year, how it can be recovered is what I would like your answer about.

[Interpreted] To answer, Mr. Saji, your question, the raw material of the pharmaceuticals is some -- is an element here. So from the fourth quarter, we have seen a recovery of sales as we had anticipated. But from the Q1 and Q2 of this fiscal year, we are expecting a recovery on par with the 2022 level. But of course, these are recovering to the -- at a favorable pace, but something that we were not able to predict was the inventory adjustment that took place in 2023. So that led to a production adjustment. So that had a double punch, reducing the top line and also the increase in the production cost. That happened in 2023. That -- but these will be eliminated in a phased manner. So there will be a little time lag for us to enjoy a full-fledged recovery. But throughout 2024, I think we shall be able to catch up to the original level, although with a little time frame -- time lag. That is the case for 2024.

[Interpreted] If that is the case in the fourth quarter, profit level is still declining, but if 2024, you are expecting to see the recovery and turning to the profit recovery in 2024, excluding Forge. Is that correct?

[Interpreted] Overall, yes, that is correct. I think with a little time lag, I think we shall be able to see a recovery. So from the second quarter or second half onwards, we will get back to the normal level.

[Interpreted] So there's quite a lot of time lag?

[Interpreted] Quite so.

[Interpreted] Next question, SMBC Nikko Securities, Takagi-san, please.

[Interpreted] Takagi speaking. Can you hear me?

[Interpreted] Yes, we do.

[Interpreted] I also have 2 questions. The first is about bio-pharma services. The new fiscal year will -- excluding Forge have business profit of about JPY 10 billion or JPY 11 billion of profit recovery expected. On this occasion, the breakdown of this or where and how the profits can be grown or recovered. Can you elaborate on that? Yes. That's my first question. I think this is your core business, and it's very important. In the previous fiscal year, there has been declines, and it has come down and then continuously to your company from the market, there will be some kind of doubts occurring. It was the cause of doubts. Therefore, can you elaborate on this trend, please?

[Interpreted] Thank you very much for your question. I'm very sorry for your concern. And as in the previous question, bio-pharma and CDMO and pharmaceutical amino acid sales are the 2 core pillars of revenue. For pharmaceutical amino acids, it's the same, but top line has more or less seen some recovery. And costs will be put to the original status, and there is some time lag that it reaches until profitability. For 2024 profit revenue recovery is through CDMO. As on Page 27 of the document, AJIPHASE, AJICAP and in our company, Unique added value products to be grown is expectation. This will be driven. And in 2024, it will go back to the original status. From the second half of 2024, amino acid materials will come towards top line and profitability will be recovered accordingly. Therefore, FY '24 and '25 will have something similar to the structure of 2022 for profitability. Then JPY 10 billion or more of the increase in profits, pharmaceutical and bio-pharma services, there are some breakdown given, and I suppose some increase in revenue has been guided.

[Interpreted] Is there something that you can explain through the numbers for those items.

[Interpreted] The breakdown details put separately. Both will be increasing in profitability as we expect. CDMO, AJIPHASE and AJICAP, obviously, are drivers of the growth is revenue. But on an annual basis, JPY 10 billion or more of the increase in profits. And I wouldn't think these 2 would be the only earners of such recovery.

[Interpreted] So are there other ways of gaining profits? Pharmaceutical amino acids put aside, low-molecule or high-molecule areas are also areas I would like to know about.

[Interpreted] For low-molecule, in Europe specifically, bookings have recovered significantly. This recovery in FY '23 and '24 compared is very much a forecast that we expect a lot of recoveries in. So this is a major account that we have in our view. If so, the profit recovery is contributed mostly by medium molecules and it's followed by the low molecules, then amino acids follow. Is that right?

[Interpreted] Can you repeat the order once more?

[Interpreted] I mean, JPY 10 billion and more of the profit recovery is expected.

[Interpreted] Contributing items in order of the products is what I'd like to know about.

[Interpreted] The breakdown or orders. It's rather difficult to mention in detail, but respectively, FY '23 was very much a difficult year. But in profitability, low-molecule Europe recovery is very strong. As you mentioned, amino acid pharmaceuticals in FY '25 and '26 will come back to the original trajectory and production adjustments have some time lags. Compared to that, it's not so much of a significant recovery. As for AJICAP and AJIPHASE, as we go through the years, the top line growth has become more significant. So AJICAP licensees are also increasing, as you have seen in the press release. So therefore, this will also have a positive impact on the performance.

[Interpreted] And this is a question for Mr. Fujie. Road map? Well, after the announcement, 1 year has elapsed. So on Page 31, if you look at the ASV indicators, the ROE, excluding the impact of Forge, even when you exclude Forge, the forecast for this fiscal year and towards the target for next fiscal year, there's a significant gap. So Fujie-san, in your very practical view, what is the actual target that you can possibly address? Or do you have any minimal target that you have to achieve a means? If you have that kind of indicator, please let us know. And 1 year ago, when I asked a question about this very challenging target, you said that you are going to ensure a rolling forecast on a monthly basis, and if there's any gap vis-a-vis the targets and the performance, you will take measures, implement measures. But there is a significant gap in the track record of ROE vis-a-vis the target. So how are you going to catch up with this? After listening to your presentation, I do understand that Ajinomoto's performance is getting better and stronger. But I think if you could elaborate on the detailed measures to catch up the performance, let us know.

[Interpreted] Yes, as you rightly asked Ms. Takagi-san, the measures to improve the bottom line is still something that we can build strength on. And that is a discussion that we are holding in the Executive Committee. So in that regard, in order to push up the bottom line or the bottom performers, we are going to implement any possible measure. For example, the effective tax rate, for example, it's currently 27%, 34% coming down to 27%, for example. That was already done, and we succeeded in that. But furthermore, we will look into what further we can do and address. So these are the things that we are addressing right now. And for example, when it comes to leverage, in order to enjoy greater leverage, the capital strategy is something that we are looking at because there are many possible options. So those are some other areas that we are speeding up our initiatives. And ROA and ROIC in relation to these elements, the cash conversion cycle, after all, during the COVID era because we had to fulfill our supply requirements to customers, so we had to carry extra inventory to some extent. So we are now -- we have been making efforts to bring down the inventory level. And as a result of that, the total assets will have to be reduced so that we can improve the efficiency of our business. So these are some of the measures that we are currently addressing on a constant basis. But we believe these targets are still challenging, and we still have a distance between the targets vis-a-vis the actual performance. We and other Executive Committee members are aware of that. So how to address this in a tangible manner in a concrete manner is something that we're looking at. And we at least would like to present a solid track record in 2024. All the things that we have indicated will have to be delivered, and this will be the commitment line. So -- and we'll look into further how further we can improve on this. So those are going to be the highlights that I would like you to keep an eye on. So thank you very much for your precious advice. Thank you.