CJ Cheiljedang Corporation (A097950) Earnings Call Transcript & Summary

[Interpreted] Ladies and gentlemen, I am [ Uan Hong,] Head of IR Team and Finance Strategy Office of CJ Cheiljedang. We will now begin Q4 2020 business results reports for CJ Cheiljedang. Let me remind you that Korean to English simultaneous interpretation will be provided for foreign investors. Let me first introduce to these participants from CJ. We have Mr. Shin Jong-Hwan (sic) [ Jong-Hwan Shin ], Head of Finance Strategy Office; Mr. [ Jae-Ho Jang,] Head of Finance, Planning Department; Mr. Kim Chan-ho, Head of Korea Business Management, Asset Business Unit; Mr. [indiscernible], Head of Global Business Management at Food; Mr. [indiscernible] Head of Digital Business Management team at Food; and Mr. Hyung-Joon Lee, Head of Management Support Division at Bio Business units; and Mr. Jae-Ho Jang, Head of Business Planning team at Feed & Care. So Mr. Shin will first go through the business results, followed by issue and outlook reports by respective presenters. We will then move on to Q&A.

[Interpreted] Hello, everyone. I am Shin Jong-Hwan (sic) [ Jong-Hwan Shin ] Head of Finance Division of Finance Office. We will now begin in my presentation. So if you look at Page 4 in the material handed out, let us look into the highlights for 2020 performance, excluding CJ Logistics. For sales, thanks to strong sales in global market for processed food. It has grown 10.9% year-on-year to KRW 14.1637 trillion as for operating profit, with growth in food business and stronger presence in Bio Business and high hog ASD for F&C. For 2020 as a whole, we have grown 73% to KRW 1.0415 trillion. As for net profits together with high growth in operating profits, there was a gain from sales of Gayang site and decline in interest cost. The net profit grew 380.5% to KRW 722.7 billion. If you look on the table on the right on Slide 4, you can see the Y-o-Y comparison for the fourth quarter in 2020. So for sales, we have achieved KRW 3.4 trillion, which is an increase of KRW 149.2 billion in operating profit of KRW 208.1 billion for the fourth quarter in 2020. Going on to the next page, including CJ Logistics, in addition to CJ Cheiljedang, there has been strong growth in parcel business. So there has been growth of 8.5% to about KRW 24.2457 trillion. As for operating, in addition to CJ Cheiljedang, CJ Logistics has also seen increase in operating profit. So it grew 51.6% to KRW 1.3596 trillion. As for net profit, there has been improvement in cost. So we have been able to achieve KRW 831.3 billion. If you look at the fourth quarter alone, if you look on the right, for sales, we have seen increase of KRW 190.1 billion to KRW 6.1 trillion. And as for operating profit, we have achieved KRW 296.7 billion. Now let's look at performance by each business unit. Let's first look food business unit. So my presentation will focus on the fourth quarter. If we look at sales compared to the same quarter last year, we have been able to achieve about KRW 2.4 trillion and as for operating profit, with increased profit in processed food, we have been able to see increase of 54%. And if we divide between Korea and overseas business for Korea with high growth in each of our business, we have seen increase in sales for processed food, but there have been decline in FY because of marketing for sales -- sales declined by 4% year-on-year. And as for global markets, we have seen high growth across all regions. So we have been able to see 7% growth year-on-year. If you look at the chart and the graph on the left, in the fourth quarter of 2020, our sales was 2-point -- 1.28 -- KRW 2.128 billion. And if we exclude Schwan's PPA, operating profit margin is about 4.3%. And in terms of the key indicators such as utilization rate of Jincheon BC and as for the U.S. Mandu ACV indicators, if you first look at the utilization rate of Jincheon BC it was about 81% in the fourth quarter of 2020. And our goal for this year is more than 85%. Then as for ACV for Manju in the U.S., it was 54.2% in the fourth quarter of 2020. But this year, we want to achieve 60%. If you look on the right, as for the highlights for the fourth quarter. As for the sales in Korea business, there has been strong growth in dining in. So we have been able to achieve about KRW 1.106 trillion and if we look at the growth rate of key products, Mandu grew 21%, Kimchi 11%, Frozen food 29%, and Pepper 7%. So we have seen high growth in all of our core products. As for HMR, we've done well with feeding of porridge and soup/stew. So we have grown 23% from the same period last year to about KRW 147.7 billion. As for sales in global business, there has been a decline in sales for B2B, and there has been some burden with foreign exchange issues, but we have seen strong growth in Japan and China. So we grew 7% year-on-year to KRW 1.222 trillion. If we exclude Schwan’s, we have grown 21% in sales compared to the same period last year. As you know, for the U.S., I mean, insurance is a core part of our U.S. business. So if you look at sales of Schwan’s, there has been some decline in B2B sales, but we have seen strong sales in B2C pizza and appetizer. So we have achieved KRW 702.2 billion. So in terms of dollars, it's 1.7%. But in terms of dollar, we have grown 6.3% from the same period last year. As for China, we sell well with Mandu, convenient foods, pickles, pastes. So we have grown 10%. And for Japan, in the fourth quarter, we have achieved sales of KRW 64.9 billion. If we look at operating profits for food as a whole, so we have continued our profit centric growth strategy that we have seen continued improvement in global profit structure. So we have seen improvement of 64% year-on-year to KRW 91.5 billion. Especially for overseas business, we have been able to eliminate 1 of costs for Schwan’s, and there has been improvement in cost structure, including promotional spending for China food. So we can say that we have continuously improved on our profitability. Especially for Schwan’s, prior to decreation for PPA, if we look at their core operating profit, it's about KRW 46.2 billion and operating profit margin of 6.6%. And let's now move on to our Bio business unit. So if you look at -- we had we divided into Bio and F&C. So if we first look at Bio for sales with increase in hog population and recovery and demand for eating out. We have been able to strengthen our market presence. So compared to the same quarter of 2019, we have seen 11% growth. As for operating profit, with increase in ASP for feed additives, the recovery and demand for food additives, we have achieved operating profit of KRW 71 billion. As for F&C in terms of sale with expansion of hog supply and increasing demand for feed market, we have grown 11% year-on-year to about KRW 650 billion. And as for operating profits, thanks to the portfolio impacts of our lifestyle market. In the fourth quarter of 2020, we have achieved operating profits of 45.6%. So if I may give you the highlights for Bio and Feed & Care each, for Bio in terms of sales, we have achieved KRW 789.8 billion with operating profit margin of 9%. So there has been some decline because of year-end incentives. So there have been some labor costs factored in the fourth quarter. And in terms of sales for feed additives, there has been increase in sales of lysine and tryptophan as there have been continuous market development for valine and arginine. And for food additives for nucleic acid led by China, we have seen recovery in demand for eating out. So that has contributed to sales growth. In terms of operating profits, other than food additives, we are seeing expanded mix of high-margin products like tryptophan, valine, arginine. They're actually -- so compared to fourth quarter of 2019, it was about 29%, but it has grown 32% in the fourth quarter of 2020. If you look at Feed & Care, if I divide it into a feed and livestock for feed with increase in hog population, we have seen an increase in ASP. And as for livestock, there has been some decline in the poultry volume in Indonesia, but we have seen strong growth for hog business in Vietnam. So we have been able to offset the decline. And there has been some gradual recovery in the price of poultry. So all in all, we have been able to minimize our decline in operating profits for this business. And let's look at the performance of CJ Logistics. So for sales based on e-commerce, we have seen high growth. So it has grown about 1% in terms of sales year-on-year. So it was about KRW 2.8 trillion. And as for operating profit, there has been decline in volume across all key business units and increased costs. So operating profit declined by about 10% from the same period last -- previous year. Next of the major indexes, we would like to look at the SG&A, excluding CJ Logistics. If you look at the overall SG&A, it has gone up by 6.3 percentage points to reach 22.7%. If you just look at Q4, it has gone up by 1.8 percentage points year-on-year to reach 23.6%. In Q4, we have seen some spike because it's related to some corporate level incentive payout, so there was an increase there. But one thing that would like to emphasize is that if you look at the annual total, it's about 22.7% which is from 22 percentage range. So we are maintaining that and we would like to emphasize this number. Now including CJ Logistics, the CJ SG&A. If you look at 2020 as a whole or whether it be Q4, it's still at the latter 15%, there's not much of a difference. Now is the nonoperating expense, excluding CJ Logistics. So excluding CJ Logistics, the nonoperating expenses for 2020 as a whole has gone down by KRW 302.3 billion. However, in Q4, the expense has gone up by KRW 201.6 billion year-on-year. So if you look on the left-hand side, I will just point some of the key items here. So the interest you'll see that the borrowing has gone -- there was a big gap. So we have seen an improvement in interest rate year-on-year by KRW 23.1 billion year-on-year. The third point regarding other bad debt expenses. We have seen some KRW 12.2 billion. The reason for this increase is because within F&C, we had some following, some liabilities, and we wanted to prevent some bad debts in the past. As for nonoperating profit, it has increased by KRW 9.9 billion year-on-year. As for commodity derivatives, on an annual basis, it's been improved by KRW 15.1 billion. But if you just look at Q4, we have seen some big improvement of KRW 17.5 billion year-on-year. Next is other profit and losses. On an annual basis, you'll see that year-on-year we have seen an improvement of KRW 258.5 million, and this mostly instituted with the disposal of the CheilJedang, right? If you just look at Q4, we have seen some decrease of KRW 239.8 billion, and this is mostly to do with [indiscernible] Corporation, our sales provide losses. Before we go into the [indiscernible] cooperation, we would like to emphasize -- if you look at the bigger picture, considering us making big profit through the selloff of [indiscernible], we thought that we needed to look at some of the goodwill impairment losses on the staff. So that's why this was reflected into the financial sheet in advance. So regarding the goodwill impairment, we have Selecta and [indiscernible]. As for Selecta, the business model we have to -- we have been seeing the advance payment to purchase soil to make a product and send it out to the client. But when we request for advance payment, the interest that was included was pretty expensive. So from our perspective, we had hired lease to get a small interest through borrowing. So we -- so this allowed us to improve Op. However, there wasn't a variance in terms of the borrowings. So in terms of evaluating the growing impairment, it's seen there was an offset as a result. As for the borrowing because on an annual basis we have increased this number, so that has already been reflected into our value. For [indiscernible] due to COVID-19, in 2020 alone, their performance was generally not good because their mostly performance depends on B2B sales and exports. But because of COVID-19, the performance was unfavorable, and that was actually reflected into our business performance. And [indiscernible] unfavorable performance from our CJ Cheiljedang Op has been already reflected into our 2020 numbers. One thing I would like to tell here is that our operating profit and borrowing although it's already been reflected there, from the accounting point of view, the valuation can only be seen at the end of the year. So I just like to emphasize that is just an accounting of financial issues -- the accounting issue. So I think we had mentioned this before, but in accounting, the acquisition it's fair and if there is a difference with the book, the purchasing price, then we need to adjust this through the PPAs. Now PPA, the purchasing part allocation, is already being calculated through depreciation. So the borrowing through Selecta or the operating profit regarding [indiscernible] has already been largely reflected into our numbers. And the market is aware. However, if you just look at the book, then that has to be again emphasized at the end of the year. So once again, this is just an accounting issue. As for the business itself, that's already been communicated with the market. So there's no bigger difference. And as a result, there really is no big impact regarding our business. Next is our nonoperating expense, including CJ Logistics. As an annual whole, there has been decrease in KRW 377 billion. If you just look at Q4, we have seen some increase in expenses of KRW 179.1 billion because CJCJ already experienced a lot. So the -- we will skip the details regarding the nonoperating expenses, including CJ Logistics. Next is on the issues and outlook. First, are the key issues of each business unit in 2020. All units have demonstrated profitability higher than that of last year backed by increase in operating cash flow and efficient CapEx. And as a result, net debt has dropped to KRW 4.2 trillion lower than that of 2017 prior to acquiring Schwan’s. As for food business unit, increase in dine in demand, efficient use of promotional resources and growth in global businesses have resulted in 5.7% operational profit rate to 1.4 percentage points higher than 4.3% of 2019. As for Bio business, despite the drop in food additive sales price, rallying feed additive sales price continued, expansion of specialty product proportions and constant efforts to improve cost are resulted have 10.5 percentage -- operation and profit rate, 2.0 percentage points higher than 8.4% in 2019. Finally, for F&C, along with efforts to stabilize future business profit structure, resilient cost price-driven by recovery of Vietnam's hog marketing and Indonesia's livestock market resulted in 9.9% operating profit range, 8.5 percentage points higher than 1.4% of 2019. Next is the key '21 strategy for business unit will be briefly presented by each of the owner's -- business owners. Okay. We'll first start with the food business unit for Korea. Food business unit continue to maintain and strengthen as high profit business portfolio for domestic market-based on Selecta's focus. Furthermore, resource sales will be shifted to digital and other growth channels, efficient operations and strategic allocation. For core products such as Mandu, soup and stew, RTS, rice, Hetbahn and Kimchi, efforts will be directed toward continuous growth and solidify market position. For future growth, new items, such as cooked fish and pizza will be nurtured into mega products, while we focus our competencies to expand huge growth channels, such as digital B2C and CVS. Next is global food business. Global food business will focus on Mandu to expand the ACV in grocery channels and to enhance Bibigo's brand awareness due to further expand brand awareness. Especially in the U.S. since COVID-19 to prepare for the B2B market recovery, we will secure opportunities for additional sales to expand at K-12 fitting and engage in profit-based pricing strategy and portfolio centered on high sales price. For China, awareness on the Bibigo brand will be strengthened with the focus of Mandu while continuing the strategy to expand the online channel. For Japan, meat category will be further expanded and mediatized back by its rapid growth while nurturing the next business segment, such as Bibigo and Mandu. Next is Bio Business. So based on the global strategic items, we will continue the growth, and especially nucleic acid, we will continue the growth, especially the specialty amino acids to accelerate the growth of global strategic projects. Furthermore, to strengthen the outstanding competency, we will strengthen marketing. We will continue developing strength so that we can be more cost -- business competitive, and we will strengthen the competitive manufacturing system so that we can strengthen the efficiency and profitability of CJCJ. We have some things ready for new businesses, especially in Indonesia, we are beginning a project on PHA. The project will be completed within this year. So that as of next year, we can go into a new white Bio, reusable, recycleable plastic. And to deal with the health trends, K-10 [indiscernible] which that was launched last year in the market, and it's currently being used and we're getting positive feedback come from global companies such as alternative meat providers. Finally, F&C. With feed, we will expand sales volume in the free market while optimizing sales price and cost spread. As for livestock businesses, we will improve the efficiency and the key breeding process and strengthen quarantine to strengthen cost competitiveness while securing lives of processing centers and directly operating butcher shops so that we can hedge against market changes.

I will now move on to the key highlights of U.S. food business. I am [indiscernible] incharge of global business. So for a major frozen few players in the U.S., especially for B2C frozen, Schwan’s showed the fastest growth in B2B frozen category at 29% in 2020. For annual sales, there has been some setback in B2B sales because of COVID-19. But as mentioned earlier, with growth in B2C sales, we have been able to grow about 10% on a yearly basis. So when consolidated with CJCJ, sales grew 29% as Schwan’s number was factored in after March 2019. With improvement in product mix and sales increase, operating profit margin increased 1.5 percentage points to 6.7%. And this is standalone for Schwan’s and when consolidated with CJCJ, PPA will be adopted. And if you look at the market share of key categories in 2020, pizza grew 1.4 percentage points year-on-year to 22.2%. And for Asian snack category for Schwan's and CJ Foods combined, market share stood at 24.3%, marking a 5 percentage point increase year-on-year. If you move on to the next slide, I'd like to share with you the mid- to long-term business strategy for U.S. food. So based on synergy with Schwan's, we seek to leverage Bibigo brand and Mandu to nurture K-Food into meta category. In non K-Food Asian category, we will explore new markets through brand and product innovation. And in Schwan's, the existing core business of pizza, we will focus on becoming pizza #1 by expanding market share -- market presence in mainstream and going premium. Specifically, let's first look at K-Foods expansion based on the Bibigo brand. By utilizing Schwan's DSD network, we seek to expand distribution network to increase ACV or distribution from current 54% to 75% by 2025. With Mandu, we plan to expand brand awareness of Bibigo and things by expand K-Foods from frozen ready meal, including chicken and sauce, K-sauce and then to shelf stable ready meal, Kimchi, and seaweed. And second for Pagoda or just a local Asian brand, we are aiming a product innovation and distribution expansion for next-generation rules. And for any chance, we seek to enter premium noodle space. By doing so, we seek to redefine Asian brand portfolio in the U.S. and create new market through product innovation. Finally, for pizzas, while strengthening market presence in mainstream, we plan to go premium by developing new high-quality brands aligned with better free trends and expand single-serve line up to expand market share so that we can ultimately aim for pizza #1 in market share. And so based on all the strategies that I have just mentioned, we plan to pursue high growth in K-Food and Asian food by 2025 to achieve sales of above KRW 6 trillion in the U.S. by 2025. I will finally take you through the 2021 outlook. So for food in Korea, there is change in eating habits, brought on by COVID-19 and continued eating at home at value. We are expecting continued growth in core products, such as HMR and Mandu. We may be pressured from increasing grain prices leading to burden on raw materials. We plan to continuously improve operating margin structure and rationalize expenses based on select and focus in our product and channel strategy to offset this rising raw material prices. As for food and global, weak dollar mainly work against us, but with the expansion of Mandu in grocery channel and expansion of K-Food portfolio, including K-chicken and also increasing -- also with increase in bidding and launching of Mandu in K-12 channel, we are expecting sales recovery in B2B, which will contribute to continued growth in sales. For China, we are expecting local competitors to launch similar products, writing on the popularity of Mandu, which is being intensive by competition. And however, we plan to pursue continuous growth in Mandu and expand K-Food portfolio including soup and stew, HMR, and K-Chicken to pursue additional growth. As for Bio, in feed additives with recovery in hog population actually market improvement in tryptophan and lysine is expected. And with rising green prices and logistics costs, ASP is likely to rise across the industry. For food additives, after the quarter last year, there has been recovery in restaurant and B2B food demand. So that's likely to pick up demand for nucleotide. As for F&C in feeds, there is pressure on input costs and in livestock, basic [indiscernible] for last year is hog ASP in Vietnam, and increase in hog population leading to downward revision in hogging may lower sales and operating margin year-on-year versus expecting above-average performance compared to conventional years. All in all, for 2021 for CJCJ as a whole, sales is expected to grow at low singles while operating profit margin will be similar or see slight improvement of 7% to 8%. As for growth in sales, it maybe in low singles, but of course, the direction would be different for each food business unit. As for F&C, regarding the hog market, there has been some decline in profit because of decline in ASP, but that has been largely expected. For others, we would be able to maintain higher growth for other business units. And we are expecting a weaker dollar. So that may work against us in terms of huge sales or Bio -- so they mainly lower our sales accounted in Korean Won. All right. So this rest of what we have prepared for today, and we'll now move on to Q&A.

[Interpreted] Q&A Korean questions will be simultaneously interpreted, but English questions will be interpreted consecutively. We'll now begin the Q&A. [Operator Instructions] So we have the first question from Mr. Sang-Jun from Kiwoom.

[Interpreted] I have 3 questions. The first question is for, if you look at the performance guidance for 2021, can we get the numbers for each business unit? We would like to know how you're assuming the performances for each business unit? My second question is, I mean, grain prices are rising fast. So you have the burden for commodity prices and we would be interested in your price increase. So do we like to know about your outlook in grains? Would there be any potential price increase for food ingredients for food? And finally, for Selecta. We would like to know about the performance for Selecta in the fourth quarter and what your outlook is for Selecta in 2021? So I mean the numbers have been factored in your financial performance and outlook. So we'd like to know what you think about Selecta performance in 2021?

[Interpreted] As for the 20 -- your first question on the performance guidance by business units. So I mean, I would like to ask your understanding that we cannot provide with you the numbers right away for each business unit. But as far as we can share, for F&C, in terms of sales, it would be about -- you're expecting decline in their mid-single and because -- I mean, hog prices used to be high, but it's now becoming rationalized. So the numbers are going to go down for Vietnam, that would be the key reason. And I -- as we have mentioned, hog prices in Vietnam was about 73,000 but is likely to fall below 60,000 Vietnam Won. So compared to conventional years, it's going to be higher than usual. And as for food, we are expecting about growth in mid-singles. So I mean there are few Korean markets, while we are expecting more growth in global, but there's the head of weaker dollar. So the sales denominated in Korean Won may be weaker. So -- but that has been factored into our management plan. So that has already been factored in. And as already mentioned in the slides, as for 2021 Dollar to Korean Foreign Exchange Rate, it's about 1,101 per dollar. That has been our assumption. And as for Bio, it's going to be in the low singles. And as mentioned earlier, a lot of the sales in Bio comes in dollars. And we are expecting Korea Won to go out between [indiscernible] appreciate. So in terms of the dollar, of course, the sales will be stronger in terms of dollars. And as for the outlook on grain price increase, there has been increased imports of grain in China and with worsening climates, there has been decline in supply. So that is leading to continuous increase in grain prices. But for companies like us for food ingredient products, we have 6 months worth of inventory in advance, and B2B share is about 70% for food ingredients. So we believe that their impact on ASP is likely to be moderate for the time being. And there has been -- regarding the sharp increase in grain prices, there are some products that would be affected. We may consider increase in ASP. But once they are confirmed, we will get back to you and update you on this once they happen. And as for Selecta, we cannot really give you the specific figure right now, but overall, the diversification, other than F&C, we would be looking into high value-added products. So we want to -- we have been -- we will be seeing improvements in operating profits. And regarding the goodwill impairment, it has largely to do with the core products of F&C. So for 2021, European salmon market is likely to recover. So it's going to be similar to last year or it would be -- we would see slight increase compared to last year.

[Interpreted] Next question is from Morgan Stanley, Ms. Kim Hyeeun.

[Interpreted] I have 3 questions as well. First is on the processed food for Korea market. You've mentioned under a strategy that it is going to shift to the online channel. So the proportion of online sales when you look at 2020 performance, how is it going to change? And particularly with the shifting towards the online channel, the online channel profitability, how is it going to be different with the existing offline? That's my first question. The second question regarding file, you said that we are seeing a lot of high profit portfolio mix. So with high profit and with regular products, what is the difference between the profitability between these 2 segments? Number 3, in 2020, it seems that there were a lot of profitability improvements in the global market, especially the Schwan’s in the U.S. was very good. But in other regions, we are seeing a very good improvement in profitability as well. So could you give some more details regarding those situation, please?

[Interpreted] Sorry, the Selecta question is what's been per copy. So I'll just like to repeat. Selecta, we have been trying to diversify our portfolio. And for F&C because of COVID-19, the European [ silver ] market was not as good. However, the soy products prices gone up. So thanks to that. We have seen some increase in high profit products. So in Q4, the profitability is higher than the previous year. For 2021 outlook, because of the goodwill impairment as well due to COVID-19, the European [ silver ] market has been annually stagnant for the year. However, we are going to expect some steady improvement in that. However, because of the soybean price, we are expecting some fluctuation in prices. So we believe that it's going to be similar. It is probably slightly higher than the previous year. Thank you. So that was answer for the previous question. That's it. And so the question for Morgan Stanely. For online performance and the ratio. In 2020, as compared to 2019 -- in 2019, every 5 quarter the processed food sales for Korea market was about 67% for online. That was a pretty much it. However, in 2020, with this rate going up, on a quarterly basis, it was about 9% to 10%. However, because we have seasonality issues and for Q1 and Q3, we have some national holidays like the Lunar New Year, which means that we have gets up sales which show some variance and differences by quarter. However, we are definitely seeing some improvements year-on-year. So the overall proportion for online is about 10%. Now the profitability by channel, offline, online, which is better, which is worse? I think it is difficult to say. And by channel, the profitability is -- unfortunately, we are not able to disclose this fully. We ask for your understanding. However, what we are pursuing is that in offline, the NG1. So our self promoting resources or people who are conducting testing, we are trying to reduce the resource or headcount for that. While also attracting similar traffic, [indiscernible] traffic of the consumers at the same time. So we are doing some trial in order to see what works. And those effective strategies, we are trying to expand the application of those strategies. Next, on your question for Bio business. The high profit products the proportion for Q4 was 34%, which is about 3 percentage points higher than the previous year. Now you understand that for Bio for individual products, we cannot give you the profitability of each individual item. However, for higher products which are classified as a product, we are seeing more than 2. So we are seeing 2-digit profits than the regular product. And this year as well, like [indiscernible] with us expanding the compatible manufacturing, we are going to -- we are planning to expand manufacturing. And the profitability improvement in the global market question. I would like to interpret that regarding food. So it's a bit difficult to give you the specifics how -- what the numbers are by region. However, last year, our overall operating profit was 7.4%. And of that for Korea processed food was higher than the overall food average number. As for global, it was a slight -- it was slightly lower than the overall food average. Now Schwan's, especially the U.S., PPA has been deducted. So that's why, it's a bit lower than the global average because that much of PPA has been defected. But in other regions like China, the profit rate is a bit higher than the global average.

This is JB for global. Now for 2020 performance, as for the profit loss rate compared to 2019. If you look at the overall improvement that you've made in exclusion to Schwan's we have U.S., China, Japan, they have been showing single-digit percentage points in terms of profit improvement. If you look into the details, I think we have mentioned this before, but in 2019, we demonetized the Mandu market. Both Western and Eastern Coast, we had installed new Mandu production sites. Now in 2020, Mandu was distributed to Costco Cloud and also the growth recently that we can see Schwan's, we have seen a lot of growth in terms Mandu and thus, all in all, expanded the utilization of each of the plants, lowering the manufacturing cost for Mandu, which allowed us to expand the profitability. As for China, in addition to Mandu, we have been pursuing likely the stew, shelf stable HMR products have also shown a lot of performance. Through Mandu and shelf stable HMR, we have built up a very high value-added product portfolio, which allowed us to give a good performance in China. As for Japan, we are seeing all 3 figures Op that [indiscernible] is product which had stored pickles, which exceeded our expectations. So all of this, in addition to Schwan's, we have seen a lot of improvement in terms of profitability.

[Interpreted] The next question is from Ms. [indiscernible].