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Ajinomoto Co Inc
Earnings Call Analysis
Q2-2024 Analysis
Ajinomoto Co Inc
Ajinomoto begun the half-year ended September 30, 2023, by setting record-high figures for both revenue and profit. The company's strategic price revisions have paid off, leading to a significant recovery in the profit margin of its Seasoning and Food operations overseas. Additionally, the North American Frozen Food segment has displayed concrete results from structural reform efforts.
Sales reached JPY 668 billion, marking a 104.3% increase compared to the previous fiscal year. Growth in the Seasoning and Foods and Frozen Foods segments compensated for revenue declines in Healthcare and Others. This approach resulted not only in increased overall revenue but also a business profit of JPY 76.5 billion, representing 103% of the previous year's level. Excluding currency translation effects, business profit stood at a commendable 98.8% of the prior year.
In response to the first half's performance, Ajinomoto revised its full-year forecast for 2023. The objective is to align company-wide sales and business profits with targets set at the fiscal year's onset. The revised operating profit and other profits now make room for positive factors such as the sale of a former factory site. Encouragingly, the company is planning for double-digit percentage growth in business profit for 2024, laying the foundation for a robust roadmap aimed at continuous growth.
Volume declines due to price increases in soup and coffee products and changing consumer preferences slightly undercut profits in the Japanese market. The overseas segment experienced a notable profit growth thanks to effective price revisions and volume increases. In terms of the segments, while Seasoning and Foods and Frozen Food are expected to see increases, a downward revision was noted in Healthcare and Others due to a focus on operational improvements and anticipated profit decrease in functional materials, biopharma services, and ingredients compared to the preceding fiscal year.
Ajinomoto plans to sustain steady growth in Japan with sales anticipated to be 108% of the previous year, bolstered by new product launches and recovery in volume. Overseas, the company hopes to outperform initial forecasts with 103% volume growth and a unit price level of 108% over the last year, an optimistic outlook for continued double-digit sales growth. In particular, the North American Frozen Food sector benefits from structural reforms, including portfolio realignment and operational excellence initiatives, yielding a significant profit increase and a promising trajectory looking ahead.
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Hello, ladies and gentlemen. Thank you very much for participating Ajinomoto conference call for our results first half ended September 30, 2023. This is Kaji of IR Group. Today's conference call, we will have Mr. Mizutani, the Executive Officer with us. We plan 60 minutes of the meeting. First, from Mizutani based on the disclosed material, 20 minutes explanation will be done and then Q&A. By the way, the content of today's conference will be recorded then posted to our IR website at a later date. We'd like to have your understanding. So Mr. Mizutani, please.
Thank you very much, and thank you very much for your continued support. This is Mizutani, from Ajinomoto. Today, we would like to share with you the overview of the financial results for the first half of 2020 -- year ending March 2024 and also the full year forecast for March 2024. If you can look at the Page 3, which is given at the bottom of this slide. For this first half, both revenue and also profit achieved a record high for the first half of the year. And also in 2022, we have conducted the price revisions and that may turned out to be successful, and therefore, Seasoning and Food overseas achieved a significant recovery in profit margin and Frozen Food in North America have shown visible results for the structural reform efforts that we have implemented.
In Japan, the Seasoning and Food, we wanted to bring back the quantities. However, our capabilities were still insufficient. Marketing design center was established. And also, we have established the ground to stand ready at that but then we will take a short term as well as mid- to long-term actions in a solid fashion. The slower-than-expected recovery in the semiconductor market and the inventory adjustments by the clients which had been greater than expected, affected the performance of Healthcare and other segments. However, the market itself is growing, and we are very confident that the Healthcare and Other business will eventually get back to the return to growth track. We will continue promoting the 2030 road map and then has the corporate value thereby.
For fiscal 2024, of course, we believe short-term measures will be needed. For example, we would like to concentrate to reduce SKUs even further and become a leaner organization so that we can lower the breakeven point as a result of that. By working on these initiatives, we would like to steadily achieve the 2023 profit targets. And achieve double-digit growth in business profit for 2024 in line with the road map. Page 5, please. This is the highlights of the first half results. As I mentioned earlier, the revenue and also our business profit achieved a record high for the first half of the year. The sales reached JPY 668 billion, this was 104.3%. The level of the previous fiscal year were 108% excluding the currency translation impact. The increase in revenues in Seasoning and Foods and Frozen Foods in which we engage pricing increases since last fiscal year, cover the decrease in revenue in Healthcare and Others, resulting in increased revenue overall.
Business profit was JPY 76.5 billion, 103% the level of the previous fiscal year. Excluding the effects of currency translation, business profit was 98.8% of the level of the previous year. However, excluding the accounting related and other transit effects that the overseas affiliates accounted for by the equity method. We effectively secured the performance exceeding the previous fiscal year. Page 6, please. This slide shows the analysis of the differences in business profit between the first half of fiscal 2022 and the first half of fiscal 2023. Change in GP due to the change in sales was up JPY 10 billion compared to the same period of last fiscal year up JPY 10 billion with contribution from price increases both in overseas and in Japan. Although the changes in GP due to change in GP margin was significantly positive in food-related businesses, it was negative in the Healthcare and Other business, and therefore, the increase was overall limited to JPY 700 million.
Profit increase due to unit price growth in Seasoning and Food and Frozen Foods was large, which countered the JPY 8 billion gross cost impact of raw materials and fuels covering the negative results from the Healthcare and Other segment. As for the second half of the year, in the Consumer Foods business, we are going to achieve a profit unit prices and steadily increased volume and thereby achieve a significant profit increase in the second half of the year as well. The next page shows the fiscal 2023, the analysis of the difference of the business profit by segment for the first half of 2023 compared to the same period of previous fiscal year. For your reference at the bottom of the slide is an analysis of the difference between the full year forecast at the start of the year and the performance in the previous fiscal year.
As you can see, compared to the full year forecast at the start of the year, we achieved a very strong profit growth in Seasoning and Foods and also Frozen Food, which was already higher than the full year increase in profit forecast at the start of the year. Healthcare and Other business, profit in the first half of 2023 was significantly lower than the profit increase forecasted for the full year at the start of the fiscal year. I will discuss the reasons for this decline later. The next page, please. For the combined sources and seasoning as well as quick nourishment in Japan and overseas. This slide breaks down the sales into volume and also into unit prices and also shows analysis of the changes in business profit. For the first half of 2023, sales in Japan were 103% at the level of the previous fiscal year. To give you a breakdown, volume was 98% and unit price was 106% at the level of the previous fiscal year.
Volume decline in response to price increases in soup and coffee products and due to a shift towards a mindset of guarding lifestyles and toward the preference for private brand products under a low cost orientation, mainly in seasonings and sauce, also a decline -- as you can see, the waterfall chart at the bottom left shows the effect of the unit price increase was unable to cover the increase in manufacturing costs caused by the higher raw material cost and lower volume resulting in a decline in profits.
By contrast, overseas achieved double-digit profit growth in sales and local currency basis by increasing unit prices to 109% level of previous fiscal year, primarily through price revisions, while steadily increasing volume by 1% to 101% in terms of profit, too, we largely countered the increase in costs associated with the raw material and fuel price inflation, which resulted in a profit increase.
Now moving on to Page 9. From here, I would like to talk about the full year forecast. We conducted a review of our performance forecast for fiscal 2023. We aimed to achieve company-wide sales and business profit in line with our targets at the start of the fiscal year. At the same time, we are scrutinizing the current conditions and estimates by segment, and we have revised the forecast. In addition, we've revised the operating profit and other profit upwards to reflect the factors, including the contract for the sale of the former factory site of Ajinomoto Malaysia, which we reported as a subsequent event in August of this year. Therefore, the bottom number changed from JPY 95 billion to JPY 100 billion.
Now moving on to Page 10. This slide shows the business profit waterfall chart for the revised forecast. The increase in unit prices for the domestic and overseas consumer business in excess of our initial forecast for the fiscal year and also the GP growth due to the volume growth exceeding first half. These will cover the decline in GP due to decreased revenue in Healthcare and Others. We will carry out investments for future as scheduled, and we will work to solidify our business profit of JPY 150 billion that we had anticipated.
Now moving on to Page 11. This slide shows analysis of the difference in the business profit between the previous fiscal year's results and the initial forecast for the fiscal year by segment in the revised forecast. Profit increase from previous fiscal year in Seasoning and Foods and also in Frozen Food resulting in a significant upward revision from the initial forecast. By contrast, the lower graph shows the downward revision in Healthcare and Others, mainly in functional materials and also biopharma services and ingredients. We expect profit to decrease from the previous fiscal year.
Moving on to Page 12. For combined sauce and seasoning and quick nourishment in Japan and overseas in the revised forecast, this slide breaks down sales in the volume and also into unit prices and also shows the analysis of change in business profit. Their plan for sales in Japan is expected to be 108% the level of previous fiscal year. 100% by volume and 108% by unit price. We expect the volume to recover due to factors such as the new product launches but we have made a revision from 103% in initial forecast downwards to 100% this time around. Overseas, we plan for growth in excess of the initial forecast with volume of 103% and unit price of 108%, the level of the previous year. As a result, we expect double-digit percentage growth in sales.
Page 13. Next is Frozen Food. In Frozen Foods in North America, structural reform, including portfolio reform and initiatives for operational excellence OE in a project to expand total delivered cost, PDC margin including last year's price increases is yielding effect, and we achieved significant increase in profit while continuing reform through fiscal 2025, we will steadily generate the results from our structural reform and will strengthen the foundation for subsequent dramatic growth.
Next is Page 14, in ABF. We revised sales and profit downward from the initial forecast for the fiscal year due to delayed recovery in the semiconductor market. On the other hand, the use of generative AI has come under considerable attention in recent years. Semiconductors for AI, which still accounts for a small proportion of the semiconductor market are expected to grow dramatically in terms of both area and number of layers, a greater amount of ABF is used in GPU substrates for AI than in substrates for standard PCs. Combined with recovery in the overall semiconductor market, the advance of generative AI is another element that will accelerate growth for ABF.
Next is Page 15. This is explanation on biopharma services and ingredients. At amino acids for pharmaceuticals and foods. In the first half of fiscal 2023, greater-than-expected inventory adjustment by customers had a major impact on sales and profit and relatively high profit amino acids for biopharmaceuticals in particular, customers' speed of inventory adjustment was fast and the impact on profit was very large. However, the biopharmaceuticals market, as you can see, is growing steadily, and we expect recovery in the second half when inventory adjustment runs in due course.
Moving on to Page 16. This slide looks at biopharma services CDMO. In Biopharma Services, first half profit decreased from the same period in the previous year due to impacts of inventory adjustment by customers, mainly in biopharmaceuticals in North America and due to conversion of some equipment to nucleic acid-based drug manufacturing in Europe. Conversely, nucleic acid-based drug CDMO services, a driver of growth are performing well, with sales in the tens of billions of yen annually. We expect growth in fiscal 2023 to 120% the level of the previous year. By building a new production base in Europe, we will achieve sustainable growth for CDMO services overall to meet robust global demand.
Turning to Page 17. This page shows progress in ASP indicators under the 2030 road map. And for ROIC, second from top, it is now revised to 10%, which used to be 9.5% initially. And moving on to Page 18, I would like to point out one thing in each segment, especially the Frozen Foods. When you look at the ROIC portion, is approximately 4%. it is close to plan of fiscal 2025. Next is about assets and liabilities. For total assets and liabilities. There were effects of currency translations. But you can see net DUC ratio, as you can see, the range is between 30% to 50%. But the revised plan to be slightly below that level. Next, moving on to Page 20. This is cash generation due to currency translation. There is a balance of [ CSA ]. But this year for 2020 fiscal year, we would like to bring to the level of that. And moving on to Page 21, we would like to move on to the level of the referrals.
Maybe moving on to Page 22. This is 4 indicators. ROE, ROIC, EPS, we have revised upwardly. Turning to Page 23. This is cash allocation. And there is a 2030 road map and 8 year total amount is provided here capital investment of JPY 750 billion and quota of about JPY 300 billion and to this year, for the CapEx, this is JPY 83 billion and share buyback, JPY 50 billion is planned and done. And next page is shareholders' return. As for share buyback, I have already mentioned. But for dividend, this is going to be an addition of JPY 6, JPY 74 for the whole year. That is planned.
Thank you very much, Mr. Mizutani.
[Operator Instructions] The first question will be from Saji-san from Mizuho Securities.
I have my first question regarding your electronic materials. In the second quarter, if I look at your highlight page, [ JPY 15.9 ] billion, so about JPY 15 billion. So there's about a 25% or so reduction in revenues. So in your new forecast, second half, JPY 32 billion last year and this year, it's JPY 31 billion so a 4% reduction in the second half of the year. So does that mean in the third quarter, fourth quarter, what are the assumptions that you have for the third quarter and fourth quarter performance because the percentage of decline and the pace of decline from the fourth quarter has been coming down quite significantly. So how confident are you about this? So what will be the actual landing? How would you be able to limit the limit and decreased to only 4% at the end of the fiscal year.
Thank you very much, Mr. Saji for your question. Regarding the electronic materials, on a quarterly basis, in the fourth quarter of this fiscal year, on a year-on-year basis, we are expecting to achieve positive performance, an increase year-on-year level. So then in the fourth quarter of last fiscal year, I think electronic materials suffered a huge decline, like a 15% decline in the fourth quarter of last year.
So are you expecting that the performance for this fourth quarter will be higher than 2 years ago. Is it because of semiconductor is going to catch up with the level of 3 years ago and term positive is that your assumptions?
Of course, it is very difficult to make a quarterly comparison with 2 years ago. But the sales level 2 years ago, I think we are anticipating something slightly higher than the fourth quarter of 2 years ago.
So are you also expecting the fourth quarter recovery just in line with the industry. What is the driver behind that?
The driver would be the general trend in the industry, like, as I said earlier, the high-performance materials, the trend of that will be the biggest driver behind this. If you can look at Page 14. On Page 14, degenerative AI, for example, that could be a potential driver for the performance improvement.
So network and also services are likely to return to the normal track. Is that what you're assuming?
Yes, that's also the case.
And then my second question. I just want you to briefly tell me that the quantity in Japan, I think I mean the second half of the year to a flat level on a full year basis, I believe. So the quantity is going to come back quite significantly in the second half. So but the cost increase, the high-cost situation in Japan is continuing persistently in Japan. So what are the sources for you to hammer out your marketing spend? Because I believe the condition will remain tough for some time. But to what extent do you think it is feasible for you to achieve the second half recovery, leading into a better performance next fiscal year? So what is your assumption behind that? If you can elaborate on that point, that would be appreciated.
Well, thank you very much, Mr. Saji for the question. The food business in Japan, there are several factors for this. One thing that I would like to mention is that the cost increase in Japan in light of that, we have adequately raised the prices accordingly. So those are proper price hikes that we have conducted in the past. Of course, the situation remains the same as other companies. But in this environment, we have also raised the prices, but we shall be -- we were able to secure a good quantity at the same time after raising the prices. And also for new products, like the [indiscernible] we have introduced this new product.
And of course, immediately after the launch, this will not take an immediate effect because it will take some time for this to get penetrated into the stores. So we have expectations in the second half of the year. And also in Japan, we are going to make focused efforts for sales promotion in Japan. So we will spend a proper amount of marketing spend and prioritize some sales activities to be more efficient in our marketing activities in the future. So by taking this initiative, we shall be able to achieve the volume as well as the unit price that we had anticipated.
What about the warm weather -- warm winter this year? Would that be okay?
Well, the warm weather -- warm winter rather in our case. Right now, the weather is quite -- the temperature is quite high. But depending on the product, even if you look at the temperature in October, we haven't really seen any significant impact on our product sales.
Next question, please. SMBC Nikko, Mr. Takagi.
I have 2 questions. One, Biopharma service in Healthcare and biopharma service ingredients. First, your annual base, you have reduced by JPY 4 billion. I think sales decline -- sorry, JPY 4.6 billion reduction in the profit to the initial forecast. When you divide amino-acid and the CDMO what are the figures?
Thank you very much for your question. Yes, for this, I think there are 2 segments and amino acid negative is larger mostly. On the other hand, the other one, CDMO business, yes, slight revision. It is a very small amount. So for amino acids -- sorry, CDMO is along the line with the plan. So as was mentioned earlier, this is the first half making more money. So third quarter, fourth quarter, when you look at those figures, I think it will come out for amino-acids, as was mentioned earlier, more than expected, I think customers are making inventory adjustments and because of high speed than expected, it is negative. But in the future, I think the growth in this area is along the line with our plan.
And having said CDMO, the first half decline is probably very large as is written here, it is JPY 4.2 billion. So is this really along the line with your plan? I don't know much about it.
Well, first, in Europe, low molecular, this is very good. The business is good. As was mentioned earlier, and as I've mentioned to you previously, they are now trying to convert the production facility to nucleic-based amino acids. So for the North America, likewise, the foods, pharmaceuticals, because of the customers' inventory adjustment, we were impacted so much. But from the second half, we see a recovery. In Japan, I think this area is quite good. And towards the second half, nucleotic-based is, I think, doing a good job. So that means in this biopharma service ingredients, most negative factors came from the customer inventory adjustment in the amino acids, right?
So there is no structural problem or issue.
No, not at all.
Okay, really? As for this health care, or Biopharma Service and Ingredients. I think you dropped the growth rate. But I think you expected 13% in the plan for next fiscal year. Do you think you can recover what you had dropped this year? Or this drop that you had faced this year is going to remain in the next year as well?
Well, CDMO growth rate is I think there is no changes with that plan of road map.
That means that for next fiscal year and next year after, you assume 40% growth or so? Is that a correct understanding?
Well, I did not calculate, but we base on EBITDA margin. EBITDA margin will be maintained. So that is a plan from next fiscal year onwards.
Well, I don't know much about this answer. You mean that compared to initial forecast, I think first year this year, you dropped a lot. You are going to rebate and that is going to be more than 13% growth next year or what you had dropped the gap? Is it going to be remaining in the next year? What I wanted to say here is that for CDMO, especially for this portion, basically?
Nothing is going to be changed.
And my question is about amino acids, yes.
For amino acids, the inventory adjustment was just 1 time thing. So when you talk about EBITDA margin, or business profit margin of 13%. Currently, the growth CAGR of 13%, we have no intention to change this.
Okay. Understood. As for ABF, I have a question. Well, what growth rate do you assume next year? And can you give us a hint or any comment for growth for next year?
Growth for next year. Yes, we do rolling forecasts. But for next fiscal year, yes. We would like to talk to you in detail about this at the year-end. Thank you very much.
Moving on to the next questioner, which will be from Fujiwara-san of Nomura Securities.
This is Fujiwara from Nomura. This is a question for Mizutani-san. Regarding Healthcare business. So sorry for being persistent here. About 3 months ago, when you announced the first quarter results, the ABF also and also biopharma service and ingredients as well, you had a very tough start, but the full year forecast, you were confident that you were able to deliver on the full year forecast. That's what you said 3 months ago. But to be honest with you, when you look at ABF, inventory adjustments had been continuing. I think that was anticipated 3 months ago or even from earlier than that. So what had happened in the last 3 months?
That's very difficult for me to understand. Biopharma Services & Ingredients. The inventory adjustment becoming harsher? Did this happen after your announcement in the summer of your first quarter results. So this is something that I wasn't able to understand. So what has happened in the last 3 months or so. What's the reason why you have brought down the forecast significantly. Can you give us some context here?
Well, thank you very much for the question. This pharmaceutical biopharma services, the amino acid for Pharmaceutical and Foods. The customer situation, we had thought that we had understood the customer situation. However, the inventory adjustment speed took place much faster than what we had anticipated. So rather than what we had thought about in the first quarter, the impact was significant than what we had anticipated as at the end of the first quarter. Myself, I've been talking about the business division's representatives. And in that conversation over the last 3 months or so, we realized that this is the situation that we are facing right now. So therefore, we made this downward revision this time around for this business.
And that was about the amino acids for Pharmaceuticals and Food. When it comes to Electronic materials, the Electronic materials demand outlook actually, depending on customers and depending on the product, it's very, very difficult to give you a general answer. But according to what we learned from customers' information, as we engage ourselves in the Electronic Materials business, we are collaborating with many different clients. So we thought that we had a good understanding about the customer situation. However, the market condition in this industry, actually, the recovery was slower than what we had anticipated, and that's the reason why we have also decided to make a downward revision for functional materials business as well.
So for each of these segments, we thought that we understood the situation in the market. However, despite that understanding, we have decided to make a downward revision at the end of the first half.
Okay, so functional material, was not a big surprise to me, so it's okay. But amino acid for Pharmaceuticals and Foods, you talked about inventory adjustment. Has it already run its course already? So there are any impact any longer at this point of time?
Well, for amino acids for Pharmaceuticals, the demand in the market itself remains very strong. And after the second half of the year, we expect to see a recovery. And that's our understanding with our conversation with the business people, the business side of the company. But the customers had a very strong persistence in shrinking the amount of inventory. That was the case in the last several months.
So my second question, in relation to your presentation, Mr. Mizutani-san regarding our cost in the first half, what was the cost amount in the first half? Can you confirm that? The fuel and raw material costs.
Well, if you look at the overview of the financial results, bullet point number one, the domestic numbers are given there. And if you look at the very bottom, July, September, Seasoning and Food, JPY 22.1 billion.
Are you talking about the overall numbers?
The overall cost. Yes, the overall cost in the first half gross JPY 8 billion. JPY 8 billion was the total for the first half.
So this cost, it is inclusive of both Japan and overseas?
Yes, both Japan and overseas. The number that I said at the outset was the Seasoning and Food, Raw Material for Japan only. That was the number for Japan only.
But the JPY 8 billion is the total for both overseas and Japan?
Yes, combined overseas and Japan combined.
And the first quarter was you said JPY 6 billion?
Yes, correct.
So the impact is becoming smaller compared to the first quarter then. So this full year cost assumption, what is that?
That remains unchanged. JPY 10 billion for the first half, yes. So that remains unchanged.
So you have not changed that assumption, okay.
Next question, Morita-san from Daiwa Securities.
This is Morita speaking. First, is about the price strategy, Japan, outside Japan for the Foods. Of course, the assumption for FX is JPY 150 per dollar, but I think the cost wise, it is going to be very difficult. Is it the environment that you can take another pricing strategy here? Price adjustments for overseas. I think you have come to a round to complete the price increase. Is there any room for another price increase overseas? So this is a question about your pricing strategy.
First question about the Japan domestic business. This raw material and fuel cost there are various things in Japan for the exchange rate impact. There are some, and we think that the cost is increasing gradually. Another thing is that the transportation cost, we are doing various efforts in reducing the cost of transportation, but there are things exceeding that asset. But I think the environment that we face is that difficult to increase the price. But depending on the product, we provide a high valid value-added products.
And for those, we would like to see the environment first. We would like to reduce the cost as much as possible to address this difficult situation. That's for Japan domestic business. For overseas business, yes, we did a certain level of price hike. But depending on the country, the situation differs to those categories where we see cost hike, then we are considering maybe and we would like to start considering another price hike, whether it could be possibility or not.
I'd like to confirm. So domestic wise, cost is quite difficult, but you want to reduce the cost for overseas. What the cost increase, ingredients and materials that you see? And how would you like to address them? Is there anything that is really increasing the cost?
Yes. I think domestic, yes, we would like to reduce the cost. We would like to do much effort on ourselves, but overseas, especially the major raw materials the fermented tapioca and other ingredients, those raw materials, we would like to see their price increase as well. First, of course, we would like to reduce the cost by ourselves and do our best effort. Of course, there are some stages that we need to do something and consider something. Second, is to confirm the numbers.
Earlier, you mentioned amino-acid inventory adjustment. I could not understand this. The second quarter everything is finished. Do you see some recovery from the third quarter? Or do you think that during the third quarter, inventory adjustment will be over and the recovery will start from fourth quarter?
Well, we think that recovery will start from the second half. At the certain timing of the third quarter, the inventory adjustment would be completed, we believe.
And earlier, Fujiwara-san mentioned about the cost. On Page 12 in your handout material, this cost outlook, Japan and overseas minus 60 for overseas and 115 for Japan is -- I think initially, it was 100 -- the JPY 10 billion for Japan. So is this -- what are the factors that you had made the revision up for the overseas down for Japan?
So for overseas, the major factor here is that sub-raw material area. And for Japan domestic, as was mentioned earlier, because of yen depreciation, we see major raw material items are increasing the cost, and that is a major factor. Gradually, the prices of the raw materials are increasing and increasing our cost.
So you mean the trend hasn't changed overall, but the content has changed, right?
Yes. When you see various items, it's mixed. Some have increased and some are decreased. So those decreased things we want to use them as much as possible and reduce the overall cost. Of course, we want to deliver customer appropriate pricing.
And I think initial forecast, it seems to be that there were some changes, right?
Yes, depending on the country, the major raw material used there is different. And so depending on each country's situation as well as in order to expand the suppliers. I think various cost reduction efforts have been done in each different countries.
We would now like to take the next question, which is from Yoshida-san from JPMorgan Securities.
This is Yoshida from JPMorgan. Now my first question relates to CDMO business. We've been talking about the factors behind this revenue decline. So as you said, if you just single out AJIPHASE, in the first half, how does the performance look like? Did this business make any contribution to profit growth or revenue growth? And depending on the pipeline of customers, maybe the profit may be skewed towards the second half of the year. But is this only about the second half of the year, were you seeing brighter signs into the next fiscal year? So if you just single out AJIPHASE business only, how did the performance looked like in the first half, in the second half? And also, what's the outlook for the next fiscal year? If you can talk about that, that would be appreciated.
The nucleic acid product. The first half, we had a very solid performance, especially in the second half the sales are skewed more heavily towards the second half of the year. I think that is correct. You can think it that way. We achieved a profit increase in the first half already. And in the second half, although because the performance is more skewed to the second half you can think it that way.
Does it mean that you'll have more customers placing orders? Or are you taking more market share away from your competitors? Can you elaborate?
Well, it's very difficult for us to comment any further details because that relates to customers. So I'm so sorry, we cannot give you any further context. Thank you for your understanding.
So this is only a unique thing for the second half only. So is it always that the second half is always better than the first half? Or is this a favorable trend continuing into the next fiscal year?
Well, the growth of revenues, if you talk about that, as I mentioned earlier, we are expecting growth to continue into the next fiscal year as well. As we have explained on Page 16 of the presentation, if you can refer to those numbers, I think that will be explained in the background.
My second question is about the Seasoning business and Seasoning and Food business overseas. In the previous presentation when you talked about the midterm plans, you talked about the peripheral countries other than the key markets. So in the last 6 months or so, what about the noncore markets? In the core markets, I think on a local currency basis, you have achieved more than 10% growth other than Vietnam, you have achieved a general increase. But what about the peripheral country's performance in terms of sales? Are they growing?
For example, if you look at Bangladesh -- Bangladesh, because of the impact of PI and also the expansion of sales channels to remote markets and also the new launches of new TV commercials. On a local currency basis, we have realized a steadfast growth in revenues. Also, another country that I would like to site would be Myanmar. Just like Bangladesh, Myanmar because of the impact of PI price increase and also the expansion of sales channel. Through these efforts on a local currency basis, we have achieved a steady increase in revenues. So as I mentioned at the beginning of the year, our focus on the frontier markets. These efforts are steadily delivering results.
What about the growth rate? Are they on par with the core markets -- these frontier markets and core markets. The growth rate are they the same?
Well, the growth rate varies from country to country. Some countries is on par with the core markets. And in other markets, the growth rate is much higher in some cases. But the overseas Seasoning and Food quantity, if you talk about the volume, because of the currency impact of these frontier markets such as Nigeria, that situation is very tough. And therefore, the quantity-wise, it's posted a negative growth in that regard.
Next question. Miyazaki-san from Goldman Sachs.
Yes. This is Miyazaki-san from Goldman Sachs. I have 2 questions. First, on Page 12. The seasonings and quick nourishment business analysis. In the increase of SG&A in Japan, the cost has been declined. But overseas, I think compared to the previous term, the cost is increasing, our expenses are increasing. Could you elaborate on this point, what are the factors increase and decrease factors.
For Japan, as you can see, JPY 5.5 billion to JPY 3.5 billion so JPY 2 billion gap marketing expenses were used more efficiently that is a reason for a decline. For overseas, made the JPY 4.5 billion earlier, but it is now JPY 14 billion because towards next year, depending on the country, though, for large countries, we call them 5 stars in the past. In those countries, we want to invest into the brand awareness, brand marketing. We want to positively make investment. So that is a reason for high SG&A expense in this area.
And so for those who are increasing the cost or expense that means that the sales or revenue is -- growth rate is more than you expected, and your decision was that if you spend more, you can get more sales or is there any other reasons, for example, for market penetration, you have some concerns. So you wanted to add more marketing expense?
Yes, earlier one, yes, as you mentioned. We have increased the unit price, but we made the volume. So we felt that this is time for us to make more investment so that we can have brand awareness increase. And also, we want to have more outlets, we want to have more penetration into the consumer. So this is action -- proactive action from our side.
And for Frozen Foods, I have 1 question. First half, JPY 6.7 billion profit and JPY 3.3 billion in the second half. So in the first half and second half, what is the reason for profit decline? And for North America, business profit is increasing, you mentioned. Basically you are doing cost restructuring in the area of cost, but not in the sales increase, so revenue increase should start from next year? So for the, I think, North American market, could you elaborate on that point?
Yes, I think everything is along the line with the plan for the first half and second half. For the North American Frozen Foods market, yes. Likewise, the overseas seasonings from second half. We want to do investment into the marketing, and we want to strengthen the structure of the business there. That is a reason why we will be making more investments. And another reason could be that in the future, the raw materials there is a bit of increase to be expected. So that is also incorporated.
Yes. So the growth rate of the top line and how it just perceived. So compared to first to the second half, it is not going to decline so you want to actively have spending in the marketing area as well as you're incorporating some assumption in the raw material increase. Is my understanding correct?
Yes, that's correct. Thank you for your question.
The next question would be from Okasan Securities, [indiscernible]
This is Okasan Security, my name is [indiscernible]. I also have a question regarding overseas Seasonings business. On a continued note on Slide 12, regarding your revised business plan, revised forecast year. The beginning of the fiscal year, JPY 5.5 billion increase in overseas and this time around, it's JPY 14 billion. So it's a revision of JPY 13.5 billion. So mainly this is due to the revenue and also the positive revision for the raw material and fuel cost. And also because of the brand investments here, I'm going to make some investments and make some outlies there. If you look at it by country, what are the favorable performance in each country. So what is the outlook you have for each country? If you can just elaborate and give us more details, that will be appreciated.
Well, thank you very much for the question. The profit contribution will come from, as I said, the 5 major markets -- the 5-star markets that I just mentioned. If you look at the financial results highlights, which was point #3 there. Well, this is the actual number. If you look at the actual there, in the fourth quarter, other markets is like 8% overseas, but these 2 other markets has achieved much higher. And this momentum is likely to continue into the second half of the year. So that's the reason why we have developed this revised plan here. Of course, in any given market, the performance has been quite favorable in our assessment.
If you could just give us some more color to that, that would be appreciated. For example, this product, that's the performance being favorable in Thailand, for example. Why is that going to continue into the second half? If you can give us more color.
For tomorrow, Sakakura-san, the Head of ASEAN business, will give you some more explanation. And of course, in Fujie-san's presentation, he will talk about Vietnam. So if I talk about Indonesia then, I talked about this in October last month. So there are many different things that I can talk to you, but I just would like to share with you 1 topic. One of our strengths is that the delivery capability and effective marketing, branding and also the product line management, those are our strength. When it comes to the delivery, distribution through shelf, we have continued to make investments and continue to increase the number of outlets, which I think is 1 of the secrets behind this major growth, for example, in Indonesia.
So there are many other factors, but by implementing all these different actions, we have been able to achieve double-digit growth. So of course, the situation varies from country to country. So in every country, we have taken appropriate measures in each market and delivered good results, a significant result improvement.
What about the economic conditions? For example, in Vietnam, the economic conditions are being concerned. But in your company, no impact from that?
Well, Vietnam GDP growth has slightly declined in Vietnam, but still our business is performing very, very well.
And another question that I have is about which relates to my previous question. On Slide #3, you have an overall summary here. And on the third bullet point, you said that for 2024, you are expecting to bring down the breakeven point and achieve double-digit growth as a result of that. But your efforts to reduce the breakeven point. What kind of measures are talking about in detail. Of course, overseas business is performing quite well. But in order for you to -- is there any room for you to achieve better performance overseas?
Of course, we are implementing many measures and for example, here, we talk about SKU concentration, for example, and the most concrete example would be the Frozen Food in North America. As I mentioned earlier, we are expecting some categories to grow significantly in the future, and we are concentrating all these expenses and investments in these growth areas where growth is expected. So which will result in the utilization rate increase in the factory and consequently, that will have a positive impact on improving the efficiency in the sales and also the profit and that will reduce the breakeven point.
That is the most difficult example, I would say. In addition to that, of course, there's another example in the case of North America and also in Vietnam, TDC, the total delivery cost to the customer. From a viewpoint of SCM, we look at what is the optimal solution and always consider about what is the optimal route and run the business accordingly. So that's another example that I can share with you in order for us to become a leaner organization.
So next fiscal year, it will be explained tomorrow, maybe but as for the North American Frozen Food and overseas seasonings, you're talking about these areas, right? And you wanted to say, there is more potential, right?
Well, for overseas seasonings not just to Frozen food and not just Seasonings, it could be said to amino acid business as well.
So what is the most optimal most way of selling things, SCMs.
So that's the overall story. So it's, I think, will be accepted in all the businesses globally. So I think that is a situation we're perceiving not just limited to those areas.
Mr. Mizutani, thank you very much. I'm very sorry. But because of the time, the next question is going to be the last question. Mitsubishi UFJ Morgan Stanley, Tsunoyama-san, please.
This is Tsunoyama from Mitsubishi. I have the same question as Mr. [indiscernible] , the Page 3, the last sentence towards next year, short-term measures unnecessary says here. It says here short term. And you dare to use the word short term. So could you explain us more in detail about this short-term measures and as the road map in your midterm plan, CAGR is a 15% growth you perceived for business profits. Yes, I think what are the assumption that you have for increase and decrease factors making impact on your profit?
Originally, 2030 road map, we wanted to have a high target, and we're exerting efforts on a daily basis. Various actions and initiatives have been taken. And 2025 is just the middle of that road map. So EBITDA margins and cash, we want to -- for the margins, we have some targets. And in order to achieve that depending on different businesses, we want to grow the business. But in addition to that, we want to firm, strengthen our foundation. So for SKU initiatives, we have been doing it already. But by making further efforts here, I think we would like to become more stronger and have stronger foundation.
So that is the road map what we should be doing, strengthening the foundation. So I would like to have your understanding. And that is the reason why I have written here. So through those efforts, we want to have more EBITDA margin as much as possible. And from the management side to each business divisions and operations. We have been instructing initiatives. And tomorrow, we will explain more in detail, but for 2030 road map, there are CEO meetings amongst different divisions, and they are having much discussion. And one of the initiatives that we are going to take that is going to be learned by others. And that is what we wanted to say here.
That means that -- the market environment is somewhat difficult from the assumption -- initial assumptions. So you wanted to say that you want to do best efforts, more efforts or is that towards 2030 road map, you are along the line with the plan, but you want to achieve higher target. Which is it?
I think the latter on 24th of February -- on 28th of February, we have announced this road map, and these initiatives are already being written there for leaner organization. And those are our basic initiatives, and we are already doing them.
So Healthcare seems to be difficult, but it seems to be with your big assumption and big road map, everything is along the line with the plan?
Yes, this is all along the line with the plan.
And this concludes the question-and-answer session. And Mr. Mizutani has 1 word to say.
Well, thank you very much ladies and gentlemen, for sparing a precious time for our meeting. Well, your various opinions and comments are very well appreciated, and we would like to learn from that and reflect them in our future management. We look forward to your continued support. Thank you.
With this, we would like to finish today's earnings call. Thank you very much for your participation.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]