Ajinomoto Co Inc
TSE:2802
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Ajinomoto Co Inc
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Now we would like to move on to the second part.
And the Tetsuya Nakano, Executive Officer and Vice President, in charge of Finance and Investor Relations will present the results.
Thank you.
Now we would like to move on to our results to explain about the third quarter results. Please look at Page 2. So today's message, there are 5 product points. The first one is that in the third quarter, we increased sales and profit again. Second, despite the ongoing impact of increased cost of raw materials, logistics and the personnel, we are controlling selling, general and administrative expenses while maintaining the GP, gross profit margin by steadily increasing the prices. And therefore, we are working to strengthen profitability from the next fiscal year onward as a step-by-step nature to address the cost increases.
The third point, structural reform will continue in the fourth quarter and beyond. We will accomplish the Phase I goals of the MTP, which was mentioned earlier. And then the FY 2021 full year forecast remains unchanged. Lastly, the share repurchase announced on May 10, 2021, reached the maximum amount of JPY 40 billion by January 31, 2022, as scheduled and is completed. All repurchased shares are scheduled to be retired within the fiscal year.
Please move on to the next page. The third quarter financial results digest. 4 points. On a cumulative basis, the profit increased by JPY 59.2 billion and business profit by JPY 8.4 billion. The sales increased in all the major segments but the cost increase of raw materials, logistics and personnel still exist, and although in the seasonings and foods and frozen foods, profit decreased. While in health care and others, business profit increased under continued strong performance in functional materials and so on. In the other segment, losses were recorded due to structure reform.
Please look at Page 4. Cumulative summary as of the third quarter. So the sales is JPY 154.2 billion or 107.5% of the FY 2020 results. Excluding sales of business and currency translation, organic growth stood at 6.8%, showing steady progress. The business profit JPY 108.4 billion or 108.4% of the fiscal year 2020 results. On a cumulative basis, for the first 9 months, as you can see in our results materials, the sales increased in all the other major segments.
In Healthcare and others, it decreased. This is due to the business, the sales of the animal nutrition. The business profit increased by JPY 8.4 billion, and in seasonings and foods and frozen foods, there are some positive impacts coming from price rises. But on a year-on-year basis, profit decreased. While in Healthcare and others, the Functional Materials business, Bio-Pharma Services & Ingredients business performed well with increased profit. And in the other segment, there were some structural reform-related losses, which I will come back later on. Net profit attributable to owners of the parent, significantly increased like the third quarter until the third quarter. But in the fourth quarter, there was some -- the structural reform-related costs are expected to be booked.
The next page is the water board chart. So first of all, you can see at the top, the net impact of the increase in the cost of raw materials, fuel and food ingredients. It was estimated to be minus JPY 5.5 billion for the full year in the second quarter forecast, but the impact was approximately minus JPY 4.5 billion up until Q3. And price increases are continuing to trend at high levels. Due to this, as you can see at the bottom, the change in GP was negative due to the change in the GP margin.
But on the other hand, GP increased due to sales increase, which had an impact of JPY 22.9 billion, enabling us to achieve organic growth. The progress in unit price increase and the international consumer business also exceeded the forecast as of Q2. On the other hand, we have been able to control marketing and other expenses while actively investing in them and measuring their effects. I think you can see from the market share of major products in the summary of financial results that we have achieved results for the products that we needed to recover.
Moving on to the next slide. The graph at the bottom shows the full year forecast as of the second quarter. And I will explain our approach to the full year forecast by segment looking at the progress of the results in Q3, shown at the top. And seasonings and foods, major markets of Southeast Asia have been brisk due to strong home use demand for seasoning and a pickup in the pro service channel, leading to efficient marketing activities. Against the full year forecast of minus JPY 6 billion as of the third quarter, we were at minus JPY 2.7 billion, which was greater or better than our forecast.
On the other hand, in Frozen Foods, there has been a noticeable decline in utilization rates at some plants in North America due to the spread of Omicron since December. And although we have been able to absorb the impacts of increased raw material, fuel, labor and logistic costs by raising prices and increasing sales, performance has been challenging due to missed opportunities and increased fixed costs due to lower utilization. It is difficult to predict until when the impact is going to last. But the impact caused by the spread of Omicron was the only unexpected risk.
In the Healthcare and other businesses, the Functional Materials business is performing well against the backdrop of the growing semiconductor market and in the biopharmaceutical service business, oligonucleotide field is growing steadily. And the overall business is progressing as planned. However, we are cautious about the forecast for the fourth quarter because we had shipments that exceeded normal levels in light of COVID in Q4 last fiscal year.
As for others, at EA Pharma and equity method affiliate, a JV with Eisai in order to strengthen the management base and make further contributions to patients. Eisai and the company have discussed and decided on structural reforms, including a review of the development pipeline and a special second career program.
Going forward, we will be able to concentrate our management resources on promising pipelines. Due to the recognition of structural reform expenses, business profit came in negative. Some additional expenses are expected to be booked in Q4 as well. Based on the situation in each segment, although there is a risk related to the impact from Omicron, the management view is that it will be possible to achieve the business profit target of JPY 120 billion as a whole.
As you can see on the last page -- as you can see, when you look at the results for Q3, we were able to achieve an increase in gross profit due to the increase in sales. And if you exclude the impact from the equity pickup that was mentioned earlier, we were able to see an improvement from Q2 due to higher unit prices and so forth. And also even against pre-COVID fiscal year 2019, profitability enhanced.
Lastly, although, it's not included in this presentation, if you refer to the tanshin, the summary of financial results, the effect of asset-light measures through structural reforms are steadily appearing in total assets. I'm convinced that we will be able to achieve the financial KPIs by completing the structural reform measures and working on organic growth.
So although brief, that is all from myself regarding the overview for the third quarter.
Thank you, Nakano. Now we'd like to move on to Q&A session. [Operator Instructions]
The first question is from Fujiwara-san of Nomura Securities.
This is Fujiwara of Nomura speaking. I have a question. The raw material and fuel cost and the other further price rises going forward. In the first half, cost was expected to continue to rise, but it can be absorbed by the price hikes. And the -- after some calculations, JPY 8 billion or so, the positive impact on the business profit, that's what you said in the first half about the expectation. Could you please elaborate on that?
The fuel cost, fuel prices are starting to rise again. And based on that, especially the chemicals like ammonia, the prices there are rising rapidly. The price increase of the fuel and raw material is expected to continue for fiscal 2022 for the full year. So we believe that it is a long-term issue. So basically, we would like to raise prices whenever it is deemed necessary. If you look at Page 12 of the material, the initiatives against inflation. And how to deal with inflation is described on Page 12. As Mr. Hujira said earlier, based on such list, shared with the -- among us on a global basis, so that we can understand what is going on the rest of the world. And based on such understanding, we raised prices.
At this moment, I cannot give very specific answers, but we will continue to raise prices when it is necessary.
So the cost impact from the fuel and raw material might be bigger, but the longer with that you will raise prices. So you will have some positive impact on BP. Is that the right understanding?
Yes, right understanding for the next fiscal year. As you can see for the third quarter, the seasonings -- food and seasonings, we have been gradually raising prices overseas, leading to the increased profit, and we will continue such initiative.
The next question is from Goldman Sachs, Yamaguchi-san.
This is Yamaguchi. Can you hear me?
Yes. We can hear you.
I also have a question around seasonings and food. For seasoning, you have started to turn positive in profit growth. So I want to hear about the backdrop. You were talking about unit price increases that are being implemented greater than planned. But for sales expectations for major regions, I think your expectations were higher. So although you're short of your sales targets, why were you able to take these price increases so much? And also under seasonings and foods core solutions, it is going -- were quick nourishment and so forth. -- you were seeing -- you recorded a big decline in profits, and I don't think the reason is coffee. So can you speak to this?
Yamaguchi, to put example, let me talk about the main countries briefly. So by product for the seasoning's part, for Ajinomoto, the food service channel recorded a pickup in respective countries. For Thailand, Vietnam and Indonesia, we have been seeing increase in revenue. On a local currency basis, high single-digit growth was observed. And also for flavor seasonings, similar trend for Thailand, Indonesia, Philippines, Brazil. We're able to see growth in revenue. Vietnam, there was intense competition, so sales declined.
But overall, on a local currency basis, we were able to see high single-digit growth. And for many specific seasoning for home use demand, we haven't seen an impact or for menu-specific seasonings on a local currency basis, we were able to see double-digit growth. And for our cooking sauces. Indonesia, Vietnam, Philippines, Thailand, all recorded higher sales and double-digit growth was recorded local currency basis.
And secondly, for quick nourishment, our process food, we recorded a slight negative result. It's due to the domestic business and the soups business. Right after the launch, there was some fixed cost impact initially, which is the reason why there was a decline in profits. However, instant noodles overseas as well as straight beverages, ready to drink the market was brisk. What was challenging was the [ suit ] products business and also the international powdered beverage business. Competition intensified pretty much. So we have been facing competition, selling their goods at a cheaper price.
And can you also say a word on solutions and ingredients for S&I?
The business is on track for food services compared to 2 years ago. The business is trending at around 90% of 2 years ago, but we are seeing steady recovery. Furthermore, for MSG and nucleotide, sales is steady and solid. Internationally, due to shipping issues, our competitor products are not coming in. And that is why demand for our products are growing greater. And also for MSG, for major users, price increases should be realized going forward. So business is brisk. And for nucleotides, prices have not been falling that much.
Sumukay-san, Okasan Securities.
This is Sumukay of Okasan Securities. Can you hear me?
Yes. We can hear you.
Slide 7 to the breakdown of the slide, I would like to have some clarification especially SG&A in the second half JPY 16.5 billion, the decrease in profit. But in the third quarter, it seems that the SG&A is not so big in the other number, including some marketing. so the cost will increase in the fourth quarter. There's some delay of the timing. And the share increased without having such a cost increase. So maybe that's the case.
So SG&A, along with the profit, the schedule. Could you please elaborate on that? And as to GP, the margin, in the third quarter, you satisfied with the GP margin in line with the plan.
If you look at Page 5, minus 11.8% under that number, there's a book compared to the forecast, as of second quarter, the marketing investment JPY 11.6 billion or so increased, but that was second quarter, and now it is JPY 3.5 billion. So some of them though will be in the third quarter. And especially as to the seasonings overseas, as I mentioned earlier, that we have achieved rather efficient operation, effective operation. Because with the market [ hardly ] or marketing ROI concept is now being used. So the optimal media mix is now part of our strategy and leading to the positive effect.
So the logistics, the JPY 8 billion in the second quarter forecast, but now it's JPY 5 billion. And the prices are rising, we are raising the prices, but it is online. And other JPY 6 billion, up until third quarter, it is JPY 3 billion, and there will be some delayed [ emergence ] of the cost in the fourth quarter, but not as much as JPY 6 billion. Partly, it is due to the other building of new business. There's cost associated with that. We are doing, for example, CVC, but we are narrowing down our investment choices. So that the current -- the use of the cost budget is more efficient.
Master marketing investment, I need clarification. So the seasoning of the seas is being operated very efficiently, and you mentioned the marketing ROI. But listening to you in some the areas, competition is intensifying. There are some concerns. So going forward, -- the -- do you expect the organic growth is possible without using so much for marketing? Do you think that the top line can increase?
Well, it depends on the competition in each regions, countries, and we are going to control what we do eyeing the situation in different regions and the countries. Under the current MTP, our focused businesses, for example, for those businesses, we will invest in marketing so that we will be a strong #1 company, and that remains unchanged. That policy remains unchanged.
Next is Kawasaki-san from UBS.
Next person is Yoshida-san from JPMorgan.
This is Yoshida from JPMorgan. I also have a question about the Foods business. Earlier in the Q&A, there was -- you were speaking about competition intensifying. So in which regions and in which product categories are you seeing these trends? And can you talk about the reasons why? And in addition to that, for home use demand, it is strong. And for food services recovery, you are starting to see signs of a recovery. So up until now, over the short term, it was about short-term revenue decline likely to happen for home-use products. But should we account for such risk?
For intensification of competition, we have been talking about this before, and the situation has not changed dramatically. So what is Vietnam and for flavor seasoning and in Indonesia, flavor seasonings as well. We have been facing intense competition in these regions. Especially for Vietnam, I have been saying that we have been facing challenges, especially for Vietnam for the food service channel, there has been some local manufacturers who have been unoffensive, selling their products cheap. So to that end, for food service products, we have been developing new recipes and have been selling them. So we're competing head-to-head from that standpoint.
So for Indonesia compared to the past, we are seeing increasingly intense competition with the global giant. And as an overarching trends, for home-use products, business continues to be brisk and food services is starting to show a recovery. So whether there's going to be a drop-off at some point in time in the future, this is something that's hard to forecast due to Omicron and the spread of it.
For Southeast Asian countries, the impact from Omicron is not as severe at this moment. But if it were to have an impact going forward, home use product demand will probably become stronger once again. That is a possibility. However, at some point in time, in the process of recovery, food service products compared to 2 years ago has not reached the same level of business. It's not 100% recovered. So by seeing more pickup in the business, we might see home-use products drop off at some point in time in the future. But like we've been saying from before, to a certain degree, people are more health conscious. And in respective countries, there are working from home trends that are taking root. And we believe that the demand for home-use products is stronger than before, and it is likely to become ongoing, which is our opportunity.
One more additional question I have for you is for Vietnam and Indonesia, flavor seasonings where there is a price competition against the local manufacturers, but in your future price increases, will this become an issue or not?
Well, for cost, other companies are also facing the same situation. So we would like to watch the competitive trends as we ensure that we continue to raise prices.
Takagi-san of SMBC Nikko Securities.
Here is Takagi speaking. Nakano-san, I might be -- I might have missed it in your presentation. But up until the third quarter, all in all, in the big picture, against the full year result, I mean, the full year, the forecast, the progress is better than expectation. Am I right to understand that way?
Yes, excluding frozen foods that we are making good progress. So as to frozen foods, it is rather difficult to 0. So yes, there are some structural reform-related costs, but all in all, JPY 120 billion is to be achieved but not exceeding it. Well we are -- well, some people say that the -- we are looking at it conservatively. But there's Omicron issue. And we are rather prudent careful, but the impact coming from Omicron and also the prices, which are on the rise for the chemicals and the raw materials and fuels. And with that backdrop, we can achieve JPY 120 billion.
So seasonings and healthcare, you are doing better than the plan at this moment, right?
Yes. And as to the seasonings and foods especially for seasonings, the price hikes are being operated in a very liquid manner and the impact coming from it is very good as well.
And as to Frozen Foods. When do you think that the profit will be positive for the frozen food?
In October, we raised prices, including the prices of retail product. So the cost is increasing, especially in North America. Personnel cost is on the rise. And with these price hikes that we are absorbing the impact coming from cost rise. But the only issue here is Omicron. The utilization is now becoming unexpected risk. And once it is gone, the sales is actually really good. Sales growth is rather significant. Even with the lower utilization ratio. So with that Omicron problem is gone, then the sales will even grow further going forward. As to structural reform, we are making a steady progress, reducing a number of SKUs and a more concentrated production resources. And so we are certain that your profitability will go up.
When you talk about the utilization ratio, you're talking about the number of workers, right? There's a shortage.
Yes. And already, you had an impact of that kind in the third quarter coming from Omicron where the impact was evident in December.
Next is Mizuho Securities, Mr. Saji.
I have a question about Bio-Pharma Services and Healthcare and Functional Materials. I would like a brief explanation, please. In Q3, for Bio-Pharma services as well as amino acids for pharmaceutical and food amino acids saw revenue growth, but not profit growth. And you're expecting JPY 1 billion decrease in profit. You were talking about a drop-off, but should we expect a decline of JPY 1 billion in the fourth quarter. And for Functional Materials, JPY 2.7 billion revenue growth, and you ended up doing JPY 2.9 billion for the third quarter. And you didn't speak about the fourth quarter, so does this mean that risk trends are going to be ongoing for Functional Materials? Or are there any risks that we should be mindful of?
For Functional Materials continues to be brisk, especially for this business. At this point in time, we are not expecting any major negative risks or profits that have not really been up that high for Bio-Pharma Services, that is. For Bio-Pharma Services, shipment costs trade has been going up quite a lot. So unrealized losses have impacted us partially for the third quarter. Over the medium term or over the full year, this will level out. So we don't feel this as a big issue. But for Bio-Pharma Services, last year, in Q4, we saw quite a lot of shipments being made. So from our point of view, we are looking at this Q4 in a conservative way.
So for Bio-Pharma Services, are you doing a little bit better than planned? Is that the way I should view this or in [ legal ] nucleotides?
We continue to see brisk shipments. So yes, we are performing well from that standpoint.
Morita-san from Daiwa Securities.
Here is Morita speaking. Just a question, small question about the next fiscal year.
So this year because of the pandemic and the organic trend is rather difficult to see. For the new fiscal year, top line growth will continue, the more than the midterm guidance. There was some upside. The -- what will be the -- so for the business area, the growth rate will be the high single digit based on the results of this fiscal year. I think this is a very -- the sensitive part internally. We have not finalized our numbers yet. But what is clear is that against the MTP, we have focused KPIs like ROIC target and organic growth. For next fiscal year, we will continue to work on that and achieve the targets. The [indiscernible] and the heads of the foods and the pharmaceutical businesses have consensus on that. So at this moment, we think we can do it. and that remains our target.
So I understand that you're saying that the next fiscal year, you can increase profit. But what is the risk factor from the CFO point of view. What are the risk factors? What are the chances in the next fiscal year?
When it comes to chances, so over several years, healthcare and others have been growing very steadily. And we would like to continue to grow it. And we talked about marketing and efficient marketing, the deployment. Both at home and abroad, we would like to improve the profitability of the Foods business. Well, risk side, as I mentioned earlier, sometime there will be some drop-offs. So some reactionary developments could happen sometime next year.
So we are drawing close to the ending time. So the next person will be the last question. Mitsubishi UFJ Morgan Stanley, Tsunoyama-san.
This is Tsunoyama. I just have 1 question, for business profit and operating profit and what comes in between, what deviates from your plan? Minus JPY 6 billion is your full year expectation. And for Q3, it was plus JPY 13 billion. And for Q4, you are expecting some recognition around structural reform charges, I believe. Is that enough? And for structural reform, can you speak to anything in particular that you can share with us today.
Well, in the previous outlook, about JPY 10 billion worth of structural reform-related expenditures is what we are planning for. That's what we said. So along with this plan, we are implementing measures. And there are no major changes to our plan. And partially, we have been making accelerated efforts. And based of that, according to the progress we actually make, we will make disclosure on items that we can share. Furthermore, for the equity pickup related structural reform measures, this hits the business profit. And we have been having discussions with Eisai. And for the future, we have been taking structural reform efforts upfront. That's what we decided on. So we will -- we are -- structural reform efforts are underway.
So you will -- in Q4 upon the progress you make, so for other operating expenses, it is about minus JPY 19 billion, but is that the way to look at it?
Well, I would say that structural reform efforts are underway as planned. So you're basically trying to ask whether our profit levels can be higher than expected. But like I was saying before, there are several risk items that we need to be cautious about. So we are taking a cautious approach basically. That's the way I would like to answer your question.
I think you are accounting for some degree of expenses next fiscal year as well. Are there any changes to this thinking? I believe there isn't, but is that the way we look at?
Well, for divestments of business, we will proceed, but this engages with a counterparty. So there are some deviations in the process. But what we are working on is the same. And we are focusing on making things move forward.
So this concludes the Q&A session. So finally, Mr. Nakano will say word.
Thank you very much for joining us today despite your tight schedule. So the -- why we have not revised the forecast. As I mentioned earlier, I think the results are not so bad, and we'd like to continue to do a good job. If possible, we would like to increase our profit, that's all. Thank you.
And with that, we'd like to close this results presentation meeting. Thank you very much for staying with us to the end despite the last minutes change of the schedule. Thank you.