Q&A at IR DAY (Mar. 25, 2020)

Basically, I do not think there will be an impact in terms of premium and commodity classifications. If anything, any food displayed sells at present, and a certain volume is being consumed even though household stockpiles have risen. 
(Q. That may be the case now. However, when the situation has settled down in the future, we could expect there will be negative trends for consumption, such as lower incomes and problems with securing employment. How competitive will your existing products be at that stage? What kind of response will you be able to take? My concern is for premium products as well, so I would like you to explain your approach.) 
Our leading products are virtually daily essentials even in the area of food products. Therefore, so far we have not suffered any major impact even when the economy is somewhat down. The issue is whether premium products will sell even in such a scenario, and we will need to increase our points of contact with customers while clearly communicating the value of the products and working to expand them. 
(What will be the differences with your conventional way of doing things? I understand that message communication methods are very important, but I have the impression that Ajinomoto Co. has not been particularly strong in this area. I would like you to explain specifically how your marketing capabilities will be strengthened and improved going forward.)  
I think there are many areas we need to reflect on. In terms of specific measures, for promoting the salt reduction effects of AJI-NO-MOTO®, I think our main initiatives will focus on direct contact points with consumers, such explanations via social media and stores. Doing this will reduce expenses for media and so on, so this time we can consider concentrating our investment on premium products and menu-specific seasonings. In the past, we allocated communication expenses for products in an even manner, but I think we can make significant changes in this area.

The central key to collaboration between Food Products and AminoScience is promoting health using amino acids. As with promoting salt reduction using AJI-NO-MOTO®, I think developing products with amino acid functions or health promotion effects for each product will make it possible for us to differentiate our products from the competition.

The low-sugar Birdy® we launched in Thailand is a type of canned coffee. Health consciousness is on the rise in Thailand also. We saw a clear need from surveys, so we launched the low-sugar product as part of our Birdy® product range. Naturally, I think that our competitors will launch similar products going forward, but I consider the rising health consciousness in Thailand means that the Thai canned coffee market should expand. 
(Q. Are the prices of regular products and the low-sugar product the same?)
Yes.

Following the example of Japan, we aim to increase the unit prices of low-salt varieties of flavor seasonings by around 20% compared to the regular products. Based on data, we have identified a clear rise in awareness related to health in Thailand. What we must do is to provide clear information to counter the fact that the nutritional literacy of ordinary consumers is still inadequate while translating this into unit price increases. This applies to the whole of Southeast Asia. 
As for AJI-NO-MOTO®, if we can communicate the fact that its use enables salt reduction, I think that consumers will come to realize its value. There will be various milestones when we will be able to periodically increase prices, but I believe we will increase unit prices while also factoring in this value. 
(Q. I think your method of promotion is to say that using AJI-NO-MOTO® will lower the salt content of a menu overall. Can you really increase unit prices based on this?)  
We intend to thoroughly instill the salt reduction effect of AJI-NO-MOTO® on the ground, and I think it is possible. I think the issue will be how consumers understand the information.

To tell you the overall ratio of TT and MT by country, the ratio of TT is still 80–90%, while MT accounts for the rest. Although it is said that our initiatives on MT are weak, I think it is extremely difficult to create significant differences with our competitors with MT initiatives. However, it is not the case that our market share in MT is low in comparison with TT, and we have secured a certain market share. 
(Q. You said that the ratio of TT is overwhelmingly high. Does this mean you will be able to secure adequate sales even with your current channel composition ratio because there is high consumer need through TT even for premium products, low-salt products, and so on? Alternatively, will you have to develop MT more?) 
I think product trials will be done through MT. Over the past few years, high-priced instant noodles have sold well in Asia. Even though sales of these products started through MT initially, the TT percentage of sales has increased now when looking at the overall volume. Given this, I do not think it is the case that premium products do not sell well through TT. 
(Q. Does this mean your channel strategy will not change that much? Do you mean to say that you will change products and marketing based on your conventional sales channels?)
I think there will be a change in chronological order. We will probably do such things as launching products through MT, rather than initially developing them through TT, in order to increase product recognition. However, ultimately, you cannot gain volume if you cannot sell through TT as well, so we will expand sales in TT.

With regard to premium products, the only success story at present is low-salt flavor seasonings in Japan. The sales composition ratio for low-salt varieties of flavor seasonings in Japan is around 5%, so we will aim for that first of all. 
(Q. Does this mean that composition ratio of premium products is extremely low at the present stage?)
It is still to come, and I believe there is white space in the market. 
(Q. Are we to understand that there are virtually no premium products in Southeast Asia?)
We have not seen any low-salt seasonings yet.

With regard to raw materials, the outlook several months from now for procurement of raw materials produced in China is unclear. We will be able to manufacture using domestic inventory in each country for the time being. 
(Q. Are we to understand that you have several months’ worth of inventory for raw materials produced in China, but the situation will be uncertain from around the first quarter of FY2020?)
That is what I want you to understand. We do not know about the future yet.

Basically, if the impact of COVID-19 is prolonged, consumption will slow. Therefore, although we consider it a big risk and will continually look into countermeasures, we will continue to proceed with asset reduction as planned. Even if the circumstances change, we still need to increase efficiency, so we will proceed as planned. We will also continue to consider further asset reduction in future while monitoring the situation.  
(Q. Are we to understand that with regard to businesses in which there are partners to whom you will transfer assets, you have already proceeded to a point where things are clear to some extent, and later you will decide on going further while monitoring the situation?) 
That is the case in general. There may be some changes in schedule, but we will proceed steadily with the plans we have already established. We hope to deal with asset reduction as quickly as possible, but we want to avoid a situation in which business does not proceed smoothly in the future as a result of being overly hasty. In that sense, we plan to proceed while constantly monitoring the situation, including the impact of COVID-19.

I think that the most important thing in enhancing execution capabilities is to engage in our daily work with a strong awareness of what each and every person can do to achieve our new vision. 
The President has explained the vision we are aiming for in 2030 to employees and the message has permeated fairly well. Nevertheless, what they themselves will do to achieve the vision, how to contribute to ROIC management, for example, has not yet been sufficiently communicated. I believe it is of utmost importance for us to share this among our employees. 
(Q. When sharing the vision among each and every employee, I suppose it is necessary for management to carry out evaluations. Have you reviewed the employee evaluation system in an appropriate manner? I would like you to explain such things as the format, management, and method of checking.)  
Going forward, we will go around each workplace and implement activities to have them clearly define their organizational targets and integrate them with individual targets. We will obviously evaluate individuals based on these targets. In addition to this, we have also been further developing the ASV awards significantly, which are systems for commending each other on our mutual achievements overall.

As you say, I consider how individual route sales representatives can communicate with consumers will be an extremely significant point in Asia. Of course, we will also communicate via social media and so on, but we want to communicate the effects of salt reduction clearly using the powerful weapons we possess.  
(Q. I think this means that you need to get route sales representatives to understand the significance and importance of salt reduction first, but this may be quite difficult. Do you have any methods or models for doing this? I would like you to explain the current situation, including how far the changes in awareness of route sales representatives have progressed.) 
There is not yet a comprehensive understanding among route sales representatives. Our cash direct sales teams are quite well organized and diverse study opportunities have been provided. Therefore, we are promoting understanding of the effect of salt reduction properly and ensuring instructions on how to communicate this to consumers in TT and stores. I also think the PR teams of each affiliate providing support in this area will give indirect assistance, such as holding seminars for consumers.  
(Q. My impression is that the main roles of route sales representatives are considering appropriate cash collection and display methods, and they do not seem to have been engaged in activities to communicate value, such as health promotion. Is your future strategy compatible with your conventional ways of doing things or do you envisage that you will be starting from scratch?) 
When launching new products, we have always been thorough in how we communicate the product’s unique selling proposition (USP) to stores and consumers. This is a strength in our introduction of new products. This time, we consider communicating the USP of salt reduction based on a perception of AJI-NO-MOTO® as a new product to be one model of our approach.

In FY2019, certainly, while sales volume of AJI-NO-MOTO® may be flat and flavor seasonings down slightly, it is our perception that volume has not fallen that much. However, it is the case that growth has slowed.  
(Q. You don’t need to give a precise answer, but what was the approximate percentage growth in volume for AJI-NO-MOTO® and flavor seasonings over the past three fiscal years? How does this compare with around six years ago?)
For example, the sales volume of umami seasonings is expected to be flat between FY2017 and FY2019 with sales CAGR of 3%. Volume for flavor seasonings is expected to grow 2% with sales CAGR of 4%. In FY2019, given that flavor seasonings struggled in Vietnam, and excluding that impact, volume should be a bit higher. However, if you are asking for a comparison with FY2014 to FY2016, I acknowledge growth rates have halved. 
(Q. Why have growth rates halved?)
The biggest reason is the price strategies of competitors, particularly local competitors. As a result, some market share may have been taken. I think that market growth itself has also stagnated. 
(Q. If you implement unit price increases under such circumstances, is there not a significant risk that local competitors will undercut you? Even with salt reduction, the competition can follow suit, so do you think there is a risk you will be making a fuss over nothing if you are the only company to increase prices in circumstances where the market slows or becomes competitive?)
With regard to AJI-NO-MOTO®, I believe there is still adequate room for growth because we have not promoted the connection to health value. Also, while I think double-digit growth is not possible, I believe that communicating the fundamental value of AJI-NO-MOTO® again will make consumers aware of its value, and there will be little impact because our competitors already sell their products more inexpensively than ours.  
I think what we need to be concerned about is flavor seasonings. Although we have never neglected quality, we have reflected on whether the speed of product revisions and quality may have been a bit inadequate given significant differences with our competitors. In this regard, it is important to achieve product quality that truly satisfies consumers. We have the No. 1 market share, so we will improve quality further making consumers realize that our products are essential after all, and thereby increase sales volume.  
(Q. I would like you to explain how you envisage the growth rates for sales volume and sales for umami seasonings and flavor seasonings over the next three years.) 
In terms of sales volume, we are thinking 3% for umami seasonings and 4% for flavor seasonings.  
(Q. Over the past few years, per capita GDPs have risen considerably and there has been diversification. However, I think that one factor in the flat sales has been that Ajinomoto Co. has been overly fastidious about diversification and so lacked a sense of urgency in expanding the product lineup. I think another factor is that you have struggled to create new products that resonate with consumers from the perspective of innovation. I had the impression that you will change this. Can you explain it in more detail?)   
As you point out, we have always made quality revisions and created varieties that are extensions of what we did in the past, including in Japan. Going forward, I think we will release many products that will resonate with consumers through personalization.   
(Q. The Company’s way is to improve business performance in the end. For the FY2020–FY2025 MTP, I would like you to produce results at full strength from the start. Do you have any plans?) 
We thought we would start at full strength in FY2020, but we do not know what will happen due to the impact of COVID-19. This time, the premium products featured on the slide are quite innovative products. I think you can get a sense of our motivation if you look at these products.

The fact that the level of quality and technology at OEM partners is much higher than in the past is one of the main points in being confident about promoting a shift to OEM. Also, our OEM partners have many factories built for high-mix, low-volume production. High-mix, low-volume production at our in-house factories produces inefficiencies, but outsourcing to a specialized OEM partner is extremely asset efficient in a certain sense. Currently, we have a number of OEM partners, and it is quite profitable.  
(Q. If anything, the Company’s in-house factories are efficient if they can produce more with less SKUs. Is the high-mix option necessary? I feel that the Company does not need to do it. Why do you continue using OEM for your business?) 
The main area for high-mix, low-volume production is for food service in restaurant and industrial-use products. Accordingly, the lineup of products required depends on each restaurant and store. As a result, high-mix production is unavoidable to a certain extent. However, this time, I want you to understand that what I said about losing restaurant and industrial-use sales means, for example, we will negotiate price increases or try other ways to establish profitability for those that are not profitable, but we will decide to discontinue sales if it is difficult despite such measures. 
Of course, although I say discontinuation of sales, there are customers using products now, so it will be necessary to continue adapting carefully as a manufacturer, and we want to adapt as quickly as we can. That is our main strategy for the restaurant and industrial-use area.

With regard to China, they export desserts to Japan and vegetable yakisoba, stir fried noodles, to the U.S. However, a significant point is that the situation has changed due to trade friction between China and the U.S. There are three factories in China, and capacity utilization has fallen for that reason. Going forward, we will specifically examine how to make production efficient. 
As it is currently under consideration, I cannot answer in detail, but I hope you will understand our approach.

The African swine fever, which occurred in recent years, has had an extremely large impact on our business. As a result, our plans for asset reduction have also become more complicated and delayed. The business is currently in negotiations with partners, so I cannot disclose any details or a timeline. Nevertheless, I want to tell you that we are making active moves as a priority.

Demand for electronic materials is rising considerably. This business growth is driven by the data storage, data transfer, and data processing that support our daily lives, and it is a growing field. There is no sign of the market slowing down in the future. We believe that the market for servers, communication devices, 5G and so on, for which Ajinomoto Co. supplies components, will expand more and more. Moreover, as you know, semiconductor manufacturers have boosted production capacity, so I think the business will continue expanding going forward. 
(Clients are investing heavily in 5G in line with last year’s forecasts. Is it the case that the Company can expect a contribution to business results from this fiscal year as planned, and will this be in line with last year’s briefing?)
Around the world, the need is rising for large-volume data transfer and processing. 5G is one of the technologies for doing this, and we believe that demand will rise going forward. Of course, we think the 5G field will continue expanding globally, and one of the suppliers is definitely in the political spotlight.

As you say, the CDMO market is demonstrating very high growth. Last year, we consolidated all of our CDMO services under the single business of Ajinomoto Bio-Pharma Services. I think we are one of the trusted players in the CDMO industry. 
I think that the Company has three main strengths. One is the fact that we have built partnerships with a number of major multi-national pharmaceutical manufacturers based on long-term trust. I think that our strong position in this regard is one of our strengths. This facilitates access to the future projects of our partner companies, and we have also been able to gain access to expansions in their supply chains. 
Our second strength is that we can provide extensive product services globally over product life stages starting from the very early clinical stage. This means that we can take on projects from pharmaceutical manufacturers all around the world ranging from majors to small-scale companies. 
Our third strength is our technological superiority in some fields. We have created extremely unique technology in oligonucleotides. In addition, we have established original technology in the large molecule field by culturing using Corynex® our proprietary protein expression technology. We are also developing proprietary technology in the area of culture medium for regenerative medicine.

With regards to the outlook for contract services, I would like to tell you how we are developing products. This year, we plan to provide 1.9 billion doses of products to patients worldwide. There are currently around 70 approved drugs. We believe that with such a position we can help not only pharmaceutical companies but also patients who need medicines.   
(Q. I think that you have been adding functions through M&As up until now. I would like to check whether the infrastructure for CDMO as a business is firmly in place at this point, so from now on it will be a phase when profitability will increase if sales rise.)
At present, we are at the stage of investing heavily in this field. Over the past year, we have worked to enhance service quality, production capacity, and production capability. We have also been investing in antibody-drug conjugates (ADC) and the small molecule business. As utilization of these assets has risen, profitability has also improved. Of course, we engaged aggressively in M&As in the past, but we are not actively engaged in M&As at the present stage. However, if any attractive propositions should arise going forward, I think we will consider them without hesitation. At this stage, we have adopted a core strategy based on organic growth.

As I stated previously, there has been the adverse impact of African swine fever. Nevertheless, the strategy we will adopt in the commodities business in animal nutrition is clear, and there is no change in our decision to prioritize structural reform. We will negotiate with partners, carry out due diligence and make a decision. Obviously, progress will depend on the circumstances. I do not think this will have a negative impact on regrowth in Phase 2.     
(Q. I think it is definitely as you have explained, but I think, in the end, the final decision will be how much you can sell for or how much of a loss you will tolerate. Do you have any hesitations about making a decision based on the size of impairment?) 
I cannot tell you about the details because the transaction is currently ongoing. To repeat, this is a high priority for Ajinomoto Co., and we hope to do as best we can. 
(Q. You plan to continue restructuring businesses in Phase 2, and I think you will execute the growth strategy while retaining some businesses with issues. In this scenario, how are you going to manage performance volatility?)  
It is core businesses in which we will continue investing in the future. These include health, CDMO and electronic materials, and these businesses are fields which are expanding and stable with high future growth potential. Separately from these businesses, we will still have a few businesses that have become commodities or for which we have to consider further restructuring. However, I believe these businesses will not impact on our sales.

While I believe there is a need to improve the CCC going forward, we are also treating it as an opportunity. I think what I can do in the area of my duties is to reduce inventory in manufacturing and distribution using operational excellence (OE). For CDMO, it can take two years through the supply chain because products are for pharmaceuticals. I think there are opportunities for improvement in such areas and believe there is also some scope in manufacturing processes. 
However, there is the impact of COVID-19 at present. Our main customers are in the IT industry and the pharmaceutical industry, and I think there will be demands for increasing inventory going forward. I think we will need to have proper conversations with such customers about who will own this inventory.

(Q. Is improving CCC something you can achieve with your own efforts or will you implement it bringing in external specialists to gain knowledge? Alternatively, I would like you to tell me whether you yourself will manage it from a position of being able to give Company-wide orders as your field of expertise?)
We are appointing external consultants to make improvements in each business. Of course, I am enthusiastic, and we also have the operational excellence (OE) and Six Sigma approaches. Nevertheless, I think that external help will be required to engage with our global operations after all.

As you say, the animal nutrition business is the biggest factor involved in pushing down ROIC at the moment. I am confident about achieving 10% ROIC, the FY2022 target. There will be two drivers. The first is that past investment will begin to take effect as business. The second is improvement of gross margins in a number of projects we have been rolling out, and I think that 10% is well within the achievable range.  
(Q. What kind of past investment is there and in which businesses will effects appear? Will it be CDMO? Also, could you tell me what products in the amino acids business are seeing improvements in gross margin?)   
In the CDMO business, we invested in an antibody drug production line at the San Diego factory. We are also now increasing investment in the small molecule business in India and Belgium. In Japan also, we have increased investment in the oligonucleotide drugs business. 
In the amino acids business, we have increased investment in pharmaceutical-grade amino acids at the North Carolina factory. We have also expanded production facilities for the surfactant Amisoft®, which is a personal care ingredient. The factories where we are increasing investment now will start operating and contributing within the next two years. Therefore, contribution to revenue can be expected, and I think we can achieve our targets.

In terms of the reason for the stagnation of sales growth in the amino acid business over the past few years, we must obviously look at the details behind the figures, but some fields are expanding extremely rapidly. For example, the global supply of pharmaceutical-grade amino acids is currently extremely tight. In order to meet the need, we are operating our assets at full capacity.  
We are currently conducting a review of the CDMO business and are transitioning from low to high margin products. I think the future will become a little clearer to see at the announcement of financial results in May. I still take an extremely bullish view of this field.

We constantly communicate with our main B2B customers. For example, in terms of next-generation products, we continuously talk about the Company’s high quality ones, so I think there is high visibility about this. What I want to make clear is that 10% ROIC is not the final target. We said that our FY2025 ROIC target is 12%. I believe that the business will increasingly contribute to the improvement of Company-wide ROIC going forward.

I am talking about the market overall, so I hope you can get some insight. Electronic materials are growing. You will see if you look at slide 7 of the reference materials. The market for data center servers is growing by at least 7%. The areas of data storage, data transfer, and data processing have expanded considerably, and other companies are also growing at about 10%. However, competition in the electronic materials market is also becoming much stiffer. Given consumer demand for even lower costs for accessing data, it is also the case that there is pressure on pricing.   
Slide 2 states that the pharmaceutical market will grow at around 6% per year. On the CDMO base, it is growing at 9% annually. However, in this sector, there is pressure to try to keep prices low to provide products to patients. Pharmaceutical companies are looking for suppliers to reduce the cost of raw materials as much as possible. This sector is a very attractive market, so there are vigorous M&A activities and many new entrants. 
I hope you can understand based on the market insights I have just spoken about.

In North America, the adoption of AJI-NO-MOTO® and MSG itself is making progress in B2B, including among major global players. Adoption is spreading with this movement at the center, even among the B2C customers who were not major targets because of “No MSG” sentiment, and among B2B users for products such as the meat alternatives recently gaining attention in North America.
Examples of such B2C and B2B adoption show the results of initiatives taken since the World Umami Forum. I think that this will become notably visible in our business performance. As for the Company, we want to further strengthen this positivity toward MSG in fields where we hadn’t expected much growth, and connect it to the development of actual products.
(Q: Until recently, there seemed to be quite a bit of “NO MSG” sentiment and marketing that highlighted non-use of MSG. Should we see this as nearly ended? Also, is adoption in meat alternatives taking the approach of actively highlighting the inclusion of MSG? Tell us a bit more about the current positioning of MSG.)
I think that changing people’s mindsets formed over a long history, including negative rumors, will take some time. Slide 4 shows one metric for the growth of a positive image among nutritionists who had held the most negative images of MSG in the U.S. Amid a strengthening trend toward umami attracting the attention of top chefs in the U.S. and Europe, and the use of umami in cooking and in reducing salt, people are beginning to realize that AJI-NO-MOTO® and MSG may be the seasonings that make delivering umami easiest. This is leading to several cases in which manufacturers and food service players want to use AJI-NO-MOTO® or want to indicate that they use MSG. Regarding change overall, I think that more actions and time will be required. However, I think that the trends I mentioned are appearing.
(Q. Should we understand that there’s a renewed focus not only on salt reduction but on the value of umami itself?)
I think that the significance of umami itself and its effect on reducing salt are both connected to value.
(Q: This initiative began in 2018. At what stage do you see the Company, on its way to the envisioned goal?)
As one metric, the percentage of nutritionists with a positive image is currently close to 70%. However, I want to keep up our activities until we reach a goal of surpassing 80%.

There are of course requests from international organizations, but we’re making it our mission to fulfill our positioning as a solution-providing group of companies, as expressed in our vision. The plastics and food loss issues will become major social issues. I believe that taking the lead in tackling these will lead directly to recognition of the premium value that we will work toward in the FY2020–2025 MTP. I want the Company to be an entity that can offer even small solutions to social issues through tie-ups with others, including government, as well as through our proprietary technologies. I think that in the end, this will also yield economic effects.
(Q: Should we understand that this will have merit for the Company’s reputation, or that prices will rise through differentiation created by envelopment?)
I think both are the case. As we don’t indicate retail prices, we can’t make simple comparisons with the AJI-NO-MOTO® sold at large retailers. However, to provide an example, we’ve jointly developed products with LOHACO that are bought by consumers for the recycled packaging, despite being 20 to 30% more expensive. From examples like this, I get the sense that there is a steadily growing demographic that supports ethical consumption.
(Q: I think that the keyword “ethical” applies not only to packaging but also raw materials. What percentage of the market will ethical consumption grow to in Japan in three or five years? Please tell us what you envision.)
I don’t have a number that I can provide offhand, but I think ethical is a very large factor amid the diversification of values when consumers select products. In the U.S., hamburgers and other products made with meat alternatives are becoming widespread. The price is high, but consumers who want to get protein from sources other than meat are definitely increasing, and I have a real sense that this tide is simultaneously occurring in Japan and in our stronghold of Asia. We recognize capturing this as important.

In switching from seniority-based promotion, we’ve already introduced position management and talent management. Regarding hiring from outside, too, we’ve carried out such hiring purposefully for two years now, and the practice has taken root. To speedily execute the MTP on this foundation, I believe that ongoing hiring, and work assignments that enable this talent to display their strengths in varied scenarios, are important. In terms of diversity, we’ve put forth numbers for female line managers and Directors as examples, but are going beyond these to purposefully promote a human resources mixture in terms of diversity of careers as well.
(Q: Are there any companies that you see as global and domestic benchmarks? Alternately, what do you recognize as the ideal to be achieved?)
There aren’t specific companies, but we have been monitoring the level of motivation in work and investment in human resources by top-class, excellent global companies that we’ve always benchmarked. We’ve designed our KPIs with reference to these. As we seek to become a global company, it’s important that our people energetically perform to improve customer value, regardless of nationality, and that our corporate value, including the market value, rises as a result. We intend to continue setting targets with this in mind.

Regarding the Company’s systems for addressing COVID-19, we promptly set up a task force and are assessing the safety and circumstances of our employees around the world. In general, responsible local managers are making decisions matched to the ever-changing circumstances and are taking action to protect employees, while we regularly revise and communicate global guidelines to serve as reference. At headquarters, we’ve made a response manual in preparation for the possibility of infected persons, and have introduced this at the level of managers in charge at all sites globally, to enable decision-making and execution on-site.
(Q: Is this creating any hindrances, particularly in operations? Digitalization is often said to be lagging in Japan. But, the Company has no problems adjusting to COVID-19 because digital transformation has been put into action, correct?)
Conditions differ by country, but at least in the case of Japan where our Head Office is located, we’ve prepared a telecommuting environment through investments in work-style innovation, which we generally operate on the premise of work at home. Digital tools are what support this, and I think we’re able to do basic work, including run meetings, communications, and so on using PC-centric tools, with little problem.

The respective periods vary by raw material, but in the case of materials like coffee beans which are purchased in large scale and can be stored we’re taking action at an early stage. Conversely, for foods with fast turnover, such as spices or vegetables, I think we’re conducting negotiations with terms of about three months. As to whether we can sufficiently procure these given the uncertainties, there is no major problem at present but depending on the item, we do feel some risk down the road.
(Q: Does this mean that there are no measures to deal with this at present?)
We’re always making preparations for alternative raw materials. When a procurement route has been or is close to being cut off, we always have plans for alternative routes or alternative materials. We’re now working to replace some of them. As part of an enterprise continuity plan (ECP), we’re making preparations by business division, such as switching to domestic production if we can’t import Chinese products.
(Q: With procurement of raw materials becoming difficult to perform normally, should we foresee an emerging risk of cost pressure?)
Naturally, we have to consider the risk of standstills or delays in logistics, including for raw materials. If we stop manufacturing itself, irrespective of procurement of raw materials, that would be the greatest risk. We’ve calculated the economic effects of the risk of manufacturing stoppage, but we want to watch the situation and make a determination on when that would occur.

This is a simulation of the effects of a 2°C rise in temperature on factories using the amino acid fermentation manufacturing technology for seasonings that we’ve expanded most widely worldwide, dividing the effects into several factors and following TCFD guidelines. Our finding is that carbon taxes and other taxes are the main factor. Together with the rise in costs for social infrastructure, the annual impact would be ¥8.0 to ¥10.0 billion.
(Q: If carbon taxes are individually applied in regions where the Company has factories with fermentation processes, will these appear as a tax burden on the Company?)
Yes. Our factories don’t all use the same raw materials, but a premise of our simulation is the imposition of carbon taxes at all plants globally, taking the Thai factory as a model.
(Q: How high should we consider this risk in the FY2020–2025 MTP, in terms of a real possibility of occurring?)
We think that the period for this will be after the FY2020–2025 MTP. However, as the impact is large, we have to prepare for it now as something that could happen by 2030. We’ve disclosed it now as something we want to quickly connect to action plans.
(Q: Should we understand this as meaning that the matter is essentially unconnected to the FY2020–2025 MTP?)
Yes.
(Q: Carbon taxes have already begun in places such as Australia. Should we consider the possibility of carbon taxes becoming widespread in Southeast Asia as rising considerably in the short term?)
As implementation has already begun in some countries, I think it’s possible that the time frame will move up from what the Company anticipates. However, the scale of ¥8.0 to ¥10.0 billion is calculated on the assumption that taxes go into effect in all countries at the same time. In any case, you can consider this as something that will not happen during the FY2020–2025 MTP.

Please see sales noted for the current MTP as reflecting the asset-light model. Accordingly, if businesses targeted by the asset-light model end during a given year, they will be counted as discontinued operations. Consider the number to be sales with these excluded, divided by number of employees.
(Q: My understanding is that targets of the asset-light model equate to 5% of sales. If it’s assumed that the number of employees will decrease slightly, I think the image is that productivity on a remaining organic basis will increase considerably. Will this be possible with the three digital literacy initiatives? Or should we understand that staff for existing businesses will also be handpicked? Could you tell us your assumptions for how much productivity in core businesses will rise through organic growth after the reduction of assets?)
We’ll boost sales through the shift to core businesses after reducing assets too, and will raise unit prices by shifting to high value-added products. We want to raise unit price per kilogram, rather than growing volume, and connect this to raising per-person productivity.

I don’t think we can discuss this without noting the major change caused by the information revolution, which has come down even into the food industry where we are. Specifically, from 2015 to 2019, the fusion of the food industry and food technology has become visible everywhere, emerging in Japan as well. There is no doubt that such massive waves have fanned our Company’s sense of danger.
We significantly regret that we lacked the human resources and knowledge to properly capture digital transformation in the Company and were unable to execute on management earlier. Working primarily through the CDO that we put in place last year, we’ll move forward while making use of various assets outside the Company. Our sense of danger increasingly strengthened during such discussions, leading to the new MTP.
All of us, including members other than the management members gathered here today, will tackle this with an indomitable determination. We want to hold to a sense of danger in that if we do not do this, in ten years the Ajinomoto Group will be merely a run-of-the-mill company ignored by analysts and investors.