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This question concerns how to view the ¥10 billion upward revision of business profit. The Company recently revised the projected impact of the COVID-19 pandemic on business profit from the originally projected -¥6.5 billion to -¥1.1 billion, an improvement of ¥5.4 billion. Is there some background to this revision other than the impact from COVID-19? Have you simply figured in the upswing that occurred in Q3, or have you incorporated more business-related improvements compared to the previous revision?
As shown on slide 8, a considerable portion is accounted for by a change in GP due to a change in GP ratio. In the interim period, we expected -¥8.0 billion in the second half, but in Q3 there was a positive impact of ¥3.0 billion. We had originally assumed that the product mix would return to its original state as demand for dining out returned, especially overseas, but we believe the dining-out situation will worsen again in Q4 and demand for home-use products will grow, and we expect that this will have a positive effect on gross profit ratio. In addition, although nucleotide prices are below that of the previous year, they have been firmer than expected, and we think we can maintain the current level in Q4. Also, although delays in maintenance at, and increased depreciation of, factories are naturally included in our forecast, we believe that the impact will be less than we had assumed in the interim period. This should lead to cost reductions, especially in MSG, and should have an effect on retail products as well.
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With store activities currently restricted, I think you are in a situation of being unable to use your marketing budget even if you want to. Do you think that marketing expenses will return to the original state as the impact of COVID-19 subsides and lifestyles go back to normal? Or do you think that the Company has built up some sort of know-how under the pandemic, and can now engage in more efficient operation?
While we don’t yet have any sort of data or formulas related to this point, our spending on marketing is changing considerably. Under the pandemic, our use of funds is shifting to actions such as opening flagship stores on major EC sites and proposing menus over social media in different countries.
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Could you tell us about sales trends in menu-specific seasonings overseas? Also, in what countries have you begun to release reduced-salt products, and could you give us the details?
Looking at trends in menu-specific seasonings, of special note, fried chicken seasonings are showing double-digit growth in Indonesia, and in the Philippines, fried chicken seasonings and liquid seasonings have both shown even greater growth. Overall, menu-specific seasonings have shown greater than double digit cumulative growth.
In reduced salt-related initiatives, we launched a reduced-salt Caldo SAZÓN® in Brazil in October, before the end of Q3. We plan to release reduced-salt types of seasonings in every country. Looking at countries other than Brazil, we lowered the salt content a bit when we made quality revisions to Masako® in Indonesia. We’re also making efforts that include online cooking seminars that introduce and demonstrate reduced-salt dishes, on our websites that propose menus.
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The impact of the COVID-19 pandemic is difficult to read. Do you think that dining out will recover completely in the coming fiscal year, or will the current situation continue? Please describe your outlook for how the top line will grow in international seasonings.
Looking at trends for the coming fiscal year, we believe that opportunities for home cooking and for home eating and drinking will continue both in Japan and overseas. Some time will be required for the dining-out situation to return to normal, even if the pandemic subsides. Under such circumstances, we have yet to make a forecast for the coming fiscal year, but we expect a fall off from the special demand that occurred mainly in Q1 of the current fiscal year. We want to somehow offset this portion with organic growth. Toward that end, we’re strengthening our efforts in e-commerce channels and new platforms, and are also boosting engagement with customers through online means such as social media.
With regard to selling, general and administrative expenses, we expect that the situation that appeared this fiscal year, in which core products in particular sell without such expenses, will disappear. Accordingly, although there will be negative effects from this, we want to keep expenses from increasing through organic growth and through our ongoing company-wide operational transformation initiatives.
Finally, regarding costs, although there has been no impact yet, commodity prices are rising a bit, particularly for key raw materials such as sources of sugar, and freight costs are also on the rise. As impacts will appear in these areas in the coming fiscal year, we need to pay close attention to whether we can absorb these with organic growth.
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I would like to ask about Specialty Chemicals. The business profit forecast was revised upward by ¥1.6 billion. I believe this is due to personal computer and server markets being strong, but improvement of the product mix is given as a correction factor, and there is an assumption that business profit margin will rise to 43% for the full year. Regarding the outlook for next fiscal year, there are the positive factors such as the strong performance in products for servers and networks that you have talked about, but do you also foresee a PC demand falling back from the current strong demand? Also, profit margin has been affected by improvement in the product mix this fiscal year. Will you be able to generally maintain this in the next fiscal year as usual, so it can contribute to profit growth? Or are there risks?
What seems to have grown more than usual under COVID-19 this fiscal year has been products for PCs and, although not as much, for game consoles. I think the growth curves of these will decline a bit in the coming fiscal year, but overall, demand is strong for network and data center server products, and I think growth will continue. This fiscal year, we made upward revisions every quarter. Next fiscal year, we’d like to make our forecast a bit more accurate.
(Q: You revised sales upward by ¥1.0 billion, and business profit by ¥1.6 billion. What changes occurred from the interim period?)
Demand for PC and game console products remains strong. We had expected demand to subside in this area, but we made the revision due to continuing orders.
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You’ve made three upward revisions this fiscal year, and I believe there’s a possibility that final business profit will be about ¥120.0 billion. I would like to ask you about the outlook for next year’s performance. In the Q2 financial results, President Nishii said that he wanted to do his best to stop the decline in profit starting this fiscal year. However, business performance has improved this year, so there is a strong possibility of profit declining from this level in the next fiscal year. Could you explain again the factors behind increases and decreases in profits on a consolidated basis in the next fiscal year?
First, the results for Q4 of previous fiscal years, since moving to IRFS, were between ¥14.0 billion and ¥18.0 billion. Business profit for this fiscal year will probably not reach ¥120.0 billion. However, considering the possibility of limited expenses and increased demand for home-use products overseas, the forecast remains conservative in some areas. On the other hand, profit may be negative in some businesses, such as Bio-Pharma Services. Based on these possibilities, we are formulating a plan with the hope of somehow preventing business profit from falling in the next fiscal year or making it grow a bit. However, if we’re unable to increase profit, we believe that the main cause of this will be costs. In addition, raw material prices are rising rapidly at present, something that is difficult to absorb. We also want to somehow, through growth, cover the losses from special factors under the COVID-19 pandemic, such as the inability to use expense budgets.
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Even if a decrease in business profit is expected and put into the forecast for the next fiscal year, if unit prices continue to rise for international products, I think this will indicate progress toward the unit price growth KPI and will cause the Company’s evaluation to continue to rise. The Company is making efforts to improve unit prices, at present, how much have they been increased?
I apologize, but the data do not allow us to disclose unit price growth by quarter. At present, unit prices are rising naturally in some areas due to the impact of COVID-19, but measures such as increasing the percentage of menu-specific seasonings will also lead to unit price growth by improving the product mix. In addition, premium products, such as instant noodles in Thailand, are continuing double-digit growth. We want to seize these opportunities to increase unit prices.
(Comment: You mentioned unit price growth in the interim period, and analysts and investors are paying attention to the unit price situation. Please continue to follow up on this. In addition, the Company’s business is complex, and I consider unit prices are important as an example of a benchmark that makes explaining the Company easier.)
We are currently putting in place a system that enables timely assessment of KPIs, including unit price growth rate and ROIC as indicated in the Medium-Term Management Plan, and plan to implement it beginning with the formulation of the budget for the next fiscal year.