Q&A from Small Meeting with President (Mar. 11-13, 2020)

Phase 1 is structural reform. First of all, with regard to cost reductions of ￥20.0 billion out of the ￥30.0 billion, we plan to implement significant structural reform over the first two years, and these cost reductions should have a significant effect in FY2022, the third year. 

Meanwhile, the other ￥10.0 billion will come from organically increasing unit prices. We will achieve unit price growth by promoting health value through such means as product revisions and strengthening of the product mix and marketing strategy. Accordingly, I hope you will understand improvement in unit prices with only very basic improvement envisaged in FY2020, a little improvement in FY2021, and then gradually going up in FY2022.   

(Q: Do you mean that FY2020 is the investment stage, and the unit price effect will not be very significant, mainly for international seasonings?)

We will make a major shift to reduced salt for seasonings in particular. First, we have high hopes from the initial fiscal year for umami seasonings AJI-NO-MOTO® and AJI-NO-MOTO® Plus, which account for a large portion, as we will proceed with reduced salt marketing strategy, communication, and store sales capabilities without product revisions. However, we will also try to sell in countries with large-scale sales to start with as far as low-salt varieties of flavor seasonings are concerned, such as the Low-Salt HON-DASHI® which is already sold in Japan. If we launch, the effects should appear in FY2021 to FY2022.    

The ￥20.0 billion in cost reductions is due to structural reform and normal operations. The impact will not be as great as FY2017 to FY2019, but we are also seeing effects from certain resource-saving fermentation technologies. The cost reductions are largely a combination of the above three factors.

With regards to structural reform, with corporate expenses approaching 2.5% by FY2020, Ajinomoto Co., Inc. has been implementing corporate structural reform on a non-consolidated basis first, which will take effect from July after this year’s personnel transfers finish. Consequently, the effect will be for three quarters rather than a full year in FY2020, and for a full year in FY2021 and FY2022. We also plan to include back office departments at Group companies in FY2021 to FY2022 to increase efficiency. As with the structural reform on the non-consolidated basis, the effects will follow.

In terms of the composition of the ￥20.0 billion cost reduction amount, half will come from structural reform. I hope you can understand that the other half will come from the effect of resource-saving fermentation technologies and revisions to various costs in normal operations. 

(Q: Has the effect of eliminating the deficit in the animal nutrition business, which is forecast to make a loss in FY2019, either through reorganization or asset reduction been factored into this ￥20.0 billion?)   

Included.

AJI-NO-MOTO® is an extremely simple product, and it does not mean that we will be making a low-salt variety. We will promote reduced salt through so-called communication and marketing strategies unrelated to products to try to increase sales.

In FY2020, we will shift strategy significantly, and measures to reduce salt in consumer umami seasonings will take immediate effect. If we promote the effect of umami seasonings on reducing salt, we can also expect the restaurant industry and processed food manufacturers, which have not used MSG in the past, to reconsider and use MSG, thereby expanding volume in the Solutions & Ingredients field. These are our two aims.  

At the briefing, I introduced the Iwate Prefecture Model because it is a model that covers all salt reduction measures, so you may have had the impression that it is extremely small in scale. However, basically, we will shift to salt reduction measures through brand communication for AJI-NO-MOTO®. Rather than the spreading of the Iwate Prefecture Model, we will incorporate salt reduction into our product marketing. MSG sells in 130 countries and regions, and we are involved in marketing in 11 countries, including the Five Stars, the Rising Stars, Japan, and the U.S. Thus, I think it will have quite a big impact. 

 (Q: With regards to your image of the amount in financial terms, are we to understand that there will be a negative profit margin as there will be marketing costs, including advertising expenses and sales promotion expenses?)

No. marketing expenses are as described in the MTP materials. We will review the details, but this does not mean that marketing expenses will increase.

Originally, in terms of our corporate brand strategy, we have been using corporate expenses to engage in activities to communicate the effect of umami on reducing salt since the World Umami Forum the year before last. We will shift this strategy to promoting wellness through salt reduction as well. Accordingly, we hope to proceed with our strategy effectively by combining the tone and manner of the corporate brand strategy with the tone and manner for AJI-NO-MOTO®.

Our range of processed foods is broad, and differences exist by item, such as instant noodles or powdered drinks; there are considerable fluctuations as well. For those reasons, we don’t disclose shares. In the area of seasonings, the category is expressed in the global market as dry savories, which encompasses basic seasonings, flavor seasonings, and cube-type seasonings. Our share in this category in FY2018 was 22% on a business performance basis. This is the top share, ahead of the global giants.

(Q: Do you mean that, because the Company is currently the top player in this area and the market is still growing, you’ll continue growing your share?)

The dry savories market is not growing much on a quantitative basis. Market growth is primarily in monetary value, coming from companies’ price raises. We want to grow this a bit more on a quantitative basis as well, through a strategy of appealing to health values, including through the low-salt products that we will promote as a top brand.

I would like to make two points about where we have an advantage in adopting the promotion of wellness, and particularly reduction of salt, sugar and fat related to metabolic syndrome as a strategy in our branding. First, there is the degree of salt reduction. For example, with our Japanese Low-Salt HON-DASHI®, we have achieved a high level 60% reduction in salt compared with regular HON-DASHI®, which is a technological advantage. We have a variety of unique ingredients which we combine with design technology to achieve product design, giving us a unique advantage. Another advantage is the large number of local menus we will target when we promote wellness. Because we engage in completely localized marketing, it is extremely advantageous that our access point to consumers is menus. I think these are our two advantages, and we should be able to promote wellness to an even broader range of consumers.

We will implement unit price increases of 1.3%. This is as I also explained at the Analysts’ Meeting for the FY2020–2025 Medium-Term Management Plan (MTP). However, when you put the business plans together overall, there are some risky businesses, so we announced a plan with a Company-wide reduction to a certain extent. Thus, I’d like you to understand this is where any disparities come from.

Unit price increases are a major management strategy. In order to definitely implement this strategy, we have made ROIC in the two phases of the MTP a management indicator. As the asset owners for each segment, a team of corporate executive officers will be responsible for ROIC, on the other hand, each organization under the asset owners will strengthen its structure based on ROA. The clarification of responsibility in this MTP is a major point of change in our organization. We will follow up quarterly and monthly while making comparisons of results with plans and steadily conducting reviews.     

Rather than simply raising prices, we consider that increasing value added by focusing mainly on health and increasing nutrition value will lead to unit price increases. We think we can achieve this through product strategy or by opening up new channels such as direct marketing. For the new businesses that we plan to launch from FY2023 with the aim of an additional 1% in organic growth, we will establish powerful tasks that can be drawn from new channels separately from the usual flow of business, and be ready to carry out my initiatives. That is the big change.    

 (Q: Is it fair to say that it will be a significant upside factor if you can achieve 1.3% as planned?)

Yes.

 

We will establish asset owners, and look at ROIC for each asset. With regards to the Company’s fixed tangible assets, there are areas in which the B2B business and the B2C business share assets even in the same food business. The assets of both have been shared, but we will unify responsibility and establish asset owners based on tangible fixed assets for overall asset management. The people with responsibility will make decisions for enhancing ROIC overall and will hold the responsibility firmly with members of the Executive Committee. To this end, this time the consumer food business, which had been divided into Japan and international, will be reorganized into a global business to make clear the perspective of strengthening marketing strategy and the asset owner system. The asset owner will be an executive officer who oversees a number of businesses with general managers underneath. General managers will manage ROA, and we will position overall enhancement of ROIC as the job of executive officers.

The easiest marketing strategy to understand is the global strategy for umami seasoning AJI-NO-MOTO®, which will promote reduced salt globally. We will control strategy on when to launch new products that contribute to low-salt and low-fat, mainly seasonings, through business divisions that implement management globally. However, in terms of specific product brands, we will use the existing ones and coordinate the scheduling for development, production and launch locally. I want you to understand that we will control marketing strategy and product strategy, which we will shift toward healthy and wellness, through business divisions that implement management globally, and we will adjust the implementation plan locally.

(Q: Will it take the form of creating a team at head office to establish a global plan and providee more powerful leadership?)

Increasing wellness value is extremely difficult to manage for individual local products and affiliates, so we want head office to have control over it from the perspective of brand strategy.

(Q: Who will lead marketing strategy?)

Basically, after the organizational restructuring, the General Managers of the Sauce & Seasoning Department, the Quick Nourishment Department, and the Frozen Foods Business Department will be the three people with responsibility as brand owners.

As we said at the FY2019 interim financial results, we temporarily narrowed down selection of the core businesses for this MTP based on growth potential and ROA without using ROIC. Accordingly, categories with high and low ROA and categories with high and low growth potential coexist in frozen foods. We believe that we should be able to bring ROIC up to be higher than WACC in FY2025 as a result of the structural reform in Phase 1 over the next three years. After that, with regard to getting higher than the 8% average and increasing it to the point where it exceeds 11%, there is goodwill in North America and Europe among the major assets held by frozen foods overall. I think ROIC will go up substantially through elimination of this goodwill as soon as possible.

We also consider that there is a weak point in one of the major structural factors involved in the current low ROA of frozen foods, which are an urban-type product, in that we manufacture most of the products using in-house tangible fixed assets. The reason for this is that, primarily in Japan, in the first half of the 2000s there were incidents with major social impact, such as serious consumer concerns about food quality due to problems with residual pesticides and contamination, so we increased the ratio of our in-house factories to ensure quality. As a result, our business became undeniably asset-heavy in structure. However, over the past few years, it has become possible to increase and manage quality transparency even without in-house factories by incorporating in-house know-how into OEM. We will manage OEM with our know-how for businesses striving for new growth while reducing assets. This is a major strategy for enhancing ROA gradually, and we have therefore determined that there is still potential in it.      

(Q: What is the meaning of eliminating North American and European goodwill?)

We undertook M&As to acquire major platforms in North America and Europe for Asian cuisine frozen food products. It means that we want to achieve profit that exceeds goodwill as a result of the growth of Asian cuisine frozen food products and increase in profit. It does not mean amortization of goodwill.  

The situation regarding additional shares of the Thai subsidiaries is as we have already announced. The reasons are that it will contribute significantly to our goal of improving ROE, and we still view Thailand as a market with potential for us although business growth there has stagnated for the past few years. We are increasing our control through the additional acquisition of shares, and we have embarked on this course because we think there are still things we can do.   

Going forward, on the question of what we will do from FY2020. Speaking in terms of the Company-wide financial policy and cash balance that I explained at the large meeting for the FY2019 interim financial results, with strategic funds of around ￥80.0 billion over three years, we will push forward while incorporating capital policy as one major option. With regards to Thailand, we were able to buy the holding of institutional investors on this occasion. We expect the remainder will take time as there are multiple individual shareholders who have owned shares since our early days. On the other hand, there are companies with minority shareholders in countries other than Thailand, and we want to continue with negotiations. The specific details of the three-year purchase are yet to be determined.

First of all, please forgive me for any lack of clarity as it is uncertain whether the situation will continue at the current point in time. In Japan, if people continue to stay home, based on past cases, products consumed in the home such as seasonings and processed foods receive a tailwind. In fact, home-use products have received a tailwind in February through March. On the other hand, there are extremely challenging circumstances for businesses aimed at the food service sector, and this is a negative factor. However, the sales composition of the Japan food products business is approximately 70% for home-use products and approximately 30% for restaurant and industrial-use products, so the positive factor of home-use products outweighs the negative factor of restaurant and industrial-use products.   

As for umami seasonings for processed food manufacturers or high value-added savory seasonings in the Solutions & Ingredients business, we provide ingredients for processed foods such as retort-pouch curries and instant noodles, so there will be a tailwind as with home-use products. In any case, a prolonged impact will affect the Japanese economy overall, further tightening consumers’ purse strings. The tailwind will subside after a certain period, and I think there is likely to be a challenging environment for some time for the high value-added products we have been considering launching in the future.   

Globally, the specific consumption environment is unpredictable, but there is currently anxiety about supply in B2B business, so customers have been taking action to try to get through it by increasing inventory. This will be a positive factor in the short term until around March. However, there is also the risk that inventory adjustments could come in around the first quarter of FY2020.   

Lastly, speaking about animal nutrition, there has been an effect on global supply, due in part to the fact that China was the source of the COVID-19 outbreak. At present, there is distribution inventory, so there is no major change, and prices have stopped falling slightly. However, there could be a positive factor in the form of an increase in unit prices as global market inventory shrinks while Chinese operations gradually recover in the first quarter of FY2020. However, structurally, the second quarter and beyond could see a return to the current situation.

 (Q: There are concerns about economic slowdowns in Thailand and Vietnam, which are highly dependent on the Chinese economy. Is it the case that, relatively speaking, there is no need to be concerned about any significant negative impact because your business is seasonings, which are basic necessities?)   

Our future strategy is to shift to value-added products, so, while there are concerns, we are not very worried about the current main businesses. With regards to business performance, foreign exchange rates change daily as you know, and we would like to examine the figures a bit more and let you know in the FY2019 financial results announcement and business performance forecasts. 

Yes. Speaking of uncertainties for the Five Stars, the significant temporary demand that arose in Vietnam in March 2019 is absent this year. We announced a revised forecast at the interim period with that temporary demand as a negative factor for the second half of FY2019. The impact will come to an end in FY2020 onward. The extremely difficult circumstances in Vietnam in the first half of FY2019 have eased, and I think that will work as a positive. Overall, I think the main point will be the extent to which we interpret the current tailwind in the nucleotides business as a risk for FY2020 ahead of the May financial results. 

The biggest concern is that a prolonged epidemic will cause a decline in consumer sentiment overall. However, I don’t think that our goals of solving food and health issues or our structural reforms will be delayed or stopped by the impact of COVID-19, so we intend to execute according to plan.

We initially said around ￥100.0 billion for FY2020–FY2022, but we extended the period to FY2023–FY2025 and added ￥100.0 billion. There has been no change in our previous concept that commodities in animal nutrition, some MSG external sales, and some frozen foods are non-core businesses. As a result of close examination, the amount for asset reduction increased from ￥100.0 billion to ￥150.0 billion. We have also added ￥50.0 billion over FY2023 to FY2025, and this will include some businesses with high efficiency but concerns about growth potential, identified as businesses under assessment. There may be some businesses that can return to growth under our “solutions to food and health issues” policy, but we added ￥50.0 billion on the assumption that there will be certain businesses that cannot return to growth even if we pursue this strategy.  

(Q: Are we to understand that the scope of asset reduction has expanded, resulting in the ￥50.0 billion increase in terms of the increase in the amount for non-core businesses?)

Yes.

We will switch strategy to 1.3% unit price increase, but it is fair to say that this is one of the risk factors as it assumes the disappearance of some businesses rather than being reflective of all current businesses. In addition, there are ESG factors, which are Company-wide risks. Particularly in terms of the greenhouse gas problem, if we conduct scenario analysis in line with Task Force on Climate-related Financial Disclosures (TCFD) policy, the risk of environmental taxes for the fermentation business as a whole including MSG, nucleotides, and animal nutrition is around ￥8.0–10.0 billion. It is yet to be decided whether taxes will actually be levied, but I think it seems realistic during the six-year period.

 (Q: Is the risk of ￥8.0–￥10.0 billion over six years or per year?)

If environmental taxes are levied at some time during the six-year period, the risk is around ￥8.0–￥10.0 billion in a single fiscal year.

We have to address this, and we are considering measures currently. As we have not managed to come up with a concrete plan of action, we described it as a risk in this MTP.

Our business is divided into two major businesses, which are food products and AminoScience. We have operated each business separately, albeit in on a business profit base. We have carried out such operations continuously in the past, and it is not difficult to direct with regard to implementing structural reform and regaining growth engines. Instead what we need to change as a management team is how we pursue the functions of amino acids that are concealed within AminoScience and develop them into specific products by working together while combining the strengths of food products and AminoScience where there is a division of labor. We will also place these specific products into our food products sales networks, particularly in emerging countries. This is the most difficult area.

Organic growth of around 2% for FY2019 was a reflection of the current circumstances up to the end of January. Consequently, it is a little different than what was announced as the performance forecasts at the time of the interim financial results. 

Basically, we manage the budget for personnel expenses over three years with a policy of controlling a certain amount as part of overall cash flow. I touched on it earlier in my discussion of structural reform cost reductions, but it should be appreciated that personnel expenses account for a certain weight among the reductions in back office expenses. 

 (Q: I have the impression that personnel expenses will constantly rise whether performance is good or bad. How will you try to control personnel expenses, and equally other fixed costs, under such challenging circumstances? For example, I would like you to tell us whether there are any plans concerning how much personnel expenses will increase?)

There is no Group-wide policy, and each affiliate controls the expenses.

 (Q: Is it correct to understand that organic personnel expenses will be considerably curbed, even by affiliates?)

Expenses are managed properly by each affiliate.

The expenses arising in FY2019 and the impact on FY2020 are as in the forecasts stated in the interim period. At that time, we also factored in the impairment loss relating to seasonings manufacturing equipment in Europe that arose in the third quarter. However, the final results forecast for FY2019 should not be very different from your perspective for areas which have trended higher than expected at the interim period. In that sense, you should think of this MTP as having been formulated with a base point that took account of the current situation as of the end of January. 

With regards to the performance forecast for FY2020, I think that we will move toward profit growth, if the effect of asset reduction is excluded. I think that the ￥100.0 billion in asset reduction in Phase 1 of the MTP will mostly be over the two years from FY2020 to FY2021. This does not mean to say that there will be a concentrated increase in FY2020 compared with some ￥50.0 billion in asset reduction carried out in FY2019. We hope to manage well so as to be able to increase profit.

 (Q: The third quarter of FY2019 was a little better than expectations at the interim period, and if this continues unchanged the final result could be better than expected. Is it correct that you envisage profit growth in FY2020 if the structural costs of asset reduction are excluded?)

That is our plan, assuming that uncertainties, such as foreign exchange rates, raw materials and fuel, are constant.

Structural reform of corporate divisions is a measure aimed at upgrading and streamlining back office operations as an effort toward Company-wide shared expenses of 2.5%. The numerical impact is included in the ￥30.0 billion of profit improvement as I described.
(Q: You have established a joint venture for the initiative with Accenture, and Accenture owns 33%. What is the significance of the investment ratios, and what are the advantages for Accenture?)  

We are partnering with Accenture to ensure per hour costs are reasonable and service either does not decline from now or improves further. The reason for establishing a joint venture is that it has the advantage of bringing in Accenture’s know-how and management style, including human resource development techniques. We considered that this advantage cannot be obtained through regular consulting alone. The advantage for Accenture is that coverage within the Ajinomoto Group in Japan may increase in the future if the joint venture is successful. 

We will focus on restructuring in North America. Basically, our approach is to consolidate inefficient factory operations overall. Also, in order to strengthen our strategy, which is focused on Asian cuisine frozen food products, in parallel with factory consolidation, we will need to invest in increasing production for Asian cuisine products. Rather than completely closing four factories, we will reduce production of Mexican and Italian products, and switch production over to Asian cuisine products. As a result, I want you to consider that the reason why the amount of asset reduction related to frozen foods is not large at about ￥4.5 billion is because these factories will continue to be assets after the switchover.

There is an extremely challenging competitive environment in the Japanese market, and I think we need to review our supply chains. We manufacture at factories in Thailand and China as well, which will need to be organized while also operating Japanese factories. This is included in the six-year plan from FY2020 to FY2025.

(Q: Does the closure of four factories include the reviews in China, Thailand and other countries?)

I do not want to answer at the present time as the details are confidential.

(Q: I think that the figure of approximately ￥4.5 billion for asset reduction is on a net base including investment. What will the gross figure be? I would like you to explain your approach.)

I do not want to answer because it may identify specific factories.

The competitor cited as an example is extremely strong in the food service business. The food service business requires many SKUs for solutions. Accordingly, I think there is a disparity with the profitability of our food service business. This is a common factor in Japan where we are inferior to a different competitor, and I think the disparity is even bigger in scale in North America than in Japan. Our strength lies in Asian cuisine frozen foods. When we start looking here, we do not have the aforementioned inferiority, so our strategy is to shift to this area.

 (Q: For example, are the yields for Asian cuisine products completely different than those of Mexican and Italian products?)

Unit prices are completely different. Rather than there being significant difference in manufacturing costs, the unit prices ultimately paid by customers are completely different even when using similar ingredients.

 (Q: In other words, I think profitability in the Asian cuisine category is much higher than 2–3%. Is it fair to say that the Italian and Mexican categories are not necessarily in the red?)

Some businesses are in the red.

 (Q: Is it the case that if you shift firmly to the Asian cuisine category, profitability will rise even considering the product mix, but there are risks if you try to rush, so you will proceed slowly and with caution?)

That is the case.

 In North America, the share was about 33% in FY2018 on a business performance basis. In Europe, the business is still small. It’s growing considerably, but the scale is too small and there is considerable fluctuation; as such, it’s not at a level for us to make public.

(Q: According to materials on the FY2019 interim financial results, both North America and Europe are growing markets. In North America, the Company has the top share, and the European market is seen as about two-thirds that of the American market. As the Company’s share in Europe is not so large, can we expect sales to also grow as share increases?)

Yes. The growth rate of the Asian cuisine frozen food products market in North America and Europe remains strong.

Asian cuisine, which is the main battlefield in the North American frozen food business, is booming, and the market is expanding. In this environment, competitors from Asia and Japan have entered the market, and the competitive environment is changing. However, this does not mean that we accept the entry of competitors. We plan to establish our competitive advantage by accelerating the implementation of innovation.

We are working on profit improvement over a period of time. Our strategy is also based on reflection on the FY2017–2019 MTP. If we implement structural reform rapidly with a top-down approach, operations at manufacturing sites will not follow along. The same will happen even if we switch over to core businesses. Therefore, we plan to make the switch by closing one factory while keeping plenty of inventory at another factory. Rather than pushing ahead at two or three factories in parallel, we have changed to a plan under which we address factories one at a time, which I think has led to the impression that it is a bit slow. We would take the same risks if we forced things so this is the way we want to do it. 

 (Q: How much is the Asian cuisine market growing at the moment, including competitors? Is there a risk that competitors will gain market share while you are taking the time to make a switch that achieves a balance with sites?)

From the risk management perspective, the competitors that have entered the market are very strong companies, and we do not underestimate them. However, we recognize that other parties are also struggling right now, and this is the true competition. Meanwhile, we need to continue working closely with customers. This will protect our presence in North America. We have been maintaining strong relationships with customers and market share by transferring products from our Thai factories until our production system in North America is in place.

His immediate responsibility is General Manager, AminoScience Division. He has overall responsibility for growth strategy in the current Healthcare business and Life Support business, which includes electronic materials, as well as restructuring of the animal nutrition business. His career history includes having worked at global companies, so he has been demonstrating strong leadership in work procedures and methods in the area of our Company-wide governance and culture. I think that this is having a positive impact on our management overall.

 (Q: What will be this officer’s first accomplishment: asset reduction and disposal in the animal nutrition business or sense of urgency in switching assets?)

His scope of responsibility is Healthcare and others, using the disclosure classification from FY2020 onward. This encompasses the task of expanding areas such as electronic materials, animal nutrition specialties, pharmaceutical custom manufacturing, and amino acids for pharmaceuticals and foods among others. The animal nutrition business requires structural change, and the others are growth domains.

 (Q: You mentioned Healthcare as a business with efficiency issues. Is this not under the jurisdiction of this officer?)

He is also in charge of some Healthcare business with efficiency issues. However, it is one of the new businesses. The theme will be to improve profitability by enhancing the supply chain and expanding the market, but this business is not particularly large as a percentage.

We will change the form of management. This means we will change the jurisdictions of Executive Committee members and officers with responsibility. Up until now, the general manager of each division was responsible for primary logistics. Going forward, one corporate officer will oversee production and upstream logistics in the supply chain together as we change to a system that facilitates speedy and comprehensive management, including the introduction of digital transformation (DX) for demand forecasting and reduction of distribution inventory. In the future, we hope to connect procurement to this system as well, but this is not included in the plan yet.  

 (Q: Going forward, in the food business, for example, you will change from a local to a global management system. In relation to that, is it your plan for corporate officers, that there will be a frozen food corporate officer in frozen food business as well as a single corporate officer with global responsibility for production through logistics?)

Organizing globally for the consumer food business is based on business units. The seasonings and processed foods business was divided into Japan and international, so it will be reorganized into two global organizations for Sauce and Seasonings and Quick Nourishment.  

For production and the supply chain, which is a functional aspect, the corporate officer will be responsible for improving efficiency. I think that DX and systems for reducing inventory overall as well as mechanisms for demand forecasting can be shared for businesses and functions, and a single corporate officer will be responsible for this.

 (Q: Will the corporate officer consider those mechanisms Company-wide?)

In fact, the supply chains for the B2C and B2B businesses are quite different, so it will be roughly split into two. However, a corporate vice president, who is one of the Executive Committee members, will be responsible for building the overall mechanism itself.

 (Q: Is it correct to understand that the big vision is that this will lead to more efficient working capital Company-wide?)

Yes. Our cash conversion cycle (CCC) is over 100 days, and there are major issues with inventory, including work in process. In manufacturing for bulk business, we adopted a strategy of centralizing plants to some extent, but this has led to significant ballooning of inventory as a result. The role is to take drastic measures on this. 

First of all, on page 36, which is for reference, the FY2019 base point figures are the revised forecasts at the interim period. However, the figures in the main materials take the current circumstances at the end of January into account. I apologize that the assumptions are different. I think that is a big factor. Also, page 36 shows the plan without the asset reduction in Phase 1. Therefore, the organic growth rate comes out on the high side.

 (Q: The assumptions on page 36 are not the latest situation, but even based on that, the business profit ratio will only increase 1% from FY2019 in FY2020 to FY2022. You also told us that the organic growth rate is only for core businesses, so don’t you need to plan for a bit more growth?)

It is as you observe. However, obviously Japan is included in the seasonings and foods business. Also, as for the business profit ratio only changing 1%, we expect an increase in certain marketing expenses.

 (Q: I thought that you plan to grow business profit by ￥30.0 billion in the three years from FY2020 to FY2022 and that business profit growth in the seasonings and foods business is a major factor, but should I have a bit of a different image in this case?)

The breakdown for the approximately ￥30.0 billion in profit improvement is approximately ￥10.0 billion from unit price growth, approximately ￥10.0 billion from structural reform, and approximately ￥10.0 billion from reduction of costs arising in the course of business activities, including resource-saving fermentation.

 (Q: Are we to understand that you are saying the monetary amount for the approximately ￥10.0 billion in profit improvement due to unit price growth sounds a little low but is a net amount taking into account an increase in marketing expenses?)

The approximately ￥30.0 billion profit improvement is the figure obtained by subtracting Company-wide risk from the increase in business profit associated with the sales growth included in the plans by business segments on page 36 and the following pages of the reference materials. 

 (Q: Are you saying that the reduced amount taking risks into consideration based on the cumulative business profits calculated for the three business segments shown on page 36 and the following pages is ￥30.0 billion, although it is not precise because the assumptions are different? Are we to understand that you are totally committed to aiming to increase business profit by approximately ￥30.0 billion over the next three years?) 

The figure we want to share is ￥30.0 billion.

 (Q: Is this approximately ￥30.0 billion calculated based on the revised forecast at the interim period or based on the expected final results taking into account results up until the end of January?)

My apologies, but our expectations for the final results taking into account performance as of the end of January are higher than the revised forecasts at the interim period, and we made that our base point.

We’re sharing the same information that we have shared with all of you about the MTP online, and on-demand within the Company. I was scheduled to hold internal briefings immediately after the announcement, but given the environment, this has been moved back to at least the beginning of April. I want to further break down the content that was communicated to you all, and discuss at a detailed level how we will restore transformation and growth.

In terms of how it is being taken inside the Company, in our performance outlook for the FY2018 interim period we declared our asset-light model, and announced it internally from the viewpoint of capital efficiency. We put out our guidelines for the current MTP in July 2019, and spoke about the essence of the guidelines again at opportunities such as the announcement of financial results for the FY2019 interim period. With respect to corporate divisions, we moved ahead with specific actions such as our joint venture with Accenture to streamline work, made decisions to spin off functional overseas Group companies, and operated in a form that placed specific measures at the forefront. Because of this, in sharing the framework of the current MTP, I think it is being taken that what I talked about is proceeding.

There are still many unknowns in terms of details, though, so I hope to fill in the gaps as quickly as possible. The next few months will be the core time for sharing information. I hope to hold workplace dialogs myself.

In positioning FY2020–2022 as three years of structural reform, we’ll move forward beyond simply reviewing our portfolio. A key point is the extent to which we can shift our mainstay seasonings business and processed foods business toward enhancing the value of wellness. Domestically, the shift toward wellness is well understood, and we expect it to be promoted. In our major businesses overseas, too, especially in the Five Stars, how quickly we can move toward carrying out measures is a key point. I think that if we can catch up there, the acceleration that you speak of will become apparent.

Your question touches on an area that we’ll have to share with investors in easily understood terms. Capturing this segment involves several elements, but we have a real sense that delivering products directly to consumers, including through e-commerce and our own channel, is coming, and with our so-called army-like organization, with its powerful sales force overseas, we should be able to ride that.  We’re also rolling out Kachimeshi® overseas, particularly in ASEAN countries; this is a measure that all local employees overseas can really feel. We want to make good use of these two things to jump at the higher-income household markets.

(Q: If the Company delivers product directly, that should require investment in human resources and an organization with different sales representatives and resources from the past. Can we assume that the Company can move forward here, too, at an accelerated pace?)

For exports from Japan to China and other East Asian countries, and Southeast Asia, we’re creating a dedicated organization under a new structure. Before firming up this organization, we spent half a year actually creating touchpoints, and are now entering the stage of going into actual operation. In Southeast Asia in particular, direct marketing and B2C business that delivers product directly to customers are ramping up rapidly, and we’re considering the recruitment of external human resources.

The progress of structural reforms toward overall profit growth should, as you recognize, take place around the middle of FY2021 or in FY2022. As I’ve already noted, we’re aiming for profit improvement of about ¥30.0 billion over three years, with cost reductions and structural reform accounting for ¥20.0 billion. Until now, we’ve shared cost reductions in the form of progress in resource-saving fermentation technologies, but we’ll add cost improvements achieved through efficiency due to work transformation. In the first fiscal year, I hope you’ll see efficiency achieved through these two cost reductions. Regarding the portion of structural reforms made through rearrangement of our business portfolio, in the end these should lead to a reduction of losses and a turnabout to profitability. I hope to execute these as much as possible in FY2020. However, there is a high likelihood that some items will slip to FY2021 for reasons of negotiations with partners. I think that looking at these areas will make things easiest to understand for people.

The key point of changes in the organization is that top management’s way of thinking has changed considerably. In a word, I think that we could express the new plan as shifting course from a strategy of business expansion that accumulates short-term P/L, to a strategy of ROIC management. We’ve changed to top management that understands and recognizes the importance of this. From the standpoint of viability, we’ve come to the point where we must not only take leadership but must also change the methods and mechanisms themselves for work that connects to the organization’s culture. Regarding this, a big difference from the previous MTP lies in the desire to move forward by indicating best practices through steady execution, beginning from organizations and corporations that have a large impact.

For a decade now we have raced toward a goal of becoming a global top 10 food company by FY2020. Our top management has held discussions on how, going forward, we need to take inventory of overall work methods that will connect to the next decade as we continue moving toward that goal, and change our point of focus.

It’s possible for low-salt products to penetrate in the same way in emerging countries. Even in our current Five Stars, there is a widening recognition within society that getting per capita daily salt intake close to the 5 grams recommended by the WHO is a major issue. I think that Thailand and Vietnam in particular are taking this topic very seriously and are waiting for solutions and proposals. In Brazil and other countries, too, there are movements at the national level recognizing that some regulation may be needed concerning salt intake. In that respect, we see the time as quite ripe.

Yes. The engagement survey, which is the base of this, measures the sense of trust in and the agreement with our management vision, including leadership and ASV, as well as whether employees view achieving this vision as their own job, and whether their work is connected to achievement of the vision. We’ve conducted the engagement survey twice, in 2017 and 2019, with 80% of employees expressing trust in the top item of ASV, as well as agreement that the Ajinomoto Group is proceeding with this at the forefront. Even by global standards, I think this is a very high level. However, only 55% of the employees make ASV their own initiative, which I consider a big problem.

In response, we intend to increase this to 80%. Even more ideally, setting a goal for 2030 of increasing the percentage to the 85% level of a truly excellent company, and incorporating that into organizational management PDCA, are key points. We plan to increase the frequency of engagement surveys from once every two years to every year.

When changes occur and the question is how we can revise the scenario, the answer differs completely depending on whether the most important metric is P/L or ROA/ROIC.

We have been P/L-oriented until now, and our decision criteria has been which path to take to increase business profit in the short term. Reducing investment in new businesses or in businesses that can be made structurally better, and working for immediate short-term gains, are ingrained in the organization, something that I consider a great problem.

The medium-term ROIC that we plan to use as a metric consists of ROAs by fiscal year and by business. I think that making this an organizational goal and changing to an awareness of performing work to meet that goal will lead to greater strength against risk.

Increasing prices is built into our current strategy. There are two aspects regarding this: increasing the number of new products that appeal to health, and changing our marketing to enhance the value of flavor seasonings and AJI-NO-MOTO®, which are existing consumer food products.

In Japan, our composition ratio of low-salt products is about 5% of Japanese, Western, and Chinese flavor seasonings. However, unit prices are over 20% higher than those of regular products, and the growth of these items overall is in the double digits. For that reason, these products account for a 1% portion of our current CAGR of around 1.6% for seasonings and processed foods in Japan.

As we have yet to undertake this not only in the current Five Stars but anywhere overseas, first aiming for this is our expected value in terms of a new product. However, as this alone won’t take us to 4–5% organic growth, we’ll undertake the same sort of initiatives in areas where the scale of existing flavor seasonings sales is large.

(Q: Do you mean creating regular products and low-salt products within existing flavor seasoning brands?)

Yes. For low-salt products, I think it’s best to use a shared brand.

(Q: Does the 5% composition ratio of low-salt types mean, for example, that the composition ratio for the low-salt type of the existing product HON-DASHI® is 5%?)

In Japan, we have low-salt types for all of our so-called Japanese, Western, and Chinese flavor seasonings, that is, for HON-DASHI®, Consommé, and Marudori Gara Soup. Averaged, these low-salt types have a sales composition of about 5%.

(Q: You mean that it is 5% in Japan, and that you will raise it to about 10%. The percentage is nearly zero overseas. Should we picture the Company as first aiming for about 5%, as in Japan?)

Yes.

(Q: In rolling out low-salt products overseas, is the company ready in terms of production facilities?)

When we shift our overseas strategy to salt reduction, I think that the most important thing is the product AJI-NO-MOTO®. The salt-reducing effect is in the product itself; there is no low-salt version of AJI-NO-MOTO®. Shifting to a marketing strategy that highlights the salt-reducing effect of AJI-NO-MOTO® itself is the fastest approach. In overseas flavor seasonings, rolling out low-salt products in countries with an overwhelmingly large volume will require some time to adjust local production, but in any case, I want to have lineups of low-salt types in FY2021.

In concrete terms, the amount of salt reduction in our products in FY2019 was the equivalent of 990 kilograms. Our plan for FY2020 is 7,700 kilograms as we push salt reduction forward in our products. We’ve been able to accelerate it to this degree by shifting our research and development consciousness from just delicious and convenient to an appeal to health values.

Regarding the strengthening of global supply chain management, we’re currently studying methods using AI to improve inventory management and the accuracy of demand forecasting. I hope to somehow incorporate this into Phase 1, which goes through FY2022. Our issue is that in B2C, and in B2B business where we’re building global supply chains, we have a very high level of inventory compared to global companies. At present, our cash conversion cycle exceeds 100 days, which is a major issue in cash management. The greatest part of this is inventory, which we’ll reduce by strengthening supply chain management.

(Q: In addressing inventory management issues, where are the current problem points, and what areas will greatly change?)

Work involving demand forecasting crosses many departments, such as departments that control factories, logistics, and business overall. To avoid creating troubles for customers, and to issue estimates that are on the safe side, inventory builds up beyond the levels needed. I mentioned AI because this is where our expectations for digital transformation (DX) are highest. We want to reach a point where we perform management using AI and as few employees as possible, without the intervention of human forecasting. I think that this will yield great results.

(Q: Do you have a specific image for the monetary value of the improvements, or the areas where the greatest effects will appear?)

In terms of stages of DX, we’re now at the stage of DX 1.0, and are going through trial and error. We haven’t set a very large amount for the cash improved in this way in Phase 1. As an expected value, I want to reduce inventory by a level of tens of billions of yen from FY2023 onward. In our plan for operating cash flow through FY2022, too, the amount is not greatly increased from the current level. Accordingly, we consider Phase 1 as still a period for engaging in trial and error.

(Comment: I believe that the Company has undertaken DX in the past as well. Looking at the examples of other companies in Japan, though, it takes about 10 years to tackle DX and globalization and to yield tangible results. It would be harsh if it took the Company 10 years to achieve this. If possible, I’d like to see the Company accelerate toward this goal, with deployment of expert human resources, and work to make it happen in about three years.)

Three years is the image we have in mind.

We separate commodities from specialties for convenience, but will prioritize structural reform in the animal nutrition business overall. It’s possible that we may do away with the animal nutrition business entirely. However, what’s important is that while the volume of business in specialties is small for us, it is highly profitable business and we’re also considering cutting this off and undertaking structural reform. In terms of order, structural reform is the top priority. If possible, we’d like to keep the small but profitable business of specialties. If the business of specialties does remain it’ll come under Healthcare and others, but it’s not of a scale to impact ROIC overall, it would be one very small profitable business that would remain.

It’s consistent with the explanation that both are remaining because service for customers is necessary, but the idea here is that the Company will hand off the baton to users and distributors in selling the business and searching for a partner. I want to ensure the importance of a customer perspective.

(Q: It was said that even if the business of specialties within animal nutrition remains, the impact on ROIC will be small. If that’s the case, though, I wondered whether this small business should be kept. Is there no choice but to keep it, for reasons of customer orientation?)

To repeat what I said, we’ll first prioritize structural reform. However, there is a variety of options in the process of talking with other parties, and I haven’t said that we’ll definitely keep the business. When commodities are separated from specialties, the business of specialties becomes small and of low importance in terms of the whole, but if we position these as Company-wide solution-providing businesses, the potential also remains for connecting them to solving customers’ issues. For that reason, we separate them in the materials for convenience.

 

The message of “being reborn as a solution-providing group of companies for food and health issues” by creating many touch points is generally being taken positively, I think. In the end, the sense is that it comes down to our execution capabilities. For that reason, regarding execution capabilities, rather than communicating that we won’t know until we try, I want to share information on organizational management in order to improve execution capabilities and changes in work mechanisms that will lead to transformation of company culture, on IR DAY or at other venues for communication.

The transformations that we have to carry out in the FY2020–2025 MTP go beyond simply reorganizing our portfolio and transforming our business metrics; they extend to transforming the Company’s business culture itself. We plan to integrate our ways of working, which our varied businesses have created individually. Creating this culture will require management that can draw out the capabilities of human resources to their limit.

In our Company, something like a great wall has appeared between the AminoScience business and the foods business. Walls have somehow come up in marketing, research and development, production, and varied other value chains, which I think has resulted in weaknesses in our structural culture. From this perspective, I think the ideal leader is one who can not only deal with employees but who can also display leadership in changing structures. Our priority is that a leader can specifically take the reins of organizational management and work toward a group of companies that solve food and health issues, rather than just associate work with a vision.

Changing the structures of work will also require placing people with outstanding knowledge and experience from outside the Company onto the management team, and properly organizing how we conduct management. In that sense, I think that the next most important thing is leadership that can set an example in open & linked innovation.

Key points in the FY2020–2025 MTP include carrying out primarily structural reform in Phase 1, and connecting this to a return to growth in Phase 2. In Phase 1, we’ll accumulate business profits of about ¥30.0 billion, of which ¥20.0 billion will come from structural reform and cost reductions. Accordingly, the upturn that we will effect in this area during the first half of Phase 1 will be an important point in our communications.

Regarding how we’ll build up growth momentum in core businesses, there are two viewpoints. One is how to regain the growth curve through specific appeals to health in the current Five Stars, which are drivers of the Company but which face slowing growth. This doesn’t just mean making efforts through the army-like way of working that has been our Company’s success model so far. As an example, I think that we need to quickly present best practices in our e-commerce initiatives and new initiatives toward digital marketing. I believe that there are weaknesses in the Company with the employees we’ve had so far in this area, so I want to cooperate with outside specialists to bring visibility to the work.

The other viewpoint regarding the new businesses that we’re planning to launch in FY2023 and later is that we want to indicate mechanisms for these as early as possible.

(Q: Will the Company be able to make some degree of improvements in its current products, marketing, and channel development? Or will it be necessary to wait for the new businesses from FY2023?)

Shifting to marketing that appeals to health values in our strong seasonings business is a strategy that encompasses our current forms of business as well. The shift in marketing strategy will lead to unit price increases and to a change in quantitative momentum for basic seasonings like AJI-NO-MOTO®. Our new businesses will come in on top of this, on the major premise of strengthening our business itself.

Since I took office as president, I think that sharing our vision under ASV Management in the FY2017–2019 MTP has penetrated through the Company. Regarding making contributions toward social issues through business, I think changes in the new vision have gone smoothly, as we’ve been able to build consensus among employees and organizations. So, in terms of phases, I see the Company as having made preparations for moving to the next stage.

The difficulty within this is that this isn’t something that can be changed just through a vision. Management systems and mechanisms that will change our ways of working and evaluating are important. The Company can’t make use of its strengths through division of labor the same as in the past, so we’ll start to create momentum through collaboration on assets in terms of human capital and experience. In order to carry this out practically, we need to quickly generate a number of best practices. Our organizations won’t be energized if we don’t indicate best practices in executing reviews of our portfolio through asset reduction in future structural reforms. I think we’ve entered that stage.

(Q: Should we understand that you’ll engage in changes to the Company’s schemes, such as ways of working and ways of evaluating, from April 2020?)

Our important KPIs are those shown in red highlighting on page 6 of the MTP materials. KPIs highlighted in yellow are not always shared outside the Company, but internally we position these as organizational targets, and will have evaluations performed on the basis of these. This will start from April.

Also, what will be most difficult in carrying out ROIC management will be changing culture, not just KPIs. A key point is whether we can enhance efficiency in the medium term through ROIC management, and whether we can turn a culture that makes the accumulation of short-term business profits the top priority into a mindset of organic growth.

Until now, management systems have differed by organization. Some departments use operational excellence (OE); production and other departments carry out improvement activities using the TPM activity flow, while yet other organizations use the 5S Japanese model. From April, we’ll unify these into OE. As this will facilitate horizontal axis comparisons of the levels at which PCDA is at, we want to standardize a mechanism that will allow organizations to propel themselves.

(Q: Getting new OE to penetrate may require throwing away past ways of doing things. What are you doing on the management side to organize these mechanisms?)

The single point in our selection of OE from among multiple management systems is customer orientation. The concept here is to streamline all work in order to boost customer value. Connecting value chains will make it apparent that this ultimately leads to an increase in customer value, not only in business divisions but also in corporate and production divisions. As an example, it’s difficult to directly feel increases in customer value in the work of corporate divisions. By incorporating the idea that there are customers downstream into organizations’ OE, we want to establish management that inevitably eliminates work that is useless from a customer perspective.

In addition, in terms of enhanced hourly productivity per person, this will connect to individual evaluations in a very simple way. This is a different level from the reduction of total actual working hours to around 1,800 hours in our work-style innovation so far. Within those 1,800 hours, we’ll spend time on work to increase customer value, while maintaining health and productivity management.

I’d like to link such things to organizational management and individual evaluation.

Even in our current Five Stars, high value-added categories are already appearing in seasonings markets. We’re starting by sharing, from global strategy headquarters to local managers, the fact that high value-added categories are emerging in markets. We’ve been able to share that the premium categories are not traditional trade (TT) or some of the modern trade (MT) in which we’re strong, but are mainly starting from e-commerce or other B2C businesses, and that markets in every country are ready for value added-type products.

Amid this, we’ll raise prices by enhancing the value of our basic seasoning AJI-NO-MOTO® and by working to roll out low-salt types of flavor seasonings in countries where the scale of our sales is large. I think that through product concepts and designs with further premium orientation, there are still chances in menu-specific seasonings. We hope to combine new premium-type products, while raising the base for basic seasonings and flavor seasonings through low-salt products.

As we’ve adopted nearly no premium strategies overseas, we don’t have specific examples in the Five Stars. In Japan, we have low-salt products in all types of flavor seasonings: Japanese, Western, and Chinese. They account for about 5% of the sales composition ratio, but the unit price is about 20% higher than normal products. Its growth is in the double digits, and we’re creating momentum to lift the flavor seasonings category in Japan by 1%. Overseas, too, we want to quickly sell the same sort of products, and create the effect of boosting the whole.

(Q: Should we understand that there have been areas in which things were not shared locally, and you intend to change to communication that shares information through governance by the head office?)

When we made a structure in which the head office provides backup to make the work of affiliates easier, change in the market occurred. We reorganized the consumer foods business into a global business based on the thinking that challenging work won’t be born if there’s no conflict within the Company, from the same viewpoint as battling with competitors.

(Q: Human resources and knowledge in a global business have to be at the same level as people who have information locally. What are you doing inside and outside the Company with regard to investment in human resources to address this?)

In terms of using the functions of amino acids to strengthen food products, we’ll make changes in the deployment of human resources. We’ll put employees with a high level of knowledge of health and nutrition into the foods organization. In our laboratories in 2019, we deployed employees who excel in basic research and analytical ability in the Institute of Food Sciences and Technologies and in the Research Institute for Bioscience Products & Fine Chemicals, and are seeing the results of this. We want to do this in business fields, too, to strengthen them.

Also, as many existing food manufacturers and venture companies have entered digital marketing and B2C fields, we think that external human resources are necessary.

In terms of overall management, we’ll create new businesses, particularly those related to personal nutrition. We’ll take tasks scattered among business divisions and integrate them directly under the president, and will bring in human resources from outside. Particularly in the fields of B2C and digital marketing, we want to move ahead under a structure covering these fields, and do this in ASEAN, too.

This is a matter of people, not simply one of fixed costs returning. We are announcing a Special Second Career Program for Managers aimed at manager posts in Ajinomoto Co.; this should come into view later this month. Behind this is business portfolio concentration accompanying the shift to asset reduction. Until now we’ve undertaken structural reforms in many businesses, but unfortunately, some employees faced difficulties in tracing a new career after coming back to Ajinomoto Co.; in response, we executed the Program. On that point, I think that this time we’ve cleared a hurdle.

With regard to non-core businesses, when we make a business shift, such as halting production of feed-use amino acid lysine in Thailand and shifting to production of MSG, those employees were able to shift to working in the MSG business. Having employees familiar with the work stay with us is a very effective way of making use of human resources.

(Q: The reconstruction of businesses happens frequently. When it happens in the future, should we picture fluidity in human resources as a thing that will happen agilely?)

If we can push ahead with reconstruction of businesses in a win-win fashion before we’ run into difficulties, I think that will also result in low pain for the organization.

In FY2022, I believe that we can achieve nearly all of the financial metrics and ESG metrics that are criteria for inclusion among the global top 10 food companies. That would put achievement three years behind the target that we had held.

The biggest reason for our dropping the top 10 goal in the new plan is the viewpoint of capital efficiency. As of FY2022, we will not have been able to achieve capital efficiency that shareholders and other stakeholders would evaluate as placing us among the top 10. In the plan, we tried to go fairly deeply into structural reforms, but ROIC should still be 8% in FY2022. This is no more than an average value for a global food company, so we dropped the expression regarding inclusion in the top 10 companies.

As a benchmark, I want to aim for ROIC exceeding 13% in 2030, with an organic sales growth rate at the time of 5%. We recognize these two factors as criteria for inclusion in the global top 10 companies, and have not changed the benchmarks in that regard.

From the perspective of solving food and health issues, the electronic materials business is not included. However, making the use of all the assets in the Company to contribute to the top-level information industry is a B2B business model, and is an extremely large asset for our Company. Moreover, with our Silicon Valley information site as a base, we’re trying to create a new personalized nutrition business model as a B2C business. Through open & linked innovation, we’ve made information connections with companies we can trust. Given these points, I think there is no change to the status of our electronic materials business as a core business.

 

In formulating the MTP, outside directors played a very important role in setting “a solution-providing group of companies for food and health issues” as our Vision for 2030, and in setting a business framework for achieving that. We discussed the plan several times during Board of Directors meetings. In 2019 we created a Management Foundation Review Committee, chaired by me, as a body under the Board of Directors, and created the plan in collaboration with the outside directors. So, I think we have their full commitment. We’re still receiving varied support in areas that are incomplete, especially regarding how to heighten effectiveness.

(Q: Viewed by outside directors from the viewpoint of corporate value, what are recognized as the most important issues?)

In our communication concerning corporate value in the FY2017–2019 MTP, we stated that our corporate brand value was value consisting of integrated financial and non-financial values. To be sure, Interbrand’s evaluation axis for corporate brand value is composed half-and-half of financial metrics and ESG perspectives, but its perspectives regarding customers and employees were sparse. And most unfortunate of all, no matter how much we may talk about ESG, there is still a lot of uncertainty in terms of how this connects directly to market capitalization.

Accordingly, the new plan positions corporate value as formed from three fields. While maintaining a balance among market capitalization, corporate brand value as customer value, and employee engagement, we’ll change to management that improves all three of these. We’ve received a positive reaction from the outside directors on this point.

(Q: I think the meaning of this is that you’ve found a balance. In this MTP, should we understand that you’ve placed more focus on the relationship between ROIC and WACC, and have placed weight on the creation of value by thoroughly tackling it from a financial basis?)

In the end, the three elements that make up corporate value are no more than metrics that can be measured in terms of outcomes. We understand that enhancement of employee engagement and corporate brand value leading to market capitalization as economic value is not something separable, but rather moves in cycles. Therefore, rather than finding a balance, we want to create a structure in which the three values ​​link in the form of a value chain to increase value, and ultimately lead to an increase in the market capitalization that investors value.

We’ve indicated the relationship between ROIC and WACC for each disclosed business segment and that while we improve those, we’ll aim for Company-wide levels in excess of 8% in FY2022, 11% in FY2025, and 13% in 2030, as I’ve communicated.

ROIC has some very positive aspects. Naturally, we have to break things down not only to PL but also to BS, and make enhancements from both viewpoints. We’d like to show this as an ROIC tree, drop it into organizations in the form of concrete KPIs, and perform management.

As a specific example, page 6 of the MTP materials shows priority KPIs in red highlighting, from the perspectives of human resources, customers, and finance, as “Overview of transformation and KPIs.” These KPIs are for the purpose of constantly communicating with stakeholders. The KPIs in yellow highlighting are also used for timely dialog with stakeholders. Within the Company, we’ll continually track these as important management metrics.

Our biggest organizational issue to date is that MTP targets have been composed mainly of sales and business profits and these were broken down to individual businesses. Because of this, we had to build up each year’s business profits. Each business division is now in the habit of prioritizing these in its business management.

In Phase 1, a major challenge will be a change from a short-term PL orientation to an organization that pursues medium-term ROIC improvements, our stated overall goal. This is something I want to perform properly.