Q&A from Small Meeting with president (June 10-12, 2020)

On the whole, I think there has been no great impact in terms of numbers. Consumption in Japan is gradually returning to normal, faster than we’d initially assumed. But while home-use demand has stabilized at the level of the previous year, restaurant-use demand has not yet returned to normal in all areas, so Japan is setting a bit of a weak tone.
Moreover, we are very concerned over a second wave in the United States. Infections are settling down, yet infection cases are appearing at a rate of about 7,000 per day. At the same time, economic activity is restarting, and consumption is coming back. Accordingly, we have to be cautious about the possibility of a second wave and its associated risks appearing in autumn or later, but at present, recovery is occurring earlier than in other countries.
In ASEAN countries, things are generally progressing according to expectations. Recovery in Thailand is gradual, with the economic downturn having an effect. In Indonesia, infection is spreading. In terms of consumption, however, traditional trade (TT) is robust and modern trade (MT) also remains strong. What presents a bit of concern is the Philippines, where infection is spreading rapidly. Restrictions on going outside have been loosened, but consumption is somewhat depressed. In Europe, there has been no change.
In the AminoScience business, shipments were down due to the disruption of medical-related markets, but demand has returned considerably for amino acids for pharmaceuticals. In personal care ingredients, demand for surfactants and other products remains strong, and we’re seeing more of an upside than we had mentioned at the Analysts’ Meeting.

(Q. Should we understand that you first quarter results are progressing in line with, or slightly better than, the projected ¥ 6 billion negative impact on business profit? You’ve said that economic activity is starting up again, especially in the United States, but does this mean that primarily restaurant-use demand is returning?)

Looking at May, that is our feeling with regard to sales. With regard to profit, we are now examining various marketing expenses. Accordingly, right now I’m unable to talk about progress toward our business results forecast.
Looking at frozen foods in North America in May alone, home-use and restaurant-use demand combined has returned to nearly the same level as a year ago. As these were down over 20% overall in April, our sense is that the recovery has been rapid. With production stopped and restarted in our factories due to the occurrence of infection cases, we took action in May and were able to grow home-use by over 20%. I think this is about the normal level of demand, but as the pandemic spread rapidly in April, there are areas in which we were not able to adapt sufficiently.
With regard to restaurant-use, we reported an 80% drop for April, which is now returning to about a 40% to 50% drop. Large banquets and so on are still a difficult area, but we’re moving proactively in a number of areas centered on foodservice, including takeout and drive-through. We believe the impact of this appearing in restaurant and industrial-use frozen foods sales as well.

We are very concerned over Brazil. As the epidemic expands rapidly, the government has announced that it will stop reporting numbers of infected persons and deaths, a decision that state governors strongly oppose. Against this backdrop, our home-use business is seeing continued consumption up over 5% from the previous year on a local currency basis. Yet while foodservice has recovered a bit from April, it has only recovered to about 30% the level of the previous year. Looking at Brazil overall, it is a supply source for amino acid and specialty chemical raw materials, and with the Brazilian real currently weak, exports are very strong.
(Q: I understand that the outlook for Brazil in the FY2020 plan is poor. Should we understand that progress here does not entail downward risk?)
Although the epidemic is not weakening at all, the government is seeking to restart economic activity. Economic activity is continuing at present, and we are stuck at our current business results. We are concerned over the possibility of this leading to further societal unrest, which would be very bad. The possibility of negative impacts from a second wave has not yet gone away.
(Q: Should we understand that the Company is progressing in line with plans on the assumption of a second wave, and that your thinking assumes some degree of downward risk?)
Our estimates for the United States and Brazil assume the worst cases, so results should not be worse than these. However, I’d like you to be aware that we are not yet seeing visible improvement in Brazil.

We assume a second wave in North and South America in the third quarter. Particularly in North America, we think that the probability of a second wave occurring from autumn through winter is increasing, placing risks on our forecasts. We expect that the impact on high-profit-margin flavor seasonings will be large, mainly in Brazil and Peru, and will affect profit more than sales. Frozen foods in North America are recovering at present, but if the second wave turns into a greater epidemic than the first wave, no matter how aggressively economic activity is pursued, it is expected that consumers will stay at home. With declines in these two profitable areas, a bit of a gap appears like this.
(Q. Are profit margins that high in North America? According to the numbers, frozen foods are generating nearly no profit. Could you comment?)
If an outbreak of infection occurs, we expect that infection may appear among our employees, with impacts on high-margin Asian category products, among others. Accordingly, we see this as a worst-case scenario.

Our thinking with regard to high value-added products consists of three points. The first is that we will release value-added products in our health-oriented product line—that is, low-salt and other products. The second is menu-specific seasonings—that is, products with high unit price relative to basic seasonings and flavor seasonings— and a product mix composed of these. These first and second points are factors supporting us in this environment, so we want to solidly address them. The third point is basic seasonings. As improving the products is extremely difficult, increasing the price is a key point for the basic seasoning AJI-NO-MOTO®. Among seasonings used by consumers, AJI-NO-MOTO® offers the highest cost effectiveness from the standpoint of unit price. We are addressing this somewhat cautiously, while also considering strategies to avoid losing share if at all possible. Accordingly, we will move forward steadily on the first two points; with regard to the third, AJI-NO-MOTO®, we will consider a double strategy of ensuring sales and profits as well as share, focused on ASEAN and major countries.
Regarding our progress in asset reduction, there are movements in Europe—such as in France, save for Paris—to reopen all restaurants from this week. As such restarting of economic activities takes hold, I think that we may be able to also restart the areas that we’ve said would be frozen for six months. We hope to engage in thorough negotiations and not miss any opportunities here.

Regarding asset reduction and structural reforms in the MTP, we want to stick to the plan calling for about ¥100 billion over three years. In terms of growth, we’ve incorporated profit improvement of about ¥30 billion, of which about ¥20 billion is from cost reductions and about ¥10 billion from profit improvement through raising sales of value-added products. In the asset reduction portion of structural reforms, we’ve planned for about ¥35 billion in FY2020, which I think we can carry out according to schedule. About a third of this consists of contraction of business assets. The rest is the sale of cross-shareholdings and the reduction of interest-bearing debt, etc. through intra-Group funding and other means of circulating funds. The problem lies in the ¥10 billion from raising sales of value-added product. I’ve mentioned that COVID-19 has made FY2020 extremely difficult. Our plan for cost reductions of ¥20 billion includes reductions stemming from the asset-light model and streamlining of corporate divisions. However, we are currently examining whether we can take back areas of loss by raising profits in FY2020, from a perspective of increased efficiency through digital transformation (DX) or the enhancement of marketing ROI—that is, whether we can conduct efficient marketing with more of a shift to digital. I can’t yet say how far we can raise profits through value-added products in FY2020, or how much more we will reduce costs, but we are moving ahead with raising profits through this sort of thinking.

Making shared expenses 2.5% of sales is a key theme that we set in the FY2017–2019 MTP, and we’ve pursued that. As a part of this, we launched a joint venture with Accenture on April 1, to move the Corporate service divisions out from Ajinomoto Co. We’re now looking at ways to improve the efficiency of our service business, so this will gradually take shape.
Also, as you already know, for human resources who are difficult to place within the Company amid various reorganizations, we’ve opened up the Special Second Career Program for Managers and have already determined 144 eligible persons, who will resign at the end of June and move on to new careers. Regarding the corresponding personnel expenses, there is an impact of several billion yen yearly in terms of actual cost. Effects in FY2020 will appear from the second quarter. On top of that, we can add the portion that was streamlined through the joint venture with Accenture. Synthesizing these, we think we can achieve corporate expenses of 2.5%.
As another area we can consider, there are similar indirect division jobs not only in the corporate divisions of the head office but also in in factories and in Group companies. We will first solidly establish functions within the joint venture with Accenture, and will incorporate the service divisions of Group companies and business sites into this. Our plan is to carry out actions like these within the three years of the FY2020–2022 MTP.
(Q. Regarding the 2.5% sales composition ratio, when do you think you can achieve this? The number is about 3.5% in the plan for the current year; reducing it by another 1% would seem to require a fairly long journey. What are your thoughts?)
We want to execute on this in FY2022, during Phase 1 of the MTP.

Shared company-wide expenses in FY2020 are about ¥300 million higher than in FY2019. While shared expenses are falling due to consolidation of research laboratories and establishment of the joint venture with Accenture, DX expenses are appearing. Full-scale cost reductions stemming from DX effects will be possible from FY2022 onward.

We will reduce costs by about ¥20 billion over the three years of the FY2020–2022 MTP, which means cost reductions of over ¥6 billion annually. This includes business-related cost reductions and asset reductions. We also believe that there are still things we can do in the area of shared company-wide expenses, so our plan is to carry out cost reductions of around ¥6 to 7 billion each year.
However, as our plans call for business profits to decrease in FY2020, we expect that it will be necessary to execute even greater cost reductions or consider additional asset-reduction measures in order to cover for this in terms of ROIC. Management is currently engaged in discussions on this.
(Q. I believe that cost reductions of ¥2 to 3 billion are included in plans for FY2020. If so, should we understand that you envision about ¥10 billion in FY2021 and about ¥10 billion in FY2022 too, and that you are considering what you can add to that?)
Reductions for the three years of FY2020 to 2022 are about ¥20 billion, which includes an amount from structural reforms, including asset reduction. The original plan has some unevenness, but you can think of it as having three nearly equal parts. Among these, cost reductions in business in FY2020 amount to several billion yen.
However, as asset reduction includes areas for which negotiations are frozen for six months, there is a non-zero possibility of FY2020 plans slipping into FY2021. For that reason, please understand that this area could change a bit.

As you point out, we think there is room in our outlook for streamlining SG&A expenses and for cost reductions. Our initial plan incorporates cost reductions of several billion yen, which we will execute. We also performed streamlining of general administrative expenses in April and May. We are advancing online work, and streamlining is moving ahead. I want to properly summarize all of this in our first quarter announcement of financial results, and show our plans for reducing expenses.

We’ve set a goal of 5% organic growth for the FY2020-2025 MTP, and have set a Phase 1 goal of restoring average ROIC to about 8% in FY2022. We have no choice but to foresee an extremely large negative impact for FY2020 due to COVID-19. We think it is fully possible to recoup sales through 2022, returning to normal from FY2021 to 2022. The problem is ROIC. In order to address this solidly, building up cost reductions and then solidly executing asset reductions delayed by the six-month freeze will be major topics. While we envision an inability to raise profits through measures like cost reductions and an inability to achieve a V-shaped recovery in FY2021, we want to flexibly explore whether we can achieve these through additional asset reduction.
(Q: Do you envision that while asset reduction may be delayed a bit, there will not be a major impact from COVID-19? The environment changed greatly in April and May, and there is concern over whether you can really achieve a return to your sales goals. What is your response to this?)
There will be a significant negative impact in FY2020. About 75% of our sales are in the food business, including frozen foods. It will be difficult to win back drops in sales from people not eating during the period, and win back losses in our existing business. Accordingly, the scale of sales will be determined by how we can raise other areas from FY2021. There are some positive movements in the healthcare area, but under these circumstances, it will be difficult to quickly take back sales of foods, which have a high sales composition. I think that we should be able to take back growth of 5% once we’ve completely entered the recovery period in FY2021 or FY2022, but right now we can’t say whether we can completely restore the lost sales value itself. Accordingly, to achieve 8% ROIC, we want to solidly execute on measures such as additional cost reductions, and engage in management to deliver these in combinations.

I’ll talk about the trend following the outbreak of COVID-19. Speaking in terms of the situation in Japan, the United States, and Thailand, the key country in Southeast Asia, our national brand (NB) products have sold very well following stay-at-home restrictions and the significant spread of the virus. There was rush demand primarily for home-use, and strong brand products such as basic seasonings and Knorr® soup were very strong compared to products with the no. 2 and no. 3 market shares. As the top brands are in a position to lead the market, we believe that these products were driving the overall growth rate in the market.
With these conditions ending and the period of co-existence with coronavirus arriving, supply of home-use NBs in Japan has become very tight. In May and June we asked retailers to refrain from discount sales, and have provided products with a focus on the regular products. This halt in  has shown remarkable effects from mid-May onward. In NBs and private brands (PBs), a roughly two-fold difference in unit price is appearing, with growth in NBs stopping and with PBs growing.
In Thailand, though the government issued a request to lower the prices for distributions, we have not been requested and have not lowered  the prices. But in the area of umami seasonings and other basic seasonings, PBs are showing a bit more movement than our brands. On this point, as we will revive promotions once our supply and demand are balanced, we think we can make a full return from the second quarter. Accordingly, please think of factors like these as underlying the very difficult conditions in the first quarter.
(Q. I think sales will not return to normal even if the global economy recovers this year or next year. The IMF sees 2022 as being the same. As such, I think that PBs and trading down will have an effect. What are your thoughts?)
The competition between PBs and NBs is not a thing that we’ve been unaware of until now. From the standpoint of properly securing market share for the Company, we think there is some permissible range for quality differentials and price differentials between PBs and NBs, and within that range we’ve so far carefully carried out price increases. The explosive outbreak of COVID-19 has destroyed that balance. I think what happens is that when consumers start by buying NBs and NBs spread to homes, if those products disappear from stores, then consumers decide to buy something less expensive if there’s a similar category. On that point, we will have to execute marketing strategy, or strategy with a firm eye on the price difference with PBs, just as we always have.
However, if the COVID-19 pandemic is prolonged and low-income households increase due to higher unemployment, the structure of the market itself could change. Our company engages in umami seasonings, flavor seasonings, and menu-specific seasonings, with prices increasing in that order. However, I think we have to adopt a flexible strategy in the form of creating a mix of these.

First is the company-wide Operation Transformation Task Force, which will bear three tasks.
The first of these is advancing systemization of managerial accounting in 16 Group companies subject to J-SOX, setting KPIs from the ROIC tree, incorporating these into people’s jobs, and connecting this to efficient work. We will share this among the 16 companies this fiscal year and will execute in the next. I believe that we will be able to streamline expenses.
The second task is improvement of supply chain management to reduce inventory. We are currently using DX to build a system together with external organizations. We don’t yet have concrete targets, but cooperation with outside parties has begun.
The third task is ASV engagement. We will help more employees feel that they are contributing to achieving our vision. We will invest in surveys and human resource development, undertake measures to raise individuals’ motivation, and execute.
Another task force is the Business Model Transformation Task Force which will cross our existing businesses and R&D strengths with foodtech ventures. With regard to corporate venture capital, to agilely execute model transformation we will secure and manage capital of a specified scale within the Company, rather than employ M&A methods. On July 1, we will establish the Research Department, with the purpose of creating access points with domestic and overseas venture companies. We plan to invite experts from outside the Group to create a hybrid organization with our employees, and then to invest in ventures. The theme for this will be foodtech.
(Q. What do you think are the areas in which business transformation will advance under the COVID-19 environment?)
We think that COVID-19 will boost employee engagement and cooperation with foodtech. With harsh business results forecast for FY2020, it will be difficult to achieve the ROIC 8% that we’ve targeted for FY2022, merely through the ¥20 billion in cost reductions initially worked into the MTP. Achieving additional cost reductions and increasing profits through company-wide operation transformation will be an important theme for us.

Capital expenditures overall will be about ¥210 billion over three years. The amount differs a bit by year, but is about ¥70 billion per year, allocated among six core businesses. At the same time, we will move ahead with asset reductions, and will put those amounts into core businesses as well. Accordingly, our amount of investment in core businesses is not going down; rather, we will move about ¥70 billion into core businesses. Our plan is to invest in areas including equipment for producing low-salt flavor seasonings and menu-specific seasonings, in line with our basic strategy.
With regard to marketing investment, as we announced in the FY2020–2025 MTP, we created the MTP with the plan to carry out marketing investment generally equal to that under the FY2017–2019 MTP. Within this, a key point is shifting toward digital communication and engaging in efficient marketing activities, from a standpoint of increasing ROIC. The content of our communication will place importance on contributing to health and well-being through the improvement of everyday diet.
(Q. Is the investment in capital expenditures large, from the viewpoint of connecting to sales? Is this out of a recognition that investment in capital expenditures has been inadequate, and needs to be ramped up?)
We have not been lax in concentrated investment in production equipment; rather, investment has become a bit scattered as we’ve made marketing investments in new categories, including processed foods. Accordingly, we intend to concentrate on core fields such as seasonings and processed foods. In terms of marketing investment toward core products, our plan calls for increasing these above the level of the FY2017–2019 MTP.
(Q. Capital expenditures are a bit higher this year than last year, and have been rising over the past few years. As you are reducing investment in non-core businesses, should we understand that you are making investments with a considerable focus on core businesses?)
Yes.

Without impacts from COVID-19 and foreign exchange rates, the percentages would be 2% in Japan, 8% in Asia, 10% in the Americas, and 8% in EMEA.
(Q. Where is Brazil in this?)
Brazil and the United States are included in the Americas.
(Q. Do you expect high organic growth rates in Brazill?)
Yes.

As the year was originally one for carrying out structural reform in the United States, looking at frozen foods alone for the United States, we are trying to control the percentage to achieve nearly 0%. Looking at frozen foods alone for Europe shows about 5%. The composition ratio is overwhelmingly small relative to the United States, which explains the result.
 (Q. The FY2020 business results forecast appears to make the impact of COVID-19 a major part of its scheme. My sense is that the starting point for organic growth rate is a bit high. What are your thoughts?)
Before COVID-19, we put together plans and strategies from a perspective of strengthening this area, including inadequate marketing investment in core businesses. There are also the questions of whether seasonings have been strong, and whether frozen foods have been flat under structural reform. As the MTP begins, please see areas of strategic reinforcement as incorporated into organic growth.
(Q. Could a weakening of demand in Southeast Asia and Brazil with respect to the organic growth rate be a possible negative risk?)
I think the largest negative risk lies in whether growth fields like these will remain after we pass through the COVID-19 tunnel. Consumers’ thinking toward purchasing will likely also change considerably. However, what we anticipate is not only negatives, but also an increase in health literacy. During the FY2020–2025 MTP announcement, analysts asked whether low-salt products and products to combat poor nutrition, which seemed understandable for Japan and the United States, would penetrate in Southeast Asia and Brazil, and whether food education would really succeed. Because of COVID-19, health-related literacy has quickly heightened, even beyond what it was then. On social media, a lot of information is coming out with a focus on dietary habits for maintaining immunity, rather than taking special medicines as cures. We believe an opportunity has arrived for us to build demand.
(Q. Will you be undertaking such things as countermeasures as you move forward?)
This naturally covers not only our actions but our competitors’ as well. In Europe, for example, other food manufacturers and our company lobbied to have nutrition scores shown on the front of packages in easily understood, signal-like colors. In EU committees, there hasn’t been much agreement on matters that connect to sales. Under the COVID-19 environment, however, there has been sudden movement toward legal recognition of this labeling. I think that this will penetrate not only in Europe but also in South American and African countries that have deep relationships with Europe. From that perspective, we believe this represents a major opportunity for us.
(Q. When will that law be enacted?)
We’ll update information in the first quarter, but according to information I checked last night, there is a fast movement toward support in areas that authorities hadn’t supported earlier. We don’t yet have information on when it will be enacted.
(Q. In Europe, is it mainly frozen foods that will have an impact on the Company?)
Yes. Instant noodles are another.

We see recovery in Thailand as taking time relative to other ASEAN countries. How to raise that up is a topic we will address from this year through the next. I think the key point is how to take back the decline that has occurred in foodservice at roadside restaurants, food stands, and so on. We don’t yet have encouraging information on Thailand. Conversely, the spread of infection has already stopped in Vietnam, and normalcy is returning. In Indonesia, the infection itself continues to spread but consumption is extremely robust, including in existing channels. Health consciousness is rising at the same time; we think there are factors that will allow us to cover for the decline in Thailand. Infection is still exploding in the Philippines, so the situation is somewhat uncertain. We are placing our hopes on Indonesia and Vietnam.
From the standpoint of an autonomous recovery in Thailand, there is growth in channels that proactively adopt delivery service and takeout, as in Japan. We want to solidly strengthen our business with regard to these. Large-size AJI-NO-MOTO® products and Ros Dee® flavor seasoning products are also down, but products used at home, like Ros Dee® Menu, are growing strongly. Product categories making health claims are growing, even in Thailand. As for reducing salt and improving poor nutrition, we want to achieve these through everyday diet. We want to extend our marketing strategies, too, to basic activities in TT sales, not just advertising. I think these are the most important points in recovery. As for the declines in our mainstay umami seasonings and flavor seasonings, we want to focus on covering these through menu-specific seasonings and products on the health axes.
From April to May, the government issued requests for price reductions on daily necessities, after which the price gap between NB and PB products widened considerably. We want to thoroughly address consumers’ low-price-orientation in order not to lose our share in affordable umami seasonings. In flavor seasonings and menu-specific seasonings, we will execute initiatives aimed at high unit price and a shift to premium.

I don’t have information on Thailand on hand, so I will address Indonesia. AJI-NO-MOTO® and the flavor seasoning Masako® are down over 10% from the same month in the previous year. This means sales are at 80-plus percent of what they were a year ago. By contrast, our Sajiku® fried chicken seasoning is up over 30% from the same month in the previous year.Our oyster sauce, Saori®, too, are showing growth in the high single digit. Similar tofried chicken seasoning , seasonings used as dip sauces—what we call mayonnaise-type in Japan—are showing growth in excess of 40%. The composition ratio of menu-specific seasonings is still small, but the category is covering for the sales decline in AJI-NO-MOTO® and Masako®.
(Q. Is growth in fried chicken seasoning  and menu-specific seasonings even higher than what it was before the spread of COVID-19?)
Yes. Growth had been double-digit, but I believe that growth of 30% to 40% is occurring because of heightened demand for at-home dining under COVID-19.

Our thinking is to set a priority on solidly improving profit, and to secure the share that we require to do so. In seasonings and processed foods, only the market for Asian category frozen foods is reviving significantly on a global basis. If we perform asset reduction and strengthen production capacity through category shifts, we can improve our profit margin while also growing. As I mentioned in the Analysts’ Meeting, we will make a shift to the Asian category in the fourth quarter in North America, and hope to use this impetus to gain share.
In the fields of umami seasonings and flavor seasonings, we will have to improve share and profits in markets that are not growing significantly, and will solidly secure profits. In menu-specific seasonings, the market is not materializing significantly outside of Japan, and producers are entering it as a new market. We want to commit to double-digit sales growth, as we have so far.

With regard to our forecast of the impact of COVID-19, after the IR Day on March 25, major changes occurred, such as the impact of lockdowns overseas and the spread of infections in Japan. After the IR Day, in the countries that are our main markets, lockdowns and regulations were brought in by their governments and after that, the business environment changed significantly, that is the biggest factor. We were not able to forecast this. Consequently, the forecast at the Analysts’ Meeting was based on the situation up until around mid-May.
(Q: I think in many cases demand was relatively strong even after lockdown for product groups characterized by a high ratio of home-use, such as basic seasonings that are practically essentials. Did this not apply for your products?)
That is not the case. Compared to overseas, there was no lockdown in Japan and the regulations were lenient, so the decline in sales of food service applications in restaurant-use was captured in the form of at-home dining demand, and there was hardly any difference from the initial forecast. On the other hand, overseas, particularly in Southeast Asia and Brazil, there was close to total lockdown and as markets were closed and there were restrictions on leaving home, it was a significant negative factor. I have to say a big factor is that buying opportunities were limited to home delivery services using motorbikes and modern trade with established hygiene management, and consumers stopped moving. There was also the impact of travel restrictions between countries implemented all of a sudden from late March onward. In addition, due to the inability to curb infections, employees at our factories in the U.S., Brazil, and Peru have continued to be affected, and the number is still increasing. Each time, we stop production, carry out disinfection, and then restart after a few days. As a result of lockdowns in the Philippines and Malaysia, factory operations themselves were permitted, but there were situations in which employees were unable to reach the site. Due to these circumstances, we lost profit, and there were situations in which we were unable to achieve an adequate supply of products.

From the perspective of risk management, I think we have been able to respond properly. However, quite a few employees have been infected in the U.S., Brazil, Peru, and Ecuador. We are updating this daily. Basically, our employees are working from home except for factories and logistics departments. Most of the people affected are in production departments, and we have repeatedly stopped production lines, carried out cleaning and disinfection, and restarted production again due to outbreaks of infections in these departments. There is a similar situation in our frozen food factories in North America and factories in Peru, and the reality is that we have not completely escaped the risk yet. We were able to respond to risk for employees who can work from home, but employees on the production frontline continue to work with extreme stress, even in countries where we have not had infected employees, including Japan. Given the possibility of a second wave from the autumn through the winter, I think that how we will ensure the safety of our production sites while continuing business will be the issue at hand going forward.

I believe various factors will change, however, of these, the move to efficient working styles should accelerate and become the norm. Currently, besides factories, about 5% of our workforce is working at our offices, while the remaining 95% are working from home. While this kind of extreme working style might not be possible, we may see a change from pre-COVID-19 remote working levels of once a week to close to the opposite of this—only working at the office once or twice a week. It seems we have reached the stage where this is possible.
As for customer relations, for those customers where such arrangements can lead to vast improvements in efficiencies in business meetings and negotiations and so on, we should be able to build much stronger relationships.
For factories, our approach will basically remain the same, with a three-shift system. However, where the number of workers is limited, we have worked on reducing the number of people needed through the introduction of automation and digital technologies. So, as a result of recent events, we will likely see progress in workforce reductions, such as having high-resolution cameras and other digital technologies to do inspections rather than having a person actually go around the factory and inspect.
In response to talk of not needing a head office—as I mentioned in my first reply—I do not believe we can do without one. We still need a place where we can undertake various tasks such as maintaining relationships with financial stakeholders, and undertake legal, communications, and media related functions. So, I think we need to review what we have considered necessary functions of our head office, and those that are not will likely start to be seen as better off closer to factories and R&D facilities. I think we’ll be able to take a flexible approach when considering matters such as where to locate our facilities.
As for marketing expenses, we have recently been focused on making sure we don’t exhaust supplies to meet the rapid increase in demand, or temporary demand, for home-use products. As a result, we have not used marketing expense account for their intended purposes, and have instead asked retailers to stop discount sales and reduced marketing communications. Going forward, while I don’t think we’ll be able to reduce the unused amount, post COVID-19, I think consumers will be more used to digital communications. Until now, our social media communications were mostly focused on consumers in their twenties and thirties. While our main consumers, in their fifties and sixties, were mostly targeted through television. So, we took a two-pronged approach. Now, however, middle-aged and senior adults have also become used to social media channels. This has lowered the hurdle to reaching these audiences, which should improve the efficiency of our marketing.
Remote working previously meant working from home and from each center, however, now I think we’ve reached an environment whereby some of our Tokyo head quarter work can be undertaken regionally, such as in Osaka or Fukuoka. From this perspective, I think we need to rethink the personnel reassignments we used to undertake as a matter of course.

Of course, various information, such as concerning our day-to-day business performance, or about our various regions or customers comes in vertically, mainly to our departments. However, this information was not always been shared actively in a horizontal manner. The COVID-19 crisis, however, has brought significant change. That is, because changes in the macro environmental have similarities. While the pandemic situation and economic impact vary somewhat from country to country, I guess we are seeing the various changes in each country and region as a result of macro environmental impacts such as the restaurant-use market struggling and a major shift to the home-use market, inbound tourism not recovering, or supply chain risk.
Since Golden Week in the first week of May, we have been holding biweekly scenario planning meetings on the business environments for the period of co-existence with, and the recovery after coronavirus. These have been held online with the members of our Executive Committee in Japan, department heads, and heads of our four regional headquarters and major affiliates. We at the head office have been providing ongoing updates on our views on macro environmental conditions. As the situation is changing daily, such as predictions of the spread of COVID-19 and the economic impact, we have been giving daily updates, and have been receiving reports from each of our regional operations. In response to matters of common interest, one example, regarding measures and actions in the foodservices channel, is the Solution & Ingredients Department—mainly responsible for foodservices—showing leadership in trying to respond to changes with horizontal cooperation. We have never had this kind of initiative in the past. Under the current circumstances, the top management has meetings to share local operational information, while simultaneously carrying out those response measures in the field. It has now become possible for this kind of scenario to occur very smoothly.

There might be some delays for the asset reduction in non-core businesses announced in the MTP, but we will implement it steadily. Apart from that, from the perspective of turning crisis into opportunity, particularly distribution, the ways products are delivered to consumers, are extremely diversified and could change all of a sudden. Before the COVID-19 outbreak, I think that the percentage of food purchased via e-commerce was around 2% in Japan and 3% in the U.S. However, it could increase to nearly 10% in the U.S. in the period of recovery after coronavirus. In Japan, the increase in e-commerce is gradual due to issues with infrastructure and logistics capability. However, looking at the current growth rate, food is beginning to increase at the same rate as the 25–30% rate of increase for household goods, and it will be a major channel. 
Accordingly, it is possible that the e-commerce channel, the existing co-op home delivery channel, and online supermarket functions will become extremely large channels and increase their market share while the share of other channels will fall. In particular, it is necessary to develop flexible sales structures and development capabilities for products to match each of the channels that have become larger. Rather than changing our major business areas, we must increase the flexibility of our product development to respond to sales channels.

At present, the thing to do is understand the circumstances around e-commerce and direct sales and identify the change of channels first. At the Ajinomoto Group overall, total sales through the e-commerce and direct sales channels are around ¥23 billion per year. Such sales are mainly food and have increased to around 5% of our composition ratio. Specifically, here e-commerce refers to e-commerce malls in Japan and cross-border e-commerce in addition to co-op home delivery routes and the remainder is direct sales. In particular, there has been extremely large growth in sales of food through mall-type e-commerce, the co-op home delivery channel, and direct sales. In the past, we have strengthened our strategy for small-mass market and direct sales channels, and I think this is showing concrete results. Overseas, the composition ratio out of the ¥23 billion for the Ajinomoto Group overall is still very small. However, in the five countries of Thailand, Indonesia, Vietnam, the Philippines, and Brazil, e-commerce malls in each country are similarly starting to sell our products. We have been strengthening our strategy while sharing a variety of information across the Group.
(Q: Out of your products, which kind are being sold through e-commerce malls?)
Our full-scale launch in e-commerce malls and cross-border e-commerce was about 18 months ago, so it is not all our products yet. The standouts are stick-type coffee and ground coffee for personal use by Ajinomoto AGF., Inc. and for food Knorr® soups and miso soup as a ready-to-eat processed food. Both of these are reduced salt and protein rich products, and these kinds of things are selling very well. In cross-border e-commerce, in addition to these, we are selling amino acid supplements such as aminoVital® and special products using Japanese ingredients such as Knorr® Zeitaku Yasai® Hokkaido Sweet Corn. These products have also been selling very well. The remaining products are Amino Aile® and Glyna®, which we are selling though direct sales, and sales are very strong in the current environment.
(Q: Other than your own websites, are these basically wholesale sales to e-commerce malls and co-ops with the actual sale carried out by the e-commerce malls and co-ops?)
The co-ops carry out the actual sales as you know. With the e-commerce malls, we put up a shop as our marketplace for sales. The \23 billion that I just mentioned does not include the portion that goes into e-commerce through our regular wholesale channels. 
(Q: Is profitability higher than conventional sales routes?)
In the case of e-commerce malls, the selling price is the lowest price in the region or area. That is not reflected in our sales promotion expenses or reduction of delivery prices. For cross-border e-commerce, selling prices are higher than in Japan. As a result, I think we have managed to secure a certain margin. However, as the overall composition ratio is around 5%, there is not a big impact on business results.
(Q: You say that the growth rate is high. What kind of image should we have of the overall growth rate and the scale in three to five years from now?)
At present, these sales routes are still mainly in Japan, and there are also some factors from the impact of COVID-19. However, the e-commerce and direct  sales channels overall will experience growth in the low double digits.
(Q: Is this a growth rate of around 12–13%?)
Co-op home delivery in Japan has increased nearly 1.5 fold. In the case of Japan, there are bottlenecks in logistics, so growth should continue at roughly this pace. I think there is room for consumer demand itself to increase 25–30% as in the examples of personal care and everyday goods. In the case of food, there are various logistical limitations, so I think it will be limited due to that. Out of the impact of COVID-19, I think that labor shortages will be resolved slightly, and there will be growth in this channel.

E-commerce is growing, and channels are also becoming more diversified—such as online supermarkets and co-op home delivery, and in Southeast Asia, the undertaking of shopping services by Gojek, a ride-hailing motorcycle service, and Grab, a motorcycle delivery service. In Thailand, where COVID-19 has made it more difficult for consumers to go to stores, motorcycle services are providing surrogate shopping service by “personal shoppers.” As for investment, I believe focusing our resources just in e-commerce would be a mistake. With an understanding that the “last mile” channels are changing rapidly, I believe it is important to undertake appropriate sales promotions in each channel. Particularly in Southeast Asia, we are utilizing direct sales, which I believe will be a strength when it comes to sales promotions. Talking about e-commerce-specific initiatives, in April 2018 we established the Consumer Data Analysis & Business Creation Department. Through this department we promote digital marketing, and create marketplaces to handle our Group’s products in order to independently develop e-commerce channels. In addition, this department unifies promotion by making online marketplaces, such as a website to sell aminoVITAL® in Japan and a cross-border EC site in China. We are developing our own e-commerce professionals, and, with this department playing a central role, we will capture diverse demand through e-commerce. Regarding diversification of delivery for existing channels, we have established a team at our Tokyo Branch specifically focused on this area.

While mostly focused on Japan, we have recently started e-commerce sales in overseas markets. Our FY2022 target for the Group is ¥23 billion in e-commerce sales—roughly 5% of our food products. E-commerce is expanding, however, domestic malls, cross-border e-commerce, and in Japan, home deliveries from supermarkets and co-op stores are also expanding. It’s not just e-commerce expanding, but consumers are choosing the channels for delivering their purchases. We are promoting Kachimeshi®, and appealing to consumers’ desire for nutrition and health in the same way as our normal channels.
While we don’t have a major overseas e-commerce presence, we have started in some main countries such as Vietnam, Thailand, Indonesia, the Philippines and Brazil. We have established ourselves in marketplaces and are promoting Kachimeshi® and selling menu-specific seasonings and so on. While our e-commerce sales in these countries are still limited, we are seeing growth—such as 200% and, as much as, 800%.

With respect to human resources, I believe we are getting closer to conditions we consider appropriate, through an ongoing human resources push to get the right people in the right jobs, including changing our Executive Committee in 2019 to bring in younger talent. However, we need to oversee this process carefully. In our current COVID-19 climate, we are seeing a sudden, massive shift to digitalization. Specifically, first, is a sudden global expansion of digital means of communicating with consumers, such as social media. Second, is the diversification of how we deliver products to consumers, and from their viewpoint, a diversification of means of purchasing our goods. While there has been a major shift from foodservices to home-use products, foodservice providers that have been able to successfully undertake both health and safety measures as well as provide take-out and delivery services, have not seen much of a decline. Also, foodservice providers that have not solely relied on inbound customers, already had high customer loyalty, and have very strong relationships with their customers, have not necessarily seen lower sales. In other words, we need to continue to diversify our sales channels. I believe the role of the group of personnel below the director-level managers of our current assets, is extremely important. In this COVID-19 climate, we have been regularly holding scenario planning meetings to ensure we communicate directly, both horizontally and vertically, while also working to find and develop new human resource talent from beyond the current pool.
We are actively hiring outside personnel. We are targeting personnel with a high level of expertise and will establish a Research Department on July 1. With a limited investment, our aim for this department is to increase our level of foodtech-industry intelligence. It will be a hybrid organization with outside experts brought in to work with our personnel. At the same time, we have started an initiative to accumulate the expertise of outside experts as company assets.
As a specific example, once a year we make sure to hold a meeting of all corporate executive officers to give an update on the MTP and confirm what needs to be done. In the past this has just been for internal corporate executive officers, however, we plan to include outside experts in our meeting in September 2020. The meeting will have diverse participants besides corporate executive officers, such as councilors with a high level of expertise and general managers of divisions concerned with MTP themes. With the next generation in mind, we are strengthening our people to achieve flexible management outcomes.

In April 2019, we established our Global Frozen Foods Strategy Department; and in April 2020, we then changed its name to the Frozen Foods Business Department. This department consolidates our asset owners that were previously divided into Japan and overseas businesses. The biggest change of this structure is that it enables an individual asset owner to take leadership in making decisions on capital expenditures and on what should be a core business and so on. This has clarified our focus on core businesses when making investment decisions. Frozen foods is a major part of our business—with combined Japan and international sales of approximately \200 billion—and, being in a growth market, has been a business we have aggressively grown. Restructuring of our North American frozen foods business was also the impetus for reviewing our Japan businesses from the perspective of capital efficiency. To make sure we don’t have each country falling into the trap of optimizing individually, we are having management, department heads and production managers work together to carry out restructuring to increase our ROIC.
(Q: What is the key factor in bringing the profitability of the frozen foods business to a similar level as the seasonings business in the medium to long term?)
It will not be easy to raise the profitability of the frozen foods business to the level of the seasonings business. However, there is a North American frozen foods company with an ROIC of 9%. We have set this company as our benchmark, with the aim of overtaking that company by 2030. We have brought in outside experts and are accelerating structural reforms and growth in the Asian category market. Our FY2020 forecast is being impacted by a decline in sales in industrial-use products for restaurant chains. However, we see COVID-19 as impetus for a shakeup in the restaurant chain sector, and we are currently investigating along with outside experts how we can capture changes in the realigning foodservices industry in the period of recovery after coronavirus. We are not only focusing on structural reforms but are laying the groundwork for future growth.

The KPIs for officers’ compensation have been reviewed in line with the FY2020–2025 MTP. We have also included elements relating to the main KPIs in the formula for calculating employee bonuses. In particular, they can earn additional points which are reflected in their bonus when management promotes initiatives within their organization aimed at achieving the ASV vision as their own initiatives. In order to achieve the ASV vision, individual targets are shared, and management directs achievement with the targets shared across departments.
In order to achieve change, we are considerably increasing human resource investment for individual employees. This is particularly the case in the three areas of digital transformation, nutritional literacy, and environmental literacy. We are implementing more than double the previous human resources investment and shifting to measures that value human resources. I think that such investment will definitely translate into incentives.
As a medium-term incentive for officers’ compensation, we have newly added share-based compensation for the past three years. We currently operate a shareholding association for employees, but we have received comments from investors that we should consider measures that will link these incentives to corporate value a bit more, and we would like to give this positive consideration.
(Q: Why do you think the asset reduction strategy you have adopted this time is different from past strategies?)
In concrete terms, we have explicitly specified that non-core businesses are the target of asset reduction. In addition, we have set a deadline for implementation and hope it will bring results.

The indicators include the percentage of sales from core businesses. As you point out, the FY2020–2025 MTP is made up of Phase 1 and Phase 2, and Phase 1 is mostly structural reforms. Our FY2022 ROIC target is 8%, so this is our focus. Organic sales growth includes unit price growth, and these should be achieved as we increase the percentage of sales from core businesses. Therefore, I would like you to understand that the two indicators you pointed out are not included.
(Q: ROIC is the weighted average of the target achievement rate in each fiscal year. If FY2020 is 3%, then achieving the FY2022 target of 8% looks very difficult. Is it that management has higher aspirations? Can you comment on your thinking regarding this?)
As was pointed out at the launch of our FY20-25 MTP, by adding the percentage of sales from core businesses, organic sales growth, and unit price growth, we could achieve a higher target. I responded by saying that overall, we are including risk. Our ROIC target of 8% is based on the premise of making solid progress in organic sales growth and asset reductions. However, because our FY2020 forecasts factor in the impact of COVID-19, I think a ROIC target of 8% has become extremely challenging. Nonetheless, as we still have much to improve on, we certainly won’t be giving up any time soon.

First, I do not think there is a shift occurring from umami seasonings and flavor seasonings to menu-specific seasonings. While umami and flavor seasonings have home-use products, in the foodservice channel, particularly in small premises, they are used in large quantities. At the Analysts’ Meeting, we said about 30% of umami and flavor seasonings in Southeast Asia was for foodservice. Therefore, when demand for foodservice returns, I think we will see the volume of sales increase because the market has strong growth fundamentals. On the other hand, once consumers who have previously used a combination of basic seasonings try using menu-specific seasonings—and experience how convenient and delicious they are—they will probably continue using them, and some may shift from using basic seasonings. In Southeast Asia, menu-specific seasonings for popular dishes, such as fried chicken  are experiencing extremely high growth. For the liquid menu-specific seasonings—with a high-quality oyster sauce base, developed under the Cook Do® brand in Japan—we are capturing consumer demand and aim to achieve the highest market share. While we simply call them menu-specific seasonings, this term encompasses many types of seasonings from fish sauces to soy sauces, such as the Indonesian sweet soy sauce, kecap manis. Building a position of advantage based on strong branding and high quality in a specific menu category is where we have leading expertise and excel as a company. While keeping umami and flavor seasonings as our mainstays, we will significantly expand menu-specific seasonings, and as a result will strengthen the profitability of our product mix.
(Q: Does that mean, from many diverse menus, you have already pinpointed where your strengths and opportunities lie, and you are focusing your investments in those areas?)
Yes. We call this deliciousness technologies. We have expertise in how best to bring out the deliciousness of ingredients when frying or deep frying them. We have accumulated a vast amount of expertise in our deliciousness technologies. For example, about aromas meats give off when fried, and how after deliciousness remaining on the tongue goes away at the right time and leaves a flavorsome aftertaste. I think there may be no other seasoning company with this level of expertise. From a product design perspective, I believe we have a significant advantage over companies that source and blend ingredients.

I think that the changes consumers wound have experienced gradually anyway have occurred rapidly due to COVID-19. One area is awareness of health. When we announced the FY2020–2025 MTP, it was observed that there might be poor prospects with regard to such points as whether salt-reduced products and products that contribute to solving poor nutrition would really sell well in emerging countries, whether sales would take some time due to being accompanied by dietary education, and how the benefits of products would be conveyed to consumers. Through the experience of COVID-19, the importance of daily nutritional balance and the problems of excessive salt intake have been disseminated globally by social media. In this respect, I think that we have an opportunity. This trend is likely to be the same in the period of recovery after coronavirus.
Another area is the change of channels. A variety of channels, not just e-commerce, have entered the delivery and take out market. For example, even in traditional trade in Southeast Asia, it has become popular for consumers to use an app to order items and have them picked up and delivered to their homes on motorbike. There is also information that sales via the motorbike delivery channel have expanded around eight-fold in the Jakarta area of Indonesia. Going forward, I think there will be competition between existing distribution channels and new buying opportunities. In that respect, we want to fully leverage our strengths as a company with direct sales.

In FY2019, with the MTP starting in FY2020 in mind, we increased the prices of some of our main products, such as AJI-NO-MOTO®, flavor seasonings, and menu-specific seasonings. While not a target of the unit price growth rate priority KPI, I believe our raising of the price of Cook Do® in Japan for the first time since its launch about 40 years ago is symbolic. As we increased prices in our main markets around the world, unit price growth rate was 5% year-on-year.

Our six core businesses are: sauces and seasonings; quick nourishment; frozen foods, focused on the Asian category; solutions and ingredients; amino acids; and specialty chemicals. The markets for our food and healthcare products are not the same. For foods, Japan, the U.S., and emerging countries are our main markets, while for healthcare, which is the core of B2B, the main markets are in developed countries. We are not thinking of reconsidering our core businesses and will work to fully implement our plans. Incidentally, while FY2019 sales were down due to poor results from animal nutrition, our sales growth rate for core businesses was about 3%. I believe we can certainly continue to grow our core businesses in FY2020.

Increasing foods that use amino acid functions from the perspectives of being able to maintain a delicious reduced-salt lifestyle and, from a young age, preventing the harmful effects in old age due to poor nutrition are the main essentials of our strategy. The functions of amino acids have not been used very much in our mainstay food business in the past, but we will apply them.
Speaking specifically, we will implement 78,000 tons in salt reduction over the single year of FY2020 through our products, primarily food. This amount in FY2019 was around 9,500 tons, so will implement about eight times the amount of salt reduction. As part of this, technology and ingredients are being used that have the effect of making foods taste better even with little salt utilizing the functions of amino acids. I hope you will note that we started this in FY2020.  
With regard to event strategies and activities, so far we have rolled out promotions related to reduced-salt products and improving poor nutrition primarily in Japan without implementing them at our main overseas affiliates. This is a marketing strategy that we will roll out fully in the Five Stars as well. As an example of a specific activity, we have started nutritional value promotion which is conducted for the initiative called勝ち飯® (Kachimeshi) in Japan presented as Kachimeshi® in the countries which are our main markets, and we are rolling out communication and marketing strategies in line with it.

There are four main areas of amino acid function. These areas are (1) the taste functions in which amino acids make food delicious; (2) the nutritional functions in which amino acids themselves have nutritional value and contribute to development and growth; (3) the physiological functions in which amino acids regulate various physical conditions; and (4) reactivity.
So far, we have used these functions quite effectively in supplements and healthcare B2B business, but one of the areas for improvement is that we did not develop the functions adequately in our mainstay overseas food products segment. Going forward, we will change from working separately to working collaboratively to use these functions fully for food as well. Our approach is that application to products will translate into unit price growth, which will help in increasing organic growth.
There are many existing products in which amino acid functions are already being used. So far, we have not been able to promote their role properly. For example, although we have firmly conveyed the salt-reducing effect of AJI-NO-MOTO® in Japan, we have not been successful in this overseas. This is something we have begun promoting in FY2020. Rather than applying it to new products, we will firmly convey the umami function of existing products through communication. Ultimately, we would like to use AJI-NO-MOTO® for things like facilitating price increases and enhancing brand value because it is a product with health value.

First, net organic growth due to the implementation of asset reduction will increase the company-wide topline. Business results in FY2019 unfortunately registered a company-wide decline in sales, but achieved organic growth of 3% for core businesses alone. Under the FY2020–2025 MTP, the plan is to achieve around 4% year-on-year organic growth at the end of Phase 1, and operating cash flow will increase first. Although some areas may be a little lower due to the impact of COVID-19, we plan cash inflow of ￥400 billion + α over the three years of Phase 1. Assuming this, we will implement asset reduction of around ￥50 billion in Phase 2.
We have not yet made any announcement about the cash balance for FY2023–2025, but an increase in cash inflow naturally means that shareholder returns will rise. Under Phase 1, we target a payout ratio of 40% for a single fiscal year, which is a 10% increase from the FY2017–2019 MTP. Unfortunately, we were unable to increase the dividend forecast this time, but we intend to express our intentions by keeping it flat. In addition, the capital expenditure portion related to cash outflow is currently around ￥70 billion a year, but I think that we can further reduce maintenance investment for non-core businesses through asset reduction. I want you to note that the cash position will be improved with regard to that portion.
We have not changed our total shareholder return policy of 50% over the three years of FY2020–FY2022. I think we will be able to implement total shareholder return with a similar approach in FY2023–FY2025. Share buybacks will make up for the difference with the 40% for a single fiscal year. 
(Q: For example, in terms of utilizing free cash flow, there is a different ROIC in each business for maintenance investment and growth investment within capital expenditure. On the other hand, share buybacks are an investment in company-wide ROIC. What kind of indictors will you use to determine the order of priority for company-wide investment and investment in core businesses?) 
First, we can focus assets in core businesses, so I think we must continue to invest firmly in growth here. Among the core businesses, this investment will mainly be needed in international food products, Asian category frozen foods, and the healthcare segment. Rather than a significant change in the current amount of investment in tangible fixed assets, I would like you to note that this level is needed as a minimum. We will apply the rest to shareholder returns. Over the three years of FY2020–FY2022, the amount of capital expenditure will be decreased around \20 billion compared to the FY2017–2019 MTP while specifying core businesses. We have allocated the difference to new investment in intangible assets such as human resources and DX, which are not tangible fixed assets, and I believe this will be important in the future as well.

The FY2020–2025 MTP is a plan for six years. From the perspectives of management focused on ROIC and the achievement of organic growth, I think that three-year plans inevitably tend to have a short-term orientation toward accumulating business profit each year. Consequently, when we update the plan going forward, I think we will consider ROIC in units going six years into the future again. Obviously, ROIC can fall momentarily due to investment in core business areas as well, and it is extremely difficult to regain it in three years. We want to make the possibility of recovery in around six years a key criterion for investment.    
(Q: Have there been any changes in investment criteria at the Company over the past few years?)
Over the past few years, we acted in line with the FY2017–2019 MTP. We established the criterion I just spoke about for the six years of the FY20–2025 MTP, and it has changed compared to the past.

The Ajinomoto Group aims to achieve 100% by the end of FY2020 by purchasing RSPO-certified palm oil and tracing back to oil mills in cooperation with suppliers.
The actual result in FY2019 was that the percentage of RSPO-certified palm oil was approximately 25% out of around 43,000 tons. Sustainable procurement, including traceable palm oil, accounted for 79% of our palm oil. I do not think this is a low level globally speaking. Even the global giants have probably adopted the same method. Because supply of RSPO-certified palm oil is limited and not enough can be procured, we confirm the traceability of palm oil ourselves and include it in the scope of sustainable procurement. 
(Q: Are we to understand that tracing performed by the Company itself is adequately recognized internationally? Are we to understand that it is valid in palm oil circles?)
A: Yes. The method we have adopted is also the one recommended by the Japan Oilseed Processors Association. However, it is not recognized by a global certification organization.

We certainly did not change because of poor quality on the part of Ernst & Young ShinNihon LLC. We had been using Ernst & Young ShinNihon continuously since 1951, so we’ve been considering selecting an accounting auditor again since a few years ago. We had a number of candidates, including Ernst & Young ShinNihon. To ensure our management is audited from a new perspective, we undertook a competitive selection process to find our new auditor.

We cannot perform a simulation for FY2021 yet. With regard to the forecasts for FY2020, we have performed a simulation based on certain assumptions while obtaining information that includes the impact of COVID-19 in the main countries where we operate business, the status of infections, and economic circumstances. Basically, as I said at the Analysts’ Meeting, we expect a second wave will hit North and South America out of the main countries where we operate business. This assumption itself could change going forward, and I think it is difficult to forecast through FY2021. I think the forecasts for FY2020 will also change quite a bit as I said when we announced the financial results. Consequently, we hope to share the forecasts with investors and analysts as we update the current situation and the impact on our performance outlook based on it each quarter.