Japan Food Products

  • Please share with us some details about your efforts to make the domestic value chain more efficient. Also, at the meeting introducing the new M-T plan you said that these efforts would not contribute to profits until FY2020 or later. Please give us an idea of the cost savings resulting from these efficiency measures and the related timing.

    We see room for efficiency improvements in every part of the value chain. At the production stage, we will be making gradual capital investments together with our Group companies that will promote consolidation and introduce labor-saving, state-of-the-art equipment. However, at this time I cannot provide any details regarding specific plants or the scale of investment. We have already announced measures being taken at the logistics stage. Specifically, we collaborated with other companies to establish F-LINE, a joint venture logistics company. The JV will start making deliveries in Hokkaido and expand its joint distribution area in stages until FY2019, which will be a watershed year because the company also will expand operations to Honshu. At the sales stage of the value chain, we will establish key account sales teams and strengthen our ability to offer solutions to CVS and other customers growing their business. Back office operations will be made more efficient by consolidating common corporate functions within the Group and making greater use of outsourcing. This will enable us to get by with fewer employees.
    The estimated synergies from these initiatives is partly incorporated into the new M-T plan’s target for profit growth at the Japan Food Products segment. However, production-related capex will proceed in stages, so we expect it will be FY2020 or later when we begin to see the full impact of these investments on segment earnings.
    Also, because the preparations for nationwide joint distribution will take until FY2019, the synergistic cost benefits will not appear until FY2020 and therefore are not included in the new M-T plan. Shared companywide expenses will be kept to about 2.8% of current sales. The above-noted preparations could temporarily push infrastructure capex up to about 3%, but it should fall back to the 2.8% target thereafter. 

  • Please give us an idea of the scale and timing of extraordinary losses you foresee at the Japan Food Products and animal nutrition businesses.

    We forecast the domestic value chain’s shift to state-of-the-art facilities and transition of the animal nutrition business to specialty products will each cost us about ¥4.0 billion. However, I cannot comment on the timing of the posting of these extraordinary costs for strategic reasons. 

  • You expect to improve profit margin at the Japan Food Products business by 1ppt during the period of the new M-T plan. Is this due to value chain efficiency improvements?

    Value chain efficiency improvements are only partially reflected in this figure. The full impact of the improvements will come in FY2020 and beyond. We cannot consolidate and rationalize production facilities at the same time. As for back office systems, we need to invest in core computer systems, which we expect will increase capital investments over the plan’s three-year period. The upgrade to core computer systems also will require various preparations, including changes in work procedures and our internal report formats. The majority of that 1ppt improvement is expected to come from normal cost-cutting measures, such as improving procurement efficiency.
    (Follow-up question: Are you factoring in any product mix improvement or price hikes?) In Japan, it is hard to win acceptance of simple price increases, but we have factored in some price increases related to product improvements.
    (Follow-up question: Please give us a breakdown of the 1ppt improvement in gross profit) The entire improvement in gross margin will not be reflected in business profit. We also will be investing in marketing of the new Integrated Food Solutions business, which we plan to nurture into a new core business. We also are considering measures to resolve nutritional challenges unique to each prefecture. The 1ppt targeted improvement in our business profit margin takes into consideration cost increases related to these measures. The contribution to gross margin improvement alone will be larger. 

  • Please tell us about your coffee business strategy.

    The coffee business faces two risks. The first is the low profitability of bottled coffee products, which account for a large share of the business’ sales. This is due to severe price competition, and we have accordingly based the new M-T plan on rather conservative forecasts for this business. The other risk is the price of green beans, a raw material. The new M-T plan assumes the current price plus alpha. A greater than expected increase in the price of green beans would have a negative impact on our coffee business. 

  • How’s the competitive environment for frozen foods? High-priced products in stores seem to be selling well. Do you expect strong sales of premium products going forward?

    As we reported at the interim results briefing last November 8, the home use market is robust and the restaurant and industrial market is steady. Those trends are continuing. In the home use market, weak sales of products used in bento (boxed lunches) are being offset by strong growth in sales of Gyoza and The Chahan for consumption at home. Consumers have a need for high-quality, easy-to-prepare frozen foods. Recent trends are supported by the high ratio of convenience stores now handling frozen foods. We have seen a big change in the 10 years since 2005. Drugstore chains are also increasing their frozen food offerings, with stores located in residential neighborhoods enabling consumers to purchase frozen food products without the risk of them melting before they get home. We expect this trend to continue. We are well positioned to meet the growing need for high-quality, delicious frozen foods, and our new M-T plan envisions strong growth in our frozen foods business. 

International Food Products

Life Support

  • To what extent do you plan to reduce in-house production of commodity animal nutrition products? Also, when will the business structure you are aiming for be firmly in place?

    We plan to sharply reduce in-house production, but for strategic reasons I cannot give you a specific level. We intend to make drastic changes to the business structure, so you can assume it will not be a small scale. 

  • Can we assume that the restructuring of animal nutrition business will, in the end, outsource some of commodity products?

    Yes, that is correct. We are shifting to specialty products. We want to shift to a solutions-type business model, which will not need commodities.
    (Follow-up question: Can we assume that you will have a full lineup of specialty products?) Yes. Our FY2016 operating income forecasts are for a ¥1.1 billion loss from commodity business, offset by ¥1.1 billion profit on specialty business. And specialty business still account for a small percent of overall sales. As things stand now, we cannot be in the animal nutrition market with specialty business only. After FY2020, when we expect specialty business to be generating ¥5.0 billion in business profit, we will consider whether or not our business model at that time still needs commodities. We plan to collaborate with other companies on both commodities and specialty businesses. There will be different alliances for each business area. We will change our business model. You may not recognize this change because we continue to develop highly functional premix products as second and third generation products of our AjiPro®-L lineup of specialty products. But we are also now making preparations for the start up in FY2020 of a diagnosis-based solutions business that uses ICT (information and communication technologies). This will result in a complete change in our business model. 

  • What is the timeframe for shifting lysine to OEM production?

    We do not want to move slowly but must also consider other parties. Raw materials and fuels are often procured via medium- and long-term contracts, so suddenly cutting off the procurement of such materials would violate contracts and result in penalties and other losses. We want those losses to be as small as possible. Once such one-off expenses fall into a more tolerable range, we will move quickly to outsource lysine production. 


  • The AminoScience business is one of the pillars of Ajinomoto’s future. What are Ajinomoto’s strengths in contracted business? You have added GeneDesign to a business structure that already included Ajinomoto and Althea. How will this change your structure and what will future growth look like?

    We plan to hold a small meeting to explain our AminoScience business in the near future. Until now, our contracted business has revolved almost entirely around small molecule biologics. Excluding the output from our Tokai Plant, small molecule biologics produced by S.A. Ajinomoto OmniChem N.V. in Belgium account for the majority of sales of this product. Small molecule face intense competition even though they are not commodity products. We are doing okay now but face the risk that increased competition will lower profits in the future. Our advanced biotechnologies already include the technology needed to efficiently mass produce medium molecule biologics, but we could not find a plant to outsource production to that was capable of using our technology. We therefore acquired Althea, which already had the needed facilities. Althea was a start-up venture, and our capital contribution provided it with the funds needed to invest in production facilities and expand its scale. We expect it will begin to generate a return on these investments during our new M-T plan. GeneDesign is a start-up venture that has been supporting the development of oligonucleic acid medicine, a medium molecule biologic. GeneDesign has a broad range of development themes, and its acquisition will enable us to create synergies by combining those themes with the mass-production technology of our Tokai Plant. The acquisition of GeneDesign has expanded our product pipeline. Both companies have the potential to rank in the global top 3 in their fields - GeneDesign in medium molecule biologics and Althea in the large molecule field. We therefore look forward to AminoScience becoming a pillar of our business from FY2020 onwards.
    (Follow-up question: So, can we assume this business will begin to bloom from FY2019?) Yes.