• Other than forex, raw material and fuel prices, what upside or downside earnings risk factors do you foresee for FY2017? Similarly, what factors could affect your medium-term management plan?

    The biggest potential downside risk factors are the prices of raw materials, including fuel, and forex rates. I don’t really see any other major risk factors. I have been told our forex and raw material price assumptions are conservative, but I would remind you that overseas sales account for more than 50% of Group sales. In addition, a large percentage of our products are sold in emerging countries and based on fermentation raw materials and fuels. Pressed to name other potential factors, I would point to geopolitical risk in Rising Stars such as Turkey and Africa. Another might be our initiatives in cell culture and medium and large molecule biologics, which are the pillars of growth in our healthcare business. The number of CDMOs* in the pharmaceuticals industry is increasing, but competition among the drug makers selling the final products is intense. This competition can have a major effect on our earnings. Competition in the small-molecule CDMO business is also intense. The market is still expanding by about 5% a year. For a while it was shifting from advanced countries to India and China, but the high need for traceability and transparent regulations is leading to market concentration.

    We would certainly be happy to see the emergence of some upside factors. One possibility is the expansion of the market for menu-specific seasonings, which our International Food Products segment is nurturing. Sales are increasing at a 20% YoY clip and that could accelerate with greater market penetration and consumer awareness. Another possible upside factor, which we plan to present in our integrated report, is our ASV initiative, but we won’t know until we try. If successful, regional collaborations could expand opportunities for new business even more than we currently expect. We are now support for school meals in Vietnam and this is not a CSR initiative. We are developing the commercial-use market. If our ESG activities are recognized and deemed necessary, they could lead to collaborative efforts with governments. I certainly hope so.

    * CDMO = Contract Development & Manufacturing Organization

  • Other companies plan to raise their dividend even if earnings decline, but the policy in your FY2017–2019 Medium-Term Management Plan appears to indicate that dividends will be flat. Please share your thinking with us.

    The new plan is based on the same thinking as the FY2014–2016 plan. Over the next three years, we plan to a minimum total shareholder return of 50%. On an individual year basis, the dividend payout ratio will be 30%, and I would like to raise that gradually. Some think we are being conservative, but that is because our medium-term and fiscal year plans factor in the need to make investments for growth, which I hope investors will understand. As earnings improve, we will increase the dividend little by little.

  • Your FY2017 guidance includes a ¥5.0 billion increase in business profit to ¥102.0 billion, and the medium-term plan targets ¥124.0 billion in FY2019. Do you anticipate increasing business profit by about ¥12.0 billion over each of the last two years of the plan? Or do you expect to achieve a sudden return in investments in the plan’s final year?

    We expect investments to gradually bear fruit, leading to higher profits toward the plan’s final year.

  • You have now been President for two years. Looking back, what do you see as your strengths and weaknesses?

    The new medium-term management plan has a good balance of ESG and financial goals and I think it is good that we have established integrated targets. It has taken time to get Group companies headed in the same direction, but I believe I have taken the initiative and presented my views on management and shared it with my colleagues and our employees.

  • This new plan is the first to be prepared under your direction. I think one of its major features is the establishment of goals for creating social value. After the plan’s announcement, I could sense the enthusiasm for this new direction from the many information released about social value. However, I would like to know how you view your mission to raise Ajinomoto’s economic value.

    Of course, as a president, I endeavor to increase economic value. Our business is centered in Japan and emerging countries. To realize the high growth we are targeting in these geographic areas, we must demonstrate an ability to influence the society. If we can increase our ability to influence the society, governments and other companies will come to us with various proposals, which will enable us to accelerate our growth pace. This is not an idea that you will hear from people satisfied with 10% growth in Asian markets. For example, we have penetrated the Thai market to the degree that we are the second Japanese company that comes to the mind of the local people, but our communication with the local people did not go beyond business matters. Once we began to contribute to Thailand’s environment through our bio-cycle activities and communicated our efforts in support of fostering cassava farmers, our corporate image improved, which had a positive impact on our local business. In addition, a study of our Ros Dee® flavor seasoning’s impact on nutritional intake in Thailand surprised and excited our local employees. As a result, we were contacted by the Thai university with the nation’s top program in nutritional science and began a joint program to solve the country's nutritional problems. This type of activity is common among global enterprises, and here at Ajinomoto we also are striving to simultaneously raise our social value and our economic value.

  • To date Ajinomoto has achieved growth without raising its social value. Has there been a change in the environment?

    In the sense that we can probably achieve growth in line with the overall market growth if we seek only to create economic value, there probably is no change. However, we are aiming for higher growth than that. For example, some global companies share with local residents the clean water near their plants that they use in the production processes. We also supply local farmers with the by-product from our ferment production, but this is not enough. We want to be a more crucial member of our local communities by, for example, supplying the community with surplus electricity. If we can achieve that status, local residents will be on our side in times of crises, such as when reputation risks emerge. With SNS widely used in emerging countries, the need for this kind of elevated consciousness is not limited to advanced countries.

  • Your interest in nonfinancial goals is getting a lot of attention. Such goals are generally hard to express in quantitative terms. Hasn’t this caused some confusion among market participants? Have you felt excessive pressure from investors with similar interests and any difficulty in your dialogue with the market?

    I definitely felt some confusion in the market after we announced the new medium-term plan. The plan seeks to share materiality and sets forth the key issues for management. This year’s integrated report will focus on Ajinomoto Group Creating Shared Value, or ASV, and should provide readers with a clearer explanation of that concept. It should help fill the gap in understanding between us and analysts and/or investors. We held talks with Professor Kitagawa, a leading authority on the subject, and we think that within the next 2–3 years the investment environment will change such that more investors will take ESG into consideration when making investment decisions. We hope to move our relations with investors in that direction. Our institutional investors, including financial institutions and insurance companies, have clear investment policies, and in future talks I look forward to explaining the relation between achievement of our financial and nonfinancial goals.

  • I believe you are taking aggressive steps to reduce overtime hours worked by your employees, but what are you doing to raise their productivity?

    We have established a number of KPI related to productivity. The Ajinomoto parent company has set an annual working hours goal of 1,800 for FY2018. The average hours worked by our employees in FY2016 was just under 1,900. For group companies, it was about 2,000. Reducing working hours will eliminate several hundred million yen of overtime pay. But the key point here is not the amount of money saved. We are aiming for a work cycle that will raise productivity and enable employees to come up with more dynamic ideas that, for example, lead to the creation of new products rather than just focusing on improvements. In terms of ESG, reforming working styles and raising employee motivation is more of a "G” initiative than an “S” one. We believe it will solidify our foundations and raise our competitiveness. I think that it also has an important meaning for group unification. Productivity will gradually increase and I look forward to sharing our progress with you.

  • I would think that the ability to turn the appeal of social value into economic value and enhance your corporate brand is going to require staff with considerable expertise. How do you plan to secure staff with the required skills?

    In FY2016 we established the Global Communication Department (hereafter, GC Department) and the Global Human Resources Department. We have assigned directors to focus exclusively on the GC Department and head our efforts to create a strategy to enhance our corporate brand as well as individual product brand strategies. Our Thai TV commercial is the first example of their effort. Having achieved considerable business scale and product brand permeation in Five Stars other than Thailand, we have started a project to improve nutrition in Vietnam through school meals and are making efforts to promote the nutrient cycle in Brazil, the largest area for by-products associated with fermentation production.

    Meanwhile, the US market is the key to our corporate branding effort. Anti-MSG sentiment is non-existent in Japan and the Five Stars but it remains strong in the US. We are focusing on brand building and as part of that effort we plan to hold our first Umami Forum in New York in 2018. The forum will have two parts. In Part 1, we will include an academic presentation that appeals to the positive effects umami has on physiological functions and explains the historical circumstances that have led to MSG’s negative image. In Part 2, we plan to appeal to umami’s contribution to delicious foods around the world by introducing the attendees to soul foods from around the world that include umami. After holding the first Umami Forum in the US, we hope to hold annual forums in different countries from 2019.

  • In FY2016, your brand value increased 9% to $711 million. Why is brand value rising while growth in financial terms is slowing?

    We assume that medium to long term financial growth is a major factor in the brand value assessment by Interbrand. Consequently, our decisions to undertake major structural reforms and invest in growth probably have led to the Interbrand’s higher assessment even though our share price fell momentarily. Interbrand’s assessment may have a stronger medium-term perspective than share price forecasts. In addition to our disclosure of financial indicators, we published our first integrated report last year. Moreover, we announced that our new medium-term plan would include nonfinancial indicators. I think this may have also generated considerable sympathy.

  • The new medium-term plan calls for enhancing your corporate brand overseas. What kind of appeals will you make to consumers and to the broader society?

    We would like to appeal our company and brand as the leader in promoting healthier lifestyles through well-balanced meals, as per our “Eat Well, Live Well” corporate message. We will endeavor to erase the negative image of MSG in the US and Europe and present our opinion. We will create a brand image that appeals to AJI-NO-MOTO® as a seasoning that makes meals more delicious and efforts to contribute to a healthier lifestyle.

  • Can you give us an idea of how long you think it will take to translate your social value in Africa into economic value?

    We believe that, even for a Global Top 10 food maker, it takes about 17 years to build the trustworthy relationships that lead to the generation of economic value. However, the spread of SNS is likely to shorten the time. One reason for the new medium-term plan’s focus on nonfinancial goals is the United Nation’s adoption of Sustainable Development Goals (SDGs) in 2015. Previously, global nutrition issues focused on emerging countries, but the UN’s SDGs represent the first time that both excessive nutrition and deficient nutrition have been targeted as problems to be resolved. As a result, solutions are now also being sought in advanced countries.

    In addition to the UN, many other organizations are focused on the world’s nutrition problems. This makes it easier for us to communicate with external parties and shape public opinion. Moreover, Japanese people often serving as coordinators of local programs and are on good terms with the local people. Our company is also favorably regarded.

  • Will you be looking for M&A opportunities in Europe?

    As we have said before, we could use M&A to secure a sales base for frozen foods in Europe and would also consider M&A deals that expand our product portfolio and enhance our ability to provide integrated food solutions in the Five Stars. Also, in the healthcare business, we will consider tie-ups with other companies, depending on the product pipeline.

    (Follow-up question: Could this not lead to a large EV/EBITDA multiple?) Our target would be to gain access to a main sales channel in Europe. We are not assuming a very large valuation.


  • In FY2016, you acquired Orgen, Promasidor Holdings, and GeneDesign. Please tell us in what areas integration has proceeded well and also what areas have been problematic. You have said future M&A will be focused on International Food Products and integrated food solutions. When you say “international foods” are you referring to Europe?

    We acquired a 33.33% stake in Promasidor. Since November 2016, we have been integrating its operations in Nigeria, one of its large bases, with the operations we had in that country prior to the acquisition. We expect this process will take a year but it appears to be going very smoothly. Both companies have experience in starting from business from scratch in emerging countries, and the corporate cultures are similar. In parts of Africa with low incomes, we are supplying basic seasonings and other basic food products. We are both contributing to improving the lifestyles of the local people and therefore share a common value. This helps overcome the more stressful aspects.

    GeneDesign is a startup venture. Its pipeline is in Phase 1–3, and PMI is leveraging the functions of our Tokai Plant, Ajinomoto Omnichem in Belgium, and Althea. The emphasis now is more on realizing the potential of each company’s infrastructure than aligning their governance or restructuring production.

    We need to find an M&A target for our integrated food solutions business. We are presently moving on several themes. We have been developing flavor technologies in cooperation with T.Hasegawa, and we will probably be able to provide samples within the year. Rather than making large-scale purchases, we are shifting to a strategy focused on establishing key bases and expanding the business from its base in richly flavorings and other ingredients. We expect this business to come on line during the new medium-term plan but do not expect it to contribute to profits until after 2020.


  • I think your outside director Mr. Nawa brings a unique perspective to the Board. I believe his appointment fits well with your goal of becoming a global top 10 class food company. Has Mr. Nawa pointed out any specific deficiencies that need to be overcome to achieve that goal?

    He has pointed out that we are behind the curve in ICT solutions. He highly regards the focus of the medium-term plan’s ASV value creation stories concept on improving people’s nutrition and contributing to better lifestyles through food. We have raised three tasks to tackle during the new medium-term plan. First is restructuring of our domestic value chain. Second is building a sustainable global value chain, and the third is our integrated food solution project. This project recognizes that human’s sense of deliciousness varies with each situation in which they consume food. Mr. Nawa has pointed out that using ICT to examine the process of how the sense of taste is transmitted from the mouth to the brain, and not just the oral sense of taste, will lead to better product development. We are presently designing an ICT system with input from outside authorities.

  • The appointment of directors is one of the proposals on the agenda for the general meeting of shareholders. I notice that the CFO is not included as a board member this time. Why is that? Also, why are there no non-Japanese board members?

    Our discussions about corporate governance focused on raising the effectiveness of the Board of Directors. In order to have more lively discussion than in the past, we decided to create a more compact board, reducing the number of board members from 12 to 9. This does not mean that we no longer have a CFO. One rung below the Board of Directors is the Management Committee. It currently has nine members but we plan to increase that number. To increase the diversity of the Management Committee, which is composed of executive officers, we will appoint members serving in various roles, including the CFO.

    In addition, the Nominating Advisory Committee and Compensation Advisory Committee have been arbitrary committees. We now plan to appoint an outside director as head of these committees and increase committee staff to facilitate more robust discussion. The discussion of these issues led to talks about the importance of the basic design of our corporate governance structure itself. We therefore have established a Corporate Governance Committee headed by myself and comprising four other members—two internal directors, one outside director and an outside auditor. We are now discussing how to strengthen our corporate governance and other relevant topics, including diversity.


  • Now that you have adopted IFRS and equity-method profit and loss is included in business profit, I think it must be difficult to monitor changes in your profit margin. Can we assume that you are now emphasizing ROA and core business profit?

    Yes, the core business profit margin is important. The concept of business profit is more conducive to comparisons with global corporations. Until now, we compared operating profit under Japanese GAAP with the IFRS-based core profit reported by the global top 10 food companies, but going forward the comparison should be with our business profit including equity-method contributions. However, because that comparison alone is insufficient, we plan to break out ROA for each reportable segment and present that as a productivity indicator.

Japan Food Products

International Food Products

  • Your overseas business is focused on the Five Stars, but can you tell us how much time you devote to management of each region?

    I devote considerable time to deciding overall Group policy. Accordingly, I devoted a great deal of time to the new medium-term plan, which was my initiative. I spent about two years on that, beginning with expressing my ideas to each region and building upon that. I also worked on measures to accelerate growth and improve governance. In addition, including indicators for improving working motivation as a “G” factor within ESG instead of an “S” factor is important. I also spent time on the web communicating my thoughts directly with our employees in sharing the purpose for the introduction of an engagement survey. In this way, I took time to gain the understanding and approval of our employees. I also spend about 70 days a year on overseas business trips. The priority is on visiting our business partners, which includes current and potential future partners.

  • Where does Ajinomoto stand among the competition in the ASEAN region and in the Five Stars?

    Our strategy in ASEAN and the Rising Stars is to be the No.1 company in dry savories (AJI-NO-MOTO®, flavor seasonings, and cube-type general-purpose seasonings). We have the top share in the Five Stars and are using that position to boost our global market share. Our global share in FY2016 was 22%, only a 1ppt lead but we are pulling away from our two global rivals. I want to create the same structure in the Rising Stars. We may not be active in as many countries as our global rivals, but we aim to increase our share in the global dry savories market to 24% in FY2019 by boosting market share in the countries where we are strong. I also see another key difference between us and our global rivals. Although they make some changes to products to suit local markets, they tend to market the same brands using the same recipes in all markets, which probably is highly efficient. We, however, thoroughly adapt our products to the local market and have built our business by developing local brands. This is the basic philosophy and approach that drives our effort to achieve the top share.

  • Please update us on your Thai and Myanmar businesses and the competitive environment in those countries.

    We expect sales at our Thai business to increase 7% YoY in FY2017, or 2% after excluding the impact of the new excise tax. While the tax has not yet been implemented, our plan is based on the official announcement of its passage. Earnings began to pick up in 4Q FY2016, thanks in part to the successful launch of a completely revised Birdy® 3 in1 in November 2016. In Myanmar, we plan to bring on line a new AJI-NO-MOTO® packaging plant in September 2017. Cooperation with the local government should make it easier to eliminate knock-off products. And there’s a big difference between having a local plant and not having one. I expect the Myanmar business to stage a V-shaped recovery.

  • Is the cooperation of the local government stronger because the startup of the AJI-NO-MOTO® plant generates new jobs?

    Definitely. One reason for the September startup is that negotiations with the authorities took time. Until now, the Myanmar business has been based on cross-border trade, but recent market expansion has opened the government’s eyes to the potential for a big market. Consequently, they wanted us to establish a fully integrated plant, with production from the fermentation stage, and not just a packaging plant. We had originally planned to bring this plant on line during the FY2014–2016 medium-term plan, but the negotiations with the government took longer than expected.

    Establishing a local subsidiary and building a plant is creating jobs in Myanmar and contributing to the country's development. I definitely think this will enable us to strengthen collaboration with the local government and the police. In addition to the AJI-NO-MOTO® packaging plant, we plan to bring on line a Birdy® 3 in1 manufacturing plant in Myanmar in February 2018. We expect this will contribute to V-shaped rebound at our Thai business.

    (Follow-up question: Can we assume that this V-shaped rebound will be the driver of profit margin improvements from FY2018?) Yes.

  • Thai sales of seasonings and processed foods showed a YoY gain in 4Q FY2016. Would it be safe for us to assume this momentum is being sustained?

    Sales of dry savories, centering on AJI-NO-MOTO® and Ros Dee®, should be considered the solid basis of our Thai business. These products are not only used in home cooking but are also used by restaurants, which have their staff purchase our products at local markets and supermarkets. Given the broad demand spectrum for these products, we are making an extra effort to uncover demand. Sales are particularly robust for AJI-NO-MOTO PLUS®, a strongly flavored product made by adding nucleic acids to AJI-NO-MOTO®.

    Knock-offs of our Birdy® 3 in 1 product in Myanmar had a negative impact on sales growth at our Thai business in FY2016. However, we expect the startup of the AJI-NO-MOTO® packaging plant this September will lead to stronger controls on knock-offs, thus making it easier to stage a V-shaped recovery in Thai sales. Meanwhile, Birdy® 3 in 1 and Birdy® canned coffee continue to face a difficult sales environment in Thailand. However, we will be resolute in our efforts to overcome the competition. Our goal for Thai business this fiscal year is for 2% sales growth excluding the impact of the excise tax, and I think that goal is attainable under the conditions I have described today.

  • The seasoning and processed foods business in Brazil achieved double-digit sales growth in FY2016 despite that country’s difficult consumption environment. Moreover, you are targeting double-digit growth again in FY2017. Please explain the reasons for the strong results in Brazil.

    The FY2016 results included the impact of the transfer of overseas retail sweetener sales, but even excluding that impact sales increased 12%. We plan to achieve sales growth close to that in FY2017 as well. Brazil's recession will enter its third year in FY2017, but I think consumers no longer need to refrain from buying products in our basic seasonings category. The market continues to rebound. Our Sazón® flavor seasoning is the top brand in Brazil and has extremely strong growth potential. The brand includes about 15 SKUs that provide a wide variety of menu-specific seasonings. These seasonings are also highly economical, making them affordable for consumers in all income groups.

  • What are you aiming for in Africa?

    We hope to contribute to the growth of Promasidor, an equity-method affiliate, by providing production technology and supporting its product development. A more concrete plan is still in the drafting stage.

  • Please describe the special features of the US frozen food market.

    The overall frozen food market in the US is in a slight downward trend, reflecting consumers’ preference for low-priced products and the large number of low-quality products on the market. The Asian frozen food market is a niche market but is slightly expanding.

    In the frozen food industry, products are generally priced at about ¥1 per gram. Higher pricing will raise the gross profit margin and should help the company secure an operating profit margin of about 10%. Low-quality products are priced at about ¥0.2 per gram. We hope to increase our offering of value-added products that fall into this price range.

  • How does your North American sales strategy for Asian frozen foods plan to differentiate your products from the competition?

    Ajinomoto Windsor (AWI) has strengths in three areas. Frozen food makers have strengths in different areas. AWI’s strengths lie in Asian and Mexican foods and appetizers (commercial-use vegetable chips, etc.). Since the merger, AWI has strengthened its lineup in three core Asian categories—gyoza, fried rice, and frozen noodles, the latter through a tie-up with Toyo Suisan. Rather than worry about how to win shelf space in retail shops, AWI is specializing in unique categories. During the new medium-term plan, the US subsidiary will invest ¥20 billion to carry out a scrap & build program, raise product quality and production efficiency. It recently announced that it would build a new appetizer plant. It plans to sell the old one. It invested in its fried rice plant in FY2016, and now plans to consolidate production of fried rice. Through such initiatives, AWI aims to increase sales by 7% over the previous year’s level.

  • What kind of KPIs will you use to measure SKU reduction? Would you please explain management’s decision-making process?

    * Note: We refrained from answering this question on the day of the small meeting and instead promised to include the answer in our post of the Q&A on the company homepage, as follows.

    We are using profitability (specifically the GP ratio) as our indicator. We are considering using a certain profit ratio to determine which unprofitable SKUs are candidates for discontinuation. Once the candidates are determined, final decisions will be made after taking into consideration relationships with specific customers and the effect on concerned plants overall productivity.

  • Market surveys are showing that private brands are becoming more prevalent in the North American food market. How do you view the North American frozen food market?

    Whole Foods, which is popular with upper middle class consumers, is a good example of retailers shifting from national brands to private brands. It has switched completely to its own private brand. This is a very important market, and we hope to collaborate with retailers on the development of private brands that can secure an attractive unit price. Whether it be a private brand or a national brand, a product that can be priced at above the typical ¥1 per gram will help lift gross profit. A good example is the North American appetizer market, which is dominated by a small number of makers, one of which is AWI, which ranks among the top three. Appetizers are a strong source of profit for AWI.

  • It took three years for you to decide to sell AWI’s Piedmont plant. Can you share that decision process with us?

    When we acquired Windsor, the Piedmont plant was targeted for closure. Fortunately, we were able to find a buyer. Other plants are scheduled for structural reforms. It took three years because we first needed to expand the fried rice plant and start construction of a frozen noodles plant. We prioritized investments targeting topline growth and have since carried out investments in structural reforms in stages.

Life Support

  • Please update us on the animal nutrition business.

    At the FY2016 results briefing we were not able to provide a details about our shifting production of commodity animal nutrients to an OEM basis because we were still in negotiations. That situation has not changed. Hopefully, this initiative will take shape during this fiscal year. Meanwhile, sales of our specialty nutrient AjiPro®-L fell short of the 6,500-ton target we had set for FY2016, but sales are now approaching our monthly targets. We expect to get approval for its production in Europe before the end of this year.


  • What do you consider to be the growth potential of the sports supplement and direct marketing businesses? Also, is there a risk that these might simply be temporary boom markets in Japan?

    In the sports supplement area, we have been marketing amino VITAL® through Mizuno’s sales channel for more than 20 years. I do not see this as a temporary boom market. The business base has gradually been expanded. We have been testing many products and are presently marketing products to and developing products for the top athletes, including Olympians and athletes in the Japan Olympic Committee’s program for strengthening promising athletes. From this starting point, we are gradually expanding our business. Of course, these markets can go through booms in years when the Olympics or other major sporting events are held. In 2016, we saw a temporary spike in demand that we could not keep up with on the supply side. The direct marketing business focus on health foods enables us to secure subscribing members and facilitates two-way communication with this customer membership. This business is focused mainly on Foods with Function Claims, such as Amino Aile®, which supports preservation of muscle strength in the elderly, and Glyna®, which enhances sleep quality. We have introduced a total of three Foods with Function Claims since Japan introduced this labeling system, with Mai Asa Histidine, joining Amino Aile® and Glyna®. The ability to make health claims has expanded business opportunities for Ajinomoto, which operates on an evidence-basis.  At the FY2016 results briefing I was asked the reason for growth of the healthcare and other business categories. The growth is almost entirely due to the contribution of our direct marketing business. Although still a small-scale business, it is expanding more than 20% a year.

  • Are there any changes in your efforts in the sports nutrition domain?

    The three branched-chain amino acids (BCAA) that make up our amino VITAL® are sold as individual products in the United States, where they have been commoditized to some extent. On the contrary, Ajinomoto is developing branded products, such as amino VITAL®, that incorporate BCAA. Our direct marketing business’ Glyna®, a Food with Function Claim, is based on an amino acid that we branded after discovering its sleep enhancing function. The business’ offerings also include Amino Aile® and Mai Asa Histidine. We believe we are the front-runner in this field. One example of the use of amino acids in pharmaceuticals is the sweetener aspartame, which is effective for treating people with diabetes.