Q&A from Small Meeting with President (Jun. 4,6, 2019)

The first factor behind the deterioration in business profit is the sluggish performance of Japan Food Products. In addition to this, deterioration in profit for the term was also affected significantly by the impairment loss that we recorded in the third quarter. Although Japan Food Products has long been a business for which we expected stable growth and which delivered that growth, it can no longer support stable growth under a business model that seeks only to dig more deeply into the Japanese market. To respond to rapid changes in the market, we are currently undertaking a reorganization of production bases in Japan. A state-of-the-art plant will be completed at the Tokai Plant during FY2019, but this should have been undertaken a bit earlier. In addition, small-mass markets, which feature demand for urban-oriented premium products, are gradually expanding, but we have not been able to respond quickly to them. These are among the factors behind the sluggish performance of Japan Food Products. Internal factors related to the impairment loss are largely due to the fact that the post-merger integration (PMI) of a North American frozen food company that we acquired did not progress as planned. We established the Global Frozen Foods Strategy Dept. in April 2019 to address these issues. In the past, Ajinomoto Co., Inc. has managed North America and Europe while Ajinomoto Frozen Foods Co., Inc. has managed Japan and Asia, but we have now established a system to unify management of these and resolve issues. Similar to this new system for frozen foods, in FY2020 we will categorize the seasonings business in Japan and overseas as “dry savories,” and the processed foods and coffee businesses in Japan and overseas as “Quick Nourishment (QN).” These changes will give us an organizational structure that manages the domestic and overseas operations of a single business as one.

At the recent results briefing, I was asked whether the growth rates for the FY2019 sales and business profits forecasts in international seasonings and processed foods are too low, even considering the impairment loss in FY2018 of about 3.2 billion yen related to Promasidor Holdings Ltd. trademarks. In my explanation, I said that business profits incorporate about 2.0 billion yen as the impact from our asset-light model, and that we are placing this under company-wide shared expenses, not allocating it under specific businesses. Regarding sales, however, last year our major affiliates raised prices for both AJI-NO-MOTO® and flavor seasonings during the period, due to high fermentation raw materials and fuel costs, which became a straitjacket holding down top line growth. While less so in 2019 than in 2018, exchange rates remains unclear, particularly in emerging countries, and are factored into the FY2019 business forecast as a negative element. As for business itself, international seasonings has put through price increases, and has made a smooth start from April. In Japan, the frozen food and coffee businesses slumped last year, as high costs for seasonings and processed foods for restaurant and industrial-use and unseasonable weather, especially a very hot summer, had an impact. Normally, our business model builds demand in the summer season with our Cup soup made with cold milk, leading in to early autumn. However, we initially stumbled with this. As we don’t have this for April and May, the good start has run out. We do not take an optimistic view, as problems can arise at any time.

(Q: At present, both Japan and overseas are doing well. Can this be understood as an upside factor if all goes well?) Yes. However, there are also risks that cannot be fully forecast in the short run, such as exchange rates. At the same time, although this is unlikely to have a large impact during the period, we have begun cross-border e-commerce. In April 2018, we established the Consumer Data Analysis & Business Creation Dept. to integrate big data analysis and e-commerce initiatives, which had been spread across group companies, into Ajinomoto Co. A year later, this has begun to function. In September 2018, we launched the products of Ajinomoto AGF, Inc. on the JD.com marketplace in China. Sales have grown through this, and we have seen that there is demand for Japanese coffee under the Blendy® brand. In May 2019, following the recent results briefing we also opened a site for amino VITAL®. Less than a month has passed, but I hope to have a chance to review this. We should be able to cross information and set it up together with inbound. While the top line remains challenging for Japan Food Products, I hope it will contribute to even a 1% increase.

(Q: Can an increase of even 1% be achieved?) E-commerce in Japan is predicted to grow by 25%. There is the potential for problems to emerge, but there are also expectations. Through this initiative, Ajinomoto Co. and Ajinomoto AGF, which are promoting the project, have been able to expand the breadth of their marketing for not only seasonings but also luxury items.

(Q: Will this grow to a promising scale in 2020?) That is still some time away. As Corporate Senior Vice President Etsuhiro Takato explained in the results briefing, the scale of our e-commerce via general platforms, excluding our mail order sales before the start of cross-border e-commerce, was about 0.5% of seasonings and processed food sales in Japan. We are still feeling our way through the situation, but if these can grow 50% each, they will be of reasonable scale.

(Q: Is that including cross-border e-commerce?) We have just begun cross-border e-commerce, so we don’t yet have a sense of how much to add in.

The population parameter is seasonings and processed food products of Japan Food Products. The frozen foods business faces delivery problems, and so is not yet included. Please consider the cross-border e-commerce lineup as consisting of seasonings, coffees, and sports supplements.

Behind the emergence of the small-mass market is the advance of e-commerce, as seen in Amazon.com. The rise of digital communication has made it possible to grasp consumers demand more precisely, and consumers can now buy what they want through e-commerce instead of through conventional points of sales. These changes have come to affect our business as well. As we are a manufacturer, we will not profit through creating many products for small-mass markets. However, small-mass markets are one source of insights into consumers, so we would like to run many trials in small-mass markets, and from among those develop more products for middle-mass markets with sales on the scale of 2.0 to 3.0 billion yen. Until now, we have targeted sales of 10.0 billion yen per product, but we would like to turn this into a business model with five products, each generating sales of around 2.0 billion yen. With regard to the construction of new growth models through digital transformation, small-mass market demand is strong in developed countries such as in Japan, North America and Europe, and in major Asian cities such as Singapore and Kuala Lumpur. Accordingly, we are considering construction in such regions and cities. I think that e-commerce is a good way to test the challenge of shifting from small-mass markets to middle-mass markets in business. It is my belief that through this channel, e-commerce can achieve visualization not only in B2C but also in B2B2C. We will undertake e-commerce in Japan as well as in the overseas advanced cities that I mentioned. In Japan, we have begun cross-border e-commerce.

As categories, symbolic small-mass markets are the areas of soft drinks and snack foods, something shown numerically in data from research agencies. Depending on the category, what is becoming a channel for pushing small-mass markets is e-commerce. The products that often use e-commerce are showing noticeable change. In our repeated trial-and-error approaches to e-commerce in Japan, we were able to sense changes in consumers, and shifted to introduction of small-mass market products.

(Q: Is this something that has no direct impact on the Company, but is influencing the surrounding environment?) There is little impact on seasonings, but more impact on coffee beverages. As a secondary effect, conventional retailing is feeling the need for investment in digital, and price competition in existing channels is heating up. For example, effects are appearing in Ajinomoto AGF’s mainstay coffees, low-volume fried chicken in frozen foods, and in fried rice, for which there are many competing manufacturers.

(Q: Do you mean that the Company understands consumer insights, and thus can flexibly address small-mass markets?) If you tie together the understanding of insights and the ID-POS (ID data and POS data) and purchasing history from e-commerce, new small-mass market channels become visible. Or they had been visible up to now, but we could not deliver to them. In existing channels, such as convenience stores, there are rules regarding shelf display, and standards for daily number of units sold. We were not able to deliver to those. Between e-commerce and online delivery by mass retailers, it is obvious at a glance which is more convenient. That is boosting competition. Considerable reorganization of distribution is also taking place. I think those are the sort of impacts that we see.

We think that shifting to small-mass markets is possible in the frozen foods business. So far, we have worked on products ranging from Gyoza, which has a scale of about 20.0 billion yen in sales, to the Yoru Kuji no Hitori Nomi series of products, which are on the scale of several hundred million yen. As an example, within the category of Gyoza there are various types. The reason that Gyoza is growing within frozen foods is because the product has overwhelming technological and brand power. Accordingly, Gyoza should be adapted more to small-mass markets. At the same time, strengthening products in new categories that are presently at the scale of hundreds of millions of yen will require new marketing investment. We have to create the markets from scratch. I don’t think this is how we should create markets. We will further refine our fields of expertise and create products for small-mass markets, based on technological superiority and strong brand values. Even with a number of small-mass markets, manufacturers do not profit. They likely will not be able to make a profit from small-mass markets. What will be important will be how many products can be turned from small-mass markets into middle-mass markets of 1.0 or 2.0 billion yen or so. Within the Asian food category, we will make Gyoza, Shumai, and fried rice our core domains. Our desserts are number one brands, and we have a high presence in restaurants and prepared take-out foods. By sharing technology and business models with our business in France, we will work toward small-mass markets in this area too.

Ajinomoto Food Manufacturing Co., Ltd. was established in April 2019 by integrating Ajinomoto Co.’s food manufacturing departments, the former Knorr Foods Co., Ltd., and the former Ajinomoto Packaging Inc. The new Mie Factory will be completed in the fourth quarter of FY2019. Currently, Ajinomoto Co.’s Tokai Plant produces the HON-DASHI® product itself and this is transported to the Osaka packaging plant of Ajinomoto Packaging. However, completion of the new plant will enable integrated production. As we will put the latest technology in the new factory, production adjustments will be possible every week instead of the current once per month, lead time will be quartered, and the time to change from manufacturing one type of product to another will be half what it is now. In addition, the minimum lot size for manufacturing will be one-seventh what it is now. Through this, we will have prepared a production system that can respond to middle-mass markets in flavor seasonings, too. After the factory goes into operation, we will close the Ajinomoto Packaging factory in Osaka. We aim to complete a new factory in Kawasaki in the first half of FY2021. After this new factory goes into operation, the former Knorr Foods factory in Takatsu-ku, Kawasaki will close. Although we expect an improvement of about 2% in our GP rate through these efforts, we have not factored in a reduction in logistics costs due to consolidation. Regarding this change in production systems, our new team promoting the shift to ICT and automation consists of about 20 employees. We are leveraging a network of authorities in the field of instrumentation, consultants, industry players, and other parties to stay up to date on the latest technical information.

As I explained at the recent results briefing, although core businesses account for about 60% of sales, the roughly 40% remaining is not all non-core businesses, and includes businesses for which we will determine what to do in the future. Although non-core businesses have an impact on sales, please understand that they make almost no contribution to business profits. Suspending non-core businesses suddenly will create problems with fixed costs (primarily personnel costs). To the extent possible, we have to shrink the fixed costs of the businesses so as not to weigh on other products. If we exclude this, we estimate that the past sales CAGR of 2% would be a bit over 3%. We will be able to invest non-core management resources into core businesses. Also, in terms of foods, in the past the business division in charge of seasonings and processed foods in Japan had only dug deeply into the market in Japan. From FY2020, however, we will operate globally under the category of “savory,” without dividing areas between Japan and overseas. In addition, we will look at processed foods, or “QN,” which is the coffee business together with Cup Soup and other products, and also frozen foods, from a global perspective. We will also actively promote exports, and will strengthen not only products but also marketing. Overseas, we will roll out products developed and manufactured in Japan. We will switch to this sort of management. In frozen foods, we launched the Global Frozen Foods Strategy Dept. in April 2019, and integrated operation is scheduled for completion in July. Next, we will similarly change our structure for seasonings and processed foods. Accordingly, we do not think that a sales CAGR of over 3% or over 4% is so far away for our current core businesses.

(Q: Should we understand that the core businesses’ past sales grew at a CAGR of 3%?) Yes.

(Q: Should we understand that the core businesses account for 90% of profits?) Core businesses alone do not account for 90% of profits. Although I noted that non-core businesses generate nearly no profit, even the businesses we have yet to decide on, uncategorized businesses, are business units, so if we bring them together, they have a certain amount of profit. We have made the decision to shrink or suspend non-core businesses, and so will carry that out. Uncategorized businesses will be work for the next MTP.

(Q: Should we understand that the Company will undertake cost reductions of about 10.0 billion yen?) Ten billion yen refers primarily to corporate expenses. We will work to reduce them from 3.3% to 2.5% (a 0.8% reduction) of the current sales.

The frozen foods business is one business unit, and we want you to look at ROA from the standpoint of efficiency. I have already explained about the growth rates of sales and business profits, as well as the business profit margin, so I believe that you can understand the progress if you add ROA to the picture.

(Q: Will unifying organizations globally result in significant lowering of costs?) The greatest change will be that the sales growth rate will change through concentration on core businesses. In terms of costs, both international frozen foods and domestic frozen foods require reorganization. If we can run the businesses so that business profits increase, and that mainly fixed assets decrease, or at least do not increase, this should yield results in the form of ROA. Regarding the main themes for cost reduction, we are doing this in country-specific units such as Japan, North America, and Europe, and thus I think that making judgments from our disclosed figures may be difficult.

Within our initiatives under the current MTP, we have come to the final phase. Whether or not there is room for more, I think that it may be possible to work a little more efficiently if we do marketing globally, instead of divided up by area. I would like to introduce the idea of ROI for marketing, but we haven’t turned it into numbers.

(Q: Can we consider that 10.0 billion yen will manifest in FY2020 and FY2021?) We plan to generate 5.0 billion yen in FY2020, the starting line for the new MTP, and the remaining 5.0 billion yen during the MTP. There are also areas where improvements will be made.

(Q: Is your idea of improvement organic growth going from 3% to 4% and improvement of profits solely through cost reductions?) Your understanding is correct. Even if core businesses do not achieve a sales CAGR of 4%, if we factor the cost reduction element into current core business growth of over 3%, business profits will come close to 110.0 billion yen, if not quite reaching that amount. As this premise includes conjecture, and as the competitive environment is getting tougher, if we do not change to a strategy focused on core businesses, there will be no guarantee that we can maintain the past growth rate of a sales CAGR of 3% plus alpha. I think the business environment is one in which we will lose share in areas where technical barriers to entry are low as the transformation to digital accelerates. If we do not do that now, I believe we will not be able to achieve a growth rate of 4% plus alpha.

(Q: Are you saying that even if organic growth of 3% does not take place over the next three years, the Company will make a profit?) We want to ensure a business profit on the scale of at least the 120.0 billion yen that is necessary to rank among the top 10 class global food companies, and to direct this toward returns to shareholders and investments for growth. Our thinking is to create such a structure.

So far we have expanded our foods portfolio, while the AminoScience business has focused its portfolio. It has gone from business that sells ingredients as a B2B business, and transformed into a business that also asks what sort of services it can provide. As an example, the cell culture media business builds relationships with customers from the research and development stage, and jointly develops culture media suitable for cells. It works to connect pipelines. The AminoScience business is shifting to such a business model one after another. As a result, its business areas have also become focused. This work is progressing particularly in the electronic materials business. The CDMO business, particularly antibody-drug conjugates and oligonucleotides, is also approaching this stage. It is also seeking to continue the cell culture media business. The foods business has not yet fully reached that business model, but it is moving from the B2B business, which was focused on MSG and oligonucleotides, to a focus on solutions-oriented products, such as savory seasonings and enzymes. It is trying to become a B2B business that can spur customer innovation. Regarding B2C business, we have expanded our regional portfolios, thinking that we needed exposure, and expanded the base for processed foods by growing Asian cuisine frozen foods and expanding into fields where we can leverage our technology. In the seasoning business, Africa, Turkey and emerging countries have become stepping stones into regions where our scale is still small, such as Myanmar and Pakistan. Accordingly, we will aim for the number one global share in seasonings and Asian cuisine frozen foods. On the other hand, how to proceed with Ajinomoto AGF’s coffee business and the canned coffee business in Thailand has been a point of discussion with investors. These are businesses that earn a certain amount of our current profits, but our core businesses are seasonings and Asian cuisine frozen foods. There have been comments that the coffee business should be sold, but I think that there are elements that we can tackle a bit more. QN provides the opening. As an example, we enhance the coffee business, which provides refreshment, by adding the value of “nourishing” through our amino acids. Moreover, Knorr® Cup Soup, which we have rolled out in Japan, holds the number one share thanks to strong technology and know-how. However, for contractual reasons, there has been almost no overseas expansion. On this point, we believe that we can put it on the platform. We think that product development and service provision combining Ajinomoto AGF and Knorr® technology should be possible in terms of marketing.

(Q: Does this mean there are still business opportunities if you transfer Japanese technology and know-how overseas in the food B2C business?) Yes. The savories business is one that major global food companies have positioned as a cash cow. The reason that we have become number one in dry savories over the past 10 years or so is that we devoted ourselves to the local players in the businesses that the majors saw as cash cows, and captured the businesses. As a result, we have a 23% share in global dry savories, the top share. This is making a major contribution to our business profits. We think that there is room to take on this model in the QN field as well.

The reason that the Company’s share price rose in FY2014 is that we put forth FIT & GROW in the FY2011-2013 MTP under former President Masatoshi Ito, sold off Calpis Co., Ltd., grew International Food Products, and reformed the earnings structure of the Healthcare business. In the Healthcare business, operating profit was close to zero in FY2011. However, the structure that we created generated operating profit of about 5.0 billion yen in FY2013. Our message in dialogs with investors has been about not only the company-wide profits and level of ROE, but also our growth strategies, and I see our share price as reflecting this. At the time, restructuring in amino acids for pharmaceuticals and foods was the profit driver in the Healthcare business. The foundation for this was management reform, which Corporate Senior Vice President Hiroshi Fukushi oversaw as leader. In our management, we clarified management policy, reformed global supply chain operations, and switched key people in each area, mostly to foreign talent. As a result, the management policy of the AminoScience Division has been documented and updated in English since 2013. In order to operate the PDCA cycle, from 2016 we rolled out the Operational Excellence (OE) improvement activities adopted by Ajinomoto OmniChem N.V. in Belgium, and connected this to major improvement activities in 2017 and 2018, which yielded results. The OE system can be used not only in factory 5S activities and TPM activities like those in Japan, but in all fields. Accordingly, we will deploy this horizontally and unify all the management policies in English for corporate divisions and the Food Products Division, and adopt OE techniques. Localization is important in food, and we have engaged in this while leaving cultures intact. However, our ability to adapt to macro changes in markets is slow, so we are making management possible through company-wide unification. The downstream-oriented businesses in our B2B business are undergoing a change to customer solutions-oriented businesses. The change first took place in electronic materials. Since then, the pharmaceutical custom manufacturing business and the amino acids business have also become solutions-oriented businesses, and achieved record profits in FY2018.

(Q: Is the vision for the next MTP one in which the AminoScience business supports profits, and improvement of the consumer business can be confirmed?) Taking overall business profit 100.0 billion yen as an example, the business profit in AminoScience will be about 25.0 billion yen, and double-digit growth is expected. However, rebuilding International Food Products, which accounts for about 45.0 billion of the remaining 75.0 billion yen, is the most important point. As we did not anticipate the negative growth in Japan Food Products in FY2018, we will tackle these issues. From FY2020, we will stop referring to Japan Food Products as the Japanese market, and we will put Japan’s superior areas of R&D to use in overseas business. In personnel changes in July 2019, the current General Manager of the Overseas Foods & Seasonings Dept. will become the General Manager of the Tokyo Branch and the top person for sales in Japan. This personnel action also sends a message that we will roll out a developed country model overseas from Japan.

The weight of Brazil in the animal nutrition business has decreased since the factory was closed in 2018. Currently, we sell products purchased through OEM to customers in Latin America, primarily Brazil. Accordingly, risk in the animal nutrition business is low. Although the exchange rate continues to fluctuate in Brazil, this is primarily affecting the MSG exported to Japan. Most MSG in Japan, including the MSG used and sold by our company, has been exported from Brazil. In our structure, only repacking takes place in Japan. This leads to the effect of expensive raw materials in the seasonings and processed foods businesses in Japan. MSG is used in Cook Do® and flavor seasonings, but there are remaining elements that allow price pass-through. Should exchange rates have an impact, these would likely be absorbed by the price pass-through.

(Q: When exporting from Brazil to Japan, there is the risk of a loss in the currency conversion. At the same time, I believe this has been offset in part by the contribution to profits from effects of trade when the dollar has strengthened against emerging market currencies. Looking ahead, how should we think about exchange rate controls within the new business model?) In the past, MSG and the animal nutrition business were the two stars, but at present, performance in the animal nutrition business in Brazil is close to nil. For the remaining MSG business, we believe that we still have a price advantage.

(Q: What changed following the start of OEM at the animal nutrition factory in Brazil?) The factory is currently closed. The factory was built around 2006 and is relatively new, with utilities in good condition, so we are exploring possibilities for putting it to use. The production company, which was a subsidiary of the animal nutrition business, has closed. The remaining assets were taken over by Ajinomoto do Brasil Ind. e Com. de Alimentos Ltda. Almost all of the assets were recorded as impairment losses.

(Q: What will be the influence of African swine fever on the business of the Company?) This impact is expanding in area from China. While demand for amino acids for use in feeds has declined in China, they have not been able to make drastic adjustments in production for competitive reasons. The amino acids are flowing to Asia, Europe, and the South American regions.

(Q: Is the Company sensing greater risk than in the past, now that the shift to OEM is progressing?) We would be in trouble if we were not engaging in OEM. For that reason, we do not consider this a major risk.

One is that we will establish the new position of Chief Digital Officer (CDO). Corporate Senior Vice President Hiroshi Fukushi, General Manager of the AminoScience Division, will be promoted to Corporate Executive Deputy President and take charge of this. He is originally an engineer and has very great expertise. Under his direction, we will carry out Digital Transformation (DX) across the Company. Regarding the point for reflection on the slowness of management response, until now we had transferred authority by business unit, and focused on localization. However, new technologies like DX have been difficult to deal with under our past structure, because it was necessary to move forward with them simultaneously around the world, and to consolidate information and make strategic investments across the Company. That is why we are changing to this sort of structure. We are ready for a certain amount of friction in the matter of whether organizations can keep up with the changes that are coming. Rather, the Company will only decline if they cannot keep up. That is surely something no employee wants. We will execute the reforms while carefully explaining things to organizations.

(Q: Performance improved in the fourth quarter of FY2018, after the announcement of the asset-light model at the FY2018 interim financial results briefing. Have changes in internal awareness occurred as a result of the announcement?) These things are not related. We experienced a sense of crisis across the Company as a result of the large impairment loss recorded in the third quarter of FY2018 and the stagnation of the growth rate in seasonings overseas. This led to reviews of various expenses. In addition, we are advancing the streamlining of work, not only by shortening hours but also by changing ways of working. The result has been that work is being performed more efficiently, and that costs started to fall.

With respect to price hikes overseas, we are timing these so that each affiliate can implement them. One factor boosting business profits in the fourth quarter was the hike in the price of AJI-NO-MOTO® in Thailand in January, the first increase in seven and a half years. In Thailand, MSG is a government price-controlled item that requires government agreement; like salt or sugar, it cannot have the price set by the manufacturer. The passage of the increase has greatly contributed to our performance. As our share of MSG in Thailand is more than 90%, and the competition also had to raise their prices, effects became visible immediately after the price increase. In addition, in the third quarter we also improved the quality of Masako® in Indonesia and raised the price. This has also borne fruit. As a temporary factor, we raised the price of AJI-NO-MOTO® in Vietnam in April 2019. Purchase demand prior to the hike had an effect. Accordingly, our Vietnamese results grew sharply in the fourth quarter, but were down in April. With regard to competitive advantage, increasing the price of AJI-NO-MOTO® in Thailand is immediately reflected in profits. This is because our share is over 90%. In Indonesia, our share is not so high. Accordingly, even if we raise the price, it will not spread immediately if the competition does not follow. Just because AJI-NO-MOTO® has a high share globally does not mean that we can take the same actions in every country. How we move will vary with our share position in each country. In general, sales slow down after a price hike, then rise after some time.

We are strong in the traditional trade, so we want to leverage our distribution networks to the fullest. Meanwhile, the new modern trade (MT) is conservative. MT up to now has been the model that global retailers have. The initial cost for delivery of products is high, and the barrier to entry is high for new companies. Our company has grown with a focus on traditional trade. We did so with a strategy that even global food companies did not take. We entered e-commerce as a means to secure consumer information, not to profit through retail. Accordingly, the present differs from the time when existing distribution of MT appeared, and acting conservatively will result in a loss of consumers. It is said that e-commerce accounts for 8% of channels in Thailand. We want to consolidate various kinds of information while launching a developed country model in Japan and the U.S.

This is no different from adapting brands and flavors locally, and does not at all mean making a single product globally. However, the important thing is progress in production technology. Like the technology to produce delicious Gyoza. For example, even if the machine is the same, whether it can be used is a different matter. Our company has technology that leads to superiority, so we are strong in both Japan and North America. I would like to see more focus on this, but if we are too strong locally, we will have to engage in categories that have a given scale, such as Italian. To concentrate on Gyoza and fried rice, we have to adopt Japan’s most advanced production technology, and use people, goods, and money to make adjustments for local areas. We will make clear that what is most important in our global strategy is being number one in the Asian category, then strengthening desserts, and the head office will take charge of investment planning, too. That is the sort of management we will undertake.

With regard to dealing with rising logistics costs, I think that we will be doing this simultaneously with the asset-light model and consolidation of businesses. I would like to get through this during FY2020, at any rate. The level we are aiming for is a business profit ratio of over 8%. I think we can achieve this if we can concentrate on the asset-light model and the Asian category.

In Thailand, population growth peaked in 2015, and population growth rates are also forecasted to slow in other ASEAN countries between 2025 and 2030. Since urbanization is also advancing rapidly, people are expected to enter a life stage in which they seek better things as their lifestyle improves, rather than slowing consumption. Regarding structural reform of international frozen foods, what we have done so far was to acquire Windsor Quality Holdings in North America and LABEYRIE TRAITEUR SURGELÉS S.A.S in Europe, to build sales platforms in North America and Europe. Through this we have achieved sales of Asian cuisine frozen foods to major chain stores in North America, and we are enjoying sales growth. In Europe, only about a year and a half has passed since the acquisition, and we are still in the process of creating a business foundation. I’ve shared information on topics in North America, but a further sales shift to Asian cuisine frozen foods is important. In Europe, we are strong in desserts, especially macarons, but as with Gyoza, we have a technical advantage in ease of industrial production without manual work, so we hope to expand desserts that originate in Europe to other areas. In the global frozen foods business, there are remaining issues to be addressed from the standpoint of the asset-light model. I want to resolve them to the degree possible in FY2019 and FY2020.

Even if sales CAGR does not grow at 4%, if core business sales CAGR continues to grow at 3% and corporate expenses are cut, business profits will probably be at a level of about 110.0 billion yen in FY2022.

(Q: What degree of impact do sales CAGR of 3% and 4% have on business profits?) Since there are multiple factors, I cannot answer accurately with a simple calculation, but I think the difference in sales is on the order of 10.0 billion to 15.0 billion yen.

I want to bring core businesses up to about 70% by FY2022.

One is a sales CAGR of 4%; another is a ROA below 7%. The business has to meet these two criteria. We are aiming for a company-wide sales CAGR of 4% plus alpha, so naturally it has to exceed 4%. Among the businesses that we are considering there are some with high growth rates but low ROA immediately after launch. Among businesses that have matured over the long term are some for which achieving a CAGR of 4% is difficult, but ROA is high. For example, it is difficult to achieve a sales CAGR of 4% outside of soups, Cook Do® and Asian cuisine frozen food products in Japan Food Products, but the standard is how long we can continue to solidly achieve ROA standard values in basic seasonings. Although the metrics have two axes, what is intangible and most important is what sort of barriers to entry can be created against the competition. In fields where the application of technology is effective against barriers to entry, it is possible to improve quality in response to price increases in raw materials. Also, we evaluate brand loyalty on a per-product basis and consider whether a return can be gained when entering a market. We screen with these three elements as the judgment criteria. For businesses that are classified as non-core, we follow an action plan for screening.

They are not disclosed.

(Q: Is it difficult for a business with high profitability and low growth potential to be targeted for the asset-light model?) We want to make decisions without preconceptions, not emphasize which of the two areas for consideration are important and which will be put under the asset-light model.

(Q: Will these be judged from here on out?) This is under consideration. There are a lot of up-front investment-oriented businesses within the businesses considered for efficiency. It is a fast-growing field, and the fact that our company is growing means that the market is also growing. How long will it grow, what is the competitive environment, how long will the growth rate itself last, how much investment is necessary – and depending on these, we have to consider negative elements in ROA. We will consider businesses not only on the axes of growth rate and ROA, but also from the perspective of whether we can leverage our strong technological ability to maintain strong growth potential, and whether we can create differences from the competition. Businesses with re-built growth strategies are businesses that have not grown for a long time, and are mostly numerous within Japan. How should we select these? Since we had drawn the border line at the Japanese market, ROA and business profit rate were high but they were not able to achieve much growth. How high we can boost growth after removing the border of Japan is the key point.

The success model of our B2B business is to solve future problems together with customers from the stage of development, and to be evaluated on our ingredients and on solutions capabilities that are not subject to price competition. We can leverage our technology if it is to improve the future nutrition of our competitors, but the prepared take-out food and restaurant industries do not need that level of technology. We should engage in development while talking with customers about applications using our ingredients. For example, at times we apply technology to rice balls, and other times to kamaboko fish paste. If the number of types increases, the B2C cost structure should also strengthen. Since we are not an e-commerce retailer, we will not make money by increasing small-mass markets. Increasing small-mass markets means conducting trials to see where business opportunities lie. As an example, up until now we would target 10.0 billion yen with one product, but we will slow the shift to “red ocean” with the idea of creating five 2.0 billion-yen products. Through a mix that combines savory seasonings on a base of the AJI-NO-MOTO® brand and oligonucleotides, we can build up businesses that are not volatile when units increase that create middle-mass markets for prepared take-out food and restaurant customers through service capabilities.

On a business unit basis, B2B encompasses the umami seasonings for processed food manufacturers business included in International Food Products, and the seasonings & processed foods of Japan Food Products. In solutions and ingredients, business is making progress in Japan, and overseas, our business is based in North America and Southeast Asia. The weight of Japan Food Products is still large.

(Q: Isn’t the potential great for expanding overseas?) Among bases the U.S. and Malaysia for Southeast Asia are areas of strategic investment. In Malaysia, we adapt to halal.

The solutions business is at the center here, with the focus on savories. There are also some businesses that use sweeteners, but we have a greater technological advantage in the area of seasonings.

The shift to the asset-light model may affect profits at a level below business profits on the IFRS financial statement. It will involve some pain, and there will likely be impacts. There is also impairment risk at Ajinomoto AGF. While we have some defensive measures, we conducted an impairment test that factored in the effects of Starbucks Corporation. As of the end of March 2019, despite some increase in risk, the test did not result in impairment. Since the risk of impairment has not been eliminated, we have to move with a sense of caution. Ajinomoto AGF possesses goodwill and trademark rights. The difficulty with the company is that, for example, even if it stopped liquid coffee due to lack of profitability, it is simply bottling liquid coffee in the process of creating instant coffee, and so cannot be made asset-light. In terms of trademark rights the only thing it has that might be a hit is its brands, so what I want to share with you is that if the business itself does not grow, the risk of impairment will appear.

(Q: Are there no other impairment risks?) That is our understanding.

The first priority is the next MTP. We will move forward on things that can be tackled ahead of schedule. We have already announced the asset-light model, and will carry it out. At the moment, we are taking what we have formulated in the Management Foundation Advisory Panel and putting it on site, and plan to announce these things as internal guidelines in mid-July. Execution will be by the new executive team, but we are taking action to also carry forward what was formulated under the old team. The second priority is digital transformation (DX). We have appointed Corporate Senior Vice President Hiroshi Fukushi as CDO. We launched a preparatory committee in April 2019, and in June will clean up the management policy for promoting DX, and launch an official committee in July. We have to not only bring in digital as a technology from outside; we also need to change the way we work. In line with management policy, we will introduce the Operation Excellence (OE) tools utilized in the AminoScience Division, to enable on-site PDCA operation in the corporate sector and Food Products Division as well. We want to make every organization able to understand what issues occurred and what was lacking when they proceed with the shift to digital. The third priority is underperforming businesses. We are discussing this with business heads and sites.

In the next fiscal year, we will start a new MTP. I want the new officers to carry out both planning and execution. It probably goes without saying, but we will do this seamlessly so we also changed the deployment of officers. From here on out, we will formulate and put the plan together. In order to properly bring what we have reviewed so far to the sites, we will formulate the plan with a sense of personal responsibility, and hand off the tasks, including those that officers have tried but have been unable to do so far.

(Q: Will they have some degree of authority and responsibility from the plan formulation stage onward?) Yes. The example of Frozen Foods should be easy to understand. Within the Overseas Foods & Seasonings Dept. is the international frozen foods group, which had formed a task force with members of Ajinomoto Frozen Foods. We elevated this and in April 2019 established the Global Frozen Foods Strategy Dept. Officer-class personnel were appointed. From July 2019, they will be brought into the process and they will formulate plans. The foods business is currently divided into Japan and overseas, but in view of the reorganization in 2020, the current officers and employees are going across organizational boundaries and formulating plans with the savories business, QN business, and global frozen foods business as the units. For this reason, we plan to change official classifications from FY2020.

(Q: Is it better to divide things by businesses than by geographical areas?) Geographical areas are important as units. The Five Stars in particular differ from country to country, with B2C the main market. The reason why we have decided to divide things by business is that the urban-oriented markets in East Asia and Southeast Asia, too, are becoming connected by cross-border e-commerce. We must also synchronize marketing. In order to capture urban consumption and effect a shift to premium, instead of doing so locally we will make use of advanced know-how in Japan. As an example, employees of Ajinomoto AGF have been seconded to the Consumer Data Analysis & Business Creation Dept., where they are jointly working on big data analysis and e-commerce product development and marketing. They have already launched initiatives making use of a number of e-commerce platforms. The equivalent of 0.5% of seasonings and processed foods sales in Japan are from e-commerce. We are selling products that differ from the lineup aimed at mass retailers. The scale is still small, but little by little it is yielding results, and is growing at a pace of 20 to 30%. Also, in September of last year we launched the Blendy® marketplace on a Chinese EC site. Japanese Coffee is the approach, high quality coffee made in Japan, and there is inbound demand as well. In addition, after the results briefing the other day, we opened a marketplace for amino VITAL® on the same EC site. Further expansion appears possible in the fall. Our growth expectations for Japan Food Products is 3%, but we will engage in the business from Japan with the idea of covering about 1% overall, from about 0.1% at present, through cross-border e-commerce.

(Q: Is it necessary to change the product axes as well?) Yes.

(Q: At present, are these Ajinomoto AGF products and amino VITAL®?) Yes. Processed foods such as QN have more appeal than basic seasonings, lead directly to products, and generate a faster reaction. We want to expand these in B2B, not only B2C. They also have roles as seasonings.

Going back to the FY2014-2016 MTP, what has been volatile is the B2B business. We engaged in dialogs with you with foods positioned as a stable business. It actually was stable. Our ingredients-oriented businesses have promoted structural reforms (FIT), and we have organized the most important ones. The AminoScience business, a B2B business, has pushed into B2B2C. It worked on products from the development stage and connected as a pipeline, and so has become stable. We are now able to see when it expands or contracts. On the other hand, the food business has been affected by digital transformation, and changes will appear in two competitive environments. One is that big brands will gradually be eaten due to the shift to small-mass markets. The other is changes in distribution. With the emergence of the new channel of e-commerce, the existing channels are getting into a fighting posture, integrations and abolitions are intensifying, and the restructuring of distribution is taking place. Since renovating existing things also costs money, investments in DX cannot be made. Companies with existing channels will focus on more profitable products. Therefore, it could quickly happen that our Gyoza is fine, but our fried chicken and fried rice products face trouble. In the coffee business, if a competitor with a lower market share in stick coffee comes to take share with a price offensive, this will appear attractive, resulting in a decrease in Ajinomoto AGF’s brands. I think there is a gap between the understanding of manufacturers and the distributors.

(Q: I think that there are a lot of localization elements in small-mass markets. Will dividing organizations according to business and moving forward through domestic and overseas integration do away with defeats in regional small-mass markets?) There is a lot of variation in the markets in which small-mass markets emerge, but the small-mass markets will move ahead. Developed countries will likely advance rapidly. Accordingly, I think that creating a model through our development, production, and marketing power in Japan by solidly undertaking e-commerce will serve as a useful reference for Southeast Asia.

In Japan, the home-use frozen foods and coffee businesses were particularly affected. These two make up a large proportion of the Japan Food Products business. The business profits of Japan Food Products overall are just under 30.0 billion yen, within which the frozen foods and coffee businesses brought in about 8.0 billion yen each before FY2018. In FY2018, they fell below that level. The reason why this did not occur in other companies is that the business structure of competitors in the coffee business has changed considerably. Even if a company generates a loss in stick coffees, the structure is such that other parts can withstand that and they have the home-use coffee business, too, but, these companies are very strong in away-from-home. In the frozen foods business, they likely have structures that generate profits outside the frozen foods business. The business models are different. That is how we see it from the macro standpoint. Accordingly, competitors have a structure that can attack through price, but we are weak when attacked through price.

(Q: The profit structure in the Japanese seasonings and processed foods business has not collapsed that much. Despite this, will the Company shift to small-mass markets?) The soup area, as an example, is susceptible to the effects of small-mass markets. With regard to this, not only do we have mainstay flavors but are also developing a succession of new flavors leveraging our brand, so we are holding up. Sales of Japanese flavor seasonings are on par with, or several percentage points below, sales in the previous year. This can be seen as the progressing of the shift to small-mass markets. There are a lot of regional products in Japanese flavor seasonings. It is becoming possible to purchase uniquely local Japanese flavor seasonings at travel destinations, and to purchase regional flavor seasonings in Tokyo. Simply by stores ordering local regional products and placing them on shelves, shelf-space for our Japanese flavor seasonings will decrease. Such incidents are actually occurring. Products compatible with small-mass markets, such as soups and Cook Do®, are growing. At the same time, products that are not compatible, like Japanese flavor seasonings and mayonnaise, are gradually declining in position.

The business profit targets that we set in the FY2017-2019 MTP will be difficult to achieve in either FY2019 or FY2020. We want to create a structure that will ensure that we become one of the global top ten class food companies by the end of FY2022, the final year of the FY2020-2022 MTP. To that end, we will carry out asset reduction and a number of cost reductions, on the scale of 100.0 billion yen. If we can achieve this, our system will be ready. We need to more closely scrutinize changes that will occur in the future. Regarding the core business ratio, it is not the case that core areas are about 60% and non-core areas are about 40%; rather, the 40% includes non-core businesses and businesses that we have yet to decide on. For those that have been designated as non-core areas, we will take action as quickly as possible in FY2019 and FY2020. For some businesses, this may slip to FY2021, depending on conditions in the country in question. We want to clean the slate by FY2022 at latest. In the next MTP we will consider what to do about businesses identified as currently having high ROA and earning profits but with slow growth, or as showing extremely high growth but low ROA. Through this, core and non-core businesses may increase. I cannot talk about details of this yet. When we have decided on what to do with the businesses that we currently haven’t categorized, the scale of asset reduction through the asset-light model may expand a bit beyond 100.0 billion yen.

The current plan assumes around 3%.

We will aim for a year-on-year sales growth rate of 4% in FY2022, and a CAGR of 4% plus alpha after that. In that case, we have no plan to significantly develop the uncategorized businesses. The six core businesses described in the FY2018 financial results briefing session have achieved organic growth of about 3% from the past to the present. Accordingly, we believe that we can achieve growth of 4% plus alpha by placing more focus on these six. We assume a growth rate of zero for uncategorized businesses.

(Q: Do you mean you will actively grow core businesses rather than grow uncategorized businesses?) Yes.

Businesses outside of the 60% core business percentage are non-core businesses and uncategorized businesses. With regard to uncategorized businesses, we have determined that these do not need to grow, and we will not make investments in marketing and R&D. We will not invest in these unless we can make a clear determination that they can become core businesses.

(Q: Considered in terms of capital investment, will the level of investment in the 60% core business percentage increase?) Yes.

(Q: What is the current percentage of capital investment in the 60% core business percentage, and how will that percentage change?) In the FY2017-2019 MTP, we had hoped to spend 60% of 230.0 billion yen in core businesses, but in reality have not done so. The reason is that we are spending the money on maintenance and replacement investments. If we could have spent as planned, we likely could have grown the core businesses a bit more. The reason why we cannot do so is our continuation of businesses outside of core businesses. We will decide on the criteria for selection and make the direction clear for core businesses and uncategorized businesses, and then make investments.

We will make a determination and shrink or sell off the businesses in which we do not invest (i.e., non-core businesses). There are no uncategorized businesses within the 100.0 billion yen asset-light model.

(Q: The sales growth rate may be 3% at 100.0 billion yen, but will the numbers change in the next five to ten years?) We will discuss and determine this when formulating the next MTP. The scale of non-core businesses is smaller than that of uncategorized businesses. We will stop or shrink non-core businesses. The 100.0 billion yen includes the targets of this.

(Q: I had heard that the Company wants to make retrogressive reforms ahead of schedule and finish them all at once, and so I expected that the Company would make bold reforms in a year or two.) Regarding non-core businesses, we have decided not to pursue these, and will take action. The targets of this are included in the 100.0 billion yen asset-light model.

(Q: At what time will the Company have to undergo restructuring?) We will examine from here on out whether we need to undergo restructuring.

I think there are areas where work can be shared. For example, some Knorr® Cup Soup and home-use freeze-dried products for Japan are manufactured in-house, but most are outsourced. Ajinomoto AGF has shut down its facilities due to the decline in sales of freeze-dried products, and still retains the assets. Japan Food Products appears to engage in consolidated operations, but the president of each group company manages that company’s assets. We will carry out organizational reform to enable consolidated operations. Also, by changing our organization of business, we have begun to discover possibilities for business in what Ajinomoto AGF was not able to do on its own, through consolidated management with the Company. At present, the business of Ajinomoto AGF is an uncategorized business.

(Q: Can usable shared equipment be shared in the same geographical area?) We can via imports and exports. The form of business has changed from the past. It is changing away from a structure in which costs are high in Japan and business is impossible without creating local subsidiaries.

Until October 2018, it was an organization under the Executive Committee. It functioned with the Corporate Planning Dept. as secretariat, and with three Corporate Senior Vice Presidents as members: Masaya Tochio, Etsuhiro Takato, and Hiroshi Fukushi. The themes it discussed were not only matters concerning the businesses but also what should be strengthened horizontally across businesses, such as strengthening R&D, how to think about digital platforms, how to shorten supply chains and improve the cash conversion cycle. Among these, a considerable number of issues arose in areas that had been left to subsidiaries, in the form of group governance. Representative examples are Ajinomoto Foods North America, Inc. (AFNA), a North American frozen foods company, and Ajinomoto AGF. Issues became apparent in FY2017 and FY2018. Group governance needs to be strengthened so changes in structure will take place after the Ordinary General Meeting of Shareholders on June 25, 2019. However, from November 2018, we have effectively changed operation of the Management Foundation Advisory Panel to a form attached to the Board of Directors, chaired by the President. The members are the President serving as Chairperson, and the General Managers of the Food Products Division and AminoScience Division. Outside directors are also in close contact, if not always taking part in meetings. We are changing to a structure in which the Panel establishes themes and decide on major directions of management from the perspective of overall optimization and ability to adapt to our macro sense of the market, and in which the Executive Committee, as the executing team, receives and executes on those directions. In order to also move forward in form, we will increase the number of non-executive inside directors after the shareholders’ meeting. As meetings are frequent and it is difficult for outside directors to always take part, the increased number of non-executive inside directors will have supervisory functions in meetings, and will improve communication with outside directors.

It will be difficult to achieve the level of KPIs sought by long-term investors in FY2022. In order to do so in FY2025, we will make substantial reforms in FY2020–2022.

(Q: Will you take the lead in building a platform for FY2025?)The management team and I will do so.

Planning and implementation will be carried out under the new officer structure. Regarding major changes aimed at the coming year, the Consumer Foods & Seasonings Dept. serves as the control tower for marketing and for setting R&D themes for foods in Japan, while the Overseas Foods & Seasonings Dept. does so for foods overseas. The Consumer Foods & Seasonings Dept. considers Japan, and the Overseas Foods & Seasonings Dept. supports overseas affiliates. Next year, three new organizations – the Savories Dept., the QN Dept., and the Global Frozen Foods Strategy Dept. – will become the owners of the businesses’ assets, and will promote the businesses while communicating with local affiliates. Regarding the categorization of the core businesses and non-core businesses that are the targets of the asset-light model, we are screening these one by one. This was not in the MTP formulation process up to now.

(Q: Who will determine whether a business plan that comes up is feasible or infeasible?) We will make the determination in the Management Foundation Advisory Panel.

We recognize that our current growth in international foods has been gained through M&A. The biggest impact was in the early 2000s, when we sold our holdings of 50% in an Asian subsidiary of Unilever N.V./PLC back to Unilever. We were able to shift to a unique growth strategy for seasonings & processed foods, and our product portfolio expanded. Without that, I think that we would not have today’s growth. In the frozen foods business, the fried rice and dessert businesses that we acquired from Nippon Sanso Corporation are driving growth of the business. In the pharmaceutical business, we acquired and sold an infusion business, established our current joint venture, and are maintaining steady business even in a difficult environment. In the Healthcare business, following the acquisition of North American CDMO company Althea Technologies, Inc. and the acquisition of Japanese oligonucleotide company GeneDesign, Inc., we have steadily developed those businesses; we also made the North American medical foods company Cambrooke Therapeutics, Inc. profitable one year after acquisition. Recently, we recorded impairments in the frozen foods business in North America and the food business in Africa, but overall I think that our M&A has generally been successful.

There is no data indicating when demand for umami seasonings peaked in Japan, but the demand for 100,000 tons per year has continued without change for the past 10 years. AJI-NO-MOTO® for home use reached its sales peak in the 1970s, but demand for AJI-NO-MOTO® for restaurant use and processing has remained stable. As you know, we maintain a 2% annual growth rate in global demand.

Based on the best global brands survey by Interbrand, we conduct surveys of brand awareness level in the 11 countries that are our major countries of operation (Japan, U.S., France, Thailand, Indonesia, Vietnam, Philippines, Malaysia, Brazil, Peru, and Nigeria). The average awareness rate in the 11 countries is 65%. It drops to less than 10% in the U.S. and France, but is high at over 80% in the remaining nine countries, the same level as that of major global food companies. In Japan our awareness rate is 94%, higher than that of major global food companies. As for how to improve our strength, in terms of area, we will solidly boost our presence in the U.S. and France. We need to increase the number of products that use the Ajinomoto brand, and are beginning to do so, primarily in the form of frozen foods. In addition, in FY2018 we began sending out new communication messages, mainly in the form of corporate brand communications over social networks, and the situation is moving a bit. Also, we will hold the World Umami Forum to promote umami in reducing salt intake, and will otherwise communicate that we are a company contributing to healthcare. We will unify our global PR strategies.

There are two reasons for the significant increase in food loss in FY2018. One was the disposal of Ajinomoto AGF’s bottled coffee products (personal types) due to the termination of sales. The other is that the concept of food loss at AFNA is a limited one. The food loss figure increased in line with improvements in precision of calculations at factories, such as the calculation of disposal of raw materials at the pre-treatment stage, disposal of defective products, and disposal in value chain processes. In actuality, however, loss did not increase significantly from FY2017. We will now undertake reductions with FY2018 as our base. With regard to reduction measures, the percentage of our food loss that occurs in manufacturing and other processes is overwhelmingly high. In cooperation with the business management departments, we are currently working on the reduction plans formulated by companies with a focus on food manufacturing, primarily Ajinomoto Frozen Foods, AFNA, AJINOMOTO SALES (THAILAND) CO., LTD., Ajinomoto AGF, and Ajinomoto Food Manufacturing. At the same time, with regard to measures against food loss related to expiration dates, we are proactively working to reduce food loss through actions including reviewing expiration date labels and requesting relaxation of expiration date judgments in inventory at the distribution stage.

The Company issued a declaration of agreement with the TCFD consortium in May. As a specific action, we are going to take it from the level of commitment to that of gaining approval. We are conducting scenario analysis in Thailand, and will roll it out to other areas in the next MTP.

Regarding the reduction of plastics, we announced a policy of aiming to achieve zero plastic wastes by 2030. Specifically, while this stays within the 3Rs, we will proceed with reductions we can make in-house, and hope to incorporate planning into the next MTP regarding what effect this has on social systems from the perspective of recycling. Regarding initiatives for the formation of a recycling-based society, the Company’s strength lies in activities to achieve zero emissions. Even now, we continue to achieve a 99% recycling rate for wastes and by-products. We will continue to highlight how this is beneficial to society. Regarding food loss, our amount in FY2018 increased by 2.8 billion yen. As a short-term factor, the Company disposed of inventory following the termination of sales of personal PET bottles by Ajinomoto AGF. Another factor is AFNA. In North America, the idea of food loss has not yet penetrated deeply. Because of that, ways of collecting data sometimes simply address loss from waste. As a result of performing stepwise reviews that include losses generated in the raw materials and logistics processes, we have finally come close to grasping the actual situation in numbers in FY2018. In short, there was not a sudden increase in loss. Based on our performance in FY2018, we will continue to make efforts toward reduction. From the standpoint of recycling, we are taking initiatives in terms of reducing the product life cycle itself. In Japan, for example, we are actively working on a review of the one-third rule in deliveries, and expect to bring it to realization. We were also quick to switch from display of day to month on expiration date labels, completing the change in July 2018. We are working toward a recycling orientation that extends to the stage at which consumers use products.

Our usage rate of certified palm oil progressed from 14% in FY2017 to 25% in FY2018. A major reason is that certified palm oil proliferation itself is lagging. We understand that our target of a 100% usage rate by FY2020 will be difficult to achieve. However, food companies using palm oil around the world are in the same situation. The Consumer Goods Forum (CGF), of which we are a board member, considers this an extremely important topic, and is strengthening its approach to certification authorities. By using the private certification systems of companies and using suppliers that are aiming for certification, even if not meeting international certification standards, we are providing support while shifting our focus to increasing supply volume. The four KPIs of CGF are certified palm oil, certified paper, soya suppliers, and beef cattle suppliers. In paper, we have achieved a 95% certification rate, but challenges have appeared in palm oil. In addition, even if we have sustainable procurement based on these four KPIs, a gap appears in the matter of whether this leads 100% to solving the original problem of reducing deforestation. Regarding what actions we can take to reduce the overarching concept of deforestation, I would like you to note that we began discussions in CGF from the fall of 2018. As for our inclusion of only palm oil and paper as KPIs in our non-financial goals, this is because our use of soya and beef is overwhelmingly negligible across the group, and thus we do not use these as metrics.

The Ghana project is a nutrition improvement project targeting the bottom of the pyramid (BOP), in collaboration with the WHO and health organizations, and is a difficult as a business. As Creating Shared Value contributes to health and nutrition issues through the business itself, the effect will not come about unless certain business schemes are established. Although there are some success stories among major global food companies, they are extremely few. The BOP business is converting to a model of selling products to the United Nations and the WHO. Vietnam became our first success model overseas, and we have since started in Thailand and have also begun initiatives in the Philippines. In Japan, the double-burden problem is serious, and the issues of both poor nutrition and over-nutrition are appearing in the elderly. We are collaborating with 32 prefectures on an initiative with Kachimeshi® to reduce excessive intake, mainly by reducing salt. We are also working to spread improved nutrition through the intake of vegetables in 46 prefectures. Please understand that we are putting the entire company into making efforts on initiatives such as the ASV Award-winning example in Vietnam.

(Q: The first and second SDGs are No Poverty and Zero Hunger, both areas in which the Company’s efforts can be leveraged. But even if these make for high-sounding business with the United Nations, will they fail to contribute to profits?) Yes. Regarding the Ghana project, in 2017 we established The Ajinomoto Foundation (TAF), with the Company as a donor, and had TAF continue the project. It is difficult to continue this as a business, and we thought that we would not be able to reach a consensus with investors if it could not contribute to profits. Although we had engaged in the project for 10 years, we determined that it would be difficult for us to continue it as a business.

We built this as a function of the Research Institute for Bioscience Products & Fine Chemicals of the AminoScience business, but received many requests for consultation from food-related customers. We had many visitors wanting to make better-tasting products and make products naturally with longer shelf life to reduce food loss. The Kawasaki area is an area where R&D institutions of Japanese companies are concentrated, and there is an aggregation of life sciences institutions. There are also many IT-related companies that approach us to talk about doing something together. We can provide ingredients and services, and can jointly develop solutions that resolve issues in B2B2C business. We have signed non-disclosure agreements with some of these parties, and I hear that business has begun to move forward with some.

With the aim of promoting career diversity and thereby inspiring innovation, we are undertaking reform in the Company and group companies in Japan. First of all, with the Company taking the lead, we have worked to shorten total working hours and streamline work in our processes, and I recognize that we achieved a certain level. Our target for total working hours in FY2018 was 1,800 hours, but the result was around 1,820 hours. The number was somewhat under 2,000 hours at the start, so I think we were able to improve significantly. However, the goal is not simply to reduce hours. The 1,800-hour level is standard at the global level, and we will not reduce total working hours further. What is important is whether people can use time within those 1,800 hours for more creative work and work that creates innovation. We are now at the entrance to Stage 2, with a view toward enhancing productivity, not efficiency. By the end of FY2018, we completed the shift to non-territorial offices in the head office building. In line with this, we have begun moving toward fully paperless work, to advance the work efficiency of ICT.