Q&A from Small Meeting with President (Dec. 10-12, 2019)

Going back to the adoption of impairment accounting in 2003, impairment due to M&A has account for 40% of the whole. Bulk animal nutrition, MSG, and sweeteners account for 35%. Food-related impairment, including M&A, accounts for 30%. That’s the structure.

We have advanced step by step in getting out of commodities. However, while we take action against the most difficult areas that remain, the recent declines in performance have occurred, and we have been forced to declare impairment. With regard to M&A, overly optimistic planning in entering new countries in the food business particularly stands out. When we have tried to expand our portfolio in the food business, which has a pattern of wins, I think that we have not always succeeded in applying that winning pattern. On the other hand, in the AminoScience business, we have pushed restructuring, with a focus on M&A. By making purchases for small amounts and shoring up the management, this business is steadily becoming our next mainstay. Overall, I believe that there were weaknesses in the management structure of the food business.

Out of the 40 billion yen of asset shrinkage being carried out through the asset-light model, 54% is being realized in FY2019, with the remaining 46% expected to be realized during the next MTP. I want you to be aware that while we advance the asset-light model, there is a risk of impairment losses and the like. 

We want to complete as much as possible by FY2021, but depending on circumstances, there is a possibility of occurrences in FY2022 as well.

We face two issues: the fact that our in-house production ratio of commodities is not enough at 50%, and that the growth of Specialty is slow, with a gap against plans. We are working to promote alliances here. However, as a condition for an alliance, there is a variety of ways to view the remaining assets, and we are considering these. We have determined that survival will be quite difficult on our own.

Regarding the reason for using an alliance instead of selling off the business, Specialty is a product area that uses technology for a mix of amino acids, and enjoys a very high reputation. We are often approached about forming alliances in the Specialty area. If we hold all of the assets of commodities, we will go down along with it, but as we’ve halved this, we’re looking to break through this phase via an alliance.

(Q: My impression is that the Company must be prepared for further impairment of production bases in Europe and the United States. What are your thoughts?)

Whether impairment will be recorded will depend on whether production conversion is possible. In Thailand and Brazil we have suspended production and recorded impairment, but not in Europe and the United States. However, a degree of impairment risk remains.

(Q: There has been talk that the Company isn’t selling off the business because it wants to keep AjiPro®-L technology. However, the Company cannot be sure it will always be the only company able to make this. I believe there is a risk that Specialty technology will become commoditized. Accordingly, wouldn’t selling off the business while it still has value create a chance to enhance asset value?)

The alliance is not for the purpose of keeping AjiPro®-L. What we are looking for is an alliance partner who is targeting or can leverage the strengths that the animal nutrition business has.

(Q: In that case, it will remain on the balance sheet. I understand the direction and strategy, but how will the Company avoid risk and monetize the business?)

Negotiations are underway, so I cannot provide details. There is a risk that a significant deficit will occur over the next three years if we continue with the business as it is. I would like you to think that we are exploring the method of collaboration and alliances in order to prevent this from happening, and that this is a top priority.

When I took the position of president in 2015, the spin-off of the domestic pharmaceutical business was our biggest topic, and we made considerable efforts. In the animal nutrition business, meanwhile, 10 years have passed since we advanced structural reforms by escaping commoditization. Through this change in gears, in the FY2017-19 Medium-Term Management Plan (MTP) the Company shrunk its ratio of in-house production to 50%. In 2016, the Company decided to suspend production in Thailand and Brazil, and carried this out according to plan. What are left are Europe and the United States, which remain a challenge.

The sole mistake I made through my own judgment several years ago was thinking that I could reduce volatility by making our ratio of in-house production ratio 50%. My judgment was mistaken as I thought that Specialty would grow a bit more. The African swine fever was something unpredictable, and as a result of shifting to OEM, we were able to shrink the amount of deficit by over 2 billion yen, but there was also a great impact in Europe and the United States. In the end, we slightly underestimated the risks to growth in Specialty.

What I want to note, though, is that the decision to lower the in-house production ratio led to the emergence of partners. These were not there when I was handed the president’s baton in 2015. Essentially, I had no choice but to shut it down completely or suspend production, but I was unable to make a determination on either. So, we aimed to find partners and protect employees’ jobs while continuing the business, leading to the present.

(Q: Can the high in-house production ratio be understood as simply due to declining sales?)

Yes. We shrunk in-house lysine production of just under 200,000 tons, suspended production, and reduced production capacity to 50%. This has given rise to areas in which we can possibly once again evaluate Specialty and consider partnerships.

Speaking very fundamentally, there was a barrier between pharmaceuticals and food.

In 1956, a competitor developed a fermentation-based manufacturing technology for MSG. Until then, the only method was extraction and our company was unequaled, but the fermentation method was an overwhelming innovation. Pursuing this, we carried out technological development that surpassed the competitor and studied synthesis methods while pursuing further productivity, which led to our pharmaceutical business. Accordingly, we brought in new human resources to gain know-how completely different from the fermentation method.

As a result, we discontinued the synthesis method as an MSG manufacturing technology, taking into account that the fermentation method offered better performance and that the technology is used for food. The 1960s and 1970s were also an age of controversy over food safety.

　Currently, we have decided not to engage in drug discovery on our own, and took the form of EA Pharma Co., Ltd. Although there are chemical synthesis technology applications remaining in the CDMO business, a large proportion is based on materials created through the fermentation method, and synergies have appeared. In April 2019, the Institute for Innovation was consolidated into the Institute of Food Sciences and Technologies and the Research Institute for Bioscience Products & Fine Chemicals. The Research Institute for Bioscience Products & Fine Chemicals manufactures food ingredients from scratch, and considerable synergies are appearing here as well. There is also interaction with the Institute of Food Sciences and Technologies on analytical techniques and other topics, and the situation is no longer one of a barrier existing as it did in the past.

What we were trying to do with Toray and Bridgestone was to try using large-scale fermentation equipment for white biotechnology. Bridgestone wondered whether the fermentation method could be used as a manufacturing method for synthetic rubber, and Toray wondered the same regarding nylon. In the late 2000s, we partnered in order to further accelerate research. However, our production capacity is not nearly enough to make tire rubber through fermentation, and to a degree, we discerned this early. Conversely, for the development of new materials such as bioplastics, our capacity is too large. This is at a level that can be done using experimental equipment, and so is at a standstill. However, we believe that the world of white biotechnology could expand in the future, and so have completed the technology as a package. We think there will be considerable opportunity to take advantage of this.

(Q: Does this suggest a possibility that results may appear in the area of practical application of technology?)

Members who have been involved in synthesis research to produce final drugs in the pharmaceutical field have moved to working on CDMO technology development. Members who have been involved in analysis and safety testing can be put to good use in the field of foods. In terms of synergies with foods, we are thinking of linking foods to the technology that measures metabolism using AminoIndex®, and connecting this to the improvement of personal nutrition.

 I think local competition is unavoidable.

Since 2010 to 2015, the middle class has grown by about 9% in our Five Stars countries. That has slowed to about 4% since 2015. In other words, the 9% economic growth that we had once assumed is no longer the case. Amid that, in the flavor seasonings and dry savories areas, challengers will enter the market as the only players are global giants and our company.

　The pattern of a challenger is generally one of selling at low prices. The structure is one that can be kept up for about a year but only with difficulty beyond that, and so the challenger gives up. In the end, we hit back to a degree through product quality, distribution, and strength of sales ability, but we undergo attack for about a year. I think what happened is a repetition of this.

As the background to this, the benefits of demographic dividends that existed until the early 2010s in emerging countries are in decline. The problem is that we were drawing a rough picture of future growth based on the same success model of the past, which is what has led to your comments.

At the same time, regarding the demographic structure, the class a bit more affluent than the middle class is increasing. As for whether this demographic is going to shop through traditional trade (TT) and buy basic seasonings in the same way, this is changing. Accordingly, we have to take appropriate measures toward the convenience store (CVS) and modern trade (MT) channels. In the past, TT went from retail shop to shop to sell directly in cash. But distribution has progressed, with wholesalers coming in between. Even in Indonesia, for example, 60% sell through wholesalers. Accordingly, situations occur in which inventory is held before promotions or annual events.

In other words, one of the issues is that the head office has not been able to perceive the macro movements in the market. Another is that, locally, we have not yet been able to adapt to changes in the market. We will thoroughly reflect on these two issues inside the Company and will try to prevent such things from happening again.

(Q: The above is what you have said in the past. Too much time has been spent on taking action and solving the issues. At the least, I hope the Company will firmly recognize the issues, and communicate how it is addressing them. Should we understand that additional time will be required?)

This problem is a fundamental one, and cannot be solved through new product launches, product portfolio expansion, and so on. The most important points are understanding the background to the volatility in performance, and, while sowing seeds in MT and CVS, how to raise up basic seasonings and flavor seasonings, two items that have large sales volume. If this trend rises, we can take advantage of our strength in having a model for success.

It will take some time for seeds sown on CVS and MT to reach harvest. I also think that the task of raising the baseline in seasonings can be changed through mass marketing[ip2] , so I want to do this right.

By creating the Savories Dept., we will consider the direction of major marketing strategies with greater leadership by the head office. Our direction of local adaption for product recipes and sales structures will not change.

An example is digital marketing. Rather than conducting this by region, unifying digital marketing under head office leadership enables an overwhelming amount of data collection and clarifies solutions. In addition, our strategy for seasonings is at a major turning point. Until now, we have had the basic seasoning AJI-NO-MOTO®, flavor seasonings for specific regions, and menu-specific seasonings on top of those. This strategy has been effective throughout the process by which living standards rise in countries. As a result, we have acquired a 23% global share in dry savories. However, the consumer segment that will increase in the future is not the middle class but a slightly higher-income upper class. Aging of the population will also occur. Japan is the most advanced in marketing to the upper class and marketing to the elderly, and has many solutions and considerable know-how. This is our strategy for transforming this in local areas.

(Q: Are emerging countries, too, already experiencing an increase in the number of elderly or affluent people? Or will this be a change over the long term?)

In the Five Stars, in particular, we are following population trends and changes in purchasing power. We expect these movements to accelerate from 2020 to 2030.

I think it’s a fact that category killer-like companies have emerged even in emerging countries. In the end, to create brand value, quality improvement can’t be neglected. I think that the global giants are thoroughly turning the savories area into a cash cow. Those companies are also taking on new challenges, but it’s important that our company do so first. I also think that it’s difficult for local players to create new value.

To date, the Consumer Foods & Seasonings Dept. has been watching the market in Japan while the Overseas Foods & Seasonings Dept. has been watching global markets. Going forward, instead of dividing business by area, we are going to split it between the Savories Dept. and the QN Dept. The Savories Dept. will operate in about 130 countries, but as the QN Dept. will handle processed foods, the areas in which it can operate are limited. The Overseas Foods & Seasonings Dept. members who are currently in charge of our international business will mostly be posted to the Savories Dept., so there is no need for concern. While investment strategy will be led from head office, this does not mean we are taking our eyes off local markets.

First of all, I would like to explain changes in the macro environment and what is happening now. Then I will talk about our views regarding a locally led management style and what will change going forward. 

　First of all, in the Five Stars, CAGR related to the middle class grew 9% up to 2015. In 2015, when the Thailand’s population increase began to slow, the effects of this were a factor in the current growth rate becoming about 4%. From 2020 to 2030, this is forecast to fall to 2%. We started the full expansion of our flavor seasonings business overseas in around 2005 and after experiencing gentle growth up to 2010, from 2010 to 2015 we experienced a massive boom including two-figure growth. In other words, there is a general link between the growth of the middle class and the growth of our international seasonings business. Our ability to capture an even greater share of the market was a positive factor and we were able to realize growth that outperformed the market.   

As this population growth has gradually slowed since 2016, our growth rate in all regions together has also slowed. Furthermore, we have seen a succession of situations where local companies have entered into the market driving down prices significantly and taking some of our market share for this period.

Naturally, the above factors have led to a decline, and we think that the locally led approach is not sensitive enough when it comes to tackling this at an early stage. We need to have functions that are firmly in control of the situation. Therefore, rather than dividing the business into Japan Food Products and International Food Products, we are adopting a structure that has a Global Seasonings Dept., a Global Processed Foods Dept., and a[MU1]  Global Frozen Foods Strategy Dept. We want to strengthen our control tower function that enables us to watch global markets and concentrate growth investment in areas that show promise. This is where we are revising our approach.  

 (Q: Should we expect a new organizational structure to start in April 2020?)

Currently we are still at the stage of finalizing the plan for each business division ahead of the announcement of our next MTP in February. This involves creating a strategy and plan for focused investment for each new organizational unit. In other words, the organizational shape remains the same externally, but the members creating plans will start operations as new organizations both in name and practice from April.

We are developing products through local adaption and have very strong distribution capabilities, which are overwhelming advantages.

In Japan, we have a complementary lineup of reduced-salt seasoning products such as HON-DASHI®, and this lineup is growing. Overseas, however, we have had no products on the health axes, even in the Five Stars. The baseline had been growing, so the situation seemed acceptable. We have not yet followed demand by the middle and upper classes, which had begun to increase. We must strengthen product rollout in this area. I think we need to combine this with menu-specific seasonings, which are originally intended for the middle class. In other words, I think we need to strengthen our depth and lineup in savories. With regard to processed foods, I have only spoken so far about product axes such as powdered drinks and liquid drinks, but from here on out, we will have a firm nutrition axis and will shift to the sort of product rollout that only we can accomplish.

(Q: Is that possible with in-house brands? Or are you also considering M&A?)

I think we can do it with our own brands.

(Q: Will you introduce brands from Japan overseas?)

There are already brands that we have overseas. This year, for example, we launched a malt protein drink called Prottie® in Southeast Asia, and we plan to further strengthen products like this. From Japan, we’ve started to roll out amino Vital® in Southeast Asia. In Thailand, from this summer we’ve been producing and selling halal products, and the response has been considerable. We’ll think in terms of these combinations.

Overseas, the relationships among TT, CVS, MT, and e-commerce are changing. Even in TT, the percentage of sales through wholesale stores is increasingly higher than the percentage of direct cash sales through our circulating sales force, as in the past. In Indonesia and elsewhere, about 60% of sales are through wholesale stores. Our sales strategy is focused on introduction of new products and sales promotions at stores. Amid this, I don’t think that creating sales teams for MT, e-commerce, and so on would entail big trade-offs.

(Q: Do you think that increasing sales through wholesale stores will make differentiation difficult?)

We divide up use by position and strength of the brand. For strong brands such as AJI-NO-MOTO®, Ros Dee®, and Masako®, our sales force does not have to do everything. On the other hand, our in-house sales force will tackle new products that require a hands-on approach, such as menu-specific seasonings like Sajiku® and Ros Dee® Menu.

Of the six core areas, all but electronic materials are related to Healthcare. In other words, I want to make the Company’s rebirth as a food and wellness solutions company our basic message for the next 10 years. Accordingly, we will even more strongly link amino acid research to foods. Looking ahead, I believe that the topic of how to avoid sickness and improve health will become overwhelmingly larger than that of curing sickness through medicine. The biggest target is the increasing number of elderly people worldwide. Know-how cultivated in Japan is very useful here. In the Five Stars, the middle- to upper-income classes are expanding; we want to focus on products and marketing for living healthily.
Through this, I think we can again boost the growth of our brand, the umami seasoning AJI-NO-MOTO®. The greatest approach is through salt reduction. There are various menu-specific seasonings and flavor seasonings, but only umami seasonings are free of salt. When used in cooking, umami seasonings have a salt-reduction effect.
(Q: Don’t umami seasonings contain sodium?)
The sodium content is overwhelmingly less than that of salt. Salt is necessary not only for its taste but also in cooking methods. For that reason, it’s not easy to give up salt, but AJI-NO-MOTO® in combination with salt can reduce salt by 30% or more and is delicious. This will lead to huge demand, with great potential as well.
(Q: What kinds of actions can the Company take against “No-MSG” attacks?)
Last year, we launched the World Umami Forum in the United States. This year, we held three media gatherings in Japan on the issue of no chemical seasoning additives. We’re putting out information fairly aggressively. As a result, the segment in the United States that is negative toward MSG has begun to shrink gradually. For example, restaurant and industrial-use product customers have begun switching to mayonnaise containing MSG, or using MSG in their menu items. In Asia, we have not until now promoted AJI-NO-MOTO® as aiding salt reduction, but from here on out will do so globally. I believe that doing so will let us greatly expand demand for AJI-NO-MOTO®. If it goes up by even 1%, the impact will be considerable.
(Q: Are the European and American markets the main targets?)
No. Southeast Asia is the main target. Asian diets overwhelmingly contain a lot of salt. In Western diets, bread contains a lot of salt; in Asia, it’s contained in main dishes and soups.
(Q: Will that lead to premiumization?)
Yes. And to date, we have not developed reduced-salt products overseas, so only in Japan. HON-DASHI®, which has 60% reduced salt content, contains only natural salt from its extracts, with no added salt. From here on out, we plan to promote the development of reduced-salt products for flavor seasonings and menu-specific seasonings overseas as well. The World Umami Forum was the trigger for this. Our message has begun to be accepted in the United States, where the No-MSG current was fairly strong. I can really feel the effect.
(Q: Will you hold the World Umami Forum every year?)
September marked a full year since the first event, and we’re reviewing the degree of penetration. We’re thinking that holding the event about every other year would be good, but until then are actively promoting activities for penetration.

This is a major topic that we will pick up from FY2020, and we’re now making preparations for it. I would like it to be viewed as becoming a pillar of our next MTP.
The areas where brands differ from country to country are flavor seasonings and menu seasonings. As our communication of AJI-NO-MOTO® can be perfectly integrated globally, this is not a problem. In the case of flavor seasonings, local adaptations like halal come ahead of the brand. It is difficult to use exactly the same communication, and in umami seasonings and flavor seasonings, we would make changes to how we communicate.
(Q: Will we see large-scale changes in marketing in FY2020?)
Yes. There will be changes in communication and in in-house activities.

Our strategy will not change in the future. In every country and region, we have established the No. 1 brand position. While competitors may benefit as well, the No. 1 brand will naturally enjoy the greatest effect. Negative opinions on MSG can be found in every country, not only Europe and the United States. We believe that if this can be wiped away, the MSG market itself will grow.

Even now, there are still health concerns regarding MSG among consumers. In 2018 we started holding the World Umami Forum in New York as an activity to reduce these concerns. Our key phrase for this was “salt reduction.” This was chosen after thorough discussions with risk communication experts in the U.S. in which we understood that our efforts to date, which focused only on safety and creating a sense of reassurance, have not been enough to alter consumer behavior. We were advised to more fully and proactively promote these salt reducing effects, making the superior properties of monosodium glutamate a key point. Therefore, we are carrying out PR activities in the U.S. to clear up misunderstandings about MSG. Previously, the percentage of dietitians who had a negative view of MSG was around 40%, but as a result of our activities, this is beginning to shrink a little and the proportion of regular consumers with an interest in food who think negatively about MSG has declined. This is the main reason for our plan to showcase these salt reducing effects globally.    
Following on from this movement in the U.S., we are starting the simultaneous rollout of activities that show MSG is good for salt reduction in countries including Nigeria, Brazil, and the major ASEAN countries.
We have also held media gatherings in Japan three times in 2019 in order to clear up misunderstanding regarding “no chemical seasoning additives” Additionally, the tendency to avoid using MSG in meals is having a significant harmful effect in hospitals and nursing homes. Feeding people meals that are not very tasty is resulting in a greater proportion of the food being left over, and there is a gradual trend of people using these facilities becoming frailer. Therefore, we are communicating the message that the No-MSG movement is actually obstructing the solution to a social issue. In the business results for the FY2019 April to October period, sales of AJI-NO-MOTO® grew year-on-year for the first time in 10 years. We are certain that this is the result of showcasing its salt reducing effects. The proportion of households purchasing it is also rising and it is also beginning to be used by consumers who have never used it previously.       
Based on this positive response, we will implement a significant change in direction starting from FY2020.

Not at the moment. We are focused on AJI-NO-MOTO®. However, we have launched salt reduction-type products in all categories of our full line-up of Japanese, Western, and Chinese flavor seasonings, but this is in Japan only. As such, we have a technological advantage when it comes to manufacturing salt reduction-type flavor seasonings. Our reduced salt version of HON-DASHI® sold in Japan has 60% less salt than the regular version. As this salt content is introduced solely through natural extracts, I think our technology is superior when it comes to enabling this level of salt reduction.    
Also, as different countries have different flavor preferences, we will advance salt reduction in line with the level preferred in each country, and we think our technology gives us an advantage regarding this process too.

Our survey findings show that more affluent customer segments certainly tend to have an affinity for premium products, such as ones that contain no additives or that are made using traditional method, and are more likely to prefer such products. Therefore, we will try to meet this demand through menu-specific seasonings and the like. However, we think that the addition of salt reducing effects is an important part of this. For example, the salt equivalent per person of one of our Cook Do® products in Japan is about 0.6 grams (assuming one meal is shared by 3.5 people). The daily salt intake recommended by the Ministry of Health, Labour and Welfare is 8 grams for men and 7 grams for women. This allows for about 2–3 grams per meal, so if the main dish contains more than one gram of salt, it is difficult to stay within this limit. Cook Do® is not only delicious, but it is also very progressive in terms of salt reduction. It is extremely important that people have knowledge of what kind of diet is good for you and we think that if we give this proper publicity, we will be able to expand our customer base. This is not possible with soy sauce. An important point for differentiation will be that this is possible with umami seasonings but not with the umami in soy sauce.

On a macro scale, looking at the issues that will become more serious over the next few decades, metabolic syndrome is the biggest. Insufficient nutrition among the elderly will also be an issue.

We are planning to position improvements to food that prevent these issues right at the center of our business strategy. We will implement various measures, but the biggest will be salt reduction, followed by measures to tackle insufficient protein intake. We will show how insufficient protein is linked to frailty among the elderly.

I want you to be aware that it is not just a concern, but rather the biggest issue. WHO publishes salt intake volumes for every country. Within these, Japan and the Five Stars are ranked as having high levels of salt intake. Levels are also high in Europe and North America. People in Japan and other Asian countries get a lot of salt from soups. In Europe and North America, a lot of salt is found in bread. It has been fully proven that salt intake has a causal connection to high blood pressure, one of the symptoms of metabolic syndrome. Currently, the three big diseases in Japan are heart attacks, strokes, and cancer, and out of these, heart attacks and strokes are also common globally. In other words, salt reduction is the most important factor in improving eating habits. We think our seasoning business can make a contribution in regard to this and we intend to steer in this direction.

In the case of Japan, we have made them about 20 to 30% more expensive than regular products. The reduced salt is replaced by umami seasoning or extracts and other amino acids are used to adjust the flavor, so at the end of the day, the cost of ingredients is higher. Our policy is to maintain gross profit ratios, so we have implemented it in a way that if a certain volume of customers switches from regular to reduced salt products, it won’t cause us a problem. In Japan, the volume of reduced salt products sold is still not that large compared to regular versions, but it has grown about 20% per year. Therefore, we think this will become a significant trend.    
(Q: Salt reduction must be a concern among the elderly. Although you are carrying out activities like holding the World Umami Forum and posting on social media, how do you intend to reach elderly consumers?) 
It is difficult to transform their everyday behavior, such as reducing salt intake. Regarding marketing in Japan and the U.S., re-educating dietitians who spread information has had a huge impact. Chefs have knowledge regarding salt reduction which gives them a huge range of solutions, but we have yet to see this result in a behavior shift to using AJI-NO-MOTO® instead of salt. Our analysis is that dietitians are more influential as a method for spreading information among regular consumers. The area covered by dietitians also includes metabolic syndrome. It is thought to be difficult for elderly people to suddenly change lifestyle habits, so these habits need to be changed early on in adulthood. Therefore, we are actively focusing information dispersal efforts on this, including social media posts.     
Also, in both Japan and emerging countries, food education for children who are around elementary school age is effective. If the children change their habits, the parents change too, and each of them will be in a better position when they become old. We are gradually coming to understand these kinds of communication structures so we would like to focus on them more going forward.

We are currently transforming ourselves into a company that resolves food and wellness issues. Frozen foods and coffee are no exception, and we will increase the proportion of products that meet our goals.
The shrinking of Japan’s population is going to accelerate at an even greater pace, and within this, the number of consumers who want to live healthier for longer will definitely grow. We want to engage these people.
However, this shrinking of the population will lead to greater competition in some existing businesses, turning them into red oceans. To counter this, we want to sell to overseas markets where there is demand for Japan-grade products, so we are working specifically to strengthen exports.

We think that pursuing the asset-light model will realize top line growth of about 1% in FY2020 and FY2021. This is roughly in line with our current growth rate. However, while the current growth rate for the core businesses that make up about 60% of sales is 3%, we want to raise this to 4% or more soon through focused investment. If we can complete the first stage of the asset-light model by FY2021, the top line growth rate from that year onwards will most likely be 4% or more.

　Looking at business profits, there are non-core businesses that are not generating a lot of profit, so the asset-light model will have virtually no negative impact. During the asset-light model period, we are obligated to share with you all extraordinary expenses that are generated and any negative factors resulting from these.

We have carried out a range of studies of changes to consumer perspectives, and these influence product development and improvement on a daily basis. Currently we have a framework where one of our Customer Service Centers puts together the opinions it receives regarding Ajinomoto Co. Inc., Ajinomoto Frozen Foods Co., Inc., and Ajinomoto AGF, Inc. and provides this as feedback for product development, marketing, and management, and this is functioning rather well. Thankfully we have not received any feedback calling for products with less MSG, but we are currently considering introducing new methods for assessing customer satisfaction. 
  (Q: In which countries globally have you established this framework for receiving customer feedback?)
We implement it as standard in the Five Stars and other major countries.

Yes. The savories business is a crucial pillar of the Company and naturally it is the business in which we have experienced our biggest successes in the past. Even in Japan, when we launched our reduced salt HON-DASHI®, I heard that marketers on the ground were strongly opposed to it. Their expectations regarding sales were not very high and they argued that it might risk the profitability of the HON-DASHI® brand name as a whole, but we executed the launch anyway. Now that the product is firmly established, it looks like we made the right move in hindsight. In this way, I think it is important that we read changes before they happen, do what needs to be done now, and provide business divisions with leadership based on this. Affiliates should make all adjustments as needed, but we intend to lead the addition of reduced salt products in the flavor seasoning and menu-specific seasoning businesses from the top down.        
(Q: Does this mean that when adding value to seasonings, you are not going to stop at salt reduction but also try various other ideas?)
Yes. Another theme we will address is the issue of protein deficiency. We are currently engaging areas like raising meat and vegetable intake through Kachimeshi® and the like, but it is quite difficult to get the message across. We are not getting through to consumers who understand that it is better to eat balanced meals but struggle because they are unable to do so. We sell a type of Knorr® Cup Soup that has only 1g of salt equivalent per meal and also contains a lot of protein. We can only change customer behavior, even during their busy mornings, after we specifically propose these kinds of products. We think that food products that are quick to prepare and eat are the simplest and easiest way to provide extra protein. We want to strengthen in this area. The efforts of the processed foods divisions to bring together a project based on the concept of QN are also linked to this.  
(Q: I understand that this can be achieved in both Japan and overseas without too much difference in timing. Does this mean that you will be investing more in overseas facilities going forward? Also, once again, does this mean that restriction regarding keeping investment within local cash flows will be lifted?)
Yes. As we allocate resources within the asset-light model, we will try to move forward by getting local cash circulating. Therefore, we are advancing the purchase of shares from overseas minority shareholders. By increasing the ratio of shares attributable to the parent company, we will naturally make it easier to circulate cash. If we can bring locally generated cash together at head office, it will make it easier to reinvest this cash in important businesses.      
(Q: Does this mean that by shrinking unproductive assets, you will accelerate growth investment from FY2020 onward?)
Our message is that we are shrinking assets in non-core businesses by 40 billion yen and reallocating resources worth about 80 billion yen. We have a lot of overinflated fixed assets overseas. We will gain a return from selling these. Over the three years of the next MTP, we want to raise cash inflow to about 400 billion yen, making it easier to realize shareholder returns and invest for growth. We will also make it so that balance sheets are managed by business divisions rather than local affiliates. The corporate divisions are building this kind of environment. Therefore, the corporate divisions will lead efforts to reduce the ratio of shares held by minority shareholders.

 In 2010, we created our vision of “Genuine Global Specialty Company” and “Become a global top 10 class food company.” I want to make “A company that resolves food and wellness issues” our vision for 2030.
The background behind slowing international seasonings growth is that the so-called middle-class demographic dividend in our Five Stars grew 9% through 2015, but this growth slowed to 4% from 2015 to 2019. It will likely be 2% from 2020 to 2030. We believe that, with the sort of past marketing that only targets the middle class, growth may further underperform our current sales growth rate. From here on out, population growth will occur in the so-called income upper class. In terms of age, these are mature adults at their working peak, and are viewed as candidates for metabolic syndrome. Accordingly, the Company promotes umami seasoning AJI-NO-MOTO® as the most suitable seasoning for reducing salt. In flavor seasonings, we will launch reduced-salt products. Also, as menu-specific seasonings will be needed from the standpoint of diversification of food, we will steer toward combinations of these.

The six core businesses have been the core businesses within four segments, and are not being further segmented. For example, one of these core businesses, the seasonings business, includes AJI-NO-MOTO® and flavor seasonings, and menu-specific seasonings are a third pillar. We still segment the businesses this way. Segmentation due to changes in the cooking level of consumers has occurred, but now consumers’ demands are diversifying into more premium products, healthier products, more efficient means of delivery. Through the advancement of e-commerce and digital, one-on-one communication and delivery have become possible. Accordingly, I believe that it will be difficult to create markets if we do not directly access small-mass markets in the six businesses. This does not mean that we will make many finely-divided products.

Digital marketing is one. Advanced areas are quite limited. For example, the head office will assess information on the United States and China, perform consolidated negotiation and contracting with operators of e-commerce and digital platforms, and will feed that information back to regions. With regard to digital marketing, our affiliates share the same awareness that consolidating the control towers into one is better, so we are actively working to do so.
Regarding the communication of information, our operation with overseas sites will not change. The current Overseas Foods & Seasonings Dept. is originally the global strategy department, and this will not change significantly, but it and Japan will become one organization. I think this will make it easier to directly reflect the know-how of Japan as an advanced country.
(Q: Is this generally referring to the digital area?)
There is also a health and nutrition strategy. What is now growing globally is not the middle class but the so-called upper class. These are essentially adults and the elderly. In other words, health issues will increase, and health and nutrition strategies to deal with this have to go forward in lockstep under shared understanding. As an example, we have to develop reduced salt-type flavor seasonings all at once, with a certain sense of urgency. There are aspects of this that are technologically difficult if left to individual affiliates. We have only promoted AJI-NO-MOTO® as making dishes taste better, but it is in fact a very important seasoning that makes low-salt dishes taste good. Just replacing half of the salt with AJI-NO-MOTO® can reduce sodium by over 30%, and tastes good as well. Our strategy in developing such appeals in Japan and abroad simultaneously is that it is easier to consolidate these at the head office.

We have to consider this separated into e-commerce and big data. The United States and China are targets for big data analysis, and the point is to share information with platform operators.
(Q: Doesn’t this have little to do with digital marketing?)
We will roll out digital marketing in individual countries. However, China is the gateway to Southeast Asia, and e-commerce is the method best suited to delivering products made in Japan to Southeast Asia. We have already exhibited at the JD.com marketplace in May 2019, and began selling on Tmall in September. In negotiations, there is demand for Japanese products not only for e-commerce but also for general channels. From that perspective, the marketing barrier will be very low.

With regard to digital, I think the strategies can be applied to the B2C business of amino acids, the B2B2C business of seasonings for processed food manufacturers, and others, where the final consumer analysis area is shared. Marketing through means such as social media can be leveraged in the B2C business. In addition, reduced salt is effective in the Integrated Food Solutions business. Therefore, although there are gradations, the range of coverage can be considered very wide.

The 350 billion yen is cash inflow from operating activities. Total cash inflow is about 400 billion yen over three years. Here there could be an element of selling off assets under the asset-light model, but we are doing it with an allowance. Generally, this is not an instantaneous thing from selling assets, but I think that the operating cash inflow required over three years will be 400 billion yen. The point is how to move from 350 and closer to 400 billion yen through organic means. I would like you to consider the Company as currently making improvements. For example, cost reductions in the past have involved technical solutions such as resource-saving fermentation technologies, but I think that cost reductions carried out through engagement in digital transformation (DX) will be varied. Alternately, increased cash turnover due to contraction of inventory assets should have positive effects.
Regarding non-core businesses, I think that circumstances may make it difficult to provide details in the February MTP announcement, but I would like to reveal a few more specifics about the target businesses in some form.

The operating cash lost in the animal nutrition business is about 7 billion yen. Based on that, we think that 350 billion yen is assured. There’s nothing else generating major negative cash.

(Q: What about the path to 400 billion yen?)

I think the biggest point is the degree to which we can raise up international seasonings.

(Q: Do you mean it’s a question of how far the Company can grow the top line in the Five Stars?)

Yes. After that, the AminoScience business, which accounts for about 25% of sales, is showing double-digit growth with animal nutrition excluded, and I think will make a contribution. Even if you look at that area as flat, we can achieve 350 billion yen.

One matter is the extent of the asset-light model, and how this affects cash balance. We delivered a message stating that we will increase the sales composition ratio of core businesses from 60% to 80%, but what exactly are non-core businesses, and what percentage is accounted for by cash inflow from these? In the three years of the next MTP, we plan for an operating cash inflow of 350 billion yen, the same level as under the current MTP. However, I think that some people question whether this will further contract, depending on how we approach the asset-light model.

　Another matter is the question of what will happen to the motivation of employees, who are our engine of growth. Management is putting out a message of reducing assets, but how will implementation teams in the field accept this and make it a springboard for growth? I think this point is unclear.

I think this is a very important point. As we move forward with the next MTP, if we carry out the creation of joint ventures for corporate services and restructure functional subsidiaries in addition to shrinking non-core businesses, the jobs in which Ajinomoto Co.’s human resources had worked will naturally contract. As this plan has become clear to a degree, what we worked out to raise the level of early retirement is the Special Second Career Program for Managers. Regarding the measure itself, I don’t think there is a major negative side. In other words, we’re creating win-win relationships. However, although young people will be promoted to positions that come open, it’s important to make sure that coordination of this goes well. Particularly when vacancies occur, I think that there is a risk of negative factors emanating from there. We conduct engagement surveys every two years, but we’ve decided to make this once a year from now on, introducing the survey every year as a management metric for company management. We want to use it to quickly determine whether the organization is hurting.
(Q: With changes taking place not only within the Company but also within the competition and the market environment itself, will the Company strengthen some area as a mechanism to move ahead without defeat?)
More than a matter of mechanisms, the question is one of how to change our purpose itself. The days in which making products that are unique or that taste good guarantee sales is long in the past in Japan, and will become so overseas as well. Given that, I think that for the seasonings business that is our stronghold, the approach of connecting to health promotion is the most important objective. Bringing this down to every person in the field is vital. In short, we want to make visible how our local sales forces overseas are connecting the sale of products to the improvement of health in local consumers.
(Q: Are you saying that the defeats until now have been primarily due to a failure to fully communicate the message of health improvement amid the economic development of the Five Stars, and that the Company will strengthen this area?)
Our message of health improvement was distant. There was also the fact that, as there are countries where meat isn’t eaten, a balanced intake of meat and vegetables doesn’t match the reality of local consumers. While the Company appears to be heading in the right direction, the lack of a sense of engaging in the Ajinomoto Group Creating Shared Value (ASV) is a major issue that was identified through engagement surveys. Accordingly, we will set goals that let local employees feel this more clearly, and let people outside the Company as well feel that it’s an important theme.

Of the six core businesses, all but electronic materials are positioned as businesses that resolve issues in foods and health. One of the points that we’ve focused on in these businesses is directly linked to ASV. We’ve conducted engagement surveys two times so far, and about 80% of our employees are in agreement on the improvement of ASV, which will lead to resolving food and wellness issues. However, agreement is low on the point of whether there’s a sense that each individual’s work is directly connected. This is a major issue. Therefore, we’d like to place focus on core businesses, further strengthen connections with R&D themes, and change our gear.
(Q: In pushing this through to the end, a sense of urgency in decision-making and application by management is important. It’s been said that there are problems with the business division structure in Japan, which I think holds for the Company as well. What are your thoughts?)
Broadly speaking, our organization is vertically divided into a corporate sector, food business, and AminoScience business. Here we will introduce Operational Excellence (OE), a management reform method for the enhancement of customer value, across all of these, and will phase in DX. The visualization of all manner of work through data is the basis of DX, and will reveal inefficiencies. At the same time, as a cross-organizational functional reinforcement leveraging digital, the Company will divide DX into the five tasks of supply chain, marketing, R&D, human resources development, and “smart corporate,” will clearly determine managing officers, and will execute DX horizontally. Accordingly, instead of breaking up layers, in terms of how to align functions horizontally for business organizations that exist vertically, we’re thinking of combining DX and OE. In current organizations, too, we will increase the speed.
(Q: I wonder whether the image is that, as a result, reduced salt products and higher added value produced will sell better. What areas or businesses should we expect to see improve first?)
The first is the savories business. Up to now, we’ve conducted product development from the perspective of adapting to local menus and making them taste better and easier to make. As a result, the understanding that seasonings make local foods taste better has been communicated to a degree among consumers, and this has supported growth to the present.
From here on out, we will strongly promote AJI-NO-MOTO® for its salt reduction effects. AJI-NO-MOTO® is the largest business in the Company, with global sales of about 120 billion yen. First, we will expand demand by shifting toward salt reduction in promoting AJI-NO-MOTO®. No reduced-salt versions of flavor seasonings have been developed outside of Japan. We will acquire new customers by adding reduced salt products to our existing product lineup.
I think this is a solution to health issues that we can achieve through our food business.
(Q: Will you begin the above from FY2020?)
For AJI-NO-MOTO®, we’re making a change in marketing strategy, not the product. With regard to flavor seasonings, we have to become able to produce reduced salt products locally. I’d like you to expect an enhancement of the lineup over the next three years. Sales of menu-specific seasonings are around 20 billion yen overseas, but as this is a growing field, we’ll address it properly as we always have.

Financial accounting information is updated on a daily basis. Unfortunately, however, the acquisition of things like marketing information and information required for business management is somewhat dependent on manpower. We have a system which involves business sites creating a reporting package once a month, so management receives information within a little over a month. Going forward, we intend to upgrade this into a system that collects information automatically. However, as it costs time and money, we are obviously not going to just wait for this system upgrade. We will also practice proper governance and raise management levels in regard to the speed and sensitivity of the information we are collecting through these reporting packages.   

(Q: Is this part of the DX initiative?)

No. I would like you to think of it as application standardization as part of the core system renewal process that started in FY2019.

(Q: How long will it take until you are able to achieve the vision you are ultimately aiming for?)

We are currently proceeding in a systematic fashion. We have over 100 consolidated subsidiaries, including overseas subsidiaries, and we have identified 15 to 20 companies that have a particularly big impact on business results. We want to have the companies that are responsible for over 90% of sales and business profit covered by FY2022.

I believe that our future strategy will not rely heavily on M&A. We have expanded our portfolio in foods, so steadily managing that and improving the structure will be the base. In Healthcare, there are still areas where some up-front investment is needed, but this work involves filling in small parts of the portfolio and is not very large in terms of scale.

As the minority partner in a JV, it can be difficult to ensure governance works perfectly. Our role is to participate in management at an appropriate level as the minority partner and try to steer the company in a good direction. Regarding Promasidor Holdings Ltd., we recognize that we can play a role in raising corporate value through Ajinomoto Co.’s R&D and product development expertise. Therefore, we have taken a 33.33% stake. Our goal is to consolidate our position as the No.1 company for seasonings. Africa is thought to have a population of around 1.2 billion people and we have been developing our business independently, primarily in Nigeria, for almost 30 years. However, we would be unable to capture Africa’s growth working alone, so we decided to take on a local partner.

In terms of business profit, we think it will take a minimum of 10 years until our African business can make contributions at a similar level to the Five Stars. However, taking a long-term view up to 2050, we are certain that Africa will be next after Asia to experience a demographic dividend and we can expect lifestyles to improve as a result. In the meantime, we will strengthen our connections in the region.

(Q: When considering M&A or JV in other regions, what size holdings do you think the Company should take?)

In principle we want a majority. For the time being, we do not intend to implement M&A in emerging countries where the situation is unstable. Rather, we want to concentrate investment to organically improve the asset efficiency of acquisitions we have already made.

A global top 10 class food company has a business profit margin of about 10%, earning business profits of about 130 billion yen. At the same time, it has ROE and EPS growth rates of over 10%. This was the case when we announced the FY2017-2019 MTP and it has not changed significantly since then. However, this is not our ultimate goal. Realizing a structure that makes this possible is one of our milestone targets.
We established the goal of becoming a global top 10 class food company in the FY2011-2013 MTP. I think the way we will present this will changed in the next MTP. While the criteria won’t change greatly, we think a structure that can achieve a business profit margin of 13%, ROIC of 13%, and ROA by business division of 13% is close to what our investors are looking for. We want to achieve as much of this as possible by around FY2025.

We think the Company’s efforts to date have been the earliest stages of work style innovation. We have been visualizing tasks and in line with this, introducing robotics, digitalizing, installing communication environments, and implementing other initiatives as needed. As a result, total actual working hours have been shrunk from around 2,000 to around 1,800 hours. This is because we eliminated any meaningless activities.
Next, we are simultaneously improving efficiency and raising value for customers, which should lead to greater productivity. However, there are still issues regarding raising value and we are not quite perfect in terms of efficiency. Going forward, we need to utilize the capabilities of DX.  
(Q: In the integrated report, you used ratio of total sales per employee as an indicator, but can this really measure productivity?)
It cannot be measured completely in terms of money. We are investigating the correlation between work satisfaction and productivity through engagement surveys and the like. In the past, we have managed to verify a perfect correlation between employee satisfaction and performance, or in other words sales and profit, in collaboration with the Japan Management Association. 
(Q: I think that your competitors in emerging countries have pretty long work hours, so will 1,800 hours per year be enough to compete? Isn’t it a bit short?)
Comparing just the amount of time is a bit pointless, so we try to compare the amount of productivity per hours worked. Our initial target for FY2020 was 1,750 hours, but when we achieved around 1,800 hours, we decided not to pursue it any further. We were close to being in a situation where we were only trying to reduce hours, but this is not the true purpose of the initiative. Instead, we have shifted our focus onto how we can further raise productivity within these 1,800 hours.

Regarding 100 people as the scale of cuts, this stems from the following thinking.
In the next MTP, we will reduce non-core businesses and promote “smart corporate.” 
What we have made clear is our joint venture with Accenture Japan Ltd. In April 2019, the Company consolidated its logistics companies for functional subsidiaries. Moving forward in this manner, we can see a future reduction in the number of management positions that we have had. Accordingly, we have worked out measures to help managers in their 50s discover a second career path outside of the Ajinomoto Group.
Group companies have to be developed by group companies. For example, F-LINE CORPORATION is much more efficient in logistics than the former AJINOMOTO LOGISTICS CORPORATION, and can engage in eco-friendly activities. Our improvement of logistics terms is now at a scale that has a significant impact on society. In line with this, F-LINE has become an organization in which working members feel enthusiasm and motivation.
This is the first time in its history that Ajinomoto Co., Inc. on its own has decided to use voluntary retirement, and although the scale may seem small, it has a certain impact. Included in it was the message that we wanted the individuals to consider their own careers, on the assumption that it would be difficult to arrange for a career within group companies as had been the case.
Although there were about 800 eligible people, we held briefings for about 500, where I communicated the message directly. In the future, we will consider how we can create win-win relationships, while conducting dialogs in the form of interviews.

Previously, employees who were 50 or older qualified for the early retirement incentive program. Additionally, for 10 years we have been continuously implementing education that focuses on considering your own career independently for managers who are 50 or older. As we have already been implementing support measures for managers who can’t see a career for themselves within the Ajinomoto Group and are searching for a second career outside the Company, we hope that people will see this announcement as the natural continuation of this. 
However, this is the first time we have specified a time period and actively appealed to managers who want to leave Ajinomoto Co. Inc. itself. Therefore, we are proceeding carefully by fully explaining the reasoning behind the program to people eligible for the program, and also non-management staff and the like, to ensure there is no unrest.

First of all, we will explain the system to all eligible employees and make sure we carry out our regular career interviews properly. People who are eligible but do not want to leave will continue to receive guidance from their superiors in line with our current personnel policy of getting the right people in the right positions.
For example, with developments such as the establishment of F-LINE CORPORATION as a logistics function and the joint venture with Accenture Japan Ltd, the number of manager posts is shrinking. Going forward, the Company is planning a reshuffle that includes functional subsidiaries, so we are carefully explaining to employees who are considering their careers in functional subsidiaries and corporate services that this is an opportunity to rethink what they will do with the rest of their careers, which may have less than 10 years left.
(Q: There must be some posts left going forward. People who want to change their career direction to fill these will need to gain skills they do not currently have. With this in mind, will you provide re-education support for middle-aged employees?)
We are not considering re-education support for middle-aged employees within the current program. As we are advancing DX, we are strengthening training for personnel who want to engage in new areas, such as digital fields and engineering. Naturally we are also moving forward with external recruitment. 
(Q: Once again, are you thinking of a cycle where the savings created by reductions through this program are reinvested in, for example, the most promising younger employees?)
One of the goals of the program is to rejuvenate the organization. We think it is a win-win measure for both the Company and employees, and in the Company’s case, this win is a rejuvenated organization. The win for individual employees is re-employment support and an additional sum added to severance pay if they leave. We are not implementing the program to reduce personnel costs. While it will instantly reduce the amount we pay in management salaries, this saving will be used to increase opportunities for younger employees. Basically, we plan to firmly strengthen investment in creating a satisfying work environment. In terms of accounting, there will not be a significant increase or decrease overall.

In regard to our engagement on the soft side, the full job grade for managers system is one method we are using. Work style innovation is another way we are making big changes with a view to establishing the right environment. 
Within this, we need leadership. We have established the HR Committee which has a female director as chair, and members of the Executive Committee often discuss having a three-level talent pool and the training of suitable employees while at the same time advancing the recruitment and allocation of personnel. We also have an all-female HR Committee. This functions in the same way with a view to creating a milestone by having women make up 30% of line managers.   
The most important thing is how we change employee mindsets. We are currently engaged in various initiatives tackling this. The main ones include making leadership training more sophisticated, holding training sessions for younger employees, implementing personnel measures that raise everyday motivation, and in addition to these, we plan to make changes to communication tools using DX from FY2020. We have also decided to carry out engagement surveys every year going forward. We will use these to assess management, get a better understanding of an individual’s career aspirations, and check whether they are in the most suitable position.   
(Q: In regard to the job grades of general manager and above for example, how will the average age, youngest age, and ratio of externally recruited personnel change over the next three years?)
We don’t have any specific numbers related to this. However, when we shifted to the full job grade system in FY2016, there were about 400 posts such as business division general manager, group manager, and line manager, and out of these, about 80 went to younger employees. This was the effect of the system change.

Currently we are considering a reallocation system with an advanced professional perspective separately from the job grade system, and we intend to introduce it eventually. However, before that we need to visualize employee job performance in terms of how much they raise customer value.

It is not my place to talk about stock price. However, I think the current level of about 1,800 yen is the result of us having yet to connect with the markets about whether we can truly realize sustainable growth.