Ajinomoto Co., Inc. (OTCPK:AJINY) Q1 2024 Earnings Conference Call August 5, 2024 4:00 AM ET
Company Participants
Masataka Kaji – GM
Taro Fujie – Director, Representative Executive Officer, President and CEO
Eiichi Mizutani – Finance and IR
Conference Call Participants
Hiroshi Saji – Mizuho Securities
Takashi Miyazaki – Goldman Sachs
Naomi Takagi – SMBC Nikko Securities
Manabu Sumoge – Okasan Securities
Rei Ihara – UBS Securities
Makoto Morita – Daiwa Securities
Operator
Good evening, despite your busy schedule, thank you very much for your participation to the Ajinomoto Group’s Financial Results for Q1 of FY 2024 Conference Call. This is Pat from IR office. I’m the moderator. In today’s conference call, we have Mr. Kaji, Corporate Follow General Manager of IR Office with us.
We scheduled 60 minutes for the conference. At the outset, based on the disclosed material, 20 minutes or so, Mr. Kaji is going to make the explanation, and then we will have Q&A. The material that is going to be used today is uploaded on the IR Ajinomoto’s website. And the content of today’s conference will be recorded, and will also be uploaded on our IR website. I would like to have your cooperation.
So, we would like to now start. So Kaji-san, please.
Masataka Kaji
Good afternoon, everyone. Once again, this is Kaji from the IR Office of Ajinomoto. Now without further ado, we would like to explain the first quarter results for fiscal 2023.
If you can open Page 6. This is a summary of the first quarter. For the first quarter, we achieved an increase in both revenue and profit. Revenue business profit, we achieved a record profit and sales for the first quarter. For business profit, if we exclude the impact of Forge acquisition – business profit increased by 7%, compared to the same period of 2023.
In Seasonings and Foods segment, sauce and seasoning overseas remain very solid. In Frozen Foods segment, we handle continued brand investment in accordance with the plan from the start of the year. So this led to achieving growth in main products.
In Healthcare and Others segment, revenue increased and profit increased significantly. Functional Materials, in particular, recorded a significant increase in both revenue and profit. Biopharmaceutical services, CDMO services, including Forge, orders remained very strong.
In the first quarter, shared company-wide expenses increased due to strategic investments, made for the purpose of achieving the 2030 roadmap. For the full year, however, we will control these expenses to keep them within the level that we had forecast at the beginning of the year.
Moving on to Page 3. This is the highlight of the numbers. Sales revenues was – came in at ¥365.5 billion, 107.7% of the same level – same period of last fiscal year. If you exclude the impact of currency translation, it was 102.3% the level of last year. Business deposit came in at ¥43 billion, 100.5% level of last year. If we exclude the currency translation, it came in at 95% of the last year’s level.
If we exclude the impact of Forge acquisition, as I said earlier, on a Japanese yen basis, it was 107% year-on-year. And if you exclude the impact of both Forge and currency translation, it was 102% the level of last fiscal year. So, we achieved an increase in business profit – in profit by all these calculations.
Profit attributable to – owners or parent remained at 88% of the last fiscal year, because transient increase in tax burden of withdrawing tax overseas associated with the profit return from funds from overseas of subsidiaries. However, this is only transient and the corporate tax credit is going to normalize, for the 27% level that we have anticipated in the forecast that we have given to you, for the full year.
Page 4, this is the changes behind the business profit. The sales growth led to improvement of gross profit of ¥9.5 billion year-on-year. Gross profit margin, although in the Healthcare business, we recorded a positive increase. However, when it comes to Umami Seasoning for processing and other food businesses recorded a decline, because of the unit price decline. So overall, that was comparable to last fiscal year, for we are disclosing this at each – earnings call.
When it comes to subsegmentals, Sauce and Seasonings and Quick Nourishment, I would like to give you the breakdown of the numbers here. For domestic, Sauce and Seasonings and Quick Nourishment, unit price was 103%, volume was 96%. Overall, the sales was on par with the last fiscal year level.
For overseas, unit price, 103% and volume 102% the level of last fiscal year, overall 105% overall, or compared to last fiscal year. For overseas, the domestic business was 98%, so slightly decreasing, compared to last fiscal year, but we are continuing to increase the prices aggressively for coffee.
And stick business was quite favorable, but regular and instant coffee recorded a decline. So therefore, overall, there was a decline. However, when it comes to Sauce and Seasonings subsegment in Japan, volume was increased by mid-single-digit percentage points.
If you look at the gray portion, which is the SG&A, of course, there was an impact of consolidation of Forge, but in association with the 2030 roadmap strategy, we are continuing to expand the investment for intangible assets that, is needed for us to achieve sustainable growth in the future.
Moving on to Page 5. Here, this is the difference from year-on-year of the business profit by segment in the first quarter of 2024. In the second half of the page, just as a reference, we have given the analysis of the difference between the full year forecast, and last year’s actuals.
From Page 6 onwards, I would like to give you the sales status of each different segments. First of all, if you can look at Page 6 now. This is the sales of the three major segments. First is the Seasonings and Foods segment. Overall, one – we increased by ¥14.2 billion.
If you look at the domestic sauce and seasoning, it was on par with last fiscal year overall. Coffee recorded a decline in volume. However, the seasoning increased, because of the unit price increase and also the volume increase.
For overseas Sauce and Seasonings, both achieved an increase in the unit price and volume, and on the local currency basis, it achieved a high growth of upper single-digit percentage point. And this growth – the overall growth of the field Seasonings and Foods segment.
The second segment, Frozen Foods, overall, ¥6.3 billion increase in sales, especially the overseas Gyoza and Asian core categories achieved a growth, which led to the overall growth of the revenue. And Healthcare and Other business, overall, ¥5.9 billion sales increase.
Functional Materials achieved a significant sales increase, because of the recovery of semiconductor market, and Bio-Pharma Services and Ingredients, because there was an inventory adjustment impact last fiscal year. However, but this has already subsided this fiscal year, has begun to subside this fiscal year.
Moving on to Page 7. This is a business profit for the three major segments. First, the Seasonings and Foods segment, overall, the segment achieved an increase of ¥1 billion in profit.
For domestic business in Japan, the umami seasoning and the mayonnaise and specific seasoning also achieved – a revenue growth, but we were not able to absorb the negative impact from coffee. So overall, the domestic business achieved, a slight decrease in profit.
For coffee and menu-specific seasoning, as we have already announced, we are going to implement some price increases in the second half onwards, in order to counter this trend.
For the overseas markets – Sauce and Seasonings Quick Nourishment achieved the growth in profit, and covered offset the decline overall. So the overall segment of Sauce and Seasonings – Seasonings and Foods achieved growth in profit.
Frozen Foods, the second segment, overall, ¥8 billion decrease – in profit. Overseas, it was on par with last fiscal year. However, for the domestic Japanese business, because we have conducted proactive brand investments in the first quarter, we recorded a decrease in profit.
Here, the unrealized profit of negative ¥0.5 billion is included here, but we believe we shall be able to achieve the planned numbers for the full year. Healthcare and Others, ¥1.7 billion increase in business profit.
Functional Materials achieved a significant increase, because of the mixed improvement in sales growth. And the amino acid for pharmaceuticals and food, because of the growth of the high value-added areas, we achieved an increase in profit.
Bio-Pharma Services CDMO, because the revenue – the orders of profit are growing very steadily, but there was an increase – decrease of – if you exclude the impact of ¥0.4 billion negative impact. We are steadily growing on par with the plan.
For Europe and North America, the orders are growing steadily. However, so in the second quarter onwards, we are expecting a steady growth in this area. On the other hand, if you look at the very bottom there, this is the allocation of the shared company-wide expenses at the bottom here.
We have increased the strategic investment in line with the 2030 roadmap. And we have increased especially in the early part of the year. So, if you compare with the first quarter of last fiscal year, the expenditures has been growing. On a full year basis, however, we would like to control expenses in line with the projection that, we have provided to you.
Moving on to Page 8. From here, we would like to briefly talk about the topics for each segment. First is the domestic initiatives for Seasonings and Foods and Frozen Foods. We discussed the evolution of our marketing efforts at the business briefing held on July 1, this year.
As the second action of the Oyster Sauce communication strategy introduced on that day, we developed a real store of Oyster Sauce x Somen noodle. As targeted, the product was exposed on TV and social media and achieve the expected advertising effect, which was quite high.
In addition, the umami seasoning Ajinomoto, which is celebrating the 115th Anniversary of its launch, we introduced a new package in collaboration with a popular cartoon ONE PIECE and also a mill time bottle of GARI NO MOTO was launched. We are promoting to expand the users centering on young generation.
Also, the frozen home delivery meal, Aete, which was introduced at the business briefing last December has been launched with very favorable start. The number of meals sold is approaching 300,000 units, and key indicators are exceeding the plan.
Furthermore, we launched a large volume package of Gyoza, which we have regained the number one market share. We’re aiming for a strong number one market share with cost-effective products.
Moving on to Page 9. These are overseas Seasonings and Foods and Frozen Foods initiatives. When you look at the top, we are pursuing business strategies for overseas seasonings with an eye to the future, the mainstay umami seasonings and flavor seasonings are steadily increasing volume, and unit price and supporting the foundation of our overseas seasonings business.
We’re expanding sales of high value-added categories like the menu-specific seasonings and liquid seasonings in each country. Also, the Philippines, we launched a soup and canned coffee in Thailand that contributes to well-being with the sugar-free type.
On the right bottom, you can see the Frozen Foods, the new product, shumai dumpling was launched in the Asian foods core category of Frozen Foods in North America with a basic recipe of the shumai in Japan.
Moving on to Page 10 is about Functional Materials. We achieved a significant increase in both sales and income as the semiconductor market recovered. As we have reported in May, PCs recovered due to replacement demand and servers and networks, are also showing signs of recovery. Although still a small percentage of the total inquiries from Generative AI are more robust than expected.
On the right-hand side, business profit margins are also improving. In addition to mix effect and higher factory utilization rates, a slight contribution from the yen’s depreciation, was also a factor in the higher profit margin.
Moving on to Page 11, CDMO. The market is in a gradual recovery trend, and in all areas of our business environment for orders is improving. Although sales of small molecules in Europe declined, because we have transferred that to the nucleotide for some lines. The company expanded high value-added areas and was able to keep profit decrease minimal, due to the effect of an improved mix.
AJIPHASE continued to grow steadily. Althea in North America, we’ll continue to implement structural reform projects. In the first quarter, we recorded a bit of a profit decline, the business portfolio will be narrowed down to fill and finish. And the active ingredients business will be integrated to Forge.
We aim to improve profitability as soon as possible by carrying out this project, which will also involve a reduction in personnel. Also Forge in North America has expanded the number of new customers.
We have now 48 new customers both number of orders, and order amount are increasing steadily. CDMO business as a whole, we will achieve profit growth from the second quarter onwards, and realized steady profit growth for the full year as well.
Finally, Page 12, please. This is the progress of mid-term ASV indicators by segments. So, that was a summary of the financial results for FY ’24 first quarter, while steadily growing our existing businesses, we continue to make investments in advance with an eye towards 2030. We would continuously would like to take the changes and countermeasures, and we will do our best – to achieve the goal. Thank you very much.
Now, we’d like to move on to the Q&A session.
Question-and-Answer Session
Operator
[Operator Instructions] Okay. The first question is from Mizuho Securities, Saji-san, please begin.
Hiroshi Saji
Thank you very much for appointing me. I have a question relating to CDMO regarding sales of CDMO business. The Forge impact, if you exclude the Forge impact, 7% increase of sales. That was what you presented on Page 3. So if that is the case, ¥2.2 billion, or so impact was materialized, I believe. So CDMO sales decreased by ¥400 million, so if you include the Forge impact, ¥2.5 billion, or so revenue reduction must have achieved. So I just wanted to confirm whether these numbers are correct or not. First and foremost, and on Slide number 11, the European and American markets, you said that the revenue decreased there. But you also mentioned that the orders are coming in favorably in the Western markets. So in reality, in the existing business of CDMO, the orders in Western markets, are they favorable? So can we expect the sales to improve in each region as well as profits from the next second quarter onwards, so that you can achieve a profit increase for the full year. Are we expecting a gradual improvement from the second quarter onwards? Do you see signs of that? So the orders received and also the guidance for the profit for the second quarter onwards, if you can elaborate on that, that would be appreciated.
Masataka Kaji
Thank you very much, Saji-san, for the question. Food sales, the level is comparable to what you have just analyzed. The existing businesses revenue decrease was driven mainly by the low molecule, small molecule European business. If you look at the results presentation document on Page 8, in the EMEA Europe, minus ¥3.6 billion is the number that is shown there.
And this is mainly due to the small molecule business in Europe, revenue reduction thereof. Last fiscal year, in the first half, we intentionally shifted some of the facilities to medium molecule. So that resulted in an increase of sales. So in reaction to that, it seemed as though that we had a decline, however, but the low small molecule performance, is performing just as planned.
As we have said in the beginning of the year forecast, because the facility has become smaller compared to before. And actually, this production has already started for the order received and therefore, in terms of profit, we were – we only had a slight decrease in profit. And this applies to Europe. And if I may continue, for the orders, the small molecule as well as Althea was not really bad either.
And for Forge in the recent business, the orders are also quite coming in at a favorable pace. And of course, the timing at which this converts to actual sales, it’s not that we are going to have this all in this fiscal year. So, we will have to continue to practice on quarter-on-quarter, but I think we can expect a gradual improvement in the coming quarters.
As for profit, just like as I said, if the sales increases, I think in association with that, the profit will continue to increase in tandem with the sales. For Forge and also AJIPHASE for our nucleotides, in the first quarter, we had anticipated some of these sales, but these are – there’s a timing difference, some have been delayed into the order in August period for in terms of shipment. So some of the delivery has been delayed somewhat. And that is the reason why we are seeing these numbers.
Hiroshi Saji
Just one point that I wanted to confirm is that AJIPHASE, you didn’t really mention that at all. But in terms of sales, have you seen any impact?
Masataka Kaji
AJICAP, sorry, AJICAP from a lot of our global manufacturer, we are seeing a lot of inquiries. And going forward, in order to acquire the alliances – we are planning to conduct a lot of active measures. The AJICAP is we are now promoting royalty-based business. So the sales impact is not going to be that sizable, but this will have a straight impact on the profit. That’s how you should interpret it.
Hiroshi Saji
I wasn’t able to see this in the disclosed numbers, but have they made any contribution to your profits in the first quarter?
Masataka Kaji
The details are not disclosed on a quarterly basis. But in 2024, AJICAP revenue are expected to be generated this year as well.
Hiroshi Saji
Thank you. Thank you very much for that.
Operator
Thank you very much, Kaji-san. So next question, Goldman Sachs, Miyazaki-san please.
Takashi Miyazaki
This is Takashi Miyazaki from Goldman Sachs. The first question it’s about the functional materials. The margin, the profitability has improved you mentioned. After second quarter, you mentioned, can we guess, assume that this will continue onwards from second quarter as well? Well, in the initial stage, you did not assume a high level of profitability. What is the reason behind this high profitability?
Masataka Kaji
Thank you very much, Miyazaki-san for your question. For functional materials, yes, when you look at Page 10, I have mentioned a bit what we had assumed at the start of this physical there was some recovery in the market, and we see also mix improvement effect. And also, we had shipment as well.
And the utilization rate has improved as well. So from the second quarter onward, there is no, nothing that we heard about stoppage of such movement. I think the current continuing environment, we will think that will continue.
Takashi Miyazaki
Thank you very much, indeed. And another question is related to food. As for the seasonings and foods, I think this was a little bit of a lower profit start, and you explained about it. But when you think about the trend so far. I think my first impression is it’s not enough. So of course, the initial plan was that the segment outlook was flat year-on-year. So I would like to confirm that this is within your expectation. And in the material handout, the local currency basis from Brazil to Thailand, you had shown the sales and profit. And is this the real figure, or is there any special factor that is making this figure different from other quarters, because it’s the first quarter? So do we have to prepare to see other figures in the second quarter and onwards? Can you comment on that?
Masataka Kaji
Yes. Thank you for the question. First, about the seasonings and foods profit. In the first quarter, in Japan, the Coffee segment well, you can calculate and find it out that is about ¥900 million is here. This is, I think, the negative factor for whole seasonings and foods and domestic sauce and seasonings in the first quarter. We are trying to create more value.
So we are using and spending a lot for the marketing activities, so in the first quarter profit-wise, this is becoming a bit of a negative. That’s domestic. And for this, especially in Japan, August, we have already announced the unit sales price hike, and this is going to cover a wide range of products. And in addition to that, for coffee, we will also have a second round of price hike in September after April.
So those would be all added, and I think will be shown in the figures. Fortunately, for domestic source and seasonings, we have unit sales price increase and volume is also in the mid-single-digit increase. So I think that is going to lead to the sales increase and profit increase as well for the coming years. For overseas market, especially in the major countries, you would ask about the question.
This is the Page 3 on the mid segment, you can see the major companies, local currency-based sales. You can see Thailand is a bit weak. Vietnam is flat. So those are the situations. But for the Thailand, the Birdy, the canned coffee in the first quarter, mid-single-digit negative. The end of March, we had seen the inventory and from April, we have controlled the shipments, but May and June has normalized.
And that effect has pulled down a bit of the Thailand figures. For Vietnam, in the fourth quarter of last year, they had met and we had the shipment increase. And I think that made a rebound in the first quarter. So the first quarter, we had reduced the shipment. But after second quarter and onwards, I think for the annual outlook, we will be shipping normally. So I think there should be normal figures coming out.
Takashi Miyazaki
That’s all. Thank you very much indeed. Thank you.
Operator
Thank you, Miyazaki-san, for the question. Now moving on to the next question, SMBC Nikko Securities, Takagi-san.
Naomi Takagi
This is Takagi. Can you hear me okay?
Masataka Kaji
Yes, I hear you.
Naomi Takagi
Thank you. So I have the question relating to amino acid for pharmaceuticals and foods. My first question, I just wanted to have an update on the following sales. Rather profit has increased only slightly. But the in assets, you said that you have already run its course to inventory adjustments, so I thought that profit will come in higher. So what’s the reason behind this?
Masataka Kaji
Thank you very much for your question. The amino acids for pharmaceuticals and foods, if you look at Page 6 and 7, we have given you some analysis on those pages in the segment information paper, actually the inventory adjustment has been completed in many customers, but there are still some remaining items that, at some customers.
But I think the situation is continuing to improve. That is the general direction. So as the quarter passes may, I think the situation will continue to improve going forward. That’s how you should look at it that expect things to happen.
Naomi Takagi
Okay. But then on a full year basis, the profit recovery is expected to be quite significant. But compared to that, the progress in the first quarter is very slow. So that gives me a little bit of concern. What do you think? Well, so compared to — well, we are expecting these things will continue to improve. But then several months ago, compared to your focus several months ago, are there any changes right now compared to several months ago? If any, please elaborate on them?
Masataka Kaji
Well, the current situation is that we are seeing brighter signs going forward. And in reality, in the first quarter, we have already bottomed out and just slightly though, however, we have achieved a slight increase in profit. So there’s no intention for us to revise the forecast that we have given in the beginning of the year.
Naomi Takagi
All right. So the second question relating to the healthcare regarding CDMO. On top of the previous question, I think the business profit was flat. How does this compared to initial projection?
Masataka Kaji
The first quarter plan number, we don’t disclose that number. So it’s very difficult for us to comment, therefore. But if you look at the details here, Europe, the orders have been recovering quite significantly. So compared to the initial plan, we are becoming more confident in towards the achievement actually. For Althea, we gave you a lot of worries last fiscal year. However, structural reform is now progressing.
So, we are working to improve the profitability of this business, including that point as well, we believe we shall be able to deliver the results that we had given in the financial forecast. But the first quarter performance appears to be weak. This is because as you faced in the first quarter, there was a timing difference, but it’s not shipping that much. This is going to ship more in the second quarter onwards.
AJIPHASE in the first quarter, a significant increase in revenue, and profit was already achieved in the first quarter. There is an impact even excluding the impact of timing difference. That is the case already. So, we believe these things will continue to perform favorably, in the second quarter onwards.
The other thing is about the domestic business. In seasoning foods and also frozen foods in the first quarter, we have made strategic investments for the brand in the first quarter, marketing investments. You made those expenses, right?
Naomi Takagi
Yes. Yes, so if that is the case, then, of course, or seasoning food, the situation remains favorable, so it’s okay. But I’m sorry for the ambiguous question, but other than seasonings and foods and frozen foods in the first quarter that the sales was not that favorable. So the market investment vis-a-vis the return. Can you really generate the expected returns in the second quarter onwards? And what will be the result of the sales increase as a result of this investment, so at which timing can we expect those positive impact, to come around as a result of your investment?
Masataka Kaji
So sorry for the concerns that we have given to you for seasonings and foods, things are turning to the better and the performance in the first quarter was quite favorable. The price increases have already implemented, and this has resulted in the improved sales. And the price hike will come in from August. So I think sooner or later, you’ll see those impacts kicking in for frozen foods.
Naomi Takagi
The home use is growing quite steadily. But in the first quarter, the industrial use and restaurant use products was not really that favorable, because of the cost increases, the profit was under a downside pressure. However, for this for the domestic frozen food for restaurant use and industrial products, we have already announced price hikes. So including those measures, we will start to implement additional measures so that we can turn around the performance for the home use top line, the investment impact is already coming in. So do you foresee accelerated sales growth in the future?
Masataka Kaji
Yes, that is the plan. And in reality, the mainstay Gyoza product, for example, in the first quarter achieved the double-digit percentage growth. So for those mainstay products, if we are able to achieve those performance, I think the profit will also improve accordingly.
Naomi Takagi
Okay, understood. Thank you very much.
Operator
Thank you very much, Takagi-san. Next question, Sumoge-san from Okasan.
Manabu Sumoge
Sumoge from Okasan Securities. Do you hear me? Hello?
Masataka Kaji
Yes.
Manabu Sumoge
Thank you. Bio-Pharma Services. I’d like to ask about the Forge. You had three consecutive negative business profit about ¥500 million. In the first quarter, consolidated impact to your expectation, what is it – it seems to be larger. So what is your background? And what is your thought about this?
Masataka Kaji
Well, as about Forge, on a local currency basis, negative is according to our expectation. And if it is yen translated with the FX, it’s a bit different, because of FX impact, it turned out to be larger. But I think from our forecast, I think this is according to our forecast. As for Forge from here, this is in a growth stage. So – and also the environment seems to be very favorable for this company in case of order.
So by quarter, there may be ups and downs. But to the initial plan, we think this is according to our expectation. And last year, in the fourth quarter, you were in red ink, and that is going to be increased. But second quarter, third quarter, you would have to have more profits in order to get better figures. So top line wise, can you improve, make it recovery? Yes, if the top line grows yes. Sales leverage will work, meaning that I think the sales will increase.
Manabu Sumoge
You have new customers, and you mentioned there are 48 customers currently. So you can imagine that?
Masataka Kaji
Yes, we can assume that by customer, the project and the shipment timing is different. So we may have ups and downs by quarter. But for the full year, I think we have a very steady projects going out and there seems to be a favorable situation.
Manabu Sumoge
The second one is about the expenses. You mentioned that in the first quarter, we have increased. And you mentioned that for full year, you’re going to be controlling to the level of the initial plan. What is the environment, I think the market is different by product. What is going to be increased and decreased, and how are you going to control for the full year?
Masataka Kaji
Well, as for these expenses, when you look at the blue material, Page 2, we have a common company-wide expenses. And when you look at them, well, it’s ¥2.3 billion, an increase – according to our initial plan, that was not so large and it is ¥1.5 billion. That is the plan. So in the first quarter, I think we were quite aggressive in spending in the company-wide expenses. This is because, of course, the share company-wide expenses but allocated to each segment.
So there are some of the things that is not really linked to each businesses, but allocated to the segments, and that is included in the shared company-wide expenses. We have a full growth area, and we are positively spending in those areas. And for commercialization, spending has been done, and there was a big spending in that area in this first quarter.
Manabu Sumoge
Can you provide us a hint, including the new businesses?
Masataka Kaji
Yes, in the first page of Nikkei newspaper, there was a bit of a comment. So including that. And then I think the papers article, I think within the end of this week or so, we can be more specific about that.
Manabu Sumoge
So in the first quarter, you – that was a timing for increase of expenses. But from second quarter onwards, there is planning to reduce the spending, right?
Masataka Kaji
Yes. So throughout the year, yes we will control. We would like to control the expenses.
Manabu Sumoge
Thank you very much.
Operator
Sumoge-san, thank you very much for the question Now moving on to the next question, UBS Securities, Ihara-san please begin your question.
Rei Ihara
Thank you very much for the presentation. This is Ihara from UBS. Okay. So although this may be difficult for you to comment, but then the first quarter business profit by and large, was in line with your guidance. Was that the case? But by – if there’s any differences by actual business segments, please let us know.
Masataka Kaji
Thank you very much for the question. The first quarter vis-a-vis the target. Actually, this is very difficult for us to comment, actually. But compared to the full year projection at the end of the first quarter, if you look at the performance in that regard, compared to the full year plan, I think the general direction is that we can expect some upside, and we all are making good progress towards our achievement of that.
That’s how we look at it, but the macroeconomic environment is now quite volatile. So we would like to absorb the situation and depending on the changes in the environment, we might as well have to implement additional measures. So that is how we see the market at this point of time.
Rei Ihara
So then at this point, compared to your full year plan, there are some areas where the progress up here well, you’ll catch up on that and function of materials will be adding up there so that you can achieve upside. Is that how we should look at it?
Masataka Kaji
Well, I didn’t comment that far. I didn’t comment on those details. But if you look at the overall business, in the beginning of the fiscal year, the general direction that we had anticipated in the beginning is turn out to be the case right now. And if you look at some overseas markets, shipment in the first half or first quarter was somewhat subdued. So including all these points, overall, we have got off to a very favorable start of the year.
Rei Ihara
Well, in that case, I have an additional comment. Right now, the macro environment is changing quite rapidly. And the yen is appreciating quite significantly in a very short period of time. Will that have an impact on your business short-term and also long-term? If you can also comment on that point.
Masataka Kaji
For that matter, actually, you had a lot of discussion inside the company today as well. Right now, the guidance or the forecast that we have given in that outset was ¥140 to the dollar for the Japanese yen versus the U.S. dollar. And today’s currency rate is still cheaper in terms of yen compared to that for our currency level that we had in our plan.
So at this point of time, we are not anticipating a significant upside or downside due to currency translation at this point of time. However, depending on how the yen translation rate unfolds in the future, we will have – we cannot be so certain about that. So, we have to keep a close eye on that.
Rei Ihara
Of course, that is the case for this fiscal year. But what about the mid to longer term?
Masataka Kaji
For the medium term, as Mr. Fujie mentioned, our CEO mentioned at various occasions with you, we’ll try as much as possible to be not really affected by those currency rate. That is the business structure that we aspire to achieve in the future. Just recently compared to before, the currency sensitivity has become less sensitive compared to before. And that is what we like to achieve in the future. So, we would like to promote this this direction.
Rei Ihara
Okay. Thank you very much. Then I have my second question. You mentioned that the CDMO sales by modality, the changes in sales was already explained by you already by modality. Low molecule, middle molecule and high molecule, if you can give us some breakdown that would be appreciated. Also, from the second quarter onwards CDMO business growth – profit growth was the plan for your company in the future. So even if the Forge consolidation will have a negative impact in profit, but still you are aiming for growth in the second quarter and beyond?
Masataka Kaji
Yes. For the last part of the question, let me comment on that one. Well, we have not given that detail for the second quarter yet. From now onwards, we would like to achieve growth in profits, and then try to deliver on the full year forecast. That is the direction that we are going to pursue.
By segment, the low molecule, small molecule, slight profit decrease for nucleotoide and middle molecule profit increase and RTL, a slight decrease in profit. That is the overall picture that we are forecasting right now.
Rei Ihara
Then in your guidance, you have given us the healthcare by region performance, EMEA, a reduction of ¥400 million in healthcare North America, excluding Althea, a slight reduction in profit. Are these numbers are progressing in line with your plan?
Masataka Kaji
Yes. For healthcare – within the healthcare, there are businesses are going to CDMO. So those businesses may account for slight differences. But as far as Americas is concerned, what you just mentioned, Ihara-san is in line with the actual trend.
Rei Ihara
So I’m so sorry for being persistent here. But going into the second quarter, how things will trend into the second quarter onwards?
Masataka Kaji
It’s very difficult for me to comment on the second quarter performance. I cannot comment on that right now. But as a general direction, from here onwards, we would like to drive the growth of profit. That is the message that we can deliver to you right now, if you can appreciate that that pet.
So for niche modality, you will try to achieve profit growth in each modality, so that the forecast for the healthcare business that you had anticipated in the beginning of the year can be delivered.
Rei Ihara
Yes, that is correct. Thank you. Thank you very much for that. I understood.
Operator
Thank you very much for the question Morita-san from Daiwa Securities, please.
Makoto Morita
This is Morita of Daiwa Securities. Thank you. I have very one simple question so far, right. We heard about the macroeconomic trend and FX impact. How about the consumer trend, Japan and overseas, is there any changes? Consumers trend compared to your initial forecast, if there are any changes?
Masataka Kaji
Yes. Thank you very much. Well, the changes of the macro economy is drastically happening currently. So how this change is – impacting the consumer we don’t know about it. But for Japan, gradually, I think the income for the disposable income for the general people is increasing. But on the other hand, I think people have still tight wallet. The spending is not so favorable.
But we would like to take the sign of the changes of the consumer trend and we would like to adapt our marketing strategy to it. And if that is possible, then within Japan, we will be able to appeal value-added product, and hence grow our business. Those are the initiatives. So in the first quarter, I think we’ve been able to do that kind of activities and toward that direction.
For overseas market, Morita-san you may have been aware of the North American frozen food market. In the first quarter, we have so many inquiries, and we’ve been using some marketing spendings. But for the first quarter, the volume overall volume, Italian assets transferred, that was a negative impact. But as a whole, I think we were able to increase the volume currently, so we would like to do that kind of initiative steadily.
And for the sauce and seasonings overseas, you are all aware that our seasonings sort of basis that is used at home. And for the first quarter, we have seasonings increase in the upper single-digits. So, we would like to keep this trend steadily.
Makoto Morita
Thank you very much. And the second question is a bit tricky. And to your communication, you seems to be the first quarter is slow, but very favorable. And full year, you are heading increase and improvement. So if you are thinking about the risk for the future, if there are any risks or downside risks, is there any worries about it about the risks?
Masataka Kaji
Yes. From here, when you look at the macroeconomic changes, we have seen yesterday and today, what would be the changes we’ll be facing – for the future, we would have to be cautious and see especially Japanese foods market. Yes, we would like to seriously and cautiously watch them closely.
But currently, at this point of time, there is not a big concern or worries. Is there any segment that worries us? No. At this point of time, we have a lot of initiatives and measures going on, and they have covered them all.
Makoto Morita
Thank you very much. About CDMO towards the next quarter, there was nothing strange, right that the trend will continue.
Masataka Kaji
Yes. Thanks to your efforts. Yes, when you look at the orders numbers, they are quite favorable numbers.
Makoto Morita
Thank you very much. Thank you.
Operator
Thank you, Morita-san, for your question. [Operator Instructions] Thank you. All right. It seems that we have exhausted all the questions. So we will now like to finish the Q&A session at this juncture. Finally, Mr. Kaji has one last message.
Masataka Kaji
Well, everyone, thank you very much for attending today’s meeting. Although earlier than expected, we would like to finish here. We thank you very much for all your inputs. We will like to see them back in our business performance, business management. And there are some possibilities of changes in business environment, but we would like to – flexibly respond to these changes by implementing necessary measures.
So that we can deliver on the results, and we look forward to your continued support, and patronage going forward. With this, we would like to finish this conference call at this moment. We thank you much indeed for your participation.
Operator
The session finishes here. Thank you very much for your participation.
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