Ajinomoto: third quarter results for fiscal 2015

Tokyo / JP. (aci) Ajinomoto Company Incorporated announced its consolidated financial results for the nine months ended December 31, 2015 (third quarter results for the year ending March 31, 2016). In accordance with the Accounting Standard for Business Combinations (ASBJ Statement No. 21 of September 13, 2013), the Ajinomoto Group has replaced the term «net income» with «profit attributable to owners of parent» from the first quarter of the current fiscal year (April 01, 2015 to March 31, 2016).

Explanation of operating results

During the nine-month period under review (April 1, 2015 to December 31, 2015), the global economy as a whole was in a moderate recovery, led by improving conditions in the United States and a gradual rebound in Europe, but countered to some extent by slowdowns in the economies of China and other emerging countries.

The Japanese economy showed some weakness in exports and production but remained on a moderate recovery track, supported by continued improvement in employment and a firm undertone in personal consumption.

In this environment, Ajinomoto is implementing its 2014–2016 Medium-Term Management Plan with the goal of becoming a «Genuine Global Specialty Company». Under this plan, the Company is striving to «Advance Growth Drivers» and «Reinforce the Business Structure» by pursuing specialty businesses, while also endeavoring to «Build a Stronger Management Foundation» to guide the Company over the longer term.

Consolidated sales for the nine months of the fiscal year increased 23.5 percent, or 171.8 billion JPY, to 903.2 billion JPY. The gain primarily reflects overseas growth in sales of seasonings and processed foods on a local currency basis and inclusion of two additional companies in the scope of consolidation: Windsor Quality Holdings, LP (now Ajinomoto Windsor Inc.; hereafter «Windsor»), a U.S. frozen foods manufacturer and distributor that was acquired on November 5, 2014, through the acquisition of all outstanding shares; and Ajinomoto General Foods Inc. (AGF), whose shares were acquired on April 23, 2015. Operating income increased 49.7 percent, or 26.6 billion JPY, to 80.1 billion JPY, boosted by a large increase in income from overseas seasonings and processed foods, the consolidation of AGF, and other factors. Ordinary income increased 40.5 percent, or 24.2 billion JPY, to 84.0 billion JPY.

Profit attributable to owners of parent increased 103.0 percent, or 41.0 billion JPY, to 80.8 billion JPY. The increase includes a gain on sale of shares in affiliated companies of 24.8 billion JPY posted in extraordinary gain resulting from the sale of the Company’s entire equity stake in Nissin-Ajinomoto Alimentos Ltda., an affiliated instant noodle joint venture company in Brazil, as well as an extraordinary gain of 18.0 billion JPY realized as a valuation gain (gain on step acquisitions) upon the revaluation of equity interest in AGF held prior to the acquisition of additional shares in April 2015 to their market value at the time of the additional acquisition. These extraordinary gains offset a 6.5 billion JPY loss on liquidation of subsidiaries related to the sale of shares of a French subsidiary engaged in production and sale of sweeteners as part of the Company’s effort to consolidate and realign group companies.

Consolidated operating results by segment

From the first quarter of the current fiscal year, reporting segments have been changed, and results for the same periods of the previous fiscal year have been restated to match the new segment classifications following this change.

Japan Food Products Segment

Japan Food Products segment sales increased 37.2 percent, or 81.6 billion JPY, to 301.0 billion JPY, due to growth in sales of seasonings and processed foods as well as the inclusion of AGF in the scope of consolidation. Operating income expanded 42.4 percent, or 8.1 billion JPY, to 27.5 billion JPY, mainly owing to the same two factors that supported the growth in segment sales.

Seasonings and processed foods: In the retail market for seasonings and processed foods, declines in sales of our umami seasoning «aji-no-moto» and the Chinese menu seasoning «Cook Do» were more than offset by higher sales of other products, including «knorr» Cup Soup, which benefited from TV advertising and related marketing initiatives, and «Toss Sala», a powdered salad dressing with toppings. As a result, overall sales of our retail seasonings and processed foods increased year on year. Sales of commercial seasonings and processed foods also increased over the previous year’s result, led by growing sales of seasoning products for restaurant use supported by growth in our functional food products that enhance texture and quality and draw out the flavors of rice and meat. Sales of «activa», a food enzyme (transglutaminase), and of savory seasonings products also increased, reflecting strong sales in Japan and overseas. As a result of the above, overall domestic sales of seasonings and processed foods increased from the previous year’s level.

Frozen foods: In the retail market, sales of Gyoza and Yawaraka Wakadori Kara-Age both rose above previous-year levels, while «the cha-han» (fried rice), a new autumn season rice dish, enjoyed strong sales. However, sales of frozen foods used in box lunches, such as Ebi Yose Fry (shrimp fry), were lower than in the previous year. As a result, overall retail market sales were flat year on year. Sales of frozen foods targeted at the commercial market increased year on year on stronger sales of chicken and gyoza products. As a result of the above, overall domestic sales of frozen foods increased year on year.

Coffee products: Owing to the consolidation of AGF from this fiscal year, sales of AGF coffee products are now included in the Japan Food Products segment. In the retail market, sales of 3-in-1 and regular coffee products increased. Instant coffee sales were also strong during the period under review. Sales of commercial-use products also increased, supported by a substantial increase in sales to major customers.

International Food Products Segment

International Food Products segment sales increased 31.3 percent, or 84.5 billion JPY, to 354.6 billion JPY, owing to the inclusion of Windsor’s sales in consolidated results and to growth in sales of overseas seasonings and processed foods and of umami seasonings and sweeteners for processed food manufacturers. Operating income increased 47.1 percent, or 11.2 billion JPY, to 35.2 billion JPY, reflecting the profit impact from increased sales of the aforementioned products, etc.

Seasonings and processed foods: In Asia, sales of our umami seasoning «aji-no-moto» increased in Vietnam, the Philippines, Thailand, and Indonesia. Sales of «RosDee», flavor seasonings and instant noodles in Thailand also increased, as did in Indonesia with much higher sales of «Masako», flavor seasonings year on year. Sales of these products and a positive impact from exchange rate fluctuations supported the overall growth in sales of our seasonings and processed foods in the Asian region. In the Americas, region-wide sales decreased as the negative effect of exchange rate fluctuations offset growth in sales on a local currency basis of such products as the flavor seasoning «Sazón» in Brazil. In Europe and Africa, higher sales of «ajo-no-moto» in Africa on a local currency basis and other factors supported an overall increase in region-wide sales. As a result of the above, overseas sales of our seasonings and processed foods increased year on year during the first nine months of the fiscal year.

Frozen foods: Overseas sales of frozen foods increased substantially, boosted by the inclusion of Windsor’s sales in consolidated results and by strong growth in sales of rice products and noodles products, such as «yakisoba», in North America.

Umami seasonings for processed food manufacturers and sweeteners: Sales of «ajo-no-moto» to the food processing industry increased as we succeeded in raising unit prices and expanding sales volumes in Japan and overseas. Sales of nucleotides decreased owing to a large decline in sales volumes in overseas markets, while sales volume in Japan was largely flat year-on-year. Sales of sweeteners remained on par with the same period of the previous year as strong growth in sales volumes of aspartame to food processors offset a large decline in sales in South America of powdered juice «refrescomid», with the fall in the latter’s sales largely due to the impact of exchange rate fluctuations. Overall, international sales of umami seasonings and sweeteners to processed food manufacturers increased year on year.

Life Support Segment

Life Support segment sales rose 2.0 percent or 2.1 billion JPY to 110.6 billion JPY, on increased sales of animal nutrition products and specialty chemicals. Operating income increased 32.5 percent, or 2.6 billion JPY, to 10.8 billion JPY, with a large increase in profits on animal nutrition products supplemented by higher profits on specialty chemicals.

Animal nutrition: Sales of Lysine were largely the same as a year earlier, as higher sales prices due to a positive exchange rate impact offset lower sales volume. Threonine sales increased, buoyed by higher sales prices and a positive exchange rate impact amid flat year-on-year sales volume. Tryptophan sales fell sharply as a large decrease in unit price outweighed an increase in sales volume. Sales of specialty products, such as Valine, were up year on year. Overall, sales of animal nutrition products were higher than in the same period of the previous year.

Specialty chemicals: Sales of cosmetics ingredients largely increased in Japan and overseas. However, sales of insulation film for build-up printed wiring board used in computers decreased. Nonetheless, overall sales of our specialty chemicals were up year on year.

Healthcare Segment

Healthcare segment sales increased 12.5 percent or 10.5 billion JPY to 95.4 billion JPY, as we achieved growth in sales of our pharmaceutical custom manufacturing services, amino acids for pharmaceuticals and foods, and pharmaceutical products. Operating income expanded 205.9 percent, or 3.9 billion JPY, to 5.8 billion JPY, as we succeeded in increasing profit from our pharmaceutical custom manufacturing service, pharmaceutical products, and amino acids for pharmaceuticals and foods.

Amino acids: We achieved a year-on-year increase in sales of our amino acids for pharmaceuticals and foods, as lower sales in Japan were offset by a large increase in overseas sales, partially owing to the favorable exchange rate translation. Meanwhile, our pharmaceutical custom manufacturing achieved strong sales growth on a sharp increase in demand for services in North America, Europe, and Japan. As a result, overall sales of amino acids increased significantly year on year.

Pharmaceuticals: Sales of self-distributed products increased as strong growth in sales of «moviprep», an orally ingested intestinal cleansing solution, outweighed the drop in sales of our branched-chain amino acid formula «livact», which felt the impact of stiff competition from generics and other rival products. Sales of products sold through business tie-ups also increased, as strong sales of risedronate, including the osteoporosis treatment «actonel», offset a sharp decline in sales of antihypertensive calcium channel blocker «atelec», which felt the impact of stiff competition from generic drugs and other rival products. As a result of the above, overall sales of pharmaceuticals increased over the previous-year level.

Other Business

Other Business sales fell 14.6 percent, or 7.0 billion JPY, to 41.3 billion JPY, but operating income improved, expanding 307.7 percent, or 0.5 billion JPY, to 0.7 billion JPY.

Forecast for the Fiscal Year Ending March 31, 2016

	FY ending March 31, 2015	Change
Net sales	1’263’000 million JPY	25.5 percent
Operating income	86’000 million JPY	15.4 percent
Ordinary income	89’000 million JPY	7.5 percent
Profit attributable to owners of parent	67’500 million JPY	45.2 percent
Earnings per share	114.72 JPY	–
Change indicates the percentage change compared to the previous fiscal year.
Note: In the nine-month period under review, operating income was 80’166 million JPY, as against the full-year earnings forecast of 86’000 million JPY, in example 93.2 percent of the full-year earnings forecast. It thus shows a strong performance with the full-year forecast being achieved in all likelihood. Furthermore, FY-2016 target operating income of 91’000 million JPY stated in the FY-2014 to FY-2016 Medium-Term Management Plan is now expected to be achieved in this fiscal year, one year earlier than planned, and be possibly exceeded.
In the fourth quarter of the fiscal year ending March 2016, extraordinary expenses or losses are expected to be incurred in relation to the business structure reinforcement for pharmaceuticals and other challenged business areas. The impact of these initiatives on our performance is currently being reviewed and collected and therefore, no revisions shall be made at this moment to the earnings forecasts.
Projection of each item of earnings forecast is to be closely reviewed going forward, and shall be duly reported upon completion of the review.