Good evening. This is Nakano. Thank you very much for taking the precious time to attend this meeting. Now, without further ado, we would like to start from the page two of the presentation. I would like to begin my explanation. These are the key messages for today. First of all, in the first quarter, we achieved growth in both revenues and profit. The sales and business profit was both the highest for the quarter since we started using IFRS in 2016. Secondly, the price increases that we have implemented as a result, we have been able to achieve a steady increase in unit prices. The marketing expenses were efficiently utilized. Therefore, as a result of these initiatives, we have been able to counter the cost increases resulting from the surge of raw material, logistics and personnel costs.
From the second quarter onwards, we have announced that we plan to implement price increases, but we will closely monitor the reaction of consumers so that we can strengthen our profitability. The recent current exchange rates and the prices for raw materials and fuel are somewhat favorable compared to our initial forecast, so they are in a positive territory compared to our initial forecast. However, we believe that the situation remains to be very volatile, so we will continue to closely watch the trends going forward because the movement is still unclear. Therefore, as a result, we have decided to remain the full-year forecast unchanged for now. Next page. This is the summary for the first quarter performance.
Sales came in at JPY 321.6 billion, which amounts to 116.4% of the same period of last fiscal year. Business profit excluding business divestitures and currency impact was 9.9%, making a favorable progress. All the major business segments achieved a growth in revenues. Of course, there are impacts from the currency translation, but the drivers behind this were the Seasonings and Foods business and also the Frozen Foods business, because we have revised the prices which resulted in the sales growth and also the Electronic Materials for the Healthcare segment and also the Bio-Pharma Services & Ingredients, all drove the growth of our business profit or the organic growth. Business profit came in at JPY 40.5 billion.
Although there was an impact from the surge of fuel costs and the raw material costs, but we were able to offset this with the currency translation and price increases. Of course, due to the growth of revenues from Healthcare segments, we were able to achieve record high quarterly business profit. Consequently, profit attributable to the owners of parent came in at JPY 27.7 billion, 125% of the same period of last fiscal year. Next page. These are the factors behind the changes in business profit. Overall, the fuel and ingredients cost, there was an impact, which is the upper part of this box here. Because of the impact of the Ukraine situation on a net basis, these costs had a negative impact of JPY 4 billion.
However, we have implemented price increases as planned or even front-loaded the implementation of such price hikes. Also the SG&A, although there was an impact from the increase of logistics costs, which was higher than our expectation. Overall, we have been able to control the SG&A within the range of our expectations. Then on top of that, the currency translation impact came in, and therefore we were able to achieve a growth in profit. The actual number for the first quarter came in more positively higher than our initial expectations. The next page. Items that impact the business results. We're talking about the main and sub fermentation raw material prices. As far as the main and sub raw material prices are concerned, actually, ammonium and grain prices reversed their trends.
The most recent market situation or the prices came in lower compared to our initial projections. However, on the other hand, the energy prices remains to be plateaued at very high level. Also mainly in Southeast Asian markets, we have not been able to reflect the fuel prices to the purchase prices as planned. This reflection is delayed. Therefore, we are still keeping a very cautious view right now. Next, is the lower one on page six. This is the cost and effects on how we had responded. For this whole Seasonings and Foods segment, and when you look at the first quarter, you can see that, although we had increased the price, we were able to increase the volume as well.
In the first quarter, the more than anticipated effect of our measures on the price revision than what we had assumed in the first quarter. We are progressing. However, if we see any declining purchasing power of the consumer due to inflation.
We will be coming up with counter actions. We are now progressing rolling forecast initiatives for our major companies so that we could come up with the counter actions earlier than the past. Next is the priority KPIs. As for priority KPIs, for organic growth, you can see Seasonings and Foods and Healthcare and Others, they have been growing steadily, exceeding our initial expectations. Frozen Foods segment, they had volume decrease in North America from lower operation due to labor shortages. That is continuing partially from last fiscal year. They are, and they should strive hard to achieve the initial plan. Lastly, going to page 8, factors behind the changes in business profit. You can see the lower portion is, the lower graph shows business profit progress vis-a-vis our initial forecast for fiscal 2022.
In Seasonings and Foods, in Solutions & Ingredients, we had MSG and restaurant-use seasonings, and price revision went on, and that effect is showing up. Compared to what we had assumed earlier, the negative portion is smaller. Frozen Foods has progressed within our expectation. In Healthcare, Bio-Pharma and Ingredients had shipment timing to meet our customer needs, so they had exceeded our expectation. You can see under this segment, Functional Materials, this is progressing steadily. For price hikes and revisions, on page 13, as it's written, the major things are written there. As you can see, after the second quarter and onwards, we have scheduled to implement price measures or price revisions in our major companies, including Thailand, and they should proceed on schedule or even earlier.
That's about it. I'm sorry, this is not in the material. Based on the material that we've distributed to you by country, I'd like to talk about the sales. If you could turn to page three of the Ajinomoto Co., Inc. consolidated results for the first quarter ended June 30th. Page three. This based on this geographical area sales progress. First, Japan. As for Japan, until last year, we had the rebound, and home eating was very affluent. Because of the price hike in various materials, and I think consumers are now trying to save what they had spent in the past. For example, the vegetable prices are increasing, and that is affecting the consumers.
In case of Seasonings and Foods, as you can see, Seasonings and Foods, HON-DASHI, Consommé, this is the sales is in the low single digits. Menu seasonings, Cook Do and so forth, double-digit decline, and cooking sauce, double-digit decline. Soup is lower in the single digit. Coffee for home use, this is a single-digit decline. The home liquid size, we had reformed that and changed that. Excluding that, this is flat year-on-year. For the restaurant is in the single digit. Due to these effects, we are trying to come up with a demand.
For those with the saving minds, we are providing menu and proposing menu to the saving-minded home and families. I think we will be also revising the prices as well. We would maximize or would like to maximize these effects.
As for overseas, first of all, with overseas markets overall, the eating out channel has been recovering, there well has also been a stable demand for in-home use, and price hikes have also delivered good results. Of course, when it comes to flavors and also for the menu-specific seasonings, we have been affected positively by this recovery in the market. For the overseas markets overall, Ajinomoto in the local currency basis, double-digit growth has been achieved for the flavors. Umami seasonings are single-digit, lower part of single-digit growth. Menu-specific seasonings also lower single-digit growth. By market, if I may add some explanation by market, if you look at the bottom, item number two, Thailand.
7% increase in the local currency basis, up 7% in the April/June quarter. If I give you a breakdown, Ajinomoto upper single-digit growth, seasoning flavor lower single-digit decrease. Instant noodles, because of the production trouble in the previous year, saw two-digit growth. Drinks and beverages, Birdy, because demand has recovered at two-digit growth. The powders single-digit decrease because competition has been intense. For Indonesia, Ajinomoto two-digit growth, double-digit growth, but flavors and also many specific seasonings mid-single-digit decrease. For the liquid seasonings upper single-digit growth. Vietnam is Ajinomoto and umami flavors to both double-digit growth. Philippines. As for Philippines, Ajinomoto double-digit growth.
The umami flavoring also double-digit growth. Menu-specific seasoning such as the fried chicken powder on par with last year. Brazil, finally. Umami flavors on par with last year. That was about the food and seasoning situation for the overseas markets. Of course, S&I are also included in the overseas market performance. Solutions and Ingredients business for overseas. For the dining out market, we have achieved that double-digit growth because their dining out business overall has been recovering. MSG sales double-digit growth. Nucleotides are also double-digit growth. For MSG and nucleotides on a global basis, we have implemented price hikes, and that is making favorable progress. For the frozen food.
Frozen Foods, as far as Japan is concerned, for in-home use, low single-digit decrease was reported. For the restaurant and industrial use, single-digit growth was achieved. For gyoza and shumai and hamburgers, we are making progress. For the in-home use, the rice and also chicken decrease was reported. For overseas, in North America, double-digit growth was achieved. Last year in the fourth quarter, the utilization has been reduced and because some factories are still suffering from that lower utilization. In terms of cost, we are seeing also a trend of recovery. Healthcare and Others. Bio-Pharma Services, if you look at the previous page, I think that's easier to understand. If you look at the by-segment results, Bio-Pharma and ingredients.
If you look at the revenue number there, we have achieved a very significant increase. Among them, if you look at the amino acid for pharmaceuticals and foods, we have achieved a double-digit growth. This is because we have been able to achieve an increase in the culture. Of course, this is affected by the shipment timing, but that has resulted in a revenue increase. For Bio-Pharma Services, in Europe, depending on the needs of customers, there was a good timing, and we were able to achieve shipments and resulted in the revenue growth. Functional Materials, double-digit growth as well. 25% increase actually. The application has been diversified and of course customers' base has also diversified. We have made a steadfast progress in these areas.
Consequently, we were able to achieve good performance for Functional Materials. Just briefly, that was my explanation from my side for the first quarter results. Also the details pertaining to the sales of each segment. Thank you very much for listening to my explanation.
Thank you very much, Nakano-san. We would like to move on to the Q&A session. From Nomura, Fujiwara-san, please.
Thank you. This is Fujiwara from Nomura Securities. As for the foods and seasonings, I have a question. Earlier, according to Nakano-san, Japan, after the price revision and increase, you were seeing a weakening. The overseas are favorable. When you think about the timing of price hikes, as for the first quarter, it, this food and seasonings had been reduced profit. How about second quarter and so forth? After second quarter, are you going to be able to cope with the situation? Can you elaborate on this point?
Yes. First, in Japan, as for the Japan situation, yes. The recent things are we are seeing price hikes, not just our products, and but on the other hand, the income and salaries is not increasing.
The consumers have a mind to save, and I think that consumer's mindset have increased. For that purposes, I think there are brands that have not increased their prices yet. We see that kind of tendency in some manufacturers. That is the actual thing happening. I think from here we are going to head for winter, and we would try to influence the demand so that for example we would like to propose a menu so that and menu seasonings that could be utilized for the homes that is trying to save their spending. From that we would like to try to come up and increase our sales.
How about overseas?
In Asia, we're seeing reduced profit.
Yes, for overseas market, in that sense, recently, I think that it's continued from the COVID-19 situation. Information sharing, we are doing that on a regular basis. In that sense, we are confirming the situation. Basically, we have a decline in the profit, but vis-à-vis budget, I think we are along the line. That is our awareness. As you can see, marketing spending in the first quarter, we did not spend much, so we would want to be flexible, trying to look at the consumer's behavior, actions, and try to come up with marketing and sales promotions. This is to confirm.
In Japan, first quarter was -JPY 1 billion for profit. Of course, you are going to increase the price. In the second half, is it the imagine, can we imagine that you're going to increase the profit in the second half?
Of course, overseas in Thailand, you are having a decreased profit, but umami seasonings, I think you are going to increase the price, right?
You have decided. From the second half, are you going to turn that trend from decreased profit to increased profit?
Yes, whether it be Japan or overseas, I think the major products price hike will be scheduled. I think the effect of those price hike we would like to turn it maximum and provide a good performance.
Okay. Yes, understood. Thank you.
Fujiwara-san, thank you very much for the question. Now we'd like to move on to the next question. This is from Goldman Sachs Japan Co., Ltd., Miyazaki-san, please begin your question.
Thank you. This is Miyazaki from Goldman Sachs Japan Co., Ltd. All right, let me begin my question. I have a question relating to non-food related businesses. I want you to give some more color to this, especially ABF and also the Bio-Pharma business.
Of ABF.
Are you achieving growth, a very strong growth because there was a timing difference, just like Bio-Pharma? Can you just elaborate on the reason why, the background why you are achieving this steadfast growth? On the other hand, for Bio-Pharma, you talked about the culture shipment for the pharmaceutical business, but Bio-Pharma has also achieved a growth. Can you also talk about the trend, the forecast trend for the third quarter onwards?
Okay. As for Functional Materials, if I talk about the Functional Materials segment, if I give you more detail of this segment. The first quarter Functional Materials revenue, sales revenue, JPY 17.3 billion, out of which JPY 15 billion was from Electronic Materials. You can consider that, the bulk was from Electronic Materials. For this portion, certainly compared to last year, Electronic Materials shipment has increased substantially. Of course, there's a timing issue here. The full year Functional Materials budget, if you talk about the progress vis-à-vis the full year budget, it's about 25% for the first quarter. Of course, every time we will point out that we are always conservative, but.
We provide a very accurate observation this time around. I could say that we are making favorable progress vis-à-vis the forecast. The substrate for our PCs, the demand has come down. It is rumored that the demand has come down in the market, but of course the application, the usage have diversified. Some are for servers and some are for 5G devices. We shall be able to make up for the decline of PCs through these other applications. Of course, when it comes to unit cost, we have been able to increase the prices to offset the impact of the decline. I think this business is progressing quite favorably.
For the Bio-Pharma side, relatively speaking, because of customers' issues, there were some larger impact from the timing difference, the timing changes. In this segment, amino acid, as I alluded to earlier, the cell culture for pharmaceutical applications, these shipments are concentrated. For the Bio-Pharma Services in Europe, there was an increase in sales. For the Americas, relatively speaking, the progress has been quite favorable. For the profit for the first quarter, the amino acid production cost increased, so that had a negative impact to some extent. By and large, the pharmaceutical Bio-Pharma business has been favorable because we believe we are able to offset that negative impact from the price revisions. All right, thank you very much.
For ABF, if you look at it on a quarterly basis, although there might be some volatility, depending on the shipment timing, but you are well positioned to achieve your plan, business plan. Yes, we are confident that we are able to do so.
Okay. If you just single out Bio-Pharma, you are achieving an increase in revenues, but a decrease in profit. For the initial plan, there was a decrease of profit in the pharmaceutical applications, but Bio-Pharma was increasing. Can you elaborate the reason why we are achieving an increase in revenues but a decrease in profit?
Well, for this matter, especially the sites in Europe, the raw material prices have surged, and that has impacted this business.
In the future contracts, I think we shall be able to cover them up. From the second quarter onwards, price adjustments can be done. Yes. We believe so. Yes. There will be changes in the product mix as well. I think these will improve going forward.
Okay. Understood. Thank you very much.
Thank you very much, Miyazaki-san. Next question. Saji-san from Mizuho Securities. Thank you.
I have a question regarding Frozen Foods as JPY 3.2 billion of increased profit. In the first quarter, it's reduced JPY 800 million. After second quarter, we were the price hike effect, you mentioned it will improve. Can I confirm on this point? Does that mean that domestic versus overseas, how what would be the contribution and overseas based on U.S.? I think retailers there's a trading down. There would be refraining from buying much. So to your increased plan, increased sales profit, would there be any possibility of such external factor impact?
Yes. Thank you. In reality, last year, from last year, for three times for home use, frozen food, we did a price hike. For restaurant and just industrial use, five times, I think, we had so far increased the prices. Under such circumstances, I think our sales were very steady. Currently, volume-wise, there are some hard situations occurring. Here, production first. The market demand, we are not able to meet the market demand fully. Part of our plan, starting from fourth quarter last year, we had COVID-19 effect centering on Omicron, and we had shortage of labor. The production, in order to stabilize the production, we were not fully producing. That means we are making some adjustment, that production was not in full scale.
I think this has already improved. I think we will normalize the production. Restructuring and reform has continued. Unprofitable SKU would be reduced and will continue. For the time being, the initial plan or budget, as was mentioned earlier, I think we would definitely like to achieve, and that is the plan that we have formulated. We want to stick to it, and we really would like to achieve this goal, including the local U.S. people. I think they have that kind of thinking.
Yes, sir. From the second quarter, that means the first quarter has dragged, and first quarter is dragging last year's fourth quarter. From second quarter, does that mean that the image is to upturn?
Yes, we assume that, and especially in the second half, we want to recover the situation and get back to normal.
The retail environment, U.S., there is an environment change. What is a negative impact on you? Do you see it?
Yes, as mentioned earlier, the volume reduction, I think, is reflecting that. These, I think, including sales promotions, we would have to think about how to wisely use our spending on marketing.
That means that you are taking that as the risk?
Yes, I think our target and goal here is I think what we can definitely achieve. We had formulated the plan in such a way. I think we can achieve that.
Okay. Understood. Thank you.
Thank you, Saji-san. The next question. We'll go on to the next question. This is from SMBC Nikko Securities, Takagi-san. It's your turn.
Hello, this is Takagi. Can you hear me? Yes, I hear you. Thank you. Nakano-san, nice to talk to you. My first question, regarding the Seasonings and Foods, Nakano-san, according to your explanation, you got off to a better start than expected. The driver behind this is Solutions & Ingredients, I believe. The seasoning per se has not really made a good progress vis-à-vis your plan. I'm not just curious about that. I'm not really sure about that.
When looking at the sales trend, the menu specific seasoning and the flavors, only a single-digit growth, and you have also conducted a price hike, but without the price hike, it would have been in a negative territory. Can you just elaborate on these points a bit further?
Takagi-san, thank you very much for the question. Well, of course, local markets believe that they are making progress as planned. Of course, most recently, of course, we have seen a little bit of weaknesses, especially when it comes to seasoning and food, or the flavors. Of course, there has been a two-digit growth last year, so there was a reaction from that compared to the first quarter of last year.
Of course, as I said earlier, we talked about the domestic business. The dining out channel is recovering quite strongly. Because of that, those home use of seasoning has been affected negatively and recorded a decline. In the case of Southeast Asia, the consumers' purchasing power or purchasing appetite has not declined that significantly. That is not happening. For example, as we talked about earlier, coffee is recording very brisk business. In local currency basis, we are making a steadfast progress in these markets.
All right. If that's the case, with the price hikes, the demand was not dampened because of price hikes. You're not, the consumers are not detached because of the price hikes. Is that correct?
Yes, I believe so.
If that's the case, then when it comes to the menu-specific seasonings and the flavor seasoning, the momentum from the second quarter onwards, how do you view that? Are you seeing an improvement trend from the second quarter onwards?
Just give me a moment, please. If I add some more explanation, in the first quarter, the overseas seasoning overall, Ajinomoto flavor seasonings, there is also menu-specific seasonings. For overseas seasonings overall, on a local currencies basis, 12%, 112%, versus the last fiscal year. There was a 12% increase. Of that growth, unit price growth accounted for half of that, 5% or so. Then the quantity accounted for, let's say, another half of it, about 6% each, let's say. That is the breakdown.
Overall, the quantity increase has still been achieved. We can match the current situation. In the second quarter and beyond, the quantity growth, we'll achieve that. We'll try to achieve quantity growth and drive organic growth as planned. That is what we are planning for, so there's no change to our plan.
Okay, thank you very much. That's clear.
Also, Nakano-san, in the beginning of the fiscal year, you talked about the raw material prices, JPY 45 billion or JPY 40 billion will have a negative impact of that size and but you will try to make up for that via the unit price increases, so the net impact would be only JPY 10 billion. But you said that you wanted to shrink that damage to the minimal.
When you look at your external situation, the external environment has changed significantly. Can you just give us an update of that situation around there?
Yes. Well, the fuel and raw material prices on a year-on-year basis, there is a negative impact of slightly above JPY 4 billion or JPY 40 billion, of which JPY 30 billion we have countermeasures planned for that. That's what I have already explained. As Fujii-san mentioned, the recent raw material and fuel performance, this gap has been narrowed compared to before. That's how we view it. Of course, the price hikes that we have planned, all of them have been executed, and we are well-positioned to execute them. Of course, there are also some leeway to bring forward the timing of implementation.
Each country is working on it. With that, I think we shall be able to further reduce the gap.
All right. Thank you very much. The negative factor, which is the raw material cost, the JPY 40 billion impact could become smaller than the initial projection. It's difficult to make a definitive projection, but that's the reason why we have not changed the forecast this time around. Our views on each market are that for Western markets such as the United States and Europe, grain and ammonium and those prices have already plateaued, and therefore, the trend has reversed already. In North America, the logistics costs have slightly come down. We have received that kind of information.
Because of that, but still when it comes to Asia, the recent purchase prices, we have not been able to reflect the cost into the prices expeditiously. We are taking the market prices in the Western markets. If we consider all these things together, we would like to be more precise and then factor in these costs from the second quarter onwards. The price revisions, the positive impact of the price revisions, do you have any plans to further expand the effects of that compared to initial projection?
Yes. The timing of price hikes will be brought forward by even one month or two months. By taking such measures, we shall be able to achieve that.
We are tenaciously trying to implement them in each market, so I think those effects can be expected. If that is the case, the net impact of JPY 10 billion you said that you said at the outset of the year could be compressed significantly.
Yes, that is correct. In the first quarter, out of the 10 billion difference, it was only JPY 4 billion. We recorded this gap of JPY 4 billion in the first quarter, but we'll try to offset and recover as much as possible in the future quarters.
Okay. Understood. The first quarter, JPY 4 billion. What will be the size of the second quarter? Will it be larger or smaller? What do you think?
The raw material prices and fuel costs, we have to keep an eye on that and how that unfolds in the future. We hope that this will have a more positive impact on our business. In the second half onwards, it will be more positive. Yes. That's how we view it. If you look at page five, the figure on page five on the right-hand side, this red curve still today is lower compared to our initial forecast. As we speak right now, this gray curve that we see on the right-hand side still remains intact. If it stabilize compared to this red trajectory, the gap will become available. This effect will become available.
All right. Understood. Nakano-san, one more thing.
Regarding the Healthcare business, Bio-Pharma and Bio-Pharma Services in particular, amino acid and Bio-Pharma Services, you got off to a good start in this business, but that was largely due to timing differences. Of course, compared to your full year forecast, what is the net impact? Timing difference? In addition to timing differences, are there any other factors? Do you think the performance has come in stronger than your expectations?
Well, in that regard-
The amino acid for pharmaceuticals and the culture's demand, the demand for such products remain very strong, and that continues to be the case. We would like to take advantage of that so that we can achieve better performance, aim for better performance. As we speak right now, we cannot give you anything more definitive compared to that, and that's the reason why we are projecting this way. Thank you.
Thank you, Takagi-san. Next question, please. Morita-san from Daiwa Securities, please.
This is Morita from Daiwa Securities. Nice to see you. Thank you. This is going to be summary of what has been asked. I think external factor and then environment has changed, cost-wise, the inflation risks are heightening. To this external environment changes. How it would impact your performance? Would it be positive, or what are the negatives? Especially positives, I think you had commented. What are the risks or the negative factors? If there is anything heightening risk, can you elaborate on that?
Yes. Well, as for the positives, as was mentioned earlier, the Electronic Materials and Bio-Pharma Services, I think those segments are not affected by the consumer mindset and consumer behavior. I think we can steadily grow that part of business.
The risks, the biggest one would be the economic environment and lowering demand, lowering mindset of the people to purchase. For that, I think this is seasonings that we're selling. This is a basic product for the consumers. I think we are resilient to those external environment. How are we going to use the sales promotional expenses? Depending on the situation, we would like to make appropriate investment in the marketing. According to the plan and budget, I think we can achieve and proceed. Can I just say more, Bio-Pharma, Healthcare, ABF? I think those are along the line with the plan, but it is not upward.
That's your message is that we will follow the plan.
Yes. Yes. Yes, we are steadily following the plan.
Yes, we do not see any risks arising. Along the plan, yes. For seasonings, maybe there is a risk factor of a reduced demand of the consumers because of the inflation, but it is going to be limited in Japan. It is not seen in Southeast Asia. At the same time, you can come up with countermeasures. This is within the range where you can cope and counteract. Yes. Yes, I think that is the message.
Yes, understood. One more. Solutions & Ingredients was very favorable. What is the background? Sustainability. Is it because the Chinese players did not come? It's maybe just a one-time effect. Can you elaborate on that?
Yes. We did have that kind of effect, and that is incorporated.
In that aspect, the negotiation with customers, I think, were able to be satisfactory. That has shown into the result, and that, I think, trend, probably would continue, we believe. Unless otherwise, there is no big changes in the demand, I think, we would be able to commit on that.
Is there any risk factor of a changing demand or timing? Do you have an idea of that?
Well, the competitors' production is one of that. Currently, we do not see any big changes.
Thank you. Thank you very much.
Thank you, Morita-san. The next question. We'll go to the next question. Mitsubishi UFJ Morgan Stanley, Tsunoyama-san, please begin your question.
Hello. This is Tsunoyama from Mitsubishi UFJ Securities. I have just one question. Regarding ABF, can you elaborate further and give us some more color? This has achieved a sales increase of close to 30%. You said that the PC demand has been declining, but other applications are growing. Can you give us some more color as to the overall background of the market? Potential risks for the future that we have to anticipate, is there anything that you have to call out? Can you give us some indication?
Okay. Although we have not included this in the material, but if you look at the previous material that we presented in the beginning of the year, in fiscal 2021
The ABF by application shipment, if you looked at the trend of shipments by application, PC accounted for 30% of total, and this has come down to below 30% as we speak right now. Well, that's our estimate. On the other hand, we have seen growth in other areas such as server and network AI usage. In 2021, that accounted for 55%, and this is now accounting for a larger proportion of the total right now. For other applications such as image analysis, GPU kind of applications, and ASICs, these applications are increasing. Also the customer base has diversified quite significantly. Amid this environment, actually, we haven't seen any emergence of new competitors in this area, so we have been able to capture the demand for those applications.
Thank you. As for the potential risk for the future. It's not really on the demand side, it's rather on the supply side. Whether you'll be able to come up with products that are tailored to the demand of customers. Is that the largest, larger risk? Can you say it that way?
Well, the production capacity, there's no problem at all at this point of time. Even with today's capacity, we shall be able to continue supply and our products up until 2024. Even more, from this year we are starting investment for capacity expansion. In terms of the supply towards the demand, there are no risks whatsoever.
All right. On the demand side, you are not foreseeing any particular risks?
Yes. Correct.
Just last question. The other day, as a new attempt, you talked about materials.
What is the contribution to your business for this year, and what is the growth rate of that business?
The next generation material. As I mentioned earlier, ABF. In the Functional Materials, out of that total material, they account for a very strong proportion, a large proportion. The magnetic material is not that significant, but by utilizing this material, power saving, energy saving can be realized quite significantly. The inquiries are now increasing, and a very high profitability is already generated with this new material. We will aim for becoming a de facto standard in this area, and if we are successful in that, we shall be able to achieve an expansion. However, as of this point, the business size is not that significant yet. Of course, we are well-positioned to achieve growth in this business.
Thank you very much.
Tsunoyama-san, thank you very much. Next question, please. Morgan Stanley MUFG, Miyake-san, please.
Thank you. This is Miyake. I'd like to ask about Functional Materials because I would like to have more understanding. JPY 15 billion was the figure you gave me. 29% increase in sales. If you exclude ABF and if it's only ABF or what more, how much is it? And 29% is what is the extent of the foreign exchange influence?
Yes. For ABF growth rate, compared to the previous year, it is 135%. For the Forex, the translation effects, effect, in Japan, this is produced in Japan. How we decide the price, we cannot comment on this. That therefore we do have a bit of a foreign exchange influence here. The yen depreciation, and that means a positive for us.
Annual plan, 14%, sales increase is assumed. You mentioned that you can achieve the plan. Local currency basis, you can achieve. Is that my understanding correct?
I'm sorry. Your voice is so small, so it is difficult. Can you repeat the last portion of your question?
Yes. According to annual plan, on yen basis, 14% sales increase is expected, I believe. You mentioned the annual plan. You mentioned that you can fully achieve. Does that mean that, excluding the FX translations, you can achieve the goal or the plan?
Yes. Yes. On a volume basis. Yes, I think we can achieve our plan.
Thank you.
Thank you, Miyake-san. Now we would like to move on to the next question. This is from Sumoge-san of Okasan Securities.
This is Sumoge from Okasan Securities. Thank you very much for allowing me to ask this question. I have a confirmation point regarding your materials. In the presentation, slide number six, there are items that impact business results. The bar chart there. On the right-hand side, the first quarter unit price and cost increase illustrations are provided. It looks as though the cost increase outweighs the price increases. Then it looks as though you are expecting a negative growth in the second quarter. But Nakano-san, according to your previous explanation, it seems that you are successful in implementing price hikes, and the costs are likely to come lower compared to your initial projection.
I'm so sorry that this is very difficult to understand. This time around, we have not decided to revise the forecast. We have provided a full year forecast and just carry them on as the first half numbers as is. The first half and the second half, we have not made any adjustments compared to the initial forecast that we developed. Of course, we were able to counter the negative factors quite significantly in the first quarter, and if the trend stays on, we shall be able to achieve quite favorable numbers. Of course, that's our ambition. This time around, we have not decided to change the full year forecast. These numbers are not accurate.
The ones that you see here on the right-hand side are not accurate in that regard.
Okay. In this bar chart, the costs are likely to project an increase in the second quarter significantly. The trend, the underlying trend, remains unchanged. The costs will increase, but you also have reaped the benefits of price hikes and therefore will be able to offset the negative impact. The first quarter trend will continue into the second quarter. Is that?
Yes, that's the ambition. That's our goal.
Thank you. Understood. Thank you very much. That's it.
Thank you very much. I'm very sorry, but this is the time to close the meeting, so we would like to close the Q&A session. Thank you very much. And Nakano-san would like to say the last word.
Thank you very much, ladies and gentlemen, for your participation. In that sense, of course, the foreign exchange influences are seen. In the first quarter, I think we were quite steady and were able to achieve the performance that we have shown to you. As for Frozen Foods in the U.S., we still have the remaining effect of the cost. Other than that, for other businesses other than U.S. Frozen Foods, from the budget and the forecast, I think we are progressing according to the plan and steadily.
I think, from now and onwards, I hope to make a better report to you. Thank you very much.
This concludes today's conference. Thank you for your participation. Thank you very much.