The materials to be used for today's session are already posted on the IR information site of the Ajinomoto corporate homepage, so please take a look at them at your discretion. Please be advised that this session is recorded all the way to the Q&A session and will be posted on the IR site of the company later on. Now, without further ado, we would like to begin shortly. Mr. Nakamura, the floor is yours.
Thank you very much for making the time today to join Ajinomoto's results briefing session. My name is Shigeo Nakamura, CEO of the company. Thank you in advance for your attention. First of all, I would like to begin with a summary. We set new records for sales, business profit, and profit attributable to the owners of the parent of the company for the first half.
Business profit increased to 125% of the level the previous year. For each segment, in the Food Products business, revenue and profit increased both in Japan and overseas for the Seasoning & Foods business overall, which includes Sauce & Seasoning, Quick Nourishment, and Solution & Ingredients. In the Healthcare & Other segment, revenue and profit increased significantly, and Functional Materials, Electronic Materials, and others continued to perform well. In the Bio-Pharma Services & Ingredients segment, revenue increased overall, but business profit decreased due to temporary factors. We revised the full-year earnings forecast for fiscal 2026, as we did in the first quarter, raising our forecast for sales, business profit, and profit attributable to the owners of the parent.
To absorb the impact of the cost increases arising from the conditions in the Middle East, we will act agilely during this fiscal year as we work to steadily achieve our planned numbers. While continuing our efforts to achieve the 2030 Roadmap ahead of the schedule, we will take discussions of post-2030 Roadmaps to the next level and create new value aimed at mid-to-long-term growth of the company. This slide presents a digest version of the first-half results. Strong growth continued, with sales reaching 112% and business profits 125% versus the previous fiscal year. Profit attributable to the owners of the parent company was 143% versus the previous year. In the second quarter, tax effects related to the absorption-type merger of Ajinomoto Fine-Techno yielded a positive impact.
We will continue to pay close attention to profit attributable to the owners of the parent company, and we will work steadily to achieve our plan for the current fiscal year. The next slide analyzes the changes in business profit between the first half of 2025 versus the 2026 first half. Seasoning & Foods, Functional Materials, and other businesses contributed to the changes in GP due to changes in sales, which was the factor behind the profit increase of JPY 34.9 billion. Sauce & Seasoning overseas, coffee in Japan, and Functional Materials contributed to the change in GP due to change in GP margin, the factor behind the profit increase of JPY 7.1 billion.
As for SG&A, we will continue to increase our investments in human resources, R&D, and other intangible assets aimed at sustainable growth, aligned with the 2030 Roadmap.
This slide presents an analysis of the changes in business profit by disclosed segment. The top graph is the comparison of the results for the first six months through the second quarter and over the same period of last fiscal year. The bottom is the comparison of first half results for the previous fiscal year versus the revised forecast of August 6. In frozen foods, first-half results were challenging relative to the full-year forecast of profit increase of JPY 3.7 billion. Conversely, the Seasonings & Foods, and Healthcare and other segments made good progress relative to the forecast, yielding a positive result for the first half overall. The next slide looks at our revision of the FY 2026 full-year forecast.
Following the revised forecast announced at the time of the first-quarter results announcement on August 6, in the second quarter, we further increased the forecast for sales by JPY 35 billion, business profit by JPY 8 billion, and profit attributable to the owner of the parent by JPY 11.5 billion. We revised the business profit forecast in functional materials upwards based on the strong second-quarter results from July to September. In frozen foods, however, we revised the business profit forecast downwards due to increase in raw materials and logistic costs, mainly in overseas market, despite solid sales. We revised the profit attributable to the owners of the parent company upwards to JPY 135 billion. This slide shows an analysis of the changes in business profit by disclosed segment in the new revised forecast.
The top graph is the planned change in the profit by segment, comparing the full-year results for the previous fiscal year with the new revised forecast. The bottom graph is the comparison of the full-year results for the previous fiscal year with the revised forecast as of August 6. In the functional materials business, conditions remain very strong at present. We will continue working for the full-year profit growth in the business. Next, I would like to talk about the impact of the Middle East situation and our response policy. Reflecting the results through the second quarter, we scrutinized the future impact under the continued assumption of Dubai crude oil at $110 per barrel and an exchange rate of JPY 158 to the dollar, and kept the annual cost increase at about JPY 25 billion unchanged.
There is no change to our policy of absorbing the impact of the cost increases during the current fiscal year. We expect that the impact of cost increases due to the increased tension in the Middle East will occur primarily in the food products business. On the slide, the orange part indicates the effect of our responses through increased revenue and cost reductions, and the gray part indicates the impact of cost increases. Our measures to combat the impact of cost increases will include pricing measures and cost reductions. By responding agilely, we will absorb the cost increases during the current fiscal year, and we will work steadily to achieve our plan. The impact of cost increases due to the tensions in the Middle East have become pronounced since the second quarter in particular.
In products for consumers, there is a degree of time lag before the effects of pass-through pricing become apparent. In the second quarter, on a net-net basis, we have not yet been able to fully push back the full impact of the cost increase. In the second half, on top of the effect of pass-through pricing, we will steadily capture the effects of revenue increases and cost reductions, and we will absorb the full impact of cost increases due to the Middle East situation during the current fiscal year as we work to achieve our current plan.
The Sauce & S easonings business, we have responded agilely to various inflationary phases in the past, absorbing the impact of cost increases while continuously increasing sales volume. in response to current cost increases due to Middle East tensions, we will take further actions from the second half, incorporating the risks of other cost increases as well. We also firmly control the impact on revenue, including by optimizing marketing expenses. This slide presents the first-half results for Sauce & Seasonings and quick nourishment. First, the left side, which is about Japan.
Revenue increased significantly in coffee due to reasons including price revisions. Excluding coffee, in the combined seasonings and foods and quick nourishment in Japan, sales increased to 103%, volume to 102%, and unit price to 101% of the previous level in the previous year. Revenue increased in flavor seasonings and soups. Next, the right side is for overseas.
Sales grew to 104%, volume to 102%, and unit price to 102% of their levels in the previous year. Revenue increased in umami seasonings, flavor seasonings, and menu-specific seasonings. This slide presents our initiatives to strengthen our foundation in Japan. Even amid population decline, high prices, and other changes in the business environment in Japan, we will strive for sustainable growth by capturing the diverse needs of consumers and expanding the value that we provide. Specifically, we are expanding products that address unmet needs and products that become points of contact with new customers as we promote growth along three axes: expanding the customer base, increasing the amounts used by existing customers, and increasing unit prices by increasing value provided.
This approach is leading to the creation of new demand, as seen in examples including Knorr Sakusaku de Cup-on, selling 13 million units in the first year of release, and the Cook Do Kiwami Premium Series, selling a total of 24 million units in the three years since release. We are also developing products that capture different needs than before, including Pure Select Mayonnaise Fuwa Ama that takes its mild, mellow taste from honey and domestic fresh eggs collected less than three days earlier, and White Rice Dozo, which is added when cooking the rice and yields rice with unchanged taste but slows down the absorption of sugars.
Even amid the population decline in the Japanese market, we will create new demand and boost the value provided to every customer to create sustainable growth in a domestic business. This slide introduces our efforts to strengthen our business foundation overseas.
As announced in our press release in June, we plan to make Ajinomoto Malaysia a wholly owned subsidiary. Procedures are moving forward smoothly, including the obtaining of approval at an extraordinary general meeting of shareholders of this company. Ajinomoto Malaysia has already grown its business to a scale on the level of the group's, our subsidiaries in our five major countries. Through the wholly owned subsidiary, we will further strengthen decision-making and collaboration within the group, and while achieving greater growth in Malaysia, we will expand the business outward into neighboring regions.
Drawing on the strength of our halal-certified products, we believe there are opportunities to also grow and expand into new markets other than neighboring countries, including in the Middle East. We will take full advantage of the business foundation of Ajinomoto Malaysia to make the country one of our key bases supporting overseas growth, leading to future growth.
The frozen foods business was affected by the high prices of raw materials and fuels and by delayed recovery from the North American recall that took place in February of this year. However, the impact of the recall was generally eliminated by the end of the first half. The North American market for Asian category frozen foods is the largest in the world. It is a market that has immense potential, with nearly JPY 130 billion in growth projected from 2025 to 2031. To firmly capture this market growth, we will promote the expansion of Hane-style Gyoza, as well as new Asian category products in areas in which we are strong, such as shumai.
In June, America's largest premium retailer, which has about 600 stores, began selling a brand of frozen ramen.
In the second half, we will further expand sales channels for these products and accelerate the growth of the North American frozen foods business. To improve profitability, we will revise prices to combat increases in the cost of raw materials and fuels. To improve productivity, we are using the production know-how of the Ajinomoto Group as a model and have begun lateral deployment at eight factories in North America. We are also introducing a system for the real-time visualization of production status at factories and are introducing the system first at two factories in North America.
With the ability to assess the progress of production and the operational status of equipment in real time, we are creating mechanisms to improve productivity by having detailed visualization and cause analysis of losses on each production line, strengthening factories' on-site capabilities.
I have made several mentions of the contribution of the frozen foods business to our brand, but here I would like to provide a more quantitative analysis. At the top of the slide is an analysis of purchasing trends for Japanese consumers aged 15 to 79. The analysis revealed that the percentage of Ajinomoto frozen food users who purchase Ajinomoto seasonings is about 20 percentage points higher than the targets of the analysis overall, with about 80% purchasing Ajinomoto seasonings.
In addition, these users' annual purchase amount of Ajinomoto seasonings is about 1.5x that of targets overall, revealing not only a high purchase rate, but also a high purchase amount. In other words, Ajinomoto frozen food users tend to purchase their products in seasonings and other categories as well. We view these users as a particularly vital customer base for the food products business overall.
The bottom part of the slide introduces our Aete frozen lunchbox product. We launched a new noodle series in October of this year. In particular, the spicy Chinese mixed noodles have been well received. The product is supervised by Cook Do Kiwami Premium and was collaboratively developed by the frozen food business and the seasonings and foods business.
Going forward, by integrating the know-how of these two businesses to create synergies, we will continue to create new value. Regarding the Aete frozen lunchbox, we are collaborating with on-site workplace meal service provider OKAN to bring the product to offices. Next, I would like to discuss the healthcare and others business. First is a look at functional materials. Sales and profit increased significantly in the first half. Sales increased to 163% and business profit to 181% of their levels in the previous year.
Demand for ABF for high-performance applications such as AI, servers, and networks remains strong, and the product mix is also improving. Following a revision in the first quarter, we again revised the full-year forecast upward based on the strong performance in the second quarter. This slide presents our view of future ABF demand. With the advance of AI agents and other uses of AI, demand for GPUs used in learning, high-performance CPUs used for inference, and high-throughput ASICs is expected to grow. In line with this, in addition to that total amount of CPUs, GPUs, and ASICs being installed increasing, it is thought that size increases and multi-layering will continue to advance in package substrates for high-performance CPUs, GPUs, and ASICs, which we expect will lead to increased ABF usage.
We also believe that the evolution of physical AI could lead to demand for servers for robot learning and simulation, in addition to semiconductors for robots. Looking ahead to this future expansion of demand, we decided to build a new varnish factory on the grounds of the existing Gunma Plant. Mass production of ABF varnish is slated to begin in FY 2030 at the factory. The planned amount of investment is approximately JPY 21.5 billion.
Anticipating increased demand for ABF in line with the growth of the semiconductor market, we will expand the production capacity to ensure that we can fully meet demand. We will also continue to maintain and strengthen our status as a de facto standard with stable supply and strengthened competitiveness enabled by a high-speed development system. Throughout the supply chain, including coating companies, we have secured a supply capacity capable of fully meeting current demand.
Looking ahead to future growth in demand, we are in ongoing discussions with companies concerning capacity, and we will secure the required supply capacity throughout the supply chain to match growth in demand.
This slide addresses the Bio-Pharma Services or CDMO services. With the rapid expansion of custom numbers and orders, along with the growth of its business, Forge is working to strengthen its production system. In the process of doing so, the company experienced several large batch production losses that impacted short-term performance, which resulted in a reduction in revenue and profit in the second quarter compared to the previous fiscal year. However, for the full year, by stabilizing Forge productions and also due to the continued strong performance of small molecules and contributions from AJIPHASE and AJICAP, we expect to meet the full-year plan in terms of both sales and business profit.
This slide depicts our image of Forge's sales by product stage. Forge is expanding its customer base on the strength of its proprietary adeno-associated virus, or AAV, manufacturing technology and platform.
And is steadily making progress in programs that will lead to future commercial manufacturing. Its current sales are mainly coming from the manufacture of products in the development and clinical trial stages. However, in the CDMO business, as customers' drug development programs progress from clinical trials to approval and commercialization stages, even though they are the same program, the scale of manufacturing is expected to expand and lead to greater sales. As for programs currently contracted to Forge, we expect that as development by customer progresses, an increasing number of programs will move from the manufacturing for clinical trials into the commercial manufacturing phase after approval is obtained. At present, we will first work to make steady progress in the stabilization of production.
We will also further expand the customer base and provide long-term support for existing customer programs from the development stage to commercial manufacturing, thereby expanding our sales and connecting that to significant growth in the mid to longer term. The next slide here shows the first half 2026 results for ASV indicators and our new revised forecast for the 2030 Roadmap. In the revised new forecast, ROE and ROIC for fiscal 2026 is estimated to be 17% and 12%, respectively. We expect an organic sales growth of about 9% for fiscal 2026.
This slide presents the fiscal 2026 first half results and a revised new forecast for the ASV indicators for each segment. From here, I would like to discuss our financial and capital strategy and our progress on them. Let me start with the status of our assets and liabilities.
In fiscal 2025, we changed our financial discipline indicator from net D/E ratio to now the net interest-bearing debt to EBITDA ratio, with the aim of maintaining financial soundness and maximizing capital efficiency at the same time. We will continue to keep our financial leverage at an appropriate level, contributing to organic growth and capital efficiency. The next slide concerns our operating cash flow. We expect operating cash flow of about JPY 240 billion for fiscal 2026. By growing the business, we will further increase EBITDA in the mid to longer term, improve working capital, and sustainably grow our operating cash flow.
Now, about our investment strategy. We plan to make capital investments of about JPY 130 billion for fiscal 2026. We will steadily invest in growth, focusing on the core businesses so that we can achieve organic growth.
We will also continue to proactively invest in intangible assets, which will support our medium to long-term growth. While increasing cash generation through sustainable business growth, we are continuing to allocate resources in line with our roadmap, placing an emphasis on capital efficiency. in FY 2026, we will follow this policy to steadily invest in growth, aiming at organic growth, and continue returning profits to shareholders at the same time. Specifically, in addition to the JPY 24.2 billion investment to make Ajinomoto Malaysia a wholly owned subsidiary, in the functional materials business, we have decided to build a new factory at the Gunma Plant to meet future demand. Also, we will undertake capital investments in the GMP production by precision fermentation for recombinant proteins and peptides for pharma and food.
As for dividends, we plan to raise our dividend per share to JPY 52, an increase of JPY 2 from our initial forecast of JPY 50, and a JPY 4 increase from JPY 48 for the previous fiscal year. With regard to share buyback, we will continue to move forward with the share repurchase plan of up to JPY 80 billion, which we announced on November 6, 2025. We will continue balancing investments for growth and shareholder returns while promoting capital allocation that leads to sustainable improvement of corporate value. From here, I will explain initiatives to increase corporate value over the mid to longer term. in FY 2025, we proceeded with organizing the strategic concepts for mid to long-term growth and the discussion points that management should address.
FY 2026 is positioned as a year in which we turn the content of those discussions into seven company-wide strategies, and while continuing to discuss these strategies, we will translate them into tangible action. Among these, the mid to long-term growth strategy, portfolio strategy, human resource portfolio, financial strategy, and strengthening of intangible assets are being discussed collectively by the company-wide growth strategy committee, which we established this fiscal year.
What matters is that we do not consider each strategy in isolation, but rather think about them together from a company-wide perspective. We have to consider what do we aim for in the mid to long term, which businesses do we allocate management resources to, and how to strengthen the human resources in an intangible assets we need. We will steadily advance all seven company-wide strategy while building up the strong foundation for our human resource and organization.
That's the foundation for the strategies.
I will now explain how we will strengthen our company-wide growth strategies. As a first step, in the first half of FY 2026, we took stock of the current state and issues in both the food products business and the Bio & Fine Chemicals business. We assessed what competitive strength each business currently has, where growth opportunities lie, and what issues stand in the way of future growth. From this, we have clarified the key points that should be discussed company-wide. In the second half of this year, building on the issues and discussion points identified in the first half, we will discuss portfolio management and capital and financial strategy together with the mid-to-long-term growth strategy as the focal point.
We will then deepen our discussions on a specific growth strategy and how to allocate management resources for it, and connect this to serious considerations of our post-2030 plan starting in 2027. By taking stock of each business in the first half, four key points to address in a post-2030 plan became clear. First, what business areas do we focus on? In addition to the growth potential markets, we will identify the areas where we can leverage our competitive strength. Second, what should a strength be? That is, our core competencies. We will clarify once again our core competencies, such as technologies and brands.
Third, how do we create an advantage? That is our business model. Beyond having strength, we will explore business models that translate them into sustainable competitive advantages. Finally, the fourth is how do we execute all this?
We will specify where to invest, how to strengthen our businesses, and even how to proceed with structural reform, withdrawals, and organizational restructuring. To move management resources to the future growth areas identified in this way, portfolio management is essential. In the first half of FY 2026, we made progress in the systematization company-wide portfolio management. Until now, business units and individual companies, as well as divisions and regional headquarters, have proactively managed their operations based on their respective business environments and customer bases. While leveraging this strength, we will further emphasize the company-wide perspective when deciding which areas to grow over the mid-to-long term and where to allocate management resources. In other words, we will seek the optimal balance between the bottom-up input from our businesses and top-down direction from a company-wide perspective.
In addition to strategy and resource allocation, we are improving management by using AI and data, which is one initiative to raise organizational capabilities and speed up and scale up the organization. Our goal is not simply to streamline operations with AI, but to achieve symbiosis with AI, where people and AI each draw on their strength to create value together. On the left, to improve productivity, we will build an environment where AI supports or takes over some of the work previously handled by people, allowing employees to focus on work that creates even greater value.
On the right, to create value in areas such as sales, R&D, and new businesses, we will combine human experience and expertise with AI to generate unprecedented value. The purpose of using AI is not simply to reduce working hours.
We will redirect the time and human capacity that AI frees up towards generating economic and social value, as well as strengthening our human resources and other intangible assets so that we can realize ASV. I will now introduce specific initiatives for improving productivity. We are working on generative AI projects that are tailored to specific tasks. First, staff in each department who know the operations best make their business processes visual. Based on this, they review operations from the perspectives of operational excellence and business process re-engineering to identify the areas where GenAI can be used. They then verify how AI can be used for each task and implement it in a way that is practical for actual operations.
In FY 2025, we applied this approach to eight departments, including auditing, quality assurance, product management, and corporate planning, which resulted in a reduction of 12,000 work hours over the year. In FY 2026, we are leveraging the insights and know-how gained here to gradually expand this initiative to other departments. We will use the time freed up for activities that create greater value. In this way, we will extend the cycle from productivity improvement to value creation, which I mentioned earlier, across the entire company. To grow over the mid-to-long term, we must also balance business growth with social and environmental sustainability. We will create new growth opportunities, and without stopping at reducing negative impacts, we will also expand the positive impacts of our business operations.
By doing this, we will bring forth a virtuous cycle of solving social issues and growing businesses and connect this to new opportunities for growth. One such specific initiative is AjiPro-L, a lysine supplement for cattle that we have discussed previously, has been selected for the SB COP Awards 2026. The SB COP is a business initiative operating under the framework of the United Nations Framework Convention on Climate Change. AjiPro-L has been selected as one of the world's outstanding climate solutions and is scheduled to be officially announced at COP31, which begins today. In the first half of FY 2026, we started discussions on the direction of our long-term sustainability strategy with an eye toward the post-2030 era.
To expand the positive impacts, particularly in the agri-food sector, we are drawing on the strength of amino science and a partnership with governments, financial institutions, and corporations to advance initiatives that broaden our impact on society. In the second half of the year, we will deepen these discussions and consider a long-term strategy and the corresponding metrics.
So far, I have covered a medium-to-long-term growth strategy, portfolio management, use of AI and data, and sustainability. In the end, it is our people and organization that turns these things into results. That is precisely why we are intentionally designing the organizational culture and behaviors necessary for each of the seven company-wide strategies. For example, our mid-to-long-term growth strategy and portfolio strategy call for ability to ask questions with the future in mind, take on challenges, and think of winning strategies.
At the same time, to raise the organization's execution capabilities, we need a culture that integrates human resources, organization, and digital transformation to execute with speed and scale. To grow sustainably, we also need a culture and discipline that builds trust with society and supports appropriate risk-taking. We will not only formulate strategies, but also transform the people and organizational culture that can execute them as a unified whole. In this way, we will steadily turn our seven company-wide strategies into results and enhance corporate value over the mid-to-long term. Our newly appointed CHRO, Kaho, will now provide some additional context of our approach to human resources strategy.
Hello, this is Kaho speaking. This slide provides an overview of our human resource strategy.
At the very bottom is our philosophy, and with this as the starting point, we create economic value by solving social issues and accelerate profit growth and sustainably increase corporate value. This profit growth is supported by two pillars of our HR strategy. One is improving employee engagement, and the other is placing the right people in the right places at the right time. The first pillar, improving engagement, has seen significant progress thanks to our efforts over the past few years. We operate the three initiatives of taking ownership of the purpose, fostering a culture of challenge, and realizing employee well-being together as the ASV management cycle. In Japan, this approach has become well-established, and engagement has risen significantly. We are now in the process of rolling out these initiatives globally.
There is still a lot of room to improve engagement at global sites, and I view this as a major source to drive future growth. The second pillar is to build a global talent management system. This is an area with the greatest room for growth at our company. We have approximately 35,000 employees in the group companies in Japan and overseas, and each local operation is driving growth. There are many outstanding employees in these operations. At the same time, I believe there is still significant room to leverage their capabilities in our group and in global management.
Therefore, it is crucial to develop a HR strategy that is in sync with management and business strategies. We will build systems and mechanisms that allow us to appropriately place human resources in growth areas in the short, medium, and long term.
In fiscal 2027, we plan to launch several new initiatives to achieve this goal. What underpins these efforts is a further promotion of diversity, equity, and inclusion. To sum up, by improving engagement, we will solidify the results achieved so far, and with global talent management, we will capture the next stage of growth. With DE&I supporting both, we will accelerate profit growth and sustainably increase corporate value. These are the preliminary scores from the FY 2026 engagement survey. ASV realization process scored 83 on the basis of a new question introduced last year regarding the enhancement of the productivity, maintaining a high level. We will continue to analyze the survey results and work to further improve employee engagement. It is our human assets that create innovation for the future.
We aim to become a company that continues to create new innovations by strengthening our human assets through the creation of ASV. In the first half of FY 2026, we grew steadily with sales, business profit, and profit attributable to owners of the parent all setting record highs. Based on these results, we have revised the full-year forecast upward once again, following the revision in the first quarter. Although some uncertainty remains in the external environment, our priority is to steadily achieve this forecast while building on the current initiatives to deliver further results.
By emphasizing our High-Speed with Chanto approach, we will further accelerate business growth and continue our endeavors to achieve the 2030 Roadmap ahead of schedule. We will also enhance our conceptualization and execution capabilities to accelerate the creation of innovation for mid-to-long-term growth. Think well, do well. We look forward to your continued guidance and support.
Thank you for your attention.
Nakamura-san, Kaho-san, thank you very much for the presentation. Now we would like to move on to the Q&A session. First of all, I would like to explain how to raise a question. If you have a question, please press the raise hand button that you see on your screen. We would like to nominate the questioner, so if you are called, please unmute your microphone yourself and begin your statement. Those of you who are participating from the English version, you are also allowed to ask your question in English. We would like to answer through simultaneous translation service. Please note that the number of questions will be limited to about two questions per one time. We thank you very much for your cooperation in advance.
If there are so many people who wish to raise a question, there might be a possibility that we might not be able to accommodate all the questions. Now we would like to open up the floor for questions. If you have any questions, please press the raise hand button. The first question. Mizuho Securities, Saji-san, please begin your question.
Thank you. This is Saji from Mizuho. There are many questions that I would like to ask, but two questions. One is about functional materials, the assumptions for the second half of the year, and also for the Bio-Pharma Services & I ngredients, the profit for the second half, the profit margin. What is your view on that? Those are the two questions that I have.
In the second half, functional materials revenue sales is JPY 59.6 billion. A 7% increase is projected.
Then in the first half, a 63% increase, and the second quarter, 71% increase revenue. For those quarters, compared to them, the second half is expected to see a trend change. The second quarter achieved a very strong growth.
Then in the assumptions for the second half, is there something that we have to be aware of, or is this just a temporary factor? Or it is just that you are conservative? Can you confirm on those points? That is my first question. Should I continue with my second question?
No, why do not we go one by one?
Okay, Saji-san, thank you very much for your question. Regarding functional materials, the second half assumptions. Well, first of all, this is almost like a commitment line. My forecast is almost like a commitment line. We would like to take on challenges so that we can achieve further upsides.
It is not that we have anything in particular as a major concern. All right then. The first half, JPY 28 billion increase, which was a 63% increase year-on-year. But if you single out the second half only, it is only JPY 3.8 billion, so a 7% increase. The revenue increase is less than JPY 4 billion.
So what is the difference between first half versus the second half? Is there something that we have to be aware of?
No, the first half, in the beginning, we always are criticized being conservative, but we also gave a commitment line as our forecast, and on a quarter basis, we have made an upward revision. In the second half as well, we would like to make efforts so that we can achieve a quarterly upward revision to the forecast.
Then by business domain, data servers, for example, or data center investments, the environment is rapidly changing.
As far as Ajinomoto is concerned, compared to several months ago, have you seen any environmental changes? Is there anything we have to be aware of in terms of the changes in the business environment?
ABF and the functional materials business overall, the customer demand still remains very robust. As you may be aware, in the midterm elections of the United States, after that, the AI regulations and data center regulations may be implemented in the future. But the data center construction is now taking place around the world simultaneously. So even though there might be a change in the pace of growth to a more disciplined one, it is not going to affect the overall demand.
Therefore, looking at the customer's demand of Ajinomoto, we have not really seen any major changes. All right then, thank you. My second question is about Bio-Pharma Services & I ngredients. Second half profit and profit margin. First of all, the revenue sales in the second half for the six months, JPY 100 billion or to the north of that. So there is a 30% or so increase projected for the second half. Also, JPY 14.2 billion is the projected profit, so 13.4% is the profit margin.
So compared to 6.8% last year, this is a significant improvement in the profit margin for the second half of the year.
Is this because, as you mentioned earlier in your presentation, that not only AJIPHASE but AJICAP is going to make contributions, and also the gene therapy and also CDMO?
In the second half, in terms of sales, in terms of profit margin, what are the contributors? What are the drivers for these improvements projected for the second half?
Thank you very much for the question. As you can see on this page, in each region and for each modality, the customer situation remains robust. In the first half, we have seen a problem, not really a problem, but AJIPHASE in the first half, the shipment timing became an issue for the reduction of revenue and the reduction of profit.
Also, with the rapid expansion of the business in the first half, the production, there was an artificial mistake at Forge because the size of one batch was significant, so the impact was relatively sizable. But in the second half, we will work to stabilize the production at Forge so that we can achieve an increase in revenue.
If you single out the second half only, we are expecting a significant increase in revenue and also profit. That is the plan. That is the challenge that we are going to undertake. For this matter, Bio & Fine Chemical business, Arashida-san can also add some comments.
Saji-san, thank you very much for your question. I would like to add a little bit of comments. AJIPHASE in Japan and also AJICAP in Japan, and also the small molecule for the Americas and Europe. In terms of budget, the budget itself was rather skewed towards the second half. Also compared to the budget for AJIPHASE, for example, is performing higher compared to the budget. For the small molecule for AOC, in the first half was already higher than the first half of last fiscal years.
But in any event, AJIPHASE and AJICAP are skewed towards the second half of the year in terms of revenue and also profit. For Forge, I am very sorry, but Forge, in the second quarter primarily, there was a production loss, but we have taken all the necessary measures. In September and October, all this production loss error has been eliminated to zero. For the second half of the year, in terms of the volume production, the profit is going to recover significantly.
That is our current plan.
Just one thing that I wanted to confirm. In the second half plan, 30% increase in revenue and profit is going to increase by JPY 9 billion or so. Especially in the second half versus the first half, I think the budget gap was significant. I do not think this is not really unrealistic. Is that correct?
From the first half towards the second half, there was a shipment delay, and especially there was a discrepancy between Forge performers. But otherwise, things are moving in line with the plan or even better than plan. Forge impact was large in that regard.
Okay, thank you.
Thank you very much.
Thank you very much for your question. Next, from Morgan Stanley MUFG Securities, Tsunoyama-san, please.
Hello. Tsunoyama from Morgan Stanley speaking. Can you hear me?
Yes, we can hear you.
I would like to ask about ABF and about the seasoning business, seasoning foods business. In terms of ABF, I would like to ask about capacity. At the beginning of this fiscal year, I thought that you sold one shift, and then you are going to three shifts. You had the room to expand this to three shifts. I think that was what you have been explaining. This new plant, in terms of the CapEx, you start mass production for 2030 for the varnish. Meaning that up until 2030, by making one shift to three shift, the capacity, you increase the capacity by 2030 and onwards, how much would the capacity increase?
I would like to ask about the capacity about ABF. That is my first question.
Tsunoyama-san, thank you very much for your question. As you have mentioned, currently, we operate five days a week in one shift in terms of the production of varnish, and we are going to increase the shift. By doing so, we are going to increase the production volume. From 2030, if we are anticipating a strong demand, that is the reason why we have decided to build this new plant in Gunma. The specific production capacity we have not disclosed, but with increased shift, and from 2030 and beyond, new capacity from 2030 and onwards, up until the new factory is completed, in terms of the supply, I think we will have sufficient supply.
Okay.
Meaning that around 2030, the ABF volume will be about triple, and then the three shifts will not be sufficient. That is the reason why you have decided to increase capacity. Is that the correct understanding?
Well, even if we go to three shifts, it is not linearly, we are not going to increase the production by three times. But to be able to respond to the strong demand, we have decided to build a new plant.
In terms of the AI, in terms of investment, there is a lot of discussions, debate about the investment. You have decided to invest JPY 21.5 billion. Up until 2030, for instance, you increase from one shift to three shift, is that the assumption? The CapEx amount will not be that much up until 2030?
Well, I think basically, it depends on how, when the- In terms of the CapEx, we have not really decided yet, but basically, we are going to increase the shift and then invest in this new plant.
Okay, understood. My second question is about seasonings. You have made a revision. If I look at the numbers, in terms of the umami seasoning, you have reduced that, and then basically there seems some differences in terms of material revisions. But in terms of the B2C seasonings, the second half, it seems that the profit is going to go down. In terms of the impact of the Middle East situation, you are going to cover this through the price of pass-throughs, and then my image is that from the second half, it is going to recover.
But in the second half, what was the reason why it looks as though the profit is going to go down?
In terms of the B2B business, in terms of the seasonings, for instance, with the Chinese M&TCs, the lower-priced China, this is price competitiveness. But we have the B2B and B2C business here, so we are trying to maximize the business profit in both sides. So, in terms of the sources and ingredients, will be basically offset by CPC. In terms of the second half situation, Sakakura, who is in charge of the food products, will conduct the explanation.
This is Sakakura speaking. The first half, mainly in the second quarter, we have conducted a price increase, and going forward, we are considering increasing the prices. In terms of the volume, how much volume we can secure, that is very important.
In terms of how we consider about the marketing spending, basically, it is more or less a focus on the second half of the year.
So volume, and by increasing the unit prices, but we would like to secure the volume, it is true that some marketing spending is being increasing. In the second quarter, the Thai sales seems to be very strong. So, including the Middle East situation, the price increases, and the situation about the Thailand, can you give us an update about these two factors?
In terms of Thailand, April to June, due to the situation or shipment, the business was a bit flat. But this July to September, it has recovered. It basically is from umami seasoning, flavor seasoning, these major products has been very strong. So, that has pushed up the overall numbers.
Understood. Thank you very much.
[Tsunoyama]-san, thank you very much for the question. Now moving on to the next question. This will be from a question from the English webinar. McLeish-san from Bernstein, can you begin your question?
Hi. Thanks very much for taking my question. I want to come back to the Forge production issues. Can you maybe give us a bit more detail about what has happened there and give us a sense of how common these type of production issues are when you produce complex gene therapies in large quantities? Is this something that is sort of inherent in moving to large-scale production and likely to be a common type of issue that you face, or was there something very specific that means that this is just a kind of a short-term hiccup? Thanks very much.
Mr. McLeish, thank you very much. The production trouble at Forge was because amid this rapid expansion of business, the unaccustomed worker caused a human error. This is not something that is not going to happen frequently. Globally, in Belgium, and also from the sites from Japan, we have seconded personnel to Forge so that we can work on the stabilization of production. Currently, things are moving well, so this is not going to happen so frequently.
Okay, great. Thanks very much. Just moving on to the ABF business. Obviously, it's very good to see such strong growth, but what I've been observing is that the ratio of the business profit growth relative to the revenue growth has been narrowing. You're not getting as much margin expansion for the revenue growth as you were maybe a few years ago. Can you maybe tell us how the cost structure of the ABF business is evolving and why you're not getting quite as much margin expansion, please?
Thank you very much for the question. ABF, basically, right now, the mix is rather improving. The high-performance AI-related semiconductors, those products are offering very high profit margins. As we increase the sales, the business profit is currently improving. Going forward, I think this trend will likely continue. With the high-speed development system, we are currently working on further development. When this is adopted for the next generation, we can expect further improvement in unit price. As the revenue is improving, the business mix is also improving. When the same product is utilized for many times, there's a general trend of price decline. If the raw material cost increases, that is not necessarily the case. That's my opinion for that.
Okay. I guess my observation is that two or three years ago, your business profit was growing 1.5x, 1.6x, 1.7x faster than your revenue, and now it only seems to be growing 1.2x faster. It suggests that there's a change in the fixed cost ratio or the variable costs. Can you help us to understand why that's different?
Well, for the growth investments, capital investments, the tangible assets investment, because what is most important here is R&D in this business. We are making proper investments for R&D. However, the business profit level in itself is not low, so we will continue to make growth investments and further expand the overall business. That is the reason why we have acquired this company, a subsidiary, through absorption-type merger.
Okay. Thanks very much.
Thank you very much, Mr. McLeish. Next question from Goldman Sachs Securities, Miyazaki-san, please.
Thank you very much for taking my question. I am Miyazaki from Goldman Sachs. First is about the food business, about the seasonings and food. I am looking at page 12. In the second half outlook, due to the increase of the cost through the cost reduction and top-line growth. If you look at this diagram, it means that there is more positive. Tsunoyama-san has said, actually, the second half seems to be going to reduction in profit. If you look at this graph, what will be putting a pressure on the profit? Because we want to increase the volume, we are going to spend a lot in sales and promotion. Is that the right understanding? Basically, I guess it is the same as the functional materials.
I guess what you are trying to do, maybe the numbers seem, or is it a bit conservative? Can you explain about that?
Miyazaki-san, thank you very much for your explanation. As I said in the presentation, there is a time lag in terms of when the effect of the price increase is going to come out, and the second half, we are going to see the contribution. This graph looks both at the Middle East situation and the price increase. For the second half outlook, Sakakura, who is in charge of food, will explain.
As Nakamura has explained, in terms of the impact of the Middle East, this is specifically focusing on the impact against the Middle East and what we are going to do against that. As I have said, in terms of volume, maintaining and capturing volume, we will spend more in terms of sales and promotion.
As a situation, I basically have already explained about that before. More than the first half, the second half, the sales and promotion spend is going to increase. That is the reason why the second half, the demand tends to go up. That will lead to the reduction of the profit.
Yes. Okay, understood. Thank you for that. My second question is about the cash flow. You have announced that you are going to increase your dividends, but in terms of share buybacks, up until the end of this month, I think basically the program is going forward. I think that was your explanation.
At this timing, about your next round of share buybacks, I thought that my expectation is that you are going to announce a new round of share buybacks, but what type of cash flow allocations with the shareholder return, what is your idea behind your shareholder return policy? From my external point of view, the first half operating cash flow, from my accounting perspective, seems to be lower than the last fiscal year. Maybe that is the reason why you haven't decided to conduct a share buyback. Is it necessary to be a bit worried about cash flow? Can you elaborate on that topic?
Thank you very much for your question. Our cash allocation policy, as you can see here, is first and foremost, we want to focus on investing in growth. This will be investment in organic growth.
Making Ajinomoto Malaysia a whole subsidiary, the functional materials investment. In terms of the precision fermentation investment, we have been investing in tangible assets. At the same time, R&D and human resources, these intangible assets, we want to invest as well. Our focus would be in the investment organic growth. As a result, that is the reason why we have continued to We are continuing our program from last year's November, no new programs.
But, in terms of, we have a cash allocation program if there is excess cash. This, in terms of the shareholder return, including share buybacks, we are going to be flexible. In terms of the cash situation, Mizutani, who is in charge of finance, will explain more in detail.
First, in terms of the cash flow, your question was maybe the capability of cash flow generation is becoming weaker.
But I think there are two points I want to mention. One is that in the Middle East situation, more than ever, to capture sales opportunity, we have a The inventory level is slightly higher, but this is a one-off. Another is that I think the other peers are doing the same thing. But in terms of the unit price is going up, and the cash out, because in terms of the manufacturing, the cost is going up, there is some cash out.
But we are taking various initiatives to respond to these situations. In terms of the cash flow, we will continue to generate cash flow. As Mr. Nakamura has mentioned, we do have a cash allocation policy, but in terms of the share buybacks, we have the 2030 Roadmap. In line with the roadmap, we are thinking about a cash allocation.
It is not the case that we have stopped doing share purchases. In terms of the share buybacks, it is on the operating. Look at the, for the single year, we look at the free cash flow. For this fiscal year, we have already purchased, planning to repurchase JPY 50 billion, and we are going to use JPY 24 billion for Ajinomoto Malaysia, making it a whole subsidiary. That will be offset each other. Basically, we will be considering a cash allocation based on the 2030 Roadmap. Thank you very much. This is a confirmation I want to make. If you look at the appendix, if you look at that, this fiscal year's CapEx year-over-year, about JPY +26 billion increase, and it is inclusive of the three points that you have mentioned.
It is not the case that, other than your message is that you are allocating cash, and so that you spend much in the CapEx so that you can conduct the share repurchases. But based on your policy, when you make a decision, though you will be flexible in making decisions. Yes, that is what we have intended to do, and that has been the message.
Understood. Thank you.
Miyazaki-san, thank you very much for the question. Moving on to the next question. Daiwa Securities, Igarashi-san, please begin your question.
Thank you very much for calling me. My name is Igarashi from Daiwa Securities. I also have two questions. The first about ABF top-line growth. Over the midterm, what is your expectations for the next fiscal year and beyond?
In the second quarter, the performance has been growing quite steadily. For the full year, maybe the second half projection may be somewhat conservative, but I think overall the good performance is continuing. On page 20 and 21 of your presentation, from next fiscal year and beyond, both in terms of quantity and unit price, you are expecting continued growth as you have projected on page 21.
In the beginning of next fiscal year, I do not think that you are going to present a very strong expectations, but what is your actual expectations for this business? Can you elaborate on that point?
Igarashi-san, thank you very much for the question. As always, the semiconductor businesses growth, when we consider that, WSTS, World Semiconductor Trade Statistics, we always refer to that, and we look at the logic IC growth rate. Next fiscal year, even though the latest version is already published, but we do not have the impact from the midterm election being published already. In calendar year 2027, logic IC growth rate is estimated to be 27%, and the fiscal 2026 calendar year was 37% increase. Compared to the previous year, according to WSTS, the logic IC growth rate is likely to come down slightly, but still 27% is a very high growth rate projected.
So we too believe that we can expect a continued strong growth of ABF from direct customers and also from the end users. That is what we are receiving as voices from them.
All right, thank you. Then, as far as ABF is concerned, your high-performance-related applications are growing significantly. Are you expecting a growth that is higher than the market average? Is that your prediction?
Yes, that is our expectation. In fact, the semiconductor numbers are also growing, but the package substrates are becoming larger with multi-layer being accommodated. Compared to the logic IC components, the number of layers, ABF layers, is also likely to increase, outpace that growth.
All right, thank you. My second question relates to the frozen food business. In the second quarter, after CDMO, the decline of profit was second-largest after that segment.
In the second half of the year, you are expecting a significant recovery year-on-year. You talked about the recall impact in North America, but in order for you to achieve the frozen food forecast, what is your confidence? Can you just highlight the important points?
Yes. Thank you for the question.
Should I answer that question? First of all, regarding the domestic market, Japanese market, the pricing strategy and also the diverse product price points have been introduced. Also for overseas, especially North America, the Asian categories primarily are using that in order to expand the sales. That is the basic direction that we are going to pursue in the future. For the second half of the year, both in Japan and overseas, the raw material cost and fuel price increases have been manifesting itself, so we have revised the prices so that we can improve the profitability.
As it was mentioned earlier, for the production part, the Japanese know-how will be exported to North America. We will implant that know-how and tackle the cost increases as a countermeasure. That is what we are contemplating. First and foremost, we would like to focus on production stabilization so that we will implement them in the KPI so that we can ensure stable production. We would like to make actions so that we can steadily achieve production stabilization. Towards the fourth quarter, we will be working on these points so that we can achieve the intended performance.
Thank you. That is all for myself.
Igarashi-san, thank you very much. Going to the next question. From UBS Securities, Ihara-san, please.
Thank you very much, representation. I am Ihara from UBS Securities. So, two questions. The first question about the frozen food business. In terms of the value, in terms of the frozen food, you said that you have always been saying that you will improve, but the margins were at a low level. I think the second quarter, both Japan and the United States are loss-making. I understand that this has a synergy with the seasoning business, but with this level of margins, more than the synergy, I think the WACC is under the WACC. Is it meaningful to continue this business? Including that perspective, Kaho-san is here as well, and I do want to learn the perspectives of the frozen food business from various people that are present here.
Well, let me kick off. Thank you very much for your question. Yes, I do understand your point. The ROIC that is under WACC, that is not permissible. We are going to put initiatives to improve the ROIC. For the frozen food, there are synergies with our seasoning business. There are cross-selling synergies, and we have a technology synergy as well. Gradually, cooking. I think basically the way people cook has been changing, and the consumers eating alone, ease of eating, if that is the trend, I think we have a unique frozen food business, and we want to appeal about that. This Aete, in terms of the deliciousness and the nutritional design, this type of products, I think this is an asset-like business. We have been able to build this up.
In terms of future vision of the food business, if you consider that, the frozen food business is an important business. Sakakura, would you please follow up and respond?
Thank you very much for your point. In terms of the, I think basically this is related to our future outlook. We have been basically focusing and doing the optimization on the portfolio, but if you consider that the business environment has been changing, it means that in terms of the category, in terms of the positioning of the SKUs, we have to revisit this once again. As Nakamura has just mentioned, in terms of the at-home cooking ratio is going down, I think this is a global trend. More convenient, more easy, more delicious food is what people are looking for. The frozen food will be our future growth driver.
As I said, including the portfolio and assets, how far can we reduce our assets, and where are we going to focus on?
With the Asian frozen food, including the deliciousness designing, I think a lot of know-how of Japan can be contributing. Going forward, we will look at where we should focus and look at low-margin business. Going forward, we want to improve the ROIC so that it will go over the WACC. Yes. You have been saying that you will act and you will act, but the margins are at a low level all the time. I think you should have a kind of a timeline. Set the timeline and set the standard for portfolio management, or else I think it would just linger and drag this business on.
When are you going to set the deadline in terms of the ROIC going over the WACC, and to consider what you are going to do with the frozen food business? We do not have a specific image in terms of the growth strategy meeting. We are trying to be more specific, and when the timing is good, is optimal, we will introduce that. Our focus currently is to improve the profitability of this business.
Okay. Thank you. My second question is, I was wondering why you did not do share buybacks at this timing. From a different perspective, I would like to ask this question. Your share buybacks was more or less that you will borrow, but then at the same time, you will buy back shares, and I think that was your format.
But on the other hand, if the interest rate has been going up and your PER has gone down, but even so, it's at a higher level. So, if you consider buybacks and debt, and the spread between these two has been shrinking.
If that is the case, if you look at page 30, this cash allocation policy, the order will not change, but I think maybe there is a difference in where you want to focus on.
For instance, from the perspective of spread, can you explain why you didn't conduct the share buyback? In the first place, is there any meaning in terms of you conducting the share buyback? Can you respond to these two perspectives?
Well, in terms of the cash allocation policy, it hasn't changed in terms of borrowings. Well, because now we have interest rates, so that's number one.
In terms of cash and cash equivalents, because the yen has depreciated a lot, we have been reviewing this. So, I think we took a comprehensive view and made the decision. So, Mizutani, who's in charge of finance, will follow up on my points.
Well, from a different perspective, I would like to mention that you talked about the company-wide growth strategy meeting. Of course, at this meeting, we'll conduct discussions about where to invest for future growth. So, we're going to discuss this from the second half onwards. But this 2030 Roadmap, looking at the overall roadmap, how much we're going to invest in growth, how much we're going to spend for M&A, and how we're going to conduct the share buyback. So, that's one side of discussion. So then, that net debt to EBITDA, so it's between 1.5x to 3.0x. So, 2.0x is a cap for us.
So, this year, and year-end 1.4x, 1.5x will be the multiple. But you do have to have a certain level of debt capacity, or else won't be able to spend for the growth strategy. So, that's another perspective on top of what I have already explained.
So, at the company-wide growth strategy meeting, where are we going to spend cash? That is what we're going to discuss upon going forward. So, when you are looking at your cash allocation, at the same time, you will be looking at the spread as well.
Yes, exactly. Understood. That's all from me. Thank you.
Ihara-san, thank you very much for the question. The next question will be from SMBC Nikko. Furuta-san, please begin your question.
This is Furuta from SMBC Nikko. Can you hear me? Thank you very much for this opportunity. I would also like to ask two questions. The first question is about your company-wide growth strategy committee, the concrete progress. In the material, you have explained this, but in the second half, what are you going to exactly do to put this strategy into concrete action? What will be the stage for the next fiscal year? Can you share those views with us?
Well, Furuta-san, thank you very much for your question. The company-wide growth strategy committee, this is a new committee that was launched this fiscal year, as you may be aware.
Because the top management teams changed, the division chiefs of Food Products Division, Bio-Pharma, and Chemical also changed since last fiscal year. We have decided to do the inventory check of the issues and the current status, and we reviewed this overall picture. Also for the portfolio management, which area to focus on as a winning strategy, these are currently debated and being discussed. In the second half of the year, we would like to be more concrete and decide on what kind of actions will be done in each area, under whose responsibility. We will clarify this in the second half of the year.
All right, thank you. What are the stages for next fiscal year for this initiative?
Next fiscal year, the business portfolio review will be conducted from time to time on a regular basis, and there might be some pivots in line with the changes in the external environment. On an as-needed basis, we would like to discuss the growth strategy, make pivots as necessary, so that we can further improve the probability of achieving growth in the priority areas. In the growth areas, you said that you're going to increase the probability of winning. You are also going to advance on your concentrate. Yes, the Healthcare, Food, and Green areas . Those are the growth areas, the priority areas. That remains unchanged. We would like to be more articulate in terms of the emphasis area so that we can focus on the areas where we can achieve growth and profitability.
All right, thank you.
My second question is about the business profit growth for the next fiscal year. Maybe it's too early, but we would like to seek your general direction. Functional materials, in the second half, you said that you're going to seek some upsides.
There's a potential for further upsides in the second half of the year. In the next fiscal year, in terms of profit, with the growth area, we'll be increasing in these Bio-Pharma areas, and also the initiatives implemented in the Food Products business will start to be reaping in terms of harvest next fiscal year.
What is your plan for the next fiscal year in terms of this profit growth?
In the next fiscal year, based on the 2030 Roadmap, we would like to work to further achieve the 2030 Roadmap ahead of the schedule.
We would like to set very challenging targets for the next fiscal year. In the Food Products business, we would like to launch new products and revise the prices. Also, like in Ajinomoto Malaysia, we would like to tackle new potential markets so that we can expand the spheres of business. Not only the Food Products business, and also in the Bio & Fine Chemicals, the functional materials will achieve a significant growth. Also, the CDMO for Bio-Pharma Services, we would like to achieve a dramatic increase next fiscal year. That is the plan. All right, thank you. In the existing plan, this fiscal year, compared to last fiscal year, a 16%+ increase is what is projected for this fiscal year.
What are the changes versus this ambition? Is this the level that you're going to aspire for in the next fiscal year?
Is that a comparable level that you are going to.
Yes, next fiscal year as well, we would like to take solid actions.
Thank you.
Furuta-san, thank you very much for your question. Next question. From Nomura Securities, Morita-san, please.
I am Morita from Nomura Securities. My first question is about the functional materials once again. The second quarter sales growth was 72%, very high. In terms of volume and price and mix, if you just break it down into these components, what is the status of the functional materials? The raw material, if it goes up, and the price increase can be considered. In terms of the price pass-throughs, is that what is happening in the second quarter?
Morita-san, thank you very much for your question. The customers has a very strong demand right now, and the volume is growing. As we have been always saying, in terms of the most cutting-edge products are going up, and the product mix and the price increase has improved.
The volume, mix, and price has all gone upwards, and this is the outcome. Arashida, who is the head of Bio & Fine Chemicals, will explain in more detail.
Thank you very much for your question. As Nakamura has said, the volume has been growing, and the high-price products has gone up, and the unit price has gone up, and the margins have gone up more than the volume growth. In terms of the raw material cost, every month we monitor the situation. When the solvent has gone up a bit, and there is some external coating cost has gone up, but that is marginal. Maybe, we cannot disclose the numbers, but it is very, very small. It is nothing to consider a price increase. Price increase is not. Cost transfers are not included. The first quarter growth was 54%, the second quarter, 72%.
I think that was the number.
What is the gap? It is basically volume differences, or mix improvement?
Volume, not by quarter. It has been going up quarter by quarter. The volume has grown, and the higher ASP, higher functions, inquiries are increasing, so the profitability has been gradually been improving. The volume and mix, it has been improving.
The third quarter, maybe third quarter, same momentum?
The third quarter, same level. The fourth quarter, we are trying to look at the commitment model, but maybe it will be a bit conservative.
I do understand that you are conservative in your outlook. My second question is about the financial and capital policy for the more longer-term perspective.
You look back on the longer term, by 2022, I think you start talking about asset-light, then you focused on growth and investment, but you talk more about asset-light, return to shareholders, and buybacks. From 2022, that was the track record of the five years. According to what you have said, maybe you are investing for growth, maybe you are trying to accumulate assets. Are you on the tipping point of changing your policies?
As Mizutani has said, in line with the roadmap, the shareholder return will be conducted. As you have pointed out, depending on the timing, we are focusing more on growth strategy. Maybe there is M&A. We will have to allocate cash for M&A. So, top priority will be growth investment.
Understood. In 2022, well, it is some time back, so you failed in the past M&A, I think you had to change from that. The past five years, the failure in the past has been more or less reviewed, or you have been able to adjust the direction. That is the reason why you can focus on growth strategy once again. Is that the context?
Well, the past failures, we have learned from our past failures, so we have learned about that. In terms of the financial discipline, when we conduct M&A, we do have that in place right now. What we are trying to do is to focus on growth, investment growth. R&D, human resources investment, we want to increase investment in those areas.
I think you are in the cusp of growth.
Understood. Thank you.
Morita-san, thank you very much for your question. I am very sorry, but since we are running out of time, this will be the last question. The last question will be from JPMorgan Securities, Fujiwara-san. Please begin your question.
Thank you. Good evening. This is Fujiwara from JPMorgan. Thank you very much for giving me the opportunity. I am the last person, so rather than a question, this is more or less like an opinion. This time around, the mid-to-long-term growth, for that purpose, you are now embarking on many different initiatives, which was impressive. On the other hand, when we look at the second quarter results, other than ABF, you are reducing your profitability. The profit is declining, as Mr. Nakamura recalls. In the second quarter last fiscal year, due to temporary factors, other than ABF, your profit declined significantly, and the share price dropped hugely.
At the second quarter this fiscal year, compared to two years ago, it is still down by JPY 9 billion or so. I am sure that there were many one-off factors, but still, many unassumed things happen. So there are short-term shortcomings, maybe just coincided for the second quarter again this year. For the mid-to-long-term direction is quite wonderful, splendid. For the short term, the performance management, I think, is still concentrated too much on ABF. This is just my opinion, but as president, what is your view on this? If you can share your thoughts with us, that we appreciate it.
Fujiwara-san, thank you very much for your opinion. For the short term, the challenging targets, we are always particular about delivery of these short-term results because the accumulation of short-term results will be the long-term growth.
Unless we are able to achieve the short-term targets, which we always set a very challenging target, so we sometimes fall short of those targets. The target itself, the objectives is already set in a very challenging manner, so it may be too ambitious. That is the reason why we are not able to achieve them. There are some overshooting items. That is the reason why we are able to achieve the overall results. In the middle term, we are going to make investments where growth is anticipated. We are not solely dependent on ABF only. Each of the businesses are working towards their short-term targets, and they are making their many efforts, but there are some shortcomings from time to time. That is my view on it. Thank you.
ABF is growing, and furthermore, the food product business achieving steadfast growth, I think, is the nature of your business. It is still that you are too dependent on ABF from an outsider's point of view, and that is not really characteristics of Ajinomoto. I hope that you will steadily achieve results on all fronts, including frozen foods, so that you can also deliver the short-term objectives.
The food product business will try to launch new products one after another in a stable fashion, enter new markets, and also pass on the cost to the prices and achieve growth. Also for fine chemicals, not only amino acids and also bio and fine, we would like to achieve good results. Towards this end, we would like to make continuous efforts.
Thank you for that.
Thank you.
Fujiwara-san, thank you very much for your question and opinion.
With this, I would like to end the Q&A session. Lastly, Mr. Nakamura will say a few words for closing.
Thank you very much for participating despite your busy schedule. Thank you very much for your precious feedback and opinions. For the high-speed development, high-speed improvement with execution of this, and we will be able to target for our challenging targets, and we will invest in the future. In three years, five years down the line, where are we going to generate profit? We will continue to challenge, and I look forward for your continued guidance. Thank you very much for your participation.
With this, I would like to end this earnings briefing. Thank you very much for your participation.
Thank you.