● Opening comment by President Nishii:
It is nearly a month since we announced our first half financial results, and I will update you a little on the situation since then. The Company is in the middle of a transformation, and I would like to tell you about the progress we have made on three points.
The first point is that the integration of Group-wide strategy on the issues of salt reduction and poor nutrition for the purpose of solving food and health issues has become quite concrete. I think that each affiliate is promoting strategy integration with the concepts that are centered on the global headquarters.
The second point is that we have pretty much completed taking stock of the current situation in the areas of supply chain management (SCM) and procurement, which we were implementing focused on DX. Although we are still confirming the numerical effects, we are ready to reflect it in the plan for FY2021. At the same time, with regard to sowing seeds from the perspective of growth, in terms of initiatives to create new businesses, I report that while preparations for corporate venture capital are progressing, we have also moved forward with concrete investment in a venture company in the new field of foodtech.
The third point concerns asset reduction. At the briefing for the first half financial results, I told you we had resumed discussions that had been interrupted by the COVID-19 pandemic, and developments are now very rapid. We are now at the stage where we should be able to give you some good news soon.
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With regard to reform, you say that you are ready to be able to plan for next fiscal year in the areas of procurement and SCM based on DX. How is streamlining of corporate operations in collaboration with Accenture progressing? You also spoke about rapid developments in some areas of asset reduction. What will be the driver in the business performance outlook for next fiscal year?
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In your opening comments, you said that you have integrated strategies for solving food and health issues. I think you feel confident about raising the sales baseline, but I would like you to explain a bit more about it.
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I would like you to tell us about the importance of connecting the marketing strategy in neighboring countries with the linguistic and other differences in Southeast Asia. Also, are we to understand that in terms of strategy visibility, product strategy, for example will gain a lot of momentum and become very obvious in the second half?
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In the questionnaire results on slide 19 of the first half financial results, I was surprised by the large number of people who answered “No change” or “Keep as is” in response to the questions about frequency and intent of nutrition-conscious dining. What do you think can be done to extend the Company’s strategy to this group of respondents? Also, please tell us as much as possible about your current thoughts on the use of DX in marketing.
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I would like you to tell us about the kind of changes there will be in your business performance after COVID-19 vaccines have been developed, and COVID-19 infection has disappeared from the world.
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How will the positioning of seasonings, which is your core business, change amid the changes taking place in the world?
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I would like you to tell us your view of the business environment up until around FY2021. In terms of the business performance forecasts, I think there is still the onslaught of the second wave in the United States and Brazil. What kind of impact do you think the rollout of the vaccine will have for the Company in the second half of this fiscal year and next fiscal year, including in Southeast Asia?
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Have there been any changes before and after the COVID-19 pandemic in the cost effectiveness of marketing expenses?
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My question concerns the Company’s recent business performance. While there is discussion of investing in advertising to regain domestic market share in the second half of FY2020, there is also talk of improved margins by focusing on core brand products in the first half. What is the Company’s thinking concerning balancing profitability with increasing share, as well as cost effectiveness?
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I would like you to explain what you accomplished and what you did not accomplish during the COVID-19 pandemic in the first half of FY2020. In particular, you generated solid profit under the harsh environment, although this was partly attributable to the fact that you were unable to use marketing expenses despite wanting to. How do you summarize the negatives and positives of the first half?
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Considering the first half of FY2021, is it the correct perception that although sales promotion expenses will increase due to new value-added proposals, the strong business performance will continue due to ongoing unit price increases?
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My question concerns the reduction of corporate expenses. The Company has an existing target of 2.5% for shared companywide expenses. On the assumption that sales do not grow due to contraction or withdrawal from the animal nutrition business, I think there will be a positive effect on business profits from FY2021 onward. Do you have some image regarding the reduction of corporate expenses?
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This fiscal year, you have upwardly revised the business performance forecasts twice, and the share price has also increased. I think that the forecast for the second half is also conservative. The extent to which the effect of cost reductions will impact business profit next fiscal year is not very clear, so I would like you to give us a rough idea.
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In the first half of FY2020, you generated business profit amid challenging conditions for sales. I would like you to explain the actual value of business profit.
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The Company’s involvement in DX is extremely wide-ranging, including cross-border e-commerce, SCM, and procurement. I would like you to set out again the content of your DX and what you will work on next year and the year after next in addition to the SCM and procurement areas you are working on this fiscal year. Then I would like you to explain how you are using DX to make improvements that could not be achieved until now in terms of SCM and procurement.
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You said that there has been progress in SCM and procurement while implementing DX. What is this progress specifically?
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Basically, I think that the effects of DX on business will be most apparent in marketing. I would like you to tell us when we will be able to see the concrete results. In terms of the background to my question, demand for home-use products increased in FY2020. I want to confirm your business performance will be able to outperform the market based on DX if demand for home-use products is likely to fall off in FY2021 given the expansion in FY2020. Also, will product innovation, salt reduction, and poor nutrition in R&D be addressed using existing technology or will there be innovation in the R&D pipeline in the future?
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Structural reform expenses due to asset reduction measures have been increased from the initial plan. I would like you to tell us about the background to the progress in asset reduction measures amid the COVID-19 pandemic.
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I would like to reconfirm your goals for the contribution to business performance after structural reform.
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I’m very glad to see that asset reduction is progressing steadily. After asset reduction is completed and the organization becomes slimmer than before, I assume the Company will consider investments for further growth. What sort of company do you want to be in 20 or 30 years? Also, what sort of technology do you intend to refine, or will you strengthen the supply chain, to become a solution-providing group of companies for food and health issues? Please tell us what is lacking in the Company right now, and what sort of investments you intend to make.
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My question concerns international seasonings. I had thought that the direct-style sales structure in Southeast Asia and other areas would face negative impacts under the COVID-19 pandemic because of limitations on activities. I also thought that factors such as the emergence of e-commerce would have severe consequences, but the growth rate in the first half of FY2020 was very strong. Should I understand that the Company is demonstrating strengths in distribution, relative to its competitors?
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Home-use demand is very strong, and you stated that it will present no problems in FY2021. In Thailand, however, the negative impact from foodservice is large, and I have concern about recovery. Do you have any comments on this?
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My question concerns the competitive environment for seasonings and packaged food products in Japan and overseas. I believe that the competition’s pricing strategies in Japan have been changing since Q2 of FY2020, but I would like to ask about the impact in each category. Similarly, I would like to ask about the situation in the Five Stars.
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This question concerns the Company’s share in international seasonings. In what areas did home-use share decline? Also, by category, should we understand that menu-specific seasonings is where momentum has clearly increased?
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I would like you to update us on the percentage of overseas seasonings sales accounted for by menu-specific seasonings.
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In international seasonings, has any short-term boost in consumption been seen due to government relief payments? My impression is that the growth rate for the second half of FY2020 is set high for countries other than Thailand. If current consumption is increasing due to relief payments, what are your thoughts about the growth rate after such payments trail off?
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I would like to ask about the outlook for international consumer food products from FY2021. I think that current business performance is due more to external factors than to factors internal to the Company. As we gradually return to pre-pandemic conditions, should we understand that the Company needs to pay close attention to the competitive environment?
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The FY2020–2025 MTP shows several KPIs. Unit price growth rate is a unique KPI among global companies, I think. The ultimate aim is annual growth of about 3% in international consumer products. I get the impression that for FY2019 and the first half of FY2020, this was a bit too successful. In FY2019, there were effects from price increases in the main overseas markets, and in the first half of FY2020, the impacts of product mix were likely large because of the pandemic. Will the Company continue at this pace, or will it aim for 3% growth in a slightly different way?
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You said that you expect home cooking opportunities to continue increasing. Do you think that the Company’s product lineup is sufficient at present? Or do you have ideas for increasing it if the chance exists?
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With regard to frozen foods, I got the impression that the progress of improvement is a little faster than the KPIs in the FY2020–2025 MTP due to concentration on Asian category frozen foods, which have been experiencing a boost. Are we to view this as positive in terms of performance?
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My question is about frozen foods in North America. With the market growing under the COVID-19 pandemic, I’d like to ask whether the Company is properly capturing market share. I believe there was talk of lowering the in-house production ratio and combining production with OEM. Could you explain this again?
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I understand that while conditions have been challenging for the Bio-Pharma Services business due to the impact of COVID-19, the specialty chemicals business has been performing very strongly due to the advent of 5G. I would like qualitative confirmation of the risks and opportunities in these businesses for the second half of FY2020 and FY2021 and any changes in the Company’s view.
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I would like to ask about the positioning of the electronic materials business. This is a field somewhat removed from food and health, but is included among core businesses. In the next few years, I think that steady growth is expected due to multi-layering and larger sizes in semiconductor packaging substrates, but as this is still an industry with major ups and downs, the Company’s business performance may become increasingly volatile after several years. Is this business one that the Company should continue to pursue? I think it may be possible at some point to spin off the business to raise cash for investment in the Company’s core businesses. What do you think?
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Slide 32 from the first half financial results briefing shows tangible investments of about ¥210 billion and intangible investments of about ¥210 billion. Could you discuss this?
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My question concerns shareholder returns. The Company’s dividend remains ¥32, and is expected to be the same in FY2020. Considering that the Company will face structural reform expenses and other costs this year and the next, will we have to wait until around FY2022 for a dividend increase? Or are you considering a dividend increase in line with expectations of considerable profits in the current year?
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In connection with climate change, Nestlé and other companies view vegetable proteins as a materiality. What is the Company’s mindset concerning vegetable proteins, and what you are undertaking in this area?
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What major changes do you feel are happening in foodtech, and how can the Company incorporate these into its business performance?
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My question is about reform of governance. What are your biggest expectations for changes from the transition to a company with a Nominating Committee, etc. and the establishment of a Sustainability Advisory Council?
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The Company has recently made changes to a number of things, including changes to segments, in order to manage businesses globally. The Company seems to be becoming more open. I expect that these are areas where the Company has struggled in the past. Could you discuss why improvements are suddenly appearing here?