Ajinomoto Co Inc

TSE:2802

Q3-2025 Earnings Call

[Unknown Executive]

Now we'd like to move on to the second session, second part, in which we'll be explaining the results for the first 3 quarters of the fiscal year ending March 2025. This will be explained by the Head of IR Office, who is a Corporate Fellow and General Manager for IR Office, Mr. Kaji, and then we will take the Q&A -- time for Q&A. We expect to finish the second session at 19:00. Mr. Kaji, the floor is yours.

[Masataka Kaji, executive]

Good afternoon, good evening, everyone. This is Kaji from the IR Office of Ajinomoto. I would like to explain the results for the first 3 quarters of the fiscal year 2024. First of all, today's overall summary. This is today's main message. We achieved revenue and profit growth in the first 3 quarters of fiscal 2024. Sales, business profit and profit attributable to the owners of the parent company all reached new record for the first 3 quarters of the year. Excluding the impact of Forge acquisition, business profit increased 16% year-on-year. So we are making steadfast progress towards the achievement of the 2030 Roadmap.

For each business unit, Food and Product business for Japan overall, we've been able to respond to the increased costs in Japan. However, Overseas Sauce & Seasonings and Quick Nourishment are growing both in terms of sales and business profit and making good contribution to the stable business expansion.

As for Bio & Fine Chemicals business, in addition to the steadfast performance of Functional Materials, Bio-Pharma Service & Ingredients is also growing in line with our 2030 Roadmap. We will aim to sustainably grow the Food Product business and at the same time achieve dramatic growth for Bio & Fine Chemicals business so that we can achieve the fiscal 2024 full year forecast and take on the challenge of achieving the ASV indicators and the 2030 Roadmap.

This shows the digest the first 3 quarters of fiscal 2024, the April to December performance. Sales, as you can see here, has reached JPY 1,151 billion, 107% of the 2023 level. Excluding foreign exchange impact, the sales was 105%. So we were able to achieve growth in all business segments. For business profit, JPY 138.2 billion, 111% of the fiscal 2023 level. Excluding the impact of currency translation, 107%, so we were able to achieve steadfast expansion. For the Overseas Sauce & Seasoning achieved a stable growth and Functional Materials achieved a significant growth, driving the entire business growth.

Profit attributable to the owners of the parent, 106% of the 2023 level and EPS was about a 10% increase, achieved a 10% increase almost.

This page shows the changes in business profit, the factors behind the changes in P&L. Overseas consumer business achieved unit growth and also the quantity increase. And Healthcare business achieved the sales growth and also the price hikes of domestic food business, this had a GP growth impact and also the Healthcare business achieved a gross margin improvement, which achieved an increase in gross profit. And also these absorbed SG&A increases consolidated from the foreign exchange and the Forge consolidation. So therefore, we were able to achieve a JPY 13.7 billion improvement in business profit. This is the gap between the -- year-on-year gap of the business profit by segment. You can see the changes from the full year forecast and also the changes from the same period last fiscal year. As you can see, the Seasoning and Food and Healthcare achieved a significant -- steadfast progress vis-à-vis the forecast, but Frozen Food achieved a slight reduction in profit.

Next, I would like to talk about the sales performance of each segment for the first 3 quarters of the fiscal year. Among Food and Seasoning and Food, Seasoning and Quick Nourishment combined, if I give you a breakdown of the sales of these segments combined, for domestic business, Food and Quick Nourishment combined, quantity decreased by 1 percentage point and unit price increased by 5%. For Overseas, for both our Seasoning and Quick Nourishment combined, quantity increased by 2% and unit price increased by 3%.

If you look at the table here, for the Frozen Food in Japan, this carries a different color of the arrow. So Japan remained flat for Frozen Food because people are defending livelihood and therefore, we have seen the sales coming to a standstill recently, but we will try to overcome this to implementation of many different measures. For Overseas Frozen Food, the Asian-related food achieved a favorable performance, offsetting the decline caused by the structural reform overseas.

For Healthcare business, this business was affected by the adjustment in the market overall last fiscal year. However, this fiscal year, Functional Materials is continuing to achieve steadfast sales growth. And also in addition to that, amino acid for pharmaceuticals and food recovered its strong sales momentum and also, CDMO was also favorable, so we were able to achieve high growth in sales.

Now I'd like to go to the business profit overview for each segment. As you can see here, domestic food-related business has been heading down, as you can see from the arrow direction here because of the impact of the raw material prices, including the weak yen impact and also the increase of our personnel and logistics costs, we are trying to offset this through the price hikes. However, the -- if you combine the Sauce & Seasonings and Quick Nourishment, i.e., the consumer food business, the profits of this business on a continuous basis has remained flat for the first 9 months -- or first 9 months of this fiscal year.

On the other hand, the Seasoning and Food and Food business and Healthcare business overseas remains very favorable. So we were able to drive profit growth overall in a steadfast fashion.

Here on this page is the progress of the ASV KPIs by segment. For organic growth, it is trending in line with the business forecast, reaching close to 5%. For business profit, there are differences depending on the segment. But overall, we are seeing good progress against the business forecast. On the very right, for the EBITDA margin, each segment is performing steadily against plan, and we will continue to engage in efforts so as to achieve the fiscal '25 ASV KPIs.

From this page, I'd like to share some topics from Q3 of this segment. First, for Seasonings and Food, I'd like to introduce some high added value-type new products. The Marketing Design Center has been central in Japan as part of our efforts to attempt to make new value proposals. In addition to Cook Do Premium Mala Mapo Tofu that went on sale in August 2023 and proved to be a hit, we are launching the second series of products. We have launched -- we will launch from February, Kiwami (Premium) For Twice-Cooked Pork and Kiwami (Premium) For Spicy Mapo Eggplant. The Twice-Cooked Pork is a seasoning for a meat dish that you can enjoy for its intense spiciness and richness. By using onions instead of cabbage intentionally, you'll be able to enjoy the tastiness of the meat and sauce directly.

Also, the Kiwami For Spicy Mapo Eggplant is a melt-in-your-mouth Mapo Eggplant with rich aromas and spiciness. Together with Kiwami (Premium) Mala Mapo Tofu, we aim to acquire new users going beyond the conventional Cook Do users.

Also, as you can see on the right-hand side, for Thailand RosDee menu, the premium varieties of Palo and Laab have gone on sale since November '24, but the premium varieties are helping to develop new users and are contributing to the expansion of menu-specific seasonings for Thai dishes in addition to the sales of regular varieties. Not only will we strive to raise unit prices through price increases, but we will also work to expand high value-added products so as to increase sales volume and realize higher sales prices.

The next page is about Frozen Foods. Although Japan currently is a little challenging, by implementing measures steadily such as further price revisions, we will strive for a recovery. In the overseas markets, we are expanding our business mainly in Europe and the United States, but there are still many areas that are unaddressed. We are striving to expand area coverage at once, for example, utilizing the foundations of our Seasonings and Food Products businesses.

In the ASEAN region, following Thailand and Singapore, we have expanded into Indonesia and the Philippines. In fiscal '24, we launched gyoza in Malaysia and Vietnam as well. In South America in fiscal '24, we started selling gyoza in Brazil, too. Sales in ASEAN and South America have risen rapidly. And in the current fiscal year, sales in the first 9 months exceed JPY 1 billion. In the ASEAN region, we are collaborating with One Piece as part of our efforts to promote our value of our gyoza and stimulate demand, and we will continue to strive to further expand our business.

Next is about Functional Materials. The Functional Materials business, which has continued to perform well, achieved record-high sales and operating profit in the first 3 quarters of fiscal '24, exceeding the sales for the same period in fiscal '23. The increase in business profit margin was mainly due to the improvement in the ABF product mix.

In the PC market, there has been progress in the development of high-performance models such as the release of models with edge AI. And in the server network market, AI servers are driving growth, so the environment remains favorable. The expansion of HPC, including AI, is positive not only for ABF volume, but also for the effect of improving the mix. We believe that the current favorable business environment will continue, and we will continue to take on the challenge of growth in the next fiscal year.

Finally, Bio-Pharma Services or CDMO. In the third quarter year-to-date, existing businesses, excluding Forge, achieved significant revenue and profit growth even on a local currency basis. Forge also continue to achieve high sales growth. Omnichem in Europe achieved a significant increase in profit despite a decrease in revenue by improving the product mix. In Japan, double-digit growth in sales and operating profit continued centered on nucleic acid-based drugs. Althea returned to profit in the third quarter due to the effect of the structural reforms implemented in the second quarter. Forge is also actively expanding its business. And at the end of the third quarter, the number of customers reached 52 companies. We'll continue to develop our unique asset-light CDMO business based on our proprietary technology.

So that was a quick overview, but that was our third quarter results. Thank you for your kind attention.

[Unknown Executive]

Thank you very much, Mr. Kaji. Now we'd like to move on to the Q&A session. [Operator Instructions]. Now the first question comes from JPMorgan Securities, Fujiwara-san.

[Hajime Fujiwara, analyst]

This is Fujiwara from Nomura Securities. Now okay, so previously, in relation to CDMO, you talked about the cumulative numbers for each region. So for the third quarter, if you just single out the 3-month period of the third quarter, Europe, North America and Japan, can you give us a breakdown for the performance of these regions?

[Masataka Kaji, executive]

Yes. Thank you very much, Mr. Fujiwara. As you may know, Fujiwara-san, for example, in Europe, nucleic acid production has started and the modality in regions are not really aligned with each other. So it's very difficult to give you the numbers by region. So if I try to mingle it together with the modality, for the third quarter, the 3 months for Europe, if you look at the 3-month period, we achieved growth in both revenue and profit. And also, the profit margin is improving significantly as well as far as Europe is concerned. So that's partly due to the CDMO contribution and nucleic acid contribution.

For Japan, if you just single out the 3-month period compared to the same period of last fiscal year, we declined both revenues and profit. As we've been explaining from before, the third quarter shipment was brought forward, and that was included in second quarter. So this is due mainly to the shipment timing. For North America, Althea, in the 3-month period, sales was flat, almost flat. And profit, as I mentioned earlier, increased year-on-year. For Forge, sales increased significantly, but profit contribution was negative, still negative.

[Hajime Fujiwara, analyst]

The CDMO business, of course, the Forge plan has not changed. But vis-à-vis your full year target, the fourth quarter, can we expect an increase in profit? I think you have to achieve a significant growth in profit. So what is your confidence of achieving that?

[Masataka Kaji, executive]

Well, right now, we have presented the full year plan, and each segment is fully committed to deliver on those forecasts. And some businesses are facing a lot of difficulties such as Frozen Foods, for example, in Japan and the ASEAN. But we are still committed to delivering on the presented forecast, not only for CDMO but each business is now working hard to deliver on the promises that they have made.

[Hajime Fujiwara, analyst]

My second question, just briefly, the coffee business, as you just alluded to, in the third quarter, if my calculation is not wrong, it seems that you have turned into positive growth already. Is that correct?

In the fourth quarter, a significant price increase, I think is expected. But so in the price hikes that you have already announced, do you think you'll be able to achieve a recovery in the coffee business with all the price tags that have already been announced?

[Masataka Kaji, executive]

Thank you very much, Mr. Fujiwara, for your question. Regarding AGF and coffee business in Japan, as you rightly pointed out, for the third quarter, relatively speaking, we have been able to achieve a solid profit growth in the recent months because of the price hike implemented in the autumn period is now taking effect and they are delivering a good number performance.

And also as part of our structural reform, the stick-type coffee has been emphasized and stick-type not only coffee, but also other cream drink, for example, those are actually delivering good solid sales numbers. So we are encouraging all these efforts. But unfortunately, again, the raw material prices are increasing again. So we are still in this game of chasing each other. So this is still continuing. So if you could understand that, that would be appreciated. So from the third quarter, we thought that we are -- it's too early for us to declare that we have already returned to a growth track. It's too early to declare that.

[Hajime Fujiwara, analyst]

So then the price hike, significant decreases already was announced to be implemented in March, but still do you think you still need a catch-up to do? Well, when you look at the market trends recently, the price hike for March, the assumptions thereof even compared to that, the raw material prices have again increased. So you need to conduct another adjustment in the future.

[Masataka Kaji, executive]

Yes, maybe if this situation continues, we may have to do additional round maybe.

[Unknown Executive]

Mr. Fujiwara, thank you for your question. So the next question is from Igarashi-san from Daiwa Securities.

[イガラシ, analyst]

This is Igarashi from Daiwa Securities. I have two questions. For the profit outlook for Seasonings and Foods by region, I'm sure there is differences. But for the December quarter was -- revenue was up but profits were flattish. But for next fiscal year onwards, are you able to grow profits in the Seasonings and Foods business? And can you also talk about the probability of doing so?

[Masataka Kaji, executive]

Thank you for your question. For the Seasonings and Food business, you may already have seen the data by region for Japan. For nonconsumer, raw material costs, production costs have been rising, and that has been a substantial negative. But for the other regions, especially for the overseas markets, profit growth is underway even now. For next fiscal year, we would like you to wait until we announce the full year results.

Well, for the overseas food business continues to be firm, and we do -- we hope to continue on this trend because we are seeing positive trends. So with this, we would like to ensure that next fiscal year is good as well. And in part one, Mr. Nakamura spoke about this a little, but there are many more things that we can still do. So we would like to accelerate our efforts so that we could go back on the growth trajectory. That's our basic way of thinking. Thank you.

[イガラシ, analyst]

For the consumer business and top line growth, are you able to grow it more than expected?

[Masataka Kaji, executive]

Right now, for consumer, for unit price impact, we have been engaging hard in price increases, and the results are materializing off our volume. For Seasonings, we have been able to grow it well. But for coffee, the coffee business, we have been seeing good progress on price revisions. We have been able to do that for sticks, but for instant coffee and regular coffee, we are still facing some challenges.

So on a combined basis, volume looks relatively weak. But like mentioned earlier, for Seasonings, various initiatives are being implemented at the Marketing Design Center. There was a mentioning of [ swing the bat ], but it is creating a good feeling internally. And through new products, we are striving to grow volume and sales, and we are starting to see contribution. So I think things will progress steadily going forward.

[イガラシ, analyst]

My second question is about the Frozen Foods business. Can you also talk about your profit outlook? The decline in profits in the December quarter, I think, contracted. So it was about minus 8%. So is this -- when do you expect this to start to turn positive growth-wise?

[Masataka Kaji, executive]

For Frozen Foods and the overseas part of the business, as we've been communicating from before, last year in Q4, we have concentrated a lot of marketing costs. So profits in Q4 were quite depressed. But for this fiscal year, we are trying to level out our efforts so that we make the efforts equally every quarter. So for the overseas business up until the third quarter year-over-year, it looks like it's cost heavy year-over-year. But then it's going to be reversed in the fourth quarter.

As for the domestic or Japan business, the decline in profits have moderated, is what you've said. But like mentioned earlier, the profit plan we have disclosed is the plan we would like to ensure that we achieve. And we have been implementing measures in order to do so. So we are making efforts to reduce costs, and that was accounted for in the third quarter.

However, for Frozen Foods in Japan, we need to ensure that we also grow top line, go through sustainable growth so that profit growth happens in a steady manner as well. That is what we would like to achieve. So when it comes to timing, at this point in time, it's hard to talk about details regarding next fiscal year. But we would like to ensure that we offer value, have the consumers recognize this value and will pay a price and return that will lead to better profits. That is the kind of cycle we would like to create.

[イガラシ, analyst]

One additional brief question I have for you is for the assortment of products for the Japanese Frozen Foods business, for example, Cook Do Premium is a high added value, high unit price product you have for the Foods business. For Frozen Foods, do you have any intention? For example in overseas, you gave the example about employing One Piece.

[Masataka Kaji, executive]

I think this question is for Japan. But up until now, we have been implementing a lot of technologies for the Food business. And we have been launching a product lineup called [ Series ], whether it be shumai products or fried rice. And it's actually really delicious, and we position them as premium products. Compared to the regular products, the unit prices are higher. So we treat them as premium products.

[Unknown Executive]

Moving on to the next question. SMBC Nikko, Takagi-san, the floor is yours.

[Naomi Takagi, analyst]

This is Takagi. Can you hear me?

[Unknown Executive]

Yes, I hear you very well.

[Naomi Takagi, analyst]

Now I have a question. Regarding CDMO business, in your full year plan, vis-à-vis your full year plan, Bio-Pharma Service and Ingredients, in your existing business, I think you have achieved JPY 6 billion. You are aiming for JPY 6 billion increase, and you have already achieved JPY 4.0-something billion up until the third quarter. So what do you think about the progress? Is it better than expected? Or in line with your expectations, vis-à-vis your full year guidance? So what is your thoughts about this?

[Masataka Kaji, executive]

Well, thank you very much for the question. Compared to the guidance, we are steadily making progress in the implementation of initiatives, and that's delivering good results. For I think the progress, the growth is -- of profit is increasing quarter-by-quarter. And for the third quarter, of course, there are some negative impact from the elimination of unrealized profits, but still, we have been able to achieve growth. So the momentum is becoming much more favorable. So overall, including CDMO, I think we've been able to achieve good results so far.

[Naomi Takagi, analyst]

So you can at least say that you are well positioned to achieve the guidance?

[Masataka Kaji, executive]

Yes, as we have said, all segments aiming for the delivery of the committed guidance.

[Naomi Takagi, analyst]

When you closed the second quarter, you talked about more qualitative things regarding low molecule, small molecule, things that you might be able to do better and AJICAP license fee could also grow. So including those qualitative aspects, can you share with us if there's any changes in the story towards the next fiscal year that will push up your business performance? Can you give us some updates there?

[Masataka Kaji, executive]

Well, when we announced the first half results, and also we have talked about this from the first quarter of this fiscal year little by little, we've been approaching customers with a unified approach. After that, these are delivering good results and most recently, small molecule included and including Forge business, overall, the order received is showing favorable performance.

So towards the next fiscal year, we believe we are having a good sense and solid performance can be expected. So we would like to develop the concrete business plan from here onwards.

[Naomi Takagi, analyst]

Regarding Forge, the sales has been more upbeat compared to your plan. Does the same apply for your profit as well?

[Masataka Kaji, executive]

As for Forge on a local currency basis -- local currency business, it's in line with the plan. However, when it's translated through currency translation, because the yen has been weaker compared to an assumption, so it's negative compared to the plan when it is translated into Japanese currency compared to initial plan, but that is not the realistic situation. But so therefore, Forge business is progressing in line with the plan on a local currency basis.

[Naomi Takagi, analyst]

ABF, the profit margin is very high for the third quarter as well. So it's quite high, so 55% in the third quarter already. As the quarter progresses, the margin is improving quarter after quarter. Can you explain the background to this? And when you look into the next fiscal year, can we expect the extension of the current level of OP margin, the profit margin, business profit margin?

[Masataka Kaji, executive]

Well, as we mentioned earlier, the CDMO profit margin improvement is contributed by the improvement of the mix. The improvement of mix has made a great contribution. So the high-end products or our proportion is increasing. And when that happens, the overall profit margin improves and enhances. That is the current situation. And within the PC business, the edge AI-related PCs, for example, those are becoming available. So those higher-end solutions are also making contribution and those demands are rising. So if that happens, the profit also is boosted.

This fiscal year, I think the situation has been very favorable, and we have been able to translate that into business. And therefore, we shall be able to capture this in our business growth next fiscal year onwards. Thank you.

[Unknown Executive]

Ms. Takagi, thank you for your question. Next question is from Mr. Miyazaki from Goldman Sachs.

[Takashi Miyazaki, analyst]

This is Miyazaki from Goldman Sachs. I'd like to have you share some numbers for Forge. What was sales and profit on a stand-alone basis for Q3, especially for sales? Q2, there were favorable conditions that coincided. So compared to Q2, how was revenue in Q3? How is the trend? And is that positive over the longer term? Or is it positive over the short term? That's my first question.

[Masataka Kaji, executive]

Thank you for your question. For Forge, unfortunately, we don't disclose the specific sales. But for Q3, we were able to see steady growth, high growth compared to the previous year.

[Takashi Miyazaki, analyst]

So compared to Q2, how was it? Can you give me some direction or how high sales was?

[Masataka Kaji, executive]

We don't give out the quarterlies.

[Takashi Miyazaki, analyst]

But when you look at how profits were, I think you can guess. So profit trends are close to sales trends? Well basically, by quarter, there isn't a skew in costs, especially for Forge. So the trends in sales and profits are pretty parallel to one another. So when you exclude Forge, sales growth was 7%.

And when you do the reverse math, it looks like Forge's sales was weak. My math might be wrong, but that's how I felt. And that's the reason why I'm asking this question. I guess I shouldn't be worried about that. Or was there a lot of concentration in the second quarter?

[Masataka Kaji, executive]

Actually, if you go back to Page 3, the numbers are rounded off. When you round off the numbers, the numbers look like they're not that different. But actually, we have been seeing steady growth in the third quarter. The momentum for this business has not decelerated at all.

[Takashi Miyazaki, analyst]

Understood. One more question I have is about in the appendix where you show all the numbers for overseas on a local currency basis sales, we show local currency sales for overseas. And for the December quarter, Indonesia was good, but Thailand, Vietnam numbers or actually Vietnam may have been seeing a pickup but single digit, low single digit. So I was wondering whether overseas business can grow more? You talked about some new products in Thailand earlier in the presentation. So are those contributions expected from the fourth quarter onwards? Or how do you view the growth you've been seeing in the overseas markets?

[Masataka Kaji, executive]

Thank you for the question. For Thailand first, we have rounded it down, so it looks like 2% growth. But for Seasonings, each category has been growing steadily. And for beverages, meaning canned coffee, Birdy, Q3 was relatively weak. For coffee in Thailand, raw material costs have been rising, so we're not stretching ourselves to grow the business right now. So sales in Thailand looks a little low due to these circumstances. For Vietnam, on the other hand, we talked about this when we were announcing the first half result as well, but the Umami seasonings from China has started to penetrate the market. So we have experienced this in the past, but we have been implementing countermeasures in light of these trends. So for December, we have started to see some results come through. That was reflected in our results.

[Takashi Miyazaki, analyst]

I just wanted to confirm one thing. You were saying that you are determined to achieve your plan, but for Seasonings and Foods, the plan is minus 2.6% for business profit. And if you're trying to achieve that, you still have been able to grow profits by 4% for Q3. So you are exceeding this plan already. And so we would like you to exceed the plan instead of achieving the plan as it is. So is that the right way to interpret this? Or are you trying to still achieve a minus 2.6% growth that you have in your plan?

[Masataka Kaji, executive]

Thank you for the question. Like you rightly said, when you look at the details by segment, there are some businesses that are doing well. So for those businesses, we're not going to step on the brakes, but we will continue to ensure that we are able to generate profits. But depending on category, growth may have been tough leading up to the third quarter. So for those categories, we would like to work hard so as to achieve plan.

[Unknown Executive]

Miyazaki-san, thank you very much for the question. Now moving on to our next question, which is from Sumoge-san from Okasan Securities.

[Manabu Sumoge, analyst]

This is Sumoge from Okasan Securities. I have a question regarding the Foods and the Quick Nourishment business in particular. You talked about coffee, achieving growth in sales, but cost is increasing, so you're not really too optimistic, and this is going to be a catch-up gain with the costs and your price hikes. So in the fourth quarter, JPY 5 billion of sales decrease is expected for this business, I believe.

So first and foremost, if this is really realistic, then you are expecting a significant increase in expenses starting from the fourth quarter. Is that correct? Or is it so that this fiscal year, you are on an upside trend, but you're not really optimistic starting from the next fiscal year onwards? So the timing of cost increases and the price hikes timing, what is the gap in between these 2 different timings? So that's my first question.

[Masataka Kaji, executive]

You're talking about the domestic coffee business, the prices and the cost of -- raw material cost increases, right? I think that's how I interpreted the question.

As far as coffee is concerned, the current market prices are reflected in the raw material costs after a certain time lag, generally speaking. So having said that, however, it's continuously increasing. So we -- it's getting difficult for us to reserve, make reservations for a long time. So relatively speaking, the current market prices are reflected in the input cost with a shorter time frame compared to before. That is the assumption that I think you better take.

[Manabu Sumoge, analyst]

Okay. Got it. So for this -- as far as this fiscal year is concerned, from procurement all the way to the utilization, there's a lead time. So therefore, the cost increase is going to happen significantly in the fourth quarter onwards. Is that correct? If that is the case, that explains the significant decrease in revenues in the fourth quarter.

[Masataka Kaji, executive]

Well, it's very difficult to declare that is likely that, that is going to happen. But the cost pressure continues to be very tough on us. So I think you should consider that as assumption. So -- and the next price hike is expected in March and the costs will incur earlier than that. And that is a possibility that we have to anticipate.

[Manabu Sumoge, analyst]

Okay. My second question is about cost again. So this is about the overall image. I would like to confirm, if possible, into the next fiscal year as well. Coffee cost overall is going to be very tough on you into the next fiscal year as well according to my understanding. But when it comes to the raw material for the fermentation for the seasoning and also tapioca prices are also increasing, I believe. So in total cost, what is the outlook that you have for your cost overall, including coffee, if you can give us a general indication as to the level of costs?

[Masataka Kaji, executive]

Well, for next fiscal year, you have to wait until May when we announce the results. But basically speaking, our cost fluctuation vis-à-vis the market conditions, we carefully observe the market trends in a very meticulous manner, and we do not really apply an optimistic assumption when we develop the plans. That's a general approach that we take. Therefore, given the recent circumstances, as you rightly pointed out, the current prevailing circumstances is quite stabilized compared to before. So I think we can say that as a general trend, but things could change quite significantly in a short period of time. This is what we have seen in the recent days. So we will keep a close eye on how things unfold in the future. And if need be, we will implement the necessary measures. That remains unchanged.

[Manabu Sumoge, analyst]

Just for my information, other than coffee, are there any elements that we have to keep a close eye on in terms of cost elements? Well, of course, personnel expenses and logistics and also other raw materials, if there's anything that we have to keep an eye on.

[Masataka Kaji, executive]

Well, looking at the recent trends, I think things have been stabilizing quite a lot. Foreign exchange, it's very difficult to predict how ForEx will unfold in the future. But including the fermentation raw materials and other raw materials, we do not see any particular element that is causing a major concern for us in the recent days. That's how we look at things.

[Unknown Executive]

Sumoge-san, thank you very much for your question. The next person, Mr. Saji from Mizuho Securities.

[Hiroshi Saji, analyst]

I have 2 questions, 2 quick questions. Regarding Forge and turning EBITDA positive in 2025, is that goal still in place? And what are going to be the improving factors and as well as your forecast; for this fiscal year?

[Masataka Kaji, executive]

Turning positive in fiscal '25, profitable for Forge is still in place. The number of customers is increasing steadily every quarter. And by customer, it's not just one single project for many customers, so the number of projects are also rising. So this is contributing to higher sales. And if sales growth grows, our profits will grow as well. So our efforts have been bearing fruit. Therefore, this will -- is likely to contribute next fiscal year.

[Hiroshi Saji, analyst]

JPY 6.5 billion negative business profit was the result for Q3. How does that translate into EBITDA?

[Masataka Kaji, executive]

Unfortunately, we don't disclose that number.

[Hiroshi Saji, analyst]

So business losses can be about JPY 9 billion for the year and maybe an improvement of JPY 5 billion next fiscal year?

[Masataka Kaji, executive]

Well, roughly somewhere around that neighborhood.

[Hiroshi Saji, analyst]

For the Other segment, profits were quite high. That was unprecedented in the last 2 to 3 years. Can you talk about the reasons why for Q3?

[Masataka Kaji, executive]

Many factors are included. Inside the Other segment, there's many. I can't pinpoint just one single thing. There are businesses that cannot be allocated to the other segments. And the way costs were incurred last fiscal year and this fiscal year, somewhat different, leading to these results. The one thing I can say is it's a very technical matter.

[Hiroshi Saji, analyst]

In Q3 last fiscal year, Forge -- half of its acquisition cost was accounted for under Others. Then in the fourth quarter, it was reallocated to the CDMO segment. Therefore, last fiscal year in Q3, there were some cost items that were included under Others. So that's a technical thing. So it's a buildup of a variety of factors?

[Masataka Kaji, executive]

Yes.

[Unknown Executive]

Thank you very much, Mr. Saji, for your question. We are so sorry, but we are now approaching the closing time, so this will be the last question. This will be from Ihara-san of UBS Securities.

[Rei Ihara, analyst]

This is Ihara from UBS Securities. So this is a question that may be off this results presentation. But you talked about the macro environment, and that's translated and Mr. Trump is now giving out his idea regarding the tariffs. So when the macro environment is so uncertain, what are the risks that you are perceiving right now? And how about the possibility of these risks becoming a reality? And it was already mentioned when Mr. Nakamura explained the leadership change. So if this is going to have any impact on the profits, if you can please let us know.

So when the macro environment is changing like this, I think your business profit increase of 10% to 15% is already presented as your goal. So do you think this is feasible even though the environment is so fluid right now?

[Masataka Kaji, executive]

Well, thank you very much, Mr. Ihara, for the question. Regarding the risk of tariff, well, right now, we do not foresee -- for those things that have become clear already, at this point of time, we do not see anything that will have a significant impact on our business. So we are not foreseeing any significant impact because of the tariff that has been declared so far. But we cannot tell what is going to happen from here onwards. So we have to be very keen and stay alert on what is going to happen and see and conduct simulations as to what could potentially happen to our business so that we can capture the signs as early as possible and take actions as swiftly as possible. That is the question. So we would like to be thorough about this.

And regarding the deep -- we talked about DeepSeek. There was a comment regarding DeepSeek earlier. So including all these points as far as ABF is concerned, if -- of course, we cannot foresee what is going to happen, but if these technology become widespread in their adoption, utilization will increase globally. Therefore, if that happens, this will be rather because this is about increasing modality. So this will be -- this will never be a negative factor for the ABF business, in our view. And given the circumstances, as we talked about the first -- in the end of the first half, that we will also aim for double-digit growth in 2025 as well. That was the message that was given from the management leadership. And at this point of time, this target remains intact.

[Rei Ihara, analyst]

I understood very well. So tariff is not likely to have a significant impact on business at least so far. But if there's any possibilities that you are foreseeing, if this scenario happens, if there's any risk to your business depending on the scenario, can you think of such scenarios?

[Masataka Kaji, executive]

Well, it's very difficult for us to give you any concrete example. So as we've been talking from before, no matter what happens, we are trying to implement necessary countermeasures and overcome them and achieve overall growth as the entire business. That is the management style that we've been trying to evolve ourselves into, and we would like to continue to brush up this attitude and approach, and we look forward to your continued support to this end.

[Unknown Executive]

Mr. Ihara, thank you for your question. This concludes the Q&A session. So Mr. Kaji will extend the concluding remarks.

[Masataka Kaji, executive]

Ladies and gentlemen, thank you for joining today. Apologies for suddenly changing the agenda. But thank you for joining us from the leadership transition briefing as well as the results briefing. We would like -- under the new management, he mentioned that he is determined to accelerate efforts to achieve our targets at an earlier stage, and we would like to work hard on a company-wide basis. And we look forward to your further support as well as your feedback as well. Thank you very much.

[Unknown Executive]

That concludes today's briefing. Thank you for joining.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]