Meiji Stock

I am Matsuda, the CEO. Thank you very much for taking the time to join us today despite your very busy schedules. I would also like to take this opportunity to express my sincere gratitude for your continued support. Today, I will begin by providing an overview of the results. Afterwards, our CFO, Hishinuma, will explain the details of the financial results based on actual figures as well as our outlook and an overview of our strategy.

First, here is an overview of the FY '25. Consolidated operating profit stood at JPY 93.3 billion, exceeding our plan, driven by the Pharmaceutical segment. Thanks to royalty income and reduction in R&D expenses and other costs, this segment overshot its target, reaffirming its role as a growth driver. On the other hand, the Food segment fell short of its target. As in the first 9 months, core products such as yogurt and chocolate performed well in Q4. However, cost control challenges remained, with raw material costs and sales promotion expenses rising more than anticipated.

We also had impairment loss in our Chinese operation, which was a big topic. We were able to take a step towards fundamental reform by restoring our business structure to reflect actual conditions. Going forward, we will implement every possible measure to achieve breakeven. In light of these results, we have set a target of JPY 100 billion for consolidated operating profit in FY '26. Unfortunately, it is difficult to achieve the medium-term target of JPY 116.5 billion, but we are committed to returning to the JPY 100 billion range first.

There are risks that have not been baked into the plan, such as the situation in the Middle East and exchange rates, but we will minimize the impact of these risks through further price increases and structural reforms while steadily implementing initiatives for the next phase of growth. In particular, we see structural reform as a major management challenge for FY '26. Amid rapid changes in the external environment, we will focus on the following 2 points to return to a growth trajectory as soon as possible.

Firstly, we will accelerate the pace of change. We will share a sense of urgency and awareness of the challenges across the entire company and encourage people to take on new challenges. We have been meeting the teams on the ground through occasions such as town hall meetings to convey that the company is serious about transformation, and we will now move to implementation. Secondly, we will implement structural reforms with strong resolve regardless of the scale of the business or the magnitude of impact on profits. The slide shows the measures included in the FY '26 plan, but we do not intend to stop there. We are currently in the process of specifically reviewing several proposals.

Collaboration with Japan Activation Capital, which began in February, is also one approach to accelerating transformation by incorporating external expertise. As the CEO, I intend to clearly communicate to our operating companies the vision of the Meiji Group, the optimization of the business portfolio required to achieve it, and the areas where change is necessary and to press ahead with restoring growth. What is important is how we utilize the cash generated through this transformation.

As I mentioned in March, we regard ROE as our most important indicator, and we will strategically allocate the cash generated to shareholder returns and investment for future growth areas. Although ROE for FY '25 temporarily fell to 4.6% due to the impairment loss in China, excluding this fact, it stands at 7%. Although this falls short of a medium-term target of 9.5%, we aim to restore it to 8% in FY '26 and bring it to the 10% level as soon as possible.

As we take on new challenges, such as synergy business creation between Food and Pharmaceuticals, we will also transform our existing portfolio with a sense of urgency, aiming to achieve sustainable growth in corporate value. That concludes my presentation. Thank you for your attention.

I am Hishinuma, the CFO. I will now continue with my presentation, first, regarding FY '25 financial results. Consolidated net sales for FY '25 was JPY 1.1736 trillion, up 1.7% year-over-year. Operating profit was JPY 93.3 billion, up 10.2%. Profit attributable to owners of the parent fell by 31% to JPY 35 billion due to one-offs such as impairment losses in China and cost for special -- Next Career Special Support Program.

Although net sales missed the plan, operating profit exceeded the plan by JPY 2.3 billion. Profit attributable to the owners of parent, however, missed the plan by JPY 1.4 billion, partly due to smaller tax benefits under the group tax consolidation resulting from lower R&D expense in Pharmaceuticals.

Next is the overview by segment. Net sales in the Food segment amounted to JPY 942.8 billion, up 1.9% year-over-year. Operating profit rose by 6.4% to JPY 68.7 billion. Profits increased both in and outside of Japan. I will explain the main factors behind these changes using a graph. A major negative factor for profit was JPY 23 billion increase in the raw material costs. Positive factors include a price increase of JPY 48.5 billion and measures such as reduction in product volume of JPY 1.2 billion. The resulting shortfall of JPY 19.4 billion is attributable to lower sales volumes and product mix. Logistics and marketing expenses contributed to a decrease in profit of JPY 4 billion.

Other expenses saw a reduction of JPY 1.1 billion in manufacturing overheads due to the closure of the Tohoku plant, but also upfront investments to expand overseas operations, resulting in an overall negative impact of JPY 100 million. Profits from subsidiaries contributed JPY 1 billion positively. In particular, improved profits from our Chinese operations. The result was JPY 2.2 billion below the plan. The main factors include an increase in the volume of liquor used, which is particularly expensive among the chocolate ingredients, and the rise in sales promotion expenses for some retail products in the Food Solutions business.

Next is Pharmaceutical segment. Net sales increased by 1.1% year-over-year to JPY 232.2 billion, and operating profit increased by 23.1% to JPY 30.4 billion. As shown in the graph, the impact of sales fluctuations resulted in a JPY 1.8 billion decrease in profit. Although REZUROCK grew, weak performance of our mainstay antibacterial drugs affected the product mix.

The impact of the drug price cut lowered the profit by JPY 3 billion. Change in cost of sales pushed it up by JPY 0.5 billion. Cost-wise, increased marketing expenses for newly launched products pushed down the profit by JPY 900 million, but lower R&D costs and smaller losses on the write-off of inventories pushed it up by JPY 9.2 billion. Profit from subsidiaries contributed JPY 1.8 billion to the profit. This was driven by improved vaccine production efficiency at KM Biologics and the royalty income. We exceeded our plan by JPY 4.4 billion, thanks to unplanned royalty income from our overseas business and a reduction in R&D as well as SG&A expenses.

That concludes my explanation of the financial results of FY '25. Next, I would like to outline the outlook of 2026. As shown, we are planning for both increased net sales and profit. Food segment net sales growth is expected to be limited to around 1%. This is because we have excluded external factors such as the special demand for R-1 in FY '25 and inbound demand for infant formula. Sales volume for our main products is expected to increase in FY '26. We plan for a 7.6% increase in operating profit, driven by improved profits from our overseas operations.

Pharmaceutical segment is planning for a double-digit sales growth, driven by continued growth in newly launched products and the new items added for FY '26, such as blood plasma products and the Sanofi's authorized generics. Operating profit is forecast to increase by 8.4%, reflecting higher costs and increased R&D expenses. Consolidated net profit is planned to be increased significantly due to the absence of the extraordinary losses recorded in FY '25. However, as structural reforms will continue in FY '26, some extraordinary loss is factored into the plan.

Next, I will explain the initiatives in each segment, starting with Food. Our plan for operating profit is JPY 74 billion. The most important driver of profit growth is profit improvement in our Chinese operations, where we are implementing structural reforms. Profits in the domestic market are expected to decline. We will offset rising raw material costs through price increase and higher sales of our main products, but main factor is that expenses will be incurred from this April ahead of the start of operations of our new plants in Hokkaido and Kanagawa in March '27.

I would also like to add that there are risk factors that are not currently factored into the plan. We are paying particular attention to cost increases resulting from the situation in the Middle East. We intend to address this by first cutting costs, including changes to product formulations and by shifting sales towards higher-margin products. If we judge that the situation is likely to be prolonged, we will respond by raising prices and reducing product volumes.

This slide provides an overview of our plans by business segment. In the dairy business, we expect net sales to increase as our mainstay products such as yogurt to continue to perform well. We are forecasting lower profit due to the additional costs to the new factories, but excluding this factor, profit will increase. Chocolate business is projected to see both increased net sales and profit. In addition to our core chocolates, we will strengthen products not dependent on cacao and improve our product mix. We also expect this to be complemented by improved profitability in our China operations. Nutrition net sales and profits are expected to stay flat.

We view FY '26 as a year for restructuring of business and product portfolio, and we'll focus on establishing new and relaunched products in the market. The Food Solutions business is projected to see an increase in both net sales and profit. We will optimize our cost structure by increasing the proportion of B2B business, which has a lower ratio of sales promotion expenses, both domestically and overseas, and also focus on higher profit businesses and products within our B2C range.

To summarize, we will generate stable profits from the dairy and chocolate, where our main products continue to perform well. And meanwhile, also invest into the future growth of both businesses. Nutrition and Food Solutions business will transition to a lean profit structure. I will explain our overseas operations in more details later. Next, I will explain the key initiatives we are undertaking to achieve our plan.

First, our response to rising costs. In FY '26, we anticipate a total cost increase of JPY 14 billion for raw materials and energy. To offset, we have factored in JPY 15.3 billion from price increase and reduction in product volume that have already been implemented or are being planned. As shown on the slide, historical data shows that although price increases has a significant negative impact on sales volume in that year, this effect tends to ease in the following year. In FY '26, in addition to new products, we will strengthen our brand investment in existing products and work in earnest to increase the sales volumes.

Next is our product strategy. For dairy and chocolate, where we aim to generate stable profits, we will continue the diverse promotional activities that contributed to the recovery of sales volume following the price revisions and also strengthen the product lines with a focus on brand value. For example, with Meiji Bulgaria Yogurt, we will continue to grow the plain variety, but also create new growth opportunities. Meiji Bulgaria Yogurt Drink ONE SHOT shown in the center of the slide, is a new product that incorporates successful elements such as probiotics. By producing it within the existing probiotic line, we will also improve factory utilization rates.

In the chocolate business, we will continue to promote brand value as we did for the 100th anniversary of milk chocolate to maintain the growth potential. Meanwhile, also strengthen product ranges such as gummies to stabilize earnings. For example, FRUBI, a brand targeting health-conscious consumers, will utilize the brand assets of Kaju Gummy to increase efficiency of marketing investment for product launch. In our revenue-based businesses, rather than simply launching new products, we will implement strategies that maximize the use of existing assets such as brands and facilities, which improves ROIC.

As customer needs become more diverse, it is more challenging to establish a blockbuster products like R-1. We will allocate management resources to promising products that show strong initial momentum and nurture them by building a track record and expanding our product lines. It's also important to revitalize products that are highly profitable but face growth challenges. To regain competitive advantage, we will promote product renewals based on our proprietary technologies and expertise. For example, we reviewed infant formula and the SAVAS, the sources of revenue for our Nutrition business in the second half of FY '25 and are working to solidify their market position. We aim to restore growth potential by redefining brand value and thereby underpinning profitability.

Next, on overseas business. Overall, we expect operating profit to increase by JPY 5.9 billion, of which JPY 5.2 billion to come from China businesses improvement. In the U.S. and Asia, we are planning net sales increase of 5% each. We will prioritize investments to strengthen production capacity for our strong performing confectionery business, thus profit growth will be limited. Regarding China business, we will concentrate management resources on chocolate and B2B businesses.

For dairy and ice cream, no additional investments are planned. We're continuing operations on a downsized basis, focusing on high-performing products. And we will continue to examine and implement the next steps toward achieving breakeven. Across all overseas regions, confectionery is the key growth driver. Thus, let me elaborate on its expansion strategy. Our basic approach is to further strengthen the successful business model in the United States. The key elements of this successful model are illustrated on the right-hand side. In particular, we view our technologically differentiated products and room temperature distribution capabilities as the keys to achieving global expansion and growth while balancing profitability and capital efficiency.

In the U.S., the unique combination of chocolate and biscuits has been well received, and demand is exceeding supply. Among these products, we see especially strong demand for Hello Panda, thus additional production lines will be installed at the York plant in the Eastern U.S. through an investment of JPY 10 billion. Meanwhile, for Chocorooms, we will leverage manufacturing facilities in Japan to strengthen exports and capture growth opportunities. We also plan to expand capacity in Indonesia following the U.S.

Identifying the core brands that will drive our overseas expansion and building a global distribution network that combines exports with local production, we will allocate cash toward marketing investments and pursue profitability, efficiency and growth. I will now touch upon structural reforms, our utmost priority in FY '26. First, on the impact of the new plants commencing operations. Prior to the commencement of full operations, the gradual capitalization of assets began this April, resulting in upfront depreciation costs.

Annual depreciation for the new plants is expected to be JPY 7 billion, of which JPY 2 billion to be recorded from FY '26. Meantime, following plant closures, reductions in fixed costs, such as personnel and utility costs will materialize gradually from FY '25 onwards. On a net basis, after offsetting the increased depreciation costs from the new plants against fixed cost reductions, we estimate net cost savings of about JPY 5 billion with a positive impact expected to materialize mainly from FY '27 onwards.

On top of this, as Matsuda mentioned, we are considering additional structural reforms, which may include restructuring of noncore businesses. While considering growth potential, competitive advantages and the impact on ROIC, we will continue with relentless structural reforms. This concludes the highlight of the Food segment. The initiatives discussed thus far, including product strategies, overseas expansion and the structural reforms will be steadily executed as key drivers for improving businesses ROIC.

Next, Pharmaceutical segment. We're planning operating profit of JPY 33 billion. Though we expect cost increases with higher procurement and R&D costs, growth in key injectable antibacterial drugs and blood plasma products benefiting from positive NHI drug price revisions, and new drugs, REZUROCK, cGVHD treatment drug and Vorzzz, insomnia treatment drug, are expected to drive profit growth.

The next slide shows our plans by business. First, the overseas pharmaceuticals in the middle is the only business among the 3 expected to record a decline in profit. This is due to the absence of royalty income that contributed in FY '25 and increases in marketing and R&D expenses. We expect both proprietary products and CMO/CDMO businesses to continue expanding steadily. Meanwhile, both domestic pharmaceuticals and vaccines and veterinary drugs businesses are expected to achieve increases in sales and profit.

In addition to profit growth driven by expansion of key products, cost reductions through operational improvements, including lower inventory disposal losses are expected to contribute positively. As shown in the lower section, R&D expenses for the Pharmaceuticals segment are expected to increase JPY 4.7 billion year-on-year. The main reasons are the acceleration of development for global strategic products and increased investment in preclinical stage R&D aimed at future growth.

From here, I will elaborate on our initiatives and key topics aimed at achieving the plan. First, for the domestic business. On the left, you can see sales by therapeutic area. In the infectious disease area, injectable antibacterial drugs benefiting from NHI drug price revisions are expected to drive 23% increase in sales. By ensuring stable supply of specified critical materials, we aim for volume growth and market share gain. Immune system and CNS areas are expected to see revenue declines due to the negative impact of patent expirations and NHI drug price revisions.

REZUROCK and blood plasma products in immune system and Vorzzz in CNS are expected to grow continuously. For Vorzzz, long-term prescriptions are expected to become available in November, so we will strengthen promotional activities to accelerate growth. We expect generic drugs to record substantial sales growth driven by contribution from authorized generics for which we assumed sales succession in April this year. To summarize, in the domestic business, stable growth in the core infectious disease area will remain the foundation of earnings. We plan to add growth from REZUROCK, Vorzzz and globulin preparations, which we started to sell within the group and newly succeeded authorized generics.

Let me share 2 important topics from the domestic business. First is the progress toward domestic production of penicillin APIs. In December 2025, we resumed domestic production of 6-APA, the starting material for the first time in 30 years. The slide illustrates the overall framework for domestic API production. We are in the process of manufacturing APIs using 6-APA. Our partners, Otsuka Chemical and FUJIFILM Toyama Chemical are each working on these processes. We will be responsible for the part of the subsequent sterilization process, and we will begin construction of sterilization facilities this June.

Full domestic production of penicillin APIs is expected to realize from 2028 onwards. This initiative, supported by the Japanese government, entails material investments and stockpiling obligations. While closely monitoring its impact on ROIC and cash flow, we will work steadily in collaboration with our partners. Another important initiative is our action toward generic drug industry restructuring. As for the new consortium initiative, we are working with participating companies to visualize manufacturing efficiency and discussing establishment of a more efficient production structure. As of March, the scope of products covered in these discussions expanded significantly to 90 ingredients and 498 items. This demonstrates steady progress.

As a new step toward industry restructuring, we are also establishing Pharmatech Co-creation Platform with Daito and another company. This organization has entered into a master agreement to succeed KYORIN Pharmaceutical's generic drug business. Going forward, we will conduct due diligence before making a final investment decision. Through these initiatives, we will strengthen profitability and stable supply of the generic drug business while pursuing scale merits and efficiency across the entire process from manufacturing to sales.

Next, on human vaccines. For FY '26, we're planning an 8% increase in net sales. We expect continued growth in 5-in-1 combination vaccine, Quintovac, and in influenza vaccine. As recently announced, we entered into a technical partnership with an Indian company on the development and manufacturing of our Japanese encephalitis vaccine. We are pursuing new business opportunities by globally deploying not only vaccine products themselves, but also related technologies.

Meantime, declining vaccination rates across the domestic market remains a challenge. We recognize this cannot be resolved in the short term and we'll continue our steady efforts to communicate information, not only to health care professionals, but to the general public in the ways that are easy to understand. As for the COVID-19 vaccine, KOSTAIVE, our FY '26 plan is based on trends in FY '25, and we expect its contribution to be limited in FY '26. However, this vaccine received government support for its development and production system as a product responsible for ensuring stable vaccine supply in times of emergency.

On how to ensure economic viability during normal times, we will engage with relevant authorities to pursue viable options, including setting a government procurement framework. Like antibacterial drugs, vaccine represents a major pillar of infectious disease area. Maximizing the value of existing products, we will address challenges and further strengthen the business as a stable earnings base.

Next, on R&D. REZUROCK, which has been performing strongly in Japan, initiated pediatric clinical trials in April. In overseas, the launches in Taiwan and Thailand began this spring. As we hold commercialization rights in Japan and 12 Asian countries, we will proceed with filings, which will be supported by favorable post-launch penetration. For the novel beta-lactamase inhibitor, OP0595, we filed for manufacturing and marketing approval in Japan in December 2025, and approval is expected within this year. And the ongoing global clinical studies are progressing steadily. As a drug addressing antimicrobial resistance, we will continue filing preparations targeting countries and regions with market potential.

For the vaccine candidates shown on the right, clinical trials and real-world data collection is advancing for each program. We are advancing applications of the messenger RNA technology acquired through KOSTAIVE and strengthening it as an important asset. That's all for the highlights of the Pharmaceutical segment. As you know, Pharmaceuticals are a business with a long time horizon from investment to return generation. It is essential that we continue to execute our initiatives steadily from a long-term perspective. While further strengthening the domestic infectious disease area as a stable earnings foundation, we will continue investing to transform into a global R&D-oriented company and maintain momentum in profit growth.

Next, I will discuss ROIC and cash allocation, which are key drivers for improving ROE. Consolidated ROIC for FY '25 reached 7.8%. The improvement was driven mainly by the Food segment, which includes asset compression following impairment losses. For FY '26, we are aiming for consolidated ROIC of 8%, 0.5 points below the 8.5% midterm target. By segment, Food segment is expected to reach its midterm target of 9%. Though profit levels remain below the midterm target, structural reforms and steady profit growth will drive ROIC improvement.

For the Pharmaceutical segment, ROIC improved to 9.2% in FY '25 due to higher profits. For FY '26, however, we are planning 8.4%, falling short of its midterm target due to increased invested capital with upfront investments in dual-use vaccine production systems and domestic production of penicillin APIs, and inventory buildup with emergency stockpiling of antibacterial drugs. While maintaining a profit growth trajectory, we will continue upfront investments for future growth and sustaining our stable business foundation and closely monitoring their return profile.

Moving on to cash allocation. The chart on the left shows the 3-year policy presented at midterm plan announcement. The table on the right shows our current outlook. Operating cash flow for the 3-year period is now expected to be JPY 228.5 billion, well below the original plan, as we deployed more cash than initially anticipated towards securing raw materials like cacao and building inventories to ensure stable supply of antibacterial drugs.

For FY '26, we expect recovery compared with FY '25, driven by the reversal of cacao inventory buildup, increased collection of accounts receivable and lower corporate tax payments. Investments over the 3-year period are expected to be around JPY 290 billion. This reflects disciplined investment execution, particularly in the Food segment as we carefully reviewed priorities following discussions on business progress and direction based on ROIC. In FY '26, we will swiftly examine and execute structural reforms and selectively invest in areas with higher capital efficiency to improve overall capital efficiency.

Finally, on shareholder returns, we have decided on a JPY 5 increase in the annual dividend for FY '26. Our basic policy remains to continuously and steadily enhance shareholder returns with a total payout ratio of 50% set as a minimum benchmark. As for share buybacks, we will continue to consider flexible implementation based on investment opportunities and cash conditions.

This concludes my explanation of the FY '26 outlook. FY '26 is the final year of the current midterm plan and a pivotal year for shaping our next long-term vision. Through the steady execution of structural reforms in and outside of Japan, we will achieve an early recovery in ROE and sustainable enhancement of corporate value. Thank you for your attention.

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

I am Matsuda, CEO. Thank you very much for taking the time to join us today despite your busy schedule. I would also like to take this opportunity to express my sincere gratitude for your continued support. Today, I will begin by providing an overall summary. After that, CFO, Hishinuma will explain the results for the first half and the outlook for the second half and the full year based on actual figures.

First, regarding the summary of the first half, as already announced, consolidated operating profit reached JPY 40.9 billion, exceeding the planned JPY 39.5 billion. In particular, Pharmaceuticals significantly exceeded the plan. And although food products fell just slightly short, overall, we view the results as solid. As you know, while domestic consumption has been slow to recover, we implemented price increase for many products in the first half as well. Although we were concerned about the impact on volume, we were able to minimize the decline at least for major products by leveraging our past experience.

Based on the results of the first half and the current business environment, we made a slight downward revision to the full year sales forecast, but kept the operating profit forecast unchanged. In the Food segment, we expect growth driven by the new products such as Hemoglobin A1c Countermeasure Yogurt, the relaunch of Nama no Toki series and enhanced offerings in the nutrition category. In Pharmaceuticals, full-scale expansion of the insomnia treatment drug will begin. Along with these initiatives, we will thoroughly manage costs to achieve full year plan.

Our company-wide structural reforms have just begun. But we made several decisions and executed actions in the first half, including the termination of production at Shikoku Meiji and the implementation of the Next Career Special Support Program for Next Career transitions. We are currently reviewing the multiple plans, some of which require careful decision-making. However, rather than spending time overthinking, we will promptly move forward with initiatives that show promise, optimizing them as we proceed and accelerating management decision-making.

Now I would like to share what I am currently thinking. The first point is something I have mentioned repeatedly as a key theme, pursuing business development that excites both society and our employees. What became clear through the town hall meetings held in preparation for the long-term vision is that our employees also strongly desire new initiatives, leveraging our strengths in Food and Pharmaceuticals.

Under the current medium-term Plan '26, we have identified future-oriented technology development domains and reevaluate our technological assets. Based on these, the Wellness Science Lab is now leading efforts to establish businesses capable of generating JPY 100 billion in global sales with a profit margin of 30%.

The multiple candidates for commercialization all utilize not only food-related expertise, but also technologies and knowledge cultivated in the pharmaceutical field. I believe that once these businesses are launched, they will embody Meiji's unique synergy between Food and Pharmaceuticals.

The second point is, while taking on new challenges, we must also push forward transformation with a strong sense of speed. As mentioned earlier, we acted with quick decision-making in the first half, but I do not believe this is sufficient yet. In particular, reviewing our overseas Food strategy is one of the most critical issues.

While exploring optimal scale of our Chinese business, we intend to allocate more management resources to the strong performing confectionery business to drive growth. We will expand successful cases such as facing market aligned products within winning sales channels and implementing marketing strategies utilizing local human resources across regions.

Although there is a limit to what I can say today about either initiative, I hope you understand that this is the direction in which we are steering the company.

This concludes my explanation. Thank you very much for your attention.

This is Hishinuma, the CFO. I will now continue with the explanation, starting with the results of the first half of fiscal year '25. Consolidated net sales for the first half were JPY 574.8 billion, a 1.0% increase year-on-year. Operating profit was JPY 40.9 billion, 7.8% decrease year-on-year. Compared with the initial plan, although net sales fell short, operating profit exceeded the plan by JPY 1.4 billion, as President Matsuda mentioned.

Meanwhile, the net profit was JPY 21.4 billion, 21.1% (sic) [20.1%] decrease year-on-year, mainly due to the absence of lower extraordinary income recorded in the same period last year, such as gains on sales of securities investment. Compared with the initial plan, net profit fell short by JPY 1 billion due to differences in estimated tax expenses and increased profits attributable to noncontrolling interests.

Next, the segment overview. Net sales in Food segment were JPY 458.4 billion, 0.7% increase year-on-year. Operating profit increased 5.0% year-on-year, to JPY 29 billion. Both domestic and overseas operations achieved profit growth. Looking at the breakdown, as shown in the graph, increase in raw material costs were a negative factor of JPY 10.2 billion. Price revisions contributed to a positive impact of JPY 22.2 billion. Measures such as volume adjustment contributed to JPY 1.2 billion, even after subtracting JPY 11.0 billion negative impact from volume decline and product mix. Positive effects were exceeded to increased costs.

Logistics and marketing costs were a negative factor of JPY 1.0 billion. And changes in manufacturing overhead and other expenses were additional negative JPY 0.3 billion. Subsidiaries contributed to a positive JPY 0.4 billion. Although domestic subsidiaries saw profit decline, overseas subsidiaries posted profit growth, thanks to improvement in Chinese subsidiary.

Next, Pharmaceutical segment. Net sales were JPY 116.9 billion, a 2.7% increase year-on-year. Operating profit was JPY 14.3 billion, 22.8% decrease year-on-year. As shown in the graph, changes in sales had a negative impact of JPY 1.1 billion. Although REZUROCK launched in May last year, performed strongly, major antibacterial drugs remained sluggish.

Additionally, early shipments of influenza vaccines and the start of shipments of the COVID-19 vaccine, KOSTAIVE, worsened the product mix. NHI price revisions were a negative factor of JPY 1.4 billion, while cost reductions contributed a positive JPY 0.2 billion. On the cost side, increases in marketing expenses for new drugs, R&D expense and system-related costs collectively resulted in a negative impact of JPY 3.6 billion. Subsidiary profit contributed a positive JPY 1.7 billion, mainly due to improved vaccine production efficiency at KM Biologics. This concludes the key points of first half results.

Next, I will explain the outlook for the second half and full year of fiscal year 2025. Based on the progress made in the first half, full year net sales are forecast at JPY 1.177 trillion. Both the Food and Pharmaceutical segments were revised downward. Meanwhile, operating profit and net income attributable to owners of parent forecast remain unchanged.

For the second half alone, consolidated net sales are planned at JPY 602.1 billion, 2.9% increase year-on-year. Operating profit is projected at JPY 50.0 billion, a 24.2% increase with both Food and Pharmaceuticals expected to produce profit growth. Sales and profit by business have been revised to reflect actual conditions, which will be explained later.

From here, I will discuss each segment, beginning with the Food segment. Operating profit for the first half fell short of the plan by JPY 0.6 billion, mainly due to deterioration in the domestic product mix and struggles in the China frozen dessert business. In the second half, we aim to recover this JPY 0.6 billion, focusing on 2 main areas. The first is strengthening products and marketing.

Dairy products and chocolate products performed well in the first half, so we raised the second half forecast. Nutrition products underperformed earlier, but measures to strengthen mainstay items were originally scheduled to begin in the second half, so gradual recovery is expected. Specific initiatives will be explained later.

The second point is structural reform. While ensuring necessary marketing investments, we will also work on reviewing costs and reducing fixed expenses. Additionally, the China ice cream business enters the off-season in the second half, so we do not expect variances like those seen in the first half.

Slide 11 shows sales and profits by business. As mentioned earlier, the dairy and chocolate businesses have revised their full year operating profit forecast upward. For the second half alone, the Food Solutions business has also been revised upward, mainly due to expected benefits from price increase in the B2B segment. Meanwhile, the nutrition business has been revised downward for the second half, but we plan to maintain the previous year's levels of sales and profits.

Looking at the business environment for executing this plan, for the second half of the year, costs for raw materials, particularly cocoa beans, domestic raw milk and imported dairy ingredients are expected to rise. Although cocoa beans prices are currently falling, the use of inventory secured at a higher price range will continue for the time being. And therefore, it will take some time for the benefits to materialize. Meanwhile, other factors such as FX and the rising labor and logistics costs remain significant risk factors.

As shown at the top left, the cost increase highlighted in gray has been gradually growing since the first half of FY 2024. With little improvement in consumer sense of financial ease and the prospect of prolonged cost increases, we will maintain our ability to raise prices and also optimize our cost structure. Regarding specific initiatives to maintain ability to raise prices, the first is promotion of brand value. Top left graph shows sales volume trend for Bulgaria Yogurt 400 grams.

We had decided to increase prices in line with the milk price increase in August. Therefore, we invested resources early on to enhance promotions. Despite a 5% to 6% price increase in August, sales volume growth was maintained year-over-year.

When promoting brand value, our unique strength lies in our ability to approach from various angles beyond just health benefits. Even within highly competitive product categories like staple items, we will continue to communicate value through distinct approaches such as leveraging our heritage and character recognition. Over recent years, having increased prices for almost all products, we have accumulated effective marketing expertise. We will deploy the best practices across our businesses.

And the second point is new products. We will continue to grow our unique products in the second half, similar to Nama no Toki success in May and the functional food Hemoglobin A1c Yogurt. While increasing the success rate for new products is important, we will also firmly establish them in the market through post-launch communication.

The third area we're strengthening right now is promotion of cost friendliness. The slide shows the example of Chocolate Kouka. After repeated price increases, the large bag size favored by regular customers was sold at more than JPY 100,000 at the point of sale. The perceived price point seemed to have a psychological impact slowing the growth of this product. In September, a smaller bag was launched, while the price per gram still is the same, the perceived price impact was reduced, and the sales across the entire brand are now trending upwards. This approach of offering more cost-friendly size options will also be used in our struggling nutrition business. It will be applied to SAVAS' prototype and cube-type infant formula products aiming for sales recovery.

Next, I will explain our structural reforms. With production, we will steadily consolidate production lines, including factory closures. The Tohoku plant, which was scheduled to close as part of the consolidation to the new Kanagawa factory, ceased production in October, 1 month ahead of schedule. The cost savings impact will be additive to this fiscal year. We have also decided to cease production at 2 Shikoku Meiji factories. Future cost savings are expected through production consolidation and the product line adjustments.

Regarding structural reforms beyond production, in addition to the personnel-related measures outlined in Matsuda's explanation, we are examining the appropriate business portfolio within the discussions on the long-term vision. We intend to provide further explanation once these discussions have progressed. We have covered our domestic initiatives.

Next, we turn to overseas businesses. The bottom row of the slide shows the overseas total. While full year net sales has been revised downwards, operating profit is expected to be in line with the initial plan. China will be covered in detail in the next page. Asia is growing steadily, primarily driven by chocolate snacks and infant formula. The U.S. is also growing steadily, thanks to increased production capacity, enabling us to capture robust demand.

Challenges in China. Sales and profit are broken down by business segment as shown in the table on the left. The dairy business is steadily reducing its deficit. The Oishii Gyunyu launched in July is gradually gaining adoption. A high-protein variant was also launched in October. We plan to expand the lineup further, aiming for broader shelf presence.

The chocolate business is experiencing lower profit due to rising raw material costs and increased depreciation expenses, but chocolate -- by strong, driving sales growth. We have been increasing prices since September to counter rising costs to improve profitability. For the current fiscal year, we anticipate decline in profits due to upfront costs, but we remain optimistic given the robust sales momentum.

The Food Solutions business has seen its B2B milk segment struggle. And with ice cream also performing poorly this season, the full year plan was revised downward. For B2B, we will focus on the strong cream. And for ice cream, we will strengthen initiatives in winning sales channels ahead of next season, similar to the success seen in confectionery.

Next, the Pharmaceutical segment. Operating profit for the first half exceeded the plan by JPY 2 billion. While factors positive for profit such as cost reductions and production efficiency for influenza vaccines will contribute throughout the year, our full year plan is kept at JPY 26 billion due to many uncertain factors in the second half beyond our control, such as trends in the infectious disease market and the vaccination rates.

I will explain the key points. First, human vaccines. Quintovac drove the growth in the first half. By promoting the unique specification of the formulation, we expect to steadily increase its market share in the second half as well. For this period, KOSTAIVE has been reformulated into a 2-dose vial, providing better convenience. We are promoting its long-lasting antibody titers to gain market share.

Since the pandemic, a flood of information regarding vaccines has emerged, some advocating vaccination, while others urge caution. In order to promote uptake, we will strengthen awareness campaigns for vaccines as a whole, including flu vaccines and strive to improve vaccination rates. For human vaccines overall, full year net sales will increase, but this will be a downward revision from the initial plan. This is due to lower outlook for KOSTAIVE reflecting vaccination environment.

Next, domestic and overseas businesses. Regarding domestic business, growth is in antibacterial drugs has slowed due to changes in the outbreak of bacterial infections, but growth in REZUROCK and the fact that Meiji Seika Pharma is selling some of the KM Biologics' blood plasma products is helping us to be ahead of the plan, and this should offset the slowdown. We are also focusing on promoting the insomnia treatment, Vorzzz, jointly marketed with Taisho Pharmaceutical to ensure it makes substantial contribution to performance in the next fiscal year.

Overseas business like domestic faced uncertainty in sales of our own products due to change in infectious disease outbreaks. Therefore, we plan to drive growth primarily through our robust CMO and CDMO businesses.

Next, we would like to explain new developments concerning generics. As announced on 7th of October, we have succeeded manufacturing and marketing approval for 3 authorized generic products previously licensed by Sanofi to Nichi-Iko. One of them is the authorized generic for the brand name Allegra. They will be marketed by [ ME ] Pharma from April 2026 and are expected to contribute to sales and profit.

The consortium initiative aimed at ensuring the stable supply of generic medicines is progressing steadily. Discussions are currently underway with partner companies regarding 56 products comprising 22 compounds for the first stage of consolidation of production sites. 23 items are subject to discontinue and substitute, where one product is discontinued and substituted by another. 33 items currently manufactured by different companies will be consolidated into a single site. We will continue to pursue economies of scale and strive to enhance efficiency throughout the entire process from production to sales.

Finally, regarding the outlook for cash allocation, as this is a topic that comes up during IR meetings, we wish to explain our current thinking. The diagram on the left shows the 3-year policy presented at the time of the medium-term plan announcement. Operating cash flow has remained below the medium-term plan projections for both fiscal years 2024 and 2025 due to greater-than-anticipated cash allocations towards securing raw materials such as cocoa beans, building up inventories of antibacterial drugs upon government's request for stable supply and the profit level.

Investment is also expected to be lower than initial projections. Since the fiscal year 2024, progress and direction of businesses and investments based on ROIC has been discussed at business strategy review meetings, which led to reassessing priorities and scrutinizing cash outflows. As explained, while swiftly considering and implementing structural reforms, we will steadily reduce assets and improve capital efficiency.

As promised, we aim to maintain stable and continuous expansion of returns with a minimum total payout ratio of 50%. We will continue to be flexible with the share buybacks in accordance with the investment opportunities and cash flow conditions.

That concludes our outlook for the second half and full year of fiscal 2025.

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