Annual Report 2002: Shifting toward a High-Earnings Structure

•	Further reduce the cost structure of domestic food operations.
•	Capture the full benefit of newly created economies of scale.
•	Centralize and streamline corporate administration.
•	Raise the strength of powerful Ajinomoto brands.

Continuous Improvement in Operating Profitability

Hon-Dashi, a leading brand in Japan for more than 30 years, remains the top brand in its category and has benefited strongly from Ajinomoto’s success at reinforcing communication with consumers.

   The domestic food products market is mature and consumer tastes and needs have become highly diverse, resulting in heightened competition. Ajinomoto has therefore implemented a comprehensive program to improve operating profitability in its existing food products businesses with the goal of maintaining leadership in its chosen market segments.

Maximizing the Benefits of Cost Reductions
   Ajinomoto’s ongoing program of reducing the cost of nucleotides and amino acids has generated significant gains in competitiveness in each of its global bulk ingredients businesses. Moreover, the program has raised the competitiveness of retail consumer brands, such as Hon-Dashi and Cook Do, that use them as ingredients. Logistics has been another core focus in reducing costs. Distribution companies work in conjunction to consolidate shipments to obtain the maximum volume discounts, and are using the same systems when advantageous to do so.
   The highest levels of quality, however, are essential to maintaining strong brands. Ajinomoto has therefore been careful not to implement cost reductions that reduce quality. Moreover, Ajinomoto will continue to invest to expand businesses in areas where its technological strengths give it a strong competitive advantage, and will use acquisitions and alliances when favorable.

A Focused, Effective Presence in Seasonings and Foods
   The consolidation of related domestic operations into the Seasonings and Food Products Company will allow Ajinomoto to build on the popularity and market share of its many number one brands, which include AJI-NO-MOTO, Hon-Dashi, Cook Do and Knorr soups. Enhanced synergy among seasoning and processed food production and marketing operations in areas such as gifts and institutional segments will be another beneficial result of concentration. We also expect consolidation to yield manufacturing efficiencies that will support the competitiveness of our brands in the marketplace.
   Externally, consistent and effective communication with customers is critical to maintaining a solid position in the seasonings and food markets we serve. Continuing corporate advertising campaigns since the 1999 introduction of Ajinomoto’s new logo and slogan are helping to reinforce a consistent brand image among Group companies.

A Force in Frozen Foods
   In October 2000, Ajinomoto Fresh Foods Co., Ltd. and the Company’s frozen food-related divisions were consolidated to form Ajinomoto Frozen Foods Co., Inc., thus vertically integrating all stages of frozen foods operations from development to production and marketing. Frozen foods is a challenging market, but Ajinomoto plans to reduce costs through several management initiatives such as increasing overseas procurement. As in the edible oils business discussed below, the domestic frozen food market as a whole is consolidating, and Ajinomoto is now prepared to emerge as one of its leaders.


	Greater administrative efficiency supports cost competitiveness. The Personnel Affairs Service Center, created in July 2001, unifies salary administration, employee training, and personnel system administration for the Ajinomoto Group. Representative of the success of Ajinomoto’s strategic focus on concentrating and streamlining operations, the Center is contributing to reduced costs and heightened efficiency.

Critical Mass in the Edible Oils Business
   The Japanese market for edible oils is consolidating because there are too many producers given the market size. This understanding formed the rationale for the April 2002 formation of a joint holding company by Ajinomoto Oil Mills Co., Inc. and HONEN Corporation covering each company’s edible oils business. In addition, Yoshihara Oil Mill, Ltd. will join the holding company in April 2003, thus creating Japan’s largest producer of cooking oil, with a 30 percent share of the domestic market. The joint holding company will raise operating efficiency by eliminating resource duplication in production, logistics and sales, and will reduce personnel by approximately 20 percent. Production lines will be reoriented to specific products to raise operating rates and economies of scale.

Organizational Changes Strengthen Profitability
   Selection and concentration of administrative functions are also supporting improved earnings throughout the Ajinomoto Group. Accounting systems have been unified through the Group information system and centralized at the Accounting Service Center in Kawasaki, Japan. A corporate function, Ajinomoto’s accounting activities undergo a continuous improvement process to ensure proper financial controls throughout the Group as operations evolve. In addition, the implementation of an enterprise resource planning (ERP) system is under consideration. Ajinomoto is also serving shareholder interests by further strengthening its ability to ensure regulatory compliance.
   Treasury management is another area in which corporate management will maintain control over Group functions for greater efficiency and clarity. Ajinomoto Treasury Management, Inc. was established in July 2000 to make best use of the parent company’s financial strength in support of subsidiaries and affiliates. Internal loans and cash pooling are key areas of focus, and foreign exchange control is being added in support of Ajinomoto’s drive to expand internationally. A new treasury management system that improves financial risk management worldwide is now being developed.

HONEN AJINOMOTO OIL MILLS, INC. supports expansion in the edible oils market.

The agreement to integrate the edible oils operations of Ajinomoto and Honen Corporation will help the two companies counter the maturity of the Japanese market while strengthening product development, streamlining production and distribution, and enhancing sales capabilities.

| menu |