Towards improved capital efficiency
Having chosen to list on Tokyo Stock Exchange’s Prime Market, satisfying the criteria to secure our continued listing is important for Nichimo.
As part of our capital policy for FY2023, we completed a capital increase of approximately 2.0 billion yen through the issuance of share acquisition rights as initially planned, which brought the total number of issued shares to approximately 4.5 million. In addition, in preparation for the start of the new NISA system, we implemented a stock split in November 2023, and the current total number of issued shares is approximately 9.0 million. Looking at the current share price, I believe that this capital policy has been generally well received by the capital markets.
1) Increase of our tradable market capitalization
Continuing to increase our corporate value and obtaining its appropriate evaluation in the capital markets to increase our tradable market capitalization, thereby clearing the level of 10.0 billion yen needed to maintain a listing on the TSE Prime Market is an important issue. If the current share price level (as of March 2024) continues, it appears that we can satisfy the criteria, but of course we need to keep a close eye on external economic factors and the state of the capital markets, and we will focus on maintaining and improving the appropriate share price.
2) Improvement of our operating cash flow
We will continue to strengthen our financial position by working to improve operating cash flow and focusing on generating profits that exceed our cost of capital.
3) Proactive approach to our investor relations activities
We are making our investor relations (IR) activities more proactive than ever before to ensure that Nichimo’s corporate value (share price) is evaluated appropriately by the capital markets. In an effort to raise awareness of the Nichimo Group’s business and business model, we hold financial results presentations twice a year for institutional investors, as well as presentations for individual investors.
We are also putting effort into improving our corporate website and strive to providing timely, high-quality information disclosure.
Through these efforts, Nichimo is striving to sustainably increase its corporate value and obtain an appropriate corporate valuation in the capital markets. We recognize that progressing with these is our greatest mission.
FY2023 results and FY2024 forecast
For FY2023 (the “current fiscal year”), at the start of the year we foresaw achieving the targets for the final year of the “Fiscal 2023 Medium-Term Management Plan (Toward the next stage)” (the “current medium-term plan”) one year ahead of schedule, and set targets of 131.0 billion yen in consolidated net sales, 3.1 billion yen in operating profit, and 3.5 billion yen in ordinary profit. However, once the year began, while normalization of economic activity following the COVID-19 pandemic was seen, the earnings environment remained difficult due to the emergence of geopolitical risks, such as the prolonged situation in Ukraine and worsening tensions in the Middle East.
In this business environment, the Marine Business saw steady growth in areas such as the aquaculture business, but the earnings environment for the Food Business deteriorated. Specifically, the Food Business saw valuation losses on raw materials for surimi and an increase in obsolete inventory at a subsidiary.
As a result, consolidated net sales for the current fiscal year were 127.7 billion yen, and consolidated operating profit was 2.0 billion yen, resulting in a decline in profit. As such, in terms of business performance, the current fiscal year takes on the position of a period of stagnation, but in FY2024 (the “next fiscal year”), we expect progress in disposing of the negative legacy that arose during the current fiscal year, and that prices of raw materials for the Food Business will return to stability.
We plan to allocate the approximately 3.0 billion yen in investment cash flows we obtained during the current fiscal year to new investments. Through this, we hope to set targets for the next fiscal year that exceed the targets for the final year of the current medium-term plan.
The Marine Business will be the core that supports the recovery of our performance in the next fiscal year. Regarding land-based aquaculture, which is also a sustainable initiative, we produced 300 tonnes in the current fiscal year, which was the first year of production. Our next production target is 3,000 tonnes, but first we will work towards achieving 1,500 tonnes in the next fiscal year. The land-based aquaculture project being implemented in Kyushu is being conducted in collaboration with Kyushu Electric Power Company, Incorporated. The upfront investment of around 10.0 billion yen will be required to achieve the final target of 3,000 tonnes. Nichimo will contribute 40% of this amount, which will be funded by utilizing the financial cash flows and investment cash flows obtained during the current fiscal year. The Nichimo Group’s land-based aquaculture is a pioneer compared to other companies, and we have high expectations of its future development.
Progress of medium-term management plan and outlook for next medium-term management plan
A total of 10.0 billion yen in capital investment over the three-year period was planned under the current medium-term plan, and are moving forward with this. Specifically, in addition to commercialization of land-based aquaculture, we envision the practical application of biomass fishing nets, building a system for the stable supply of marine products and new M&As. Regarding the long-term funds related to investments and loans, we have made capital investment and business investment plans and are working to ensure liquidity while comprehensively taking into account market interest rate trends and the repayment schedules for existing long-term borrowings, etc.
We have previously announced net sales of 150.0 billion yen and ordinary profit of 4.5 billion yen as our long-term vision and medium- to long-term management targets. I believe that it will be difficult to achieve these numerical targets simply by expanding our existing businesses. It will be necessary for us to ensure that the new businesses which we are currently working on are placed on track and to acquire new businesses, for example through M&A.
By business segment, the Food Business is often influenced by the market conditions for raw materials, so the challenge is to establish a profit structure that is less susceptible to market conditions. Specifically, this means increasing the amount of processed foods.
In the Marine Business, we will continue to advance our existing initiatives. As global warming progresses, we predict that we will no longer be able to catch fish in abundance as we did in the past, and therefore it is necessary to proceed with research and development into aquaculture, environmentally friendly materials, and labor-saving ship operations.
The Machinery Business is a field in which growth is expected. We need to increase exports overseas in order to grow further. For this, we will pursue the possibilities for overseas expansion, including finding sales partners overseas.
To support these developments, we believe it is essential to secure operating cash flow during the term of the current medium-term plan, and our urgent task is to increase corporate value and shareholder value by further expanding cash flows and improving capital efficiency.
The Nichimo Group continues to make unending efforts to increase its corporate value, including the implementation of the next medium-term plan. As an officer in charge, I will continue to proceed with reforms without ever letting up.
Please look forward to the future of the Nichimo Group.
