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Business environment and results for the fiscal year ended March 31, 2024
Greatly reduced profit despite increased sales due to restructuring and reorganization of consolidated subsidiaries
The business environment in FY2023 was difficult for the Nichimo Group.
Although social and economic activity finally began to recover with the end of the COVID-19 pandemic, geopolitical risks became apparent around the world and appear to be a long-term problem. In the domains of marine products, marine product processing and distribution, and food, which are the foundation of the Group’s business, recovery was seen in the restaurant and tourism industries, but difficult conditions were faced due to soaring raw material and energy prices.
In our main Food Business, strong sales of crab for mail order and commercial use contributed to the Group’s performance, but a deterioration in the market for surimi (kneaded fish meat) caused distributors’ inventory accumulation, forcing the recording of an impairment loss. Regarding pollock roe too, rising raw material prices and manufacturing costs for mass-market products led to an overall decrease in sales and profit for the Food Business compared to the previous fiscal year.
Similarly, the Materials Business faced difficulties as it was unable to pass on rising raw material prices to sales prices. However, in the Marine Business, although there were poor catches of squid, salmon, saury and other fish that are caught in the seas around Japan, there was a bumper catch of sardines, and sales of materials used to catch them progressed well. In the Machinery Business, there was high demand both domestically and overseas for various labor- and power-saving production equipment, and orders increased.
However, although we secured an increase in revenue, our performance saw a significant decrease in profit due to the recording of losses as part of the business restructuring and reorganization of our consolidated subsidiaries.
We continue to make progress on the three pillars of new businesses that promote sustainable management to improve corporate value
Regarding progress of the three pillars aimed towards realizing a sustainable society through our business, the first are the initiatives to realize a system for the stable supply of marine products. The Nichimo Group has two plants in Mombetsu, Hokkaido.
One is a plant that processes Alaska pollock caught off the coast of Hokkaido into surimi and produces meal using the remnants that are generated as a by-product. The other is a plant for processing crab and scallops from Okhotsk. A two-stage capital investment has been planned for these two plants, and installation of the automated lines for surimi and fish meal that were planned as the first stage has been completed and they are now operational. For the second stage, we are considering the renewal of freezing equipment.
Next, regarding land-based aquaculture for salmon, a 300-tonne production system has been established as the first phase, and the first shipment was made in October 2023. We are currently working on improving water temperature, feed, and rearing methods in order to raise the quality of the fish to a level that would be considered delicious by everyone who eats it. The second phase involves plans for 3,000-tonne production, but the transition is slower than initially planned. We will proceed with the second phase of the plan while monitoring the sales results of the first phase.
Finally, regarding the sale of biomass fishing nets, field testing has finally begun. Although the reaction from customers has not been negative, the nets have not yet reached the point where they can maintain the same functionality as conventional fishing nets, and there are still issues to overcome.
Although it will take time for each of these initiatives to produce results, we will continue to push forward with these initiatives as they will contribute to increasing our corporate value.
Thoughts on finalizing the medium-term management plan and transforming the business portfolio
Actively developing overseas markets in addition to businesses that meet demand in the domestic market, and reforming the business portfolio to stabilize performance
As we complete the second year of our “Fiscal 2023 Medium-Term Management Plan (Toward the next stage)” (the “current medium-term plan”), which began in FY2022, I personally feel the necessity to transform our business portfolio. It can be said that the current businesses of the Nichimo Group mainly cater to domestic demand, led by the Food Business.
The Company’s main business involves procuring marine products from around the world and producing fish domestically, for sale in the domestic market. However, the business environment has changed dramatically in recent years, and a business that focuses solely on domestic demand is no longer sufficient. I believe we will need to further increase the proportion of our business that is directed towards overseas demand. This means making large changes to our business portfolio, but I believe it is necessary to proceed with it in the future.
The businesses which can be expected to expand their exports are the Marine Business and Machinery Business. Specifically, the export of fishing materials handled by the Marine Business and the export overseas of food manufacturing machines.
The scale of the overseas market for fishing materials is not that large and the market has fierce price competition, but we already have a history of exporting food manufacturing machines, and the recent depreciation of the yen provides a sense of inexpensiveness in the overseas market. On the other hand, as worker shortages have become a global issue and not only a domestic one, I can see that the mechanization of manufacturing plants will continue in the future as well. First, we will proceed with the reform of our business portfolio by increasing exports of food manufacturing machines, with the idea of expanding profits while stabilizing our business.
Promoting sustainable management and aquaculture business
Expanding our aquaculture business in consideration of the sustainability of fishery resources, and pursuing the possibilities of land-based aquaculture in addition to marine aquaculture
The Nichimo Group is a company that provides comprehensive services throughout the distribution process, from catching marine products to processing and sales, and we are committed to sustainable management with the recognition that protecting our abundant marine resources is an important responsibility. Our aquaculture initiatives are similar to the sustainable management that the Nichimo Group is pursuing, in the sense that they do not damage natural marine resources. Going forward, the marine products industry will likely change to one that considers the sustainability of fishery resources and protecting wild marine products while supplying farmed fish to the market, thereby maintaining a rich diet.
The land-based salmon aquaculture business is becoming increasingly competitive as companies from a variety of industries continue to enter the market. The number of foreign companies from countries such as Norway and Singapore is also increasing. There is no doubt that there is demand for domestically farmed salmon in the Japanese market, and this demand is also expected to continue to expand in the future.
Marine and land-based aquaculture each have their pros and cons. Compared to land-based aquaculture, marine aquaculture currently produces far more fish, and is also more profitable. However, marine aquaculture is facing new problems, the greatest being ocean temperatures. Especially in the summer, ocean temperatures are increasingly rising to levels that were previously unthinkable, causing phenomena such as farmed fish to die and shortened farming periods. Taking into account these changes in the global environment, it is necessary for the Nichimo Group to work on both marine and land-based aquaculture.
Regarding land-based aquaculture, I feel there are great benefits from collaboration with other industries. This is because we can utilize the business assets of companies in other industries. For example, in our collaboration with Kyushu Electric Power Company, Incorporated, they are allowing us to use unused land at a thermal power plant. Because we are using a large piece of land along the coast, it provides a great benefit in terms of water use rights. Furthermore, land-based aquaculture would not be viable if it is not in such favorable locations. On the other hand, Nichimo Group’s knowledge of the fishing industry should be attractive to companies in other industries. This is because they can take on challenges in new fields by partnering with our Group. Regarding offshore wind power, projects cannot proceed unless a mutually beneficial relationship is built with fishermen, so I feel that there are high expectations for the Nichimo Group to promote local fishing industries and create new marine products businesses. I believe that by leveraging this collaboration, we can evolve our business in a way that suits the times.
Such collaboration will also lead to invigoration within Nichimo. Nichimo promotes “challenging new things through organizational collaboration” within the company, and concrete progress is being made on new developments in land-based and marine aquaculture of salmon. I believe that assigning human resources, primarily young people, to these fields to create new businesses will lead to the invigoration of organizations and human resources.
Toward further increasing corporate value
Compiling our next medium-term management plan toward further increasing corporate value and establishing a solid system to consistently satisfy the Prime Market listing maintenance criteria
Nichimo is working to continuously improve its corporate value as a company listed on the Tokyo Stock Exchange Prime Market.
Judging from the current stock price (as of March 2024), we are being well-received by the capital market, and with an eye toward further increasing our corporate value in the future, we have established a committee and work is in progress to formulate our next medium-term management plan, which will begin in April 2025. Our idea is that we must first make thorough preparations to satisfy all of the listing maintenance criteria when this criteria is checked at the end of March 2025, and the major policy for the three-year period of our next medium-term management plan will include the establishment of a solid system that will enable us to consistently satisfy the conditions of the Prime Market.
First of all, we will ensure that we earn appropriate profits so that shareholders and investors will recognize the earning power of the Nichimo Group. On top of that, we will also focus on investor relations activities so that the Nichimo Group’s future business activities are well understood.
Our Company has always had a majority of stable shareholders who intend to hold shares for the long term, including through cross-holdings. Going forward, the idea is to make a major shift in our capital policy.
Specifically, we will change our policy to one of increasing the number of general and overseas investors by proceeding with the elimination of the cross-shareholdings we have maintained thus far and increasing the number of shares in circulation. We will also make our IR activities more proactive than before. Management’s attitude is to place great importance on continually communicating the Company’s internal operations and management approach, including sustainability reports.
As we have begun to adopt this attitude, we have recently begun to receive constructive feedback in a variety of forms from shareholders and investors. By listening to these opinions, an attitude to evolve the Nichimo Group has also begun to grow. The number of overseas shareholders is also gradually increasing, and by improving our English-language IR materials, we are now attracting interest from overseas investors as well. Additionally, to improve our governance system, we have appointed a female outside director and will receive opinions from various perspectives.
Marine products are a food source that is highly appealing to people around the world. The world is beginning to realize that there is great value in enjoying a diet that is centered around marine products.
As Japan is surrounded by the sea, it is natural that delicious seasonal fish can be enjoyed at any time, but a time may come in the future when this will no longer be the case. There are many things the Nichimo Group can do to continue delivering delicious marine products to dining tables around the world. Please keep an eye on the Nichimo Group as we continue to grow in order to provide sustainable marine resources.