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Recent business environment and results for the fiscal year ended March 31, 2023
Despite the impact of rising prices for marine products on earnings, we are building a business structure that is resilient to changes in market conditions and the external environment by developing our four businesses.
Recently the Nichimo Group’s business environment has become increasingly uncertain. Rising energy prices driven by the Ukraine crisis and increasing logistics costs on sea and land have had a significant impact on earnings. In addition, the marine products industry continues to experience poor catches, and it remains difficult to procure foodstuffs properly. In the Food Business, which accounts for approximately 60% of the Nichimo Group’s sales, the increase in marine product prices in particular has had an impact on earnings. Looking at consumer prices in Japan in general, compared to livestock or produce, the increase in prices has been much steeper for marine products, which are deeply tied to the Company’s business. Indeed, we have never experienced price increases at the level that we have seen in the past year. In response, consumer behavior is beginning to show signs of belt-tightening as people begin to take steps to preserve their lifestyles. The Company decided to pass cost increases through to sales prices, and we have made some progress in this; however, this has had a negative impact on recent earnings.
On the other hand, as for the earnings of the Marine , Machinery, and Materials Businesses , which make up approximately 40% of sales, the situation is different from that of the Food Business.
For the Marine Business, despite the ongoing poor catches in Hokkaido’s coastal waters and the continued impact on the coastal fishing industry from the COVID-19 pandemic, in the fishing net and gear section, business proceeded steadily, with signs of a recovery in overseas demand for purse seine nets after a temporary decline. Moreover, in the ships and machinery section, sales of ship equipment and supplies were solid. In the aquaculture section, demand increased as a result of firm fish prices and avoiding major increases in product prices. In the Machinery Business, despite a decrease in the number of large, highly profitable projects compared with the previous fiscal year, demand itself was strong, as the need for mechanization continued to increase, partly due to labor shortages caused by the COVID-19 pandemic. However, earnings were affected by pressure from increases in the prices of raw materials, as well as delivery delays due to the shortage of semiconductors. In the Materials Business, the synthetic products section saw steady sales of its mainstay construction sheets despite the impact of high prices for packaging materials, while the agricultural supplies and materials section also made solid sales of Cofuna® and fertilizer. However, it took time to pass cost increases through to prices, and profits stalled.
In this way, while the Food and Machinery Businesses encountered adverse conditions for earnings, this was covered by strong performance in the Marine Business, reinforcing the sense that with a business portfolio made up of four businesses we are gradually building a business structure that is resilient to changes in market conditions and the external environment.
Risks and opportunities for Nichimo
With the impacts of climate change, the vessel fishing industry is a medium- to long-term risk factor.
On the other hand, in aquaculture, business opportunities are expanding for both marine and land-based aquaculture.
Business opportunities have been expanding in the marine products industry lately. The combined global production volume of the vessel fishing and aquaculture industries is increasing year by year, and demand is not expected to decline. Demand for marine products is especially high in Asia, notably China, South Korea, and Southeast Asia. If inbound tourism demand in Japan returns in the post-COVID-19 environment, there may be opportunities to stimulate increased demand through visitors from Asia returning to their own countries after experiencing the appeal of marine products through high grade Japanese cuisine. With their high nutritional value, marine products are also a match for recent trends in increased health awareness, and their popularity is growing.
Production from the vessel fishing industry is remaining about level, and from a perspective of procuring sustainable marine resources, it will be difficult to continue increasing production in the industry going forward. Japan is attempting to increase catch volumes in the vessel fishing industry by strengthening resource management on its own. However, we are now seeing a situation where changes in the ocean are having an impact on catch volumes, such as movement of Pacific saury migration offshore due to global warming, making it difficult to catch them with conventional methods of the vessel fishing industry. Meanwhile, expectations are increasing for the aquaculture industry. This industry is divided into marine and land-based aquaculture, and demand is expected to expand for both. This represents a business opportunity for the Nichimo Group, which has been focusing on aquaculture.
While demand for marine aquaculture is expanding, it remains a significant challenge to obtain a fishing right to start and expand marine aquaculture operations as it often involves negotiations with the existing fishing right holders who are mostly vessel fishing companies. For this reason, it is expected that existing vessel fishing companies will turn their hands to marine aquaculture. Fortunately, the Nichimo Group has cultivated relationships of deep trust with vessel fishing companies, who are our customers, through the Marine Business. Going forward, we will seek to leverage these connections with such companies to expand the marine aquaculture business.
Land-based aquaculture, on the other hand, has not developed in a large-scale field in Japan so far. To be profitable, land-based aquaculture needs to have a certain business scale. This means that it requires securing large areas of land next to the sea. Due to this factor, there are a number of cases where companies that have already secured large tracts of coastal land, such as electric power companies and petroleum companies, are entering aquaculture. In addition to these, there are also cases where electronics companies are joining the industry by developing systems for managing and operating land-based aquaculture with small numbers of people. The participation of different industries is expected to facilitate the market efficiency and commercial feasibility of the land-based aquaculture business.
Nichimo has expertise in aquaculture developed over many years, and by providing our services to business operators such as these, we aim to contribute to the expansion of land-based aquaculture.
The expansion of aquaculture is an important theme for the global marine products industry. As demand for marine products expands, those that appear on our tables will gradually be replaced by products from aquaculture.
To enable the marine products from aquaculture to become a popular part of everyday cuisine, it will be necessary to distribute not only fresh fish, but also processed marine products. The key point is that aquaculture and processing should be developed together as a set. Looking ahead, the Nichimo Group is expanding aquaculture production while also promoting the processing of marine products, which is our area of expertise. We believe that this approach will enable the penetration of marine products from aquaculture into popular food culture.
Progress of the medium-term management plan and strengthening of sustainable management
We have been making steady progress on the measures set out in the medium-term management plan for embodying our management policy.
We will continue to promote sustainable management to secure global marine resources
The Nichimo Group is focusing on sustainable management through its three-year Fiscal 2023 Medium-Term Management Plan “Toward the next stage” for the embodiment of the management policy, “From Ocean To Dining.” The Plan includes the six key initiatives as described below.
1. Expansion of the aquaculture business
As mentioned earlier , we will continue working to expand the aquaculture market and increase the Nichimo Group’s presence. In the marine aquaculture sector, we will do this by supporting existing vessel fishing companies to enter the aquaculture business, and in the land-based aquaculture sector, by providing aquaculture expertise to companies from different industries seeking to enter the business.
2. Stable revenue in the Food Business
So far, we have concentrated mainly on purchasing marine products from the global markets to supply them to diners in Japan. Recently, however, we risk missing purchasing opportunities in the market due to reasons such as surging demand for marine products in Asia and the yen’s depreciation, an issue that is becoming more serious. In response, we are expanding the aquaculture business and increasing procurement from the vessel fishing industry to stabilize revenues in the Food Business.
3. Take initial steps towards strengthening profitability of the Machinery Business
We will continue to capture demand for mechanization in Japan due to worker shortages. It will become increasingly important to make full use of Japan’s specialization in the production of food manufacturing machinery in overseas business. Amid this trend, we will accelerate our overseas business expansion. This is another extremely promising business area.
4. Strengthening of Group management
We are working to strengthen corporate governance and CSR activities. With regard to governance in particular, we will focus on strengthening Group governance even more in order to improve the quality of management at the Group companies.
5. Promotion of sustainable management
Since we make use of natural resources in the form of marine products, Nichimo’s mission is to protect the world’s marine resources, and we are proceeding with this urgently. This also ties in with our contribution to the Sustainable Development Goals (SDGs), and we see it as the core of the Company’s sustainable management. By continuing to fulfill our responsibility to conserve abundant marine resources and support environmentally friendly production and distribution, we are seeking to enhance corporate value over the medium to long term with the theme of “Opening the way to a sustainable world!”
6. Investment in high-growth markets
Amid increasing global demand for marine products, we recognize there are business opportunities in relation to their production and distribution. We are investing aggressively in these fields that are expected to become high-growth markets, not only in Japan but also from a global perspective.
Nichimo’s driving force is its spirit of taking on challenges
By constantly taking on the challenge of new businesses, neither fearing failure nor being complacent with success, we grow stronger as a company, and our management also becomes stronger.
The Nichimo Group has a history that spans over a century. Our continuous growth so far has really been due to our underlying company spirit of dedicated effort and perseverance.
The best example of this is the aquaculture business. The Nichimo Group first turned its hand to aquaculture about 40 years ago. Through our business activities over this time, we have accumulated aquaculture technologies and know-how, and the time has finally come to reap the rewards of all that effort. The Cofuna® business of manufacturing organic fertilizer is another case in point. After more than 30 years of steady trial and error, our efforts finally bore fruit, and the business has become profitable. There is no question that it is the efforts of our employees that lie behind these successes. When our efforts made through numerous experiences of success and failure pay off, we find meaning in new endeavors and energy to strive for tomorrow.
On the other hand, in starting new businesses, if we accumulate experiences of giving up easily, then they will never produce any value.
If employees only experience repeated failure, they will soon lose motivation and become inclined to move to other companies. On this point, the Nichimo Group has a depth of spirit that enables us to stick at things without giving up and to accept all results, both successes and failures. I am certain that taking on the challenge of a new business, and the associated successes and failures, make a company and its management stronger. My personal creed is that by constantly taking on the challenge of new businesses, neither fearing failure nor being complacent with success, we grow stronger as a company, and our management also becomes stronger. A strong company and management will inspire employees’ desire to become strong too, enabling them to acquire various expertise through the failures and successes of new businesses, and to learn what to do in business and how to approach it. The accumulation of such experiences leads both employees and management to decide on the direction for management and achieve business results. Our younger generation of employees, those who will shape our future, will not fear failure, but rather learn a lot from it, and remember to keep a positive attitude to taking on challenges.
Please look forward to the challenges taken on by the Nichimo Group for sustainable growth and sustainable management.