Presentation May 17, 2007 Our Theme for the Next Three Years: “Growth and Challenge” Strategies to Expand Profit Base —New Medium-Term Business Plan, FY08/3 through FY10/3— — (Stock code: 2871) Nichirei Corporation Tel: (+81-3) 3248-2132 E-mail: takeshitas@nichirei.co.jp URL: http://www.nichirei.co.jp/ir/en/index.html
Table of Contents [Main Features of the New Medium-Term Business Plan] [Business Strategy: Logistics] Improved Financial Condition and Profitability Allow Active New 1 10 Investments Logistics Network Will Drive Medium-Term Growth The Japanese Market in Core Businesses, Processed Foods and Expand Logistics Network Business by Increasing Joint Distributions 2 11 Logistics, Will Continue to Expand and Contracting New Center Operations ¥66.7 Billion in Operating Cash Flow Will Be Invested in Core Resume Large-Scale Capital Investment to Meet Future Needs in 3 12 Businesses over the Next Three Years Regional Storage Challenges: Improve Profit Margins in Processed Foods, and 4 Increase Sales in Logistics [Reference Materials] 5 13 Numerical Targets in the New Medium-Term Business Plan Data [Business Strategy: Processed Foods] 6 Operating Income Margin of 4.8% by FY10/3 Establish Top Brand Group in the Commercial-Use Market by 7 Focusing on Specific Product Categories Further Accelerate Expansion in the Health Value Field through 8 Business Partnerships [Business Strategy: Marine Products] Continue Efforts to Create a More Focused Product Line, and 9 Achieve Positive Operating Income by FY08/3 Note: Figures shown in graphs and tables have been rounded to the nearest unit where necessary, except where otherwise specified.
Main Features of the New Medium-Term Business Plan
< Main Features of the New Medium-Term Business Plan> Improved Financial Condition and Profitability Allow Active New Investments 1. Achievements in the previous Medium-Term Business Plan i. Improved financial condition and better return on equity ii. Focused management resources on core businesses and improved profit margins iii. Transformed management system by shifting to a holding company structure, etc. 2. Overall strategy for the new Medium-Term Business Plan, and medium-term management goals i. The new Medium-Term Business Plan is designated as a period of “Growth and Challenge” building on the reinforced financial base, improved profit-generating capability in core businesses, and strengthened management system achieved in the previous Plan. ii. Interest-bearing debt will remain at present levels, and the operating cash flow for ¥66.7 billion generated over the next three years can be prioritized for investments to expand the revenue base. iii. Medium-term ROE target is set at 10%, and the policy on returns to stockholders is to maintain dividends on equity (DOE) of 2.5%, and a dividend payout ratio of 25%. Debt/Equity Ratio (Consolidate) ROIC and ROE ROIC and ROE Turnover Rate Operating Margin 100 million yen Interest-bearing debt Shareholders' equity Debt/equity ratio 2.6 2.5 2.51 2.5 12.0% 2.5 2.50 2.4 11.1% 2.36 2.3 2.5 2,000 2.43 2.2 10.1% 10.0% 10.2% 2.2 9.7% 2.16 2.2 2.1 9.7% 2.1 2.09 2.0 2.23 8.8% 2.03 2.0 8.4% 2.14 2.0 8.9% 1.9 8.1% 2.00 8.0% 2.0 2.00 7.4% 1.93 1.91 6.9% 6.4% 6.4% 1,500 6.2% 6.1% 6.0% 5.8% 1.60 5.4% 5.4% 5.3% 4.7% 4.5% 1.50 1.38 1.5 4.0% 3.6% 2.9% 4.2% 2,173 1.19 2.8% 4.0% 4.0% 3.9% 2,006 2.1% 3.4% 1,000 2.0% 2.0% 3.3% 3.2% 1,959 1,948 1,931 1,917 3.0% 1,898 2.9% 1,873 2.8% 2.5% 1,718 1,727 1.00 1.0 1,674 1.8% 0.84 0.2% 0.2% 1.4% 1.4% 0.0% 1,453 1.0% 0.66 1,243 96/3 97/3 98/3 99/3 00/3 01/3 02/3 03/3 04/3 05/3 06/3 07/3 08/3E 09/3 10/3 1,120 -2.0% -2.0% 500 (Plan) (Plan) 0.5 862 0.50 730 -4.0% Employed capital turnover rate Operating margin ratio Employed capital operating margin Return on shareholders' equity -5.6% -6.0% 0.0 0 0.00 92/3 93/3 94/3 95/3 96/3 97/3 98/3 99/3 00/3 01/3 02/3 03/3 04/3 05/3 06/3 07/3 FY Notes: 1. ROE is calculated from net income (loss). Negative figures for FY98/3 and FY04/3 reflect restructuring support losses in investment businesses and reorganization losses. 2. Figures for FY07/3E include an extraordinary gain of ¥3.0 billion on sale of shares in an １ affiliated company. Excluding this gain, ROE is 8.5%.
< Main Features of the New Medium-Term Business Plan> The Japanese Market in Core Businesses, Processed Foods and Logistics, Will Continue to Expand 1. The percentage of household food budgets spent on restaurant food, takeaway lunchboxes, ready-to-eat, and frozen foods will continue to increase. 2. Given the chronic shortage of cooks and the steady extension in hours of operation, demand from supermarkets and restaurant chains for commercial-use products that helps reduce their food preparation workloads is rising. 3. In view of an aging population, and the introduction of policies intended to combat rising health care costs derived from metabolic syndrome and other illnesses, a better food style will become more popular for people to stay healthy. 4. The demand for logistics solutions and logistics outsourcing shifting from in-house logistics will continue to expand due to increasing needs for innovative logistics solutions to improve supply chain management, and trends toward joint distributions to help conserve resources and reduce environmental impacts. Percentage of Logistics Costs Paid to Outside Logistics Companies Percentage of Food Budget per Household Spent on Foods Prepared Outside the Home Percentage of Logistics Costs Paid to Outside Logistics Companies Percentage of Food Budget per Household Spent on Foods Prepared Outside the Home (All industries) (All industries) 38.0% 70.0% 36.0% 62.2% 34.0% 56.7% 56.4% 55.6% 54.4% 51.8% 32.0% 50.0% Pre-cooked foods + restaurants, school lunches 30.0% 28.0% 30.0% 2000 2001 2002 2003 2004 2005 26.0% FY Source: Survey of Logistics Costs in Fiscal 2005 , Japan Institute of Logistics Systems 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 Source: Created based on Family Income and Expenditure Survey, Ministry of Internal Affairs and Communications, Statistics Bureau. Year (Ready-to-eat foods + restaurant meals and school lunches) ÷ (Spending on food, ２ excluding sweets, beverages and alcohol)
< Main Features of the New Medium-Term Business Plan> ¥66.7 Billion in Operating Cash Flow Will Be Invested in Core Businesses over the Next Three Years 1. Capital investment in facilities over the next three years will total ¥54.0 billion, ¥48.9 billion of which will be focused on two core businesses. 2. Breakdown of ¥17.9 billion investment in Processed Foods i. Expand in-house production capacity of pre-cooked frozen foods for commercial use. ii. Invest in the Health Value area. 3. Breakdown of ¥31.0 billion investment in Logistics i. Construct six new refrigerated warehouses in Japan (mostly scrap and build projects) with a capacity of 60,000 tons. ii. Establish new Logistics Network distribution centers. 4. Take advantage of M&A and investment opportunities that may arise. Changes in Level of Capital Investment 100 million yen Capital investment (Logistics) Capital investment (Processed foods) 197 Capital investment (Other) 200 174 16 169 18 17 150 66 41 72 97 90 90 100 76 17 9 8 66 52 14 50 36 7 40 43 115 115 50 24 7 7 27 11 80 13 44 42 38 38 34 32 30 0 01/3 02/3 03/3 04/3 05/3 06/3 07/3 08/3E 09/3 (Plan) 10/3 (Plan) FY ３
< Main Features of the New Medium-Term Business Plan> Challenges: Improve Profit Margins in Processed Foods, and Increase Sales in Logistics 1. Raise the operating income margin in Processed Foods from the present 3.4% to 4.8%. 2. Increase total sales in Logistics by 19% compared with FY07/3, by achieving 10% annual growth in the Logistics Network business. Strategy Map for the New Medium-Term Plan Growth in sales Expansion of Expansion of Logistics Logistics Network Network business business Expand logistics in Increase share of the commercial Europe and China frozen foods market Expand our Health Value Creation business Maintain present cargo Logistics Improve profit margins booking capacity in in transportation Regional Storage Processed Control manufacturing costs by Foods expanding in-house production Continue strategy of rationalizing Control costs in capacity Regional Storage sales promotion costs in frozen foods for household use Improved profitability ４
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