Nichirei : Message from the President (333KB/8 pages)PDF

Management Strategy

Message from the President

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We help resolve social issues through our business as we aim for sustainable growth.

Kenya Okushi

Representative Director, President

Nichirei Corporation

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Nichirei Group Integrated Report 2021 3

Message from the President

A Year of Unprecedented Changes

In the fiscal year ended March 31, 2021 (FY2021), which was the second year of our Medium- term Business Plan WeWill 2021, the global COVID-19 pandemic created unprecedented challenges. Although we made progress in line with the plan in terms of earnings, we had to deal with substantial changes in our operating environment.

• Due to the impact of the pandemic, sales of commercial-use products were weak, and consolidated net sales decreased compared with the previous fiscal year. On the other hand, operating profit increased due to strong sales of household-use prepared foods in the processed foods business and growth in the temperature-controlled logistics business, among other factors.
• We expect a certain degree of recovery in demand once the pandemic subsides. However, as values change along with significantly altered lifestyles in the post-COVID market, Nichirei will not be accepted unless it offers products and services adapted to the new normal. This will require changes in resource allocation and strategy. Moreover, the growth of ESG investment has led to greater interest among investors and greater sensitivity on the part of our suppliers and customers, particularly regarding the environment, and discussion of measures to address such issues has increased.

Medium-term Business Plan WeWill 2021:

Achieving Our Goals for the Group in the Final Year

Regarding initiatives in FY2022, although the logistics business has increased facility capacity in Japan through the establishment of new refrigerated warehouses in Nagoya and the Honmoku district of Yokohama, and has enhanced its business foundation with innovations utilizing artificial intelligence (AI) and robotic process automation (RPA), progress has fallen behind the plan overseas, where changes in the operating environment have necessitated readjustments to growth investments. In FY2022, the business will add refrigerated warehouses in the Netherlands and France to enhance its logistics service functions and broaden its business base.

• The processed foods business has established three policies. First, it is crucial to increase sales, which are the source of profits, and seek new markets to recoup the decline in sales. The second is to adopt new approaches that differ from those we have been using, including making changes to our product development and our sales organization. Third, now that the barriers are disappearing between household-use and commercial-use products, which we have been producing at separate facilities, we plan to introduce production facilities that can handle both types of products.
• When customers prepare meals, they are increasingly likely to require a variety of products as ingredients rather than serving a single household-use product. Product needs are also

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diversifying for commercial-use prepared products for sale. As a FY2022 initiative to meet these changing needs, we have devised an investment plan that includes revisions to planned capital expenditures to address new markets.

• I have always been proud of the part we play in food infrastructure, and I felt that pride particularly keenly in FY2021. As I mentioned, the COVID-19 pandemic has spurred changes in consumer purchasing behavior and the spread of home delivery and e-commerce. As these and other factors significantly transform the entire supply chain at an unprecedented speed, I believe they have also led to greater recognition of the value of frozen foods and logistics. In an era of change, the Nichirei Group's role as part of food infrastructure is to seek out and identify diversifying needs for food with the goal of developing businesses in those areas, while helping consumers develop better eating habits. It is both our mission and a constant responsibility.

Medium-term Business Plan WeWill 2021, pages 42-43

Material Matters for Sustainable Growth

The environment and climate change are important issues for corporate management. Economic activities decrease the Earth's limited resources, and once the world population reaches 8 or 9 billion, we clearly will not be able to maintain our current food procurement methods and infrastructure. For the environment as well, Nichirei used to take a reactive approach, basing its initiatives on prevailing situations, but those days are over. Now, we must think for ourselves about how our business activities affect the environment. The material matters we identified in FY2021 factor in our impact on climate change and food infrastructure. In June 2021, with the aim achieving our long-term vision regarding business goals for 2030 (see pages 12-13) we also formulated Group goals, consisting of measures and key performance indicators (KPIs) for each of our five material matters. We have begun considering more concrete growth strategies for the entire Nichirei Group, looking to the next medium-term business plan and further ahead to 2027 and 2030. The Group Strategy Committee, scheduled to meet in November 2021, will bring together the Group's senior management to consider how each business will generate results and contribute to achieving the Group goals, and then incorporate its conclusions into strategy. The committee will bring into sharper focus what we will do as a Group and what each business will do to achieve our goals.

• As Group goals (measures and KPIs) for the material issues we have identified, we will work to create new value by designating new products and services for each business as well as the projected scale of their sales. We will also set quantitative targets for progress in creating new businesses. We will also use the advantages of our existing businesses-their technologies and know-how-as the basis for generating cash, and promote the use of information technology (IT) and digital transformation (DX) in helping to resolve issues in food procurement and the environment while raising our competitive advantage in the global market.

Story Creation Value Strategy Management

Strategy Financial

Achieving for Initiatives Strategy Business Society Sustainable a

Data

Nichirei Group Integrated Report 2021 5

Message from the President

• Looking at the market in Japan, in addition to environmental issues, I sense impending crisis from market shrinkage due to the declining birthrate and aging population, as well as a growing budget deficit. By 2050, one in four people will be over 75 years old, and social security costs are expected to balloon further. There should be more vigorous discussion of the role of people's eating habits in extending healthy lifespans and leading fulfilling lives. Based on its core theme of food and health, the Nichirei Group must show how it can help to resolve these social issues and take a variety of approaches to create new products and services.
• On the other hand, there is still substantial growth potential in many countries and regions around the world, making our business rollout into overseas markets crucial. Deflationary conditions have persisted for a long time in Japan, but prices have risen overseas, and there are even some regions where Japanese products sell for higher prices than in Japan. Particularly given factors such as the growing purchasing power of Asia's middle class, I think we should continue to pursue the rollout of our businesses in markets outside Japan with an emphasis on balancing forecasting and backcasting, which entails working backward from targeted future outcomes to identify policies to achieve them. However, there are limits to relying solely on our own power in such markets, so M&A and alliances should be included as realistic methods of expanding overseas sales. Our current overseas sales are about ¥80 billion, and we are aiming for ¥300 billion in 2030.
• In addition, risks in the supply chain these days are directly tied to management issues. The Nichirei Group procures products and raw materials from suppliers in various regions around the world as well as Japan. We will therefore establish a system for sustainable procurement in line with our policies, with a focus on the environment and human rights.
• In our climate change initiatives, we aim to become carbon neutral by 2050, and have raised our FY2031 target for Group CO2 emissions reduction (Scope 1 and 2 in Japan) to 50%. I think we need to change our approach from simply carrying out a series of measures to one of setting

Material Matters (Materiality)

• Creating value in food and health
• Strengthening food processing and production technology capabilities; enhancing logistics services
• Realizing sustainable food procurement and resource recycling
• Climate change initiatives
• Securing and developing a diverse array of human resources

Backcasting from 2030

2027

Long-term Management Goals toward 2030

• Promote innovation
• Create new value that resolves social issues

■ Net sales	¥1 trillion
■ Operating margin	8%
■ Overseas sales ratio 30%

Contribute to people's good eating habits and health

Mission

Focus on Lifestyles, and

Provide True Satisfaction

Vision

We will continue to support good eating habits and health by leveraging our state-of-the- art manufacturing practices that optimize nature's bounty, along with our leading-edge logistics services.

		2022
		2021
2019		Reallocation of
		management resources

Medium-term Business Plan WeWill 2021

• Realize sustainable profit growth (Japan: Raise profitability by strengthening the management foundation and transforming the business structure/Overseas: Expand scale of operations)
• Improve capital efficiency and expand shareholder returns
• Create new value that supports good eating habits and health

Long-term goals (measures and KPIs)

Organizational Profile

The Nichirei Group has adopted self-management based on the Japan Quality Award, the premier quality management framework.

Upon analysis of current conditions and organizing data on changes in the environment, each Nichirei business identifies its ideal form over a medium- to long-term timeframe and creates an organizational profile as a management strategy orientated toward realizing that form. On this basis, Nichirei formulates its medium-term business plans (currently spanning a three-year period).

term-medium Next plan business

Basic Group CSR Policy -The Nichirei Pledge-

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