Supporting NISSIN FOOD
Group Sustainable
Growth Strategy
From a Financial Perspective
NISSIN FOODS HOLDINGS CO., LTD.
Executive Officer, CFO
FY 3/2022 Review and Outlook for FY 3/2023
The NISSIN FOODS Group achieved strong performance in FY 3/2022, driven mainly by our Overseas Business. Overseas Business revenue grew 20% year on year, reaching double-digit growth in all regions. These results were largely due to global recognition of our product features and superiority of our instant noodles during the COVID-19 pandemic. We believe that this was a year in which we proved the growth potential of our Overseas Business.
Consolidated Financial Summary
*Foreign currency amounts are converted to yen at the rate of FY 3/2021.
The goal of the NISSIN FOODS Group Mid- to Long-Term Growth Strategy is to achieve stable, mid-single digit growth in profits from existing businesses. Profit growth in FY 3/2022 was about 5%, and we plan to in crease this figure further in FY 3/2023. Looking at the group by business portfolio, we plan to achieve low single-digit growth in our domestic instant noodles business, while we seek to achieve high-single digit growth in our Domestic Non-Instant Noodles Business, which we expect to expand in the future. We also plan for double-digit growth in overseas markets, which are growing rapidly.
While sales have been very strong, the situation remains uncertain due to soaring resource prices. We factored in some degree of resource price volatility over the past year into our plans. But we believe there is also a risk of prolonged impact due to the Russian invasion of Ukraine. In response to this environment, we intend to secure appropriate profits by leveraging our brand power, particularly overseas, and by revising prices.
FY 3/2023 Forecasts by Segment
* China (Incl. H.K.) strategy and related targets, financial results forecasts are established independently by NISSIN FOODS HOLDINGS.
Finance and Accounting Division Commitment to Improving Corporate Value
We recognize the importance of considering how to reorganize our Finance and Accounting Division to contribute to improved corporate value, as well as to communicate an awareness of this question throughout the organization. Our division does not manufacture or sell products directly. So it is difficult to imagine how we can improve corporate value. Therefore, we separated the division into two sections, each having their own defined roles. The first section is “going concern,” which plays a defensive, or protective, role in closing accounts, paying taxes, and managing cash flow, etc. The second section is “value enhancement,” which plays an offensive, or proactive, role. We then defined a vision for our division to be a corporate value enhancer, sharing this vision with staff in Japan and overseas. This concept is based on our desire to be an entity that maximizes the value creation of the NISSIN FOODS Group in terms of both offense (proactive enhancement of global corporate value) and defense (cost minimization and maintenance of our group as going concern).
Taxation Becomes a Key Focus as Global Business Expands
We see taxation as an area that has undergone a major change over the past several years in position, status, and importance at the global level. In the past, taxation was more of a local issue in which each country set its own rules. However, trends in strengthening the fight against international tax evasion by multinational corporations through base erosion and profit shifting (BEPS) have made taxation a global issue. Amid these circumstances, we see growing demand for head office-led compliance with global-based rules such as digital taxation and minimum tax.
Taxation is also viewed with greater importance from the standpoint of sustainability. Tax payments have even become integrated into governance indicators. As a result, external accountability is in greater demand and reputational risk is becoming a rising factor. We believe that tax transparency will become even more important in the future as we develop our strategy for M&A, new investments, and the establishment of new companies to expand the scope of group operations and geographic coverage.
Acquiring and Developing Global Financial Human Resources to Support Growth
Our Overseas Business has been expanding steadily over the past several years. Under our Mid- to Long-Term Growth Strategy, we see this business segment as one that will grow the most over the next 10 years. Given these circumstances, we view the acquisition and development of global financial human resources for our Overseas Business as an urgent issue.
To develop and train human resources, we must not only find external human resources who can contribute immediately, but also develop human resources internally. As part of this effort, we began hiring new graduates in FY 3/2022 under the framework of financial recruitment. Our desire is to develop multifaceted skills within each individual and develop personnel to become a corporate division possessing staff with a high level of financial and market literacy, who understand numbers, and who can communicate with the market. My hope is that we can lower boundaries across organizations and create a positive impact through the interaction of people from various backgrounds.
Approach to Financial Management
Currently cash exceeds borrowings within the NISSIN FOODS Group. However, to achieve further growth in the future, we must expand production facilities. In addition, we will need to rebuild aging facilities and invest in new businesses. We are discussing internally which investments, including M&A and new investments, will be made, the timing, and the methods to be used. The Investment and Financing Committee on which I serve as vice chair is an advisory body to the Management Committee. This committee conducts the first series of discussions when considering investments. We have established a framework that uses investment profitability indicators such as net present value, internal rate of return, and payback period, all calculated based on hurdle rates that take country-specific risks into account. ESG and SDGs perspectives are also considered before making investment decisions. We ensure effective governance over investments by setting KPIs that serve as prerequisites for achieving plans. We monitor the progress of these KPIs regularly, the results of which are reported to the Investment and Financing Committee and the Management Committee. In the overall management of the balance sheet, including investments and financing, we focus on return on equity (ROE), the long-term target of which is 10%. Equity spread is another useful indicator of shareholder value creation, and we recognize the importance of achieving ROE levels that exceed the cost of shareholders' equity on an ongoing basis. At the same time, we believe it is important to prioritize borrowings reflecting a certain level of financial discipline. From the perspective of financial safety, we use the balance of net debt as a KPI, set at less than two times EBITDA, which is an indicator of earnings for the fiscal year.
Continued Stable Dividends, Aiming for a Virtuous Cycle of TSR and Share Price
Our Mid- to Long-Term Growth Strategy includes progressive dividends as a principle concept, calling for a dividend payout ratio of 40%. We intend to continue to pay stable dividends. We also adopted a three-year relative TSR index beginning in FY 3/2023, which will serve as a performance-based evaluation criterion for directors. We evaluate share prices not only on the basis of financial indicators such as sales and profits, but also on the basis of overall corporate value, including non-financial indicators. We believe these systems lead to an awareness of the relationship between TSR and share price, resulting in a virtuous cycle of rising share prices.
We evaluate the significance of strategic cross-shareholdings in terms of both economic and non-economic value. Every year, we sell such shares in order of priority after consulting with the Board of Directors.
Enhancing Dialogue with Stakeholders
I recognize that the role of the CFO is to provide advice regarding disciplined management. On the other hand, I also consider it an important mission to advise management on necessary corporate reforms. Engaging in dialogue with external parties is important to strike a balance between brake and accelerator. Evaluations by external parties is extremely important for us as a listed company. My own desire is to sharpen my sensitivity to such evaluations through regular dialogue with experts in various positions. I believe that dialogue with investors also plays an extremely important role in governance.
In IR meetings we hope to communicate the group's direction and approach to management in formats easy for investors to understand. We then strive to share the opinions and feedback we receive with management to close the gap between the two sides, as well as to incorporate this feedback into policies and measures. Over the past year, I have been in contact with investors and analysts to identify our insufficiencies. In the process, we have introduced various improvements, including better presentation materials.
I believe that there is no end point to communication with investors. What they want differs depending on the situation at any given time, and the information we provide will change as well. Therefore, we must determine always what is important at the moment, continuing to put effort and ingenuity into dialogue and communication with investors and analysts.
