Finance as a Corporate Value Enhancer: Combining Offense and Defense to Maximize Value Creation


Executive Officer, CFO

A Year Showcasing Our Potential as a Global Company

In FY 3/2023, the NISSIN FOODS Group achieved record highs in both revenue and profit at every stage, achieving a growth rate in the double digits, exceeding even that of the previous term. Initially, there were concerns that the company might struggle due to challenges such as unstable international conditions, rising material costs, and a weakening yen. However, the increase in overseas business exceeded our expectations, with increased sales significantly offsetting cost increases, driving the company's performance. Additionally, our non-instant noodles business also saw robust growth.

After three years of the COVID-19 pandemic, our business portfolio is shifting significantly in the direction we hoped it would. We set targets to increase the ratio of overseas business in our core operating profit from about 30% in FY 3/2021 to approximately 45% in FY 3/2031. Yet, this year, this ratio has already risen to 46%. I interpret this figure to be a testament to our transformation into a global company.

The growth in our non-instant noodles business is driven by our beverage business, with products that help improve sleep quality performing well, and our snack food business, led by KOIKE-YA, where rebranding has led to strong sales of core products. In the snack business especially, we aim to develop new products aligned with changes in consumer behavior, namely increasing health consciousness and simplifying food consumption behaviors. Combined with our efforts in new businesses, which are focused on balancing nutrition and taste, we anticipate the realization of Group synergies under the slogan “health value through food.” Even in our marketing efforts, we pursue Group synergies. Using strategies unique to the NISSIN FOODS Group, like our distinctive commercials, we have elevated the brand value of Group companies such as NISSIN YORK and KOIKE-YA. Additionally, the KANZEN MEAL series launched in May 2022 as our newest business. Within a year of its release, it is off to a promising start, surpassing 10 million meals sold and garnering numerous awards. As a result, we have achieved our annual target of 3 billion yen based on market selling price.

Thus, overall, we've positively transformed and expanded our business portfolio, and I regard FY 3/2023 as a year that demonstrated our potential in a new growth stage as a global company.

Consolidated Financial Summary for FY 3/2023

(Billions of yen)
Institutional accounting basis Constant currency basis
FY 3/2023 YoY FY 3/2023 YoY
Amount Ratio Amount Ratio
Revenue 669.2 +99.5 +17.5% 631.7 +61.9 +10.9%
Core operating profit of existing businesses 60.2 +10.6 +21.5% 56.1 +6.5 +13.1%
Operating profit 55.6 +9.0 +19.4% 51.4 +4.8 +10.4%
Profit attributable to owners of the parent* 44.8 +9.3 +26.4% 40.8 +5.4 +15.2%
Core OP margin of existing businesses 9.0% +0.3pt - 8.9% +0.2pt -
OP margin 8.3% +0.1pt - 8.1% -0.0pt -
Profit attributable to owners of the parent margin 6.7% +0.5pt - 6.5% +0.2pt -

Includes the impact of tax effect accounting, etc., at NISSIN FOODS (U.S.A.) of approx. 4.4 billion yen (one-time factor for the increase in profit attributable to owners of the parent, year on year)

For FY 3/2024, we're projecting sales revenues of 710 billion yen and core operating profits from existing businesses at 64 billion yen, up more than 6% from the previous year. We remain committed to maintaining growth in the mid-single digits, as outlined in our mid-to-long-term growth strategy.

Full-Year Earnings Plan for FY 3/2024

Revenue 710 bil. yen YoY
Core operating profit of existing businesses Mid-single digit growth
64 bil. yen
Invest in new businesses at an amount between 5% to 10% of core operating profit of existing businesses
Operating profit 57.5 - 60.5 bil. yen +3.3 - +8.7%
Profit attributable to owners of the parent 42.5 - 44.5 bil. yen -5.1 - -0.6%
EPS 419 - 439 yen/share

Yen-based presentation of earnings plan is based on actual exchange rates for FY 3/2023

Prioritizing Growth Investments and Charting a New Growth Trajectory

Given our impressive performance in FY 3/2023, we are placing even greater emphasis on cash flow management and resource allocation.

When it comes to managing our cash flow, securing and expanding our capital for growth is crucial to creating a framework for the first objective of our mid-to-long-term growth strategy, which is to strengthen the cash generation capabilities of our existing businesses. In this context, our EBITDA for FY 3/2023 stands at 84.5 billion yen and is projected to be around 90 billion yen for FY 3/2024. Compared to just over 50 billion yen in 2018, this represents a significant increase over five years, indicating our success in securing growth capital.

However, with increased sales, we will also need more working capital and equipment investment. Additionally, considering potential challenges such as deteriorating international conditions or unforeseen events due to natural disasters, the importance of long-term cash flow forecasting and management will become increasingly important. We aim to refine our capital management practices to ensure an appropriate cash reserve. We will also continue researching more effective financing methods. Currently, one of our KPIs is a financial safety metric: the ratio of Net Debt/EBITDA. The ratio is currently negative, indicating an excess of deposits. Even if future capital needs arise, we will explore effective ways to leverage debt for mid-to-long-term growth, bearing in mind our target ratio of within 2x.

EBITDA and Cash Flow

Cash Flows
Cash Flows

With regard to allocating resources, our immediate focus is on the urgent issue of enhancing production capacity. Specifically, we are planning to invest 70 billion yen in equipment in FY 3/2024, centered on establishing a third plant in the U.S. and increasing production at various business hubs in Japan and overseas. While recent years saw this investment around the 30 billion yen mark, the global surge in demand for our Group's products has surpassed our existing manufacturing capabilities. Priority will be given to capital investments aimed at future growth to address this issue. Instant noodles may seem like a simple technology, but a diverse range of expertise is required to control the production of the noodles, ingredients, and nutrients. As our proprietary manufacturing equipment is a source of our competitive edge, we must carefully prioritize and incorporate it into our capital investment plans, including our recent contributions to ESG. Furthermore, it is essential that we invest in new businesses as new pillars of our Group, and we aim to continue investing an amount equivalent to 5-10% of the core operating profit of our existing businesses.

When considering these investments, preliminary discussions are conducted at the Investment and Financing Committee, where I serve as vice chair, as an advisory body to the Management Meeting. Here, we have established a framework that uses investment profitability indicators like NPV (Net Present Value), IRR (Internal Rate of Return), and payback period, calculated based on a hurdle rate that takes into account country-specific risks. These decisions also incorporate perspectives on ESG and SDGs. Furthermore, when executing investments, we set various KPIs as prerequisites to achieve the plan, and progress is regularly monitored and reported to both the Investment and Financing Committee and the Management Meeting to ensure effective governance.

Lastly, with respect to shareholder returns, we have adopted a progressive dividend policy. Our fundamental stance is to maintain a dividend payout ratio of 40% without ever reducing dividends, even in the event of fluctuations in business performance. Our goal is to ensure that our TSR (Total Shareholder Return) beats TOPIX Foods, a standard that we intend to uphold. We will consider agile implementation of stock buybacks, balancing profit growth and investment while taking into account stock price levels and available funds.

In May 2021, we announced our policy to reduce an equivalent of 10 billion yen of cross-shareholdings over two years. We have already exceeded this by selling 11.4 billion yen worth in two years. This has significantly lowered the ratio of these shares to 9.4% of our total capital as of March 2023. While we won't set specific numerical targets moving forward, we will continue to reduce these shares based on internally established criteria.

Focus on Finance: Elevating Corporate Value and Embedding Risk Management

I define my vision for the Finance and Accounting Department as a "corporate value enhancer.” In other words, we are responsible for maximizing the value creation of the NISSIN FOODS Group in terms of “offense” (proactive enhancement of global corporate value) and “defense” (cost minimization and maintenance of our Group as a going concern), and I make it a point to share this philosophy with our staff both in Japan and overseas.

The Group's current P/B ratio is just under 3x, and we have just been selected for the newly established JPX Prime 150 Index this year. While I recognize that we are receiving some acclaim for our corporate value, there's still room for improvement. In an era where management must be stock price-conscious, it is vital to convey our growth potential and intangible values, some of which might even go unnoticed internally, as compelling narratives to investors.

This mindset underpins our investor relations (IR) in FY 3/2023 as we raise the bar for investor communications. In particular, we resumed in-person overseas IR activities with an eye to enhancing communication with institutional investors overseas. Out of approximately 300 investor meetings conducted during FY 3/2023, more than half were with international investors. As a result, by the end of 2022, the proportion of shares held by overseas investors increased from levels below 20% to 23%. We also hosted IR briefings on themes of interest to analysts and investors. Moving forward, we plan to strengthen activities related to both retail investor relations and stakeholder relations, all with the aim of achieving a fair stock price. In recognition of our efforts, the Securities Analysts Association of Japan (SAAJ) selected the NISSIN FOODS Group for the significant improvements we have made to our corporate disclosure. In the food sector rankings, we climbed from eighth place last year to fifth this year.

Regarding capital efficiency, we have set a long-term target for our return on equity (ROE) at 10%. Since we've already achieved 10.7% as of FY 3/2023, our ongoing aim is to build a management structure that can sustain this level over the mid-to-long term.

On the defensive front, our emphasis will be on ensuring accuracy in management. There is a Japanese trinity of principles in business management: “Earn, Trim, and Prevent.” Our Group has excelled at “earning” and made significant strides in “cutting” inefficiencies through our digital transformation (DX) initiatives, steadily decreasing the ratio of general and administrative expenses and giving business divisions more time to allocate to value-added creation operations. Now that we have reached a stage in our growth where the scale of our businesses is expanding globally, I believe the challenge of “preventing” negatives like fraud and misconduct is paramount. Specifically, we intend to strengthen the framework of the three-line model of management, ensuring thorough monitoring throughout the organization. As fraud and misconduct tend to manifest in the financial realm, our finance and accounting division, as the second line of defense, will lead the way in establishing rules for the frontline and monitoring their adherence, bolstered by third-party checks as the third line to ensure that governance is effective throughout the organization.

Some manufacturers have strong frontline sales and production operations that tend to dominate, often sidelining governance. But at our company, our second-line division, which holds the key to ensuring governance, will take the lead in building a risk management structure and culture. To this end, we hold regular domestic and international finance meetings for finance and accounting staff across the Group to share insights on the three-line model and discuss practical challenges in its implementation.

Furthermore, as our businesses globalize at an unprecedented pace, nurturing professionals with financial literacy and a global perspective is also a major challenge. We are emphasizing training in finance and management, promoting staff rotations across divisions, and striving to elevate the overall financial literacy of employees. Through our ongoing efforts, we place the utmost importance on communication with our shareholders and investors, fully committed to cultivating a stable relationship built on trust over the mid-to-long term.