Prologue: Medium-Term Business Plan 2016
To achieve growth overseas, in our previous medium-term business plan, we actively invested in order to pursue a global position for the NISSIN FOODS Group. Although we faced a difficult business environment in Japan during the three-year period of the plan (which began in 2012), because of factors such as the sharp yen depreciation and soaring raw material prices, we decisively implemented across-the-board price revisions and were able to absorb cost increases.
Factors that contributed greatly to the achievement of our strong business results were solid performance from the instant noodle business in Japan, good results in China, where sales of CUP NOODLES were strong, and the consolidation of NISSIN FOODS DO BRASIL LTDA. as a wholly owned subsidiary. As a result, we achieved our targets for net sales, the overseas sales ratio, net income attributable to owners of parent*1, and ROE. Net sales in particular reached a record high.
Although we achieved the targets for key performance indicators (KPIs) that contribute to the enhancement of “Corporate value in the capital market,” we fell short of our targets for operating income and operating income margin, measures of “Earning power centered on core businesses.” There are two major reasons for this. The first is that,for the purpose of enhancing the global management platform support structure,we brought forward systems investment and invested in human resources to support global management. The second is that it is taking longer than expected to achieve profitability in the Asia segment (which excludes China) where we have actively invested.
Since the experience gained during the three-year period of the previous business plan has enabled us to more clearly identify regions where we can leverage the Group’s strengths and expect early profit expansion, I consider these three years to have been a period of investment for future breakthroughs.
Destination: Market Capitalization of ¥1 Trillion
Under Medium-Term Business Plan 2021, positioned as a waypoint to realizing the Group vision of embodiment of an “EARTH FOOD CREATOR,” we established a clear theme: “Gain a strong global reputation.” We aim to realize market capitalization*2 of ¥1 trillion by increasing earning power centered on core businesses and focusing on corporate value in the capital market.
Market capitalization is not something we can change by ourselves, as it is a barometer of investor expectations of future growth. What we can do is to capture investor attention by delivering on healthy KPI targets, specifically, net income attributable to owners of parent of ¥33.0 billion, adjusted operating income*3 of ¥47.5 billion, adjusted EPS*4 of ¥330 (requiring by default a CAGR of 10% or higher), and ROE of 8% or higher (IFRS basis). Whenever appropriate,we also intend to support the achievement of these goals with active pursuit of M&A.
Strategy: Globalization of CUP NOODLES
The first of five strategies for achieving the KPIs is to promote global branding of CUP NOODLES. We will improve overseas profitability by selling CUP NOODLES, a high value-added product that enables us to leverage our strengths, to young people in their teens and twenties who enjoy a certain standard of living.
The second strategy is to focus enterprise resources on BRIC countries, identified as priority markets in the medium-term business plan. These countries account for approximately half of worldwide demand for instant noodles.
China is the world’s largest market for instant noodles. Although we currently do business mainly in coastal areas such as Guangdong and Shanghai, potential for further growth remains through expansion of the sales area to other urban centers and surrounding regions.
India is the world’s 8th-largest market. Although the market has temporarily stagnated as a result of spreading anxiety among consumers caused by a safety issue that occurred in 2015 at a competitor, we will boost sales of CUP NOODLES to the rapidly expanding middle class, mainly in eight large cities.
We are the overwhelming market share leader in Brazil, the world’s 10th-largest market. We intend to sell high value-added CUP NOODLES based on our strong sales foundation.
In Russia, the world’s 11th-largest market, our joint venture MAREVEN FOOD HOLDINGS LIMITED is the market share leader. We will seek further growth by boosting technological cooperation and strengthening the support structure.
Strategy: Toning Up the Group’s Core Operations
The third strategy is laying stronger foundations for our domestic profit. Japan faces the problems of a declining birthrate and aging population; yet, I think that NISSIN FOOD PRODUCTS, which delivered a strong performance in fiscal 2016, can grow here, too, by continuing to appropriately target customer segments and providing new value.To reliably achieve growth, we will invest to bring higher levels of sophistication to our factories in order to further strengthen food safety and increase productivity. In this way, we plan to realize a profit base that is stable over the long term.
The fourth strategy is to establish secondary pillars of revenue and profits in addition to instant noodles by injecting technologies cultivated in the instant noodle business into the confectioneries and cereals business, and the chilled and frozen food and lactobacillus drinks business, because there are strong affinities between the technologies for these businesses.
The fifth strategy is to increase and empower the management personnel who will make it possible to execute these strategies, and accelerate global management. If we successfully follow the five strategies above, we can achieve the KPIs in the business plan.
Credo: Corporate Governance
Appropriate for a Global Company
Global companies are required to appropriately consider and respond to ESG (environment, social, and governance) issues. In the area of governance, NISSIN FOODS HOLDINGS has decreased the number of inside directors from nine to three, increased the number of outside directors from four to five, and in so doing increased the number of independent outside directors from two to three. In this way, we will further strengthen the oversight function of management and increase the speed of decision-making while substantially incorporating the views of the outside directors, who comprise a majority of the Board of Directors.
In terms of social issues, securing food safety is the first priority for a food company, and the Group will continue to follow the most rigorous and disciplined approach to ensuring the safety of our products.
To address environmental issues, we have established medium-term environmental targets to be achieved by fiscal 2021. In managing our business activities, we will place even greater emphasis on energy conservation, global warming mitigation measures, resource conservation and resource recycling measures,and strengthening of the environmental management system.
As captain of our new odyssey, I pledge the full dedication of employees to the realization of the Group vision: the embodiment of an “EARTH FOOD CREATOR.” We will actively undertake business activities to steadily achieve our objectives during the period of the medium-term business plan.
- *1“Net income attributable to owners of parent” under Japanese accounting standards, “profit attributable to owners of the parent” under IFRS standards
- *2Market capitalization = Share price × Issued shares at end of year (after deduction of treasury shares)
- *3Adjusted operating income = Operating income – Impact of retirement benefit accounting
- *4Adjusted EPS = Adjusted NOPAT*5 / Average issued shares for the period (after deduction of treasury shares)
- *5Adjusted NOPAT = Adjusted operating income +Equity method gains or losses + Amortization of goodwill (including equity-method affiliates) – Net income attributable to non-controlling interests