NICHIMO CO.,LTD. Q4 FY2025 earnings call

Company Overview & Core Strengths

• Nichimo is a 100+ year-old company founded in 1919, built on accumulated engineering expertise in the fisheries and seafood industry. It operates as a platformer supporting the entire seafood supply chain from fishing grounds to consumer tables across six core business lines.
• The company's core concept is that supporting the growth of the fisheries and seafood industry leads to the growth of Nichimo's own business. Decades of experience in aquaculture give it a unique competitive advantage, and it provides end-to-end coordination for new aquaculture projects while leaving ownership and operations to customers.

New Mid-Term Management Plan

• The plan adopts a future-back planning approach (starting from a 10-year vision and working backwards) instead of traditional incremental planning, with a new purpose statement: "Connecting from shore to table, continuing our journey of challenge into the future."
• Key priorities:
  • Strengthen the core water supply chain business, prioritize profitability over market share or sales volume
  • Actively pursue expansion into adjacent high-growth areas: environmental protection in Ocean Business, overseas food processing machinery in Machinery Business
  • Consider M&A opportunities that align with strategic priorities and have good business fit
• Key prioritized financial metrics: ROE (target ≥10%), ROIC (target ≥4.5%), D/E ratio (target ≤1x to maintain financial discipline)

Portfolio Restructuring Strategy

• The company classifies its business lines into three categories for portfolio management:
  1. Stable Profit Area (Food, Materials): Maintain stable high profit contribution from these mature businesses
  2. Profit Growth Area (Ocean, Machinery): These high-potential growth areas are the top priority for capital and human resource investment, to accelerate growth. The three highest-priority focus areas are aquaculture, environmental materials, and overseas expansion of Machinery Business
  3. Strength Building Area (Biologics, Logistics): Review costs and explore synergies with other businesses to improve profitability
• The long-term goal is to shift from the current over 50% profit dependence on Food Business to a balanced three-pillar structure with equal-sized profit contributions from Food, Ocean, and Machinery by 2035.

Capital Allocation & Dividend Policy

• The new mid-term plan has a total investment budget of 12 billion yen, split equally between capital expenditure and M&A, with M&A focused on Food and Machinery related targets. This investment pace is planned to continue through the 10-year long-term vision period.
• Dividend policy: Maintain progressive dividends, target a 35%+ payout ratio by the end of the mid-term plan (FY2028), with a long-term target of 40%+ payout ratio and 4%+ DOE, and consider introducing shareholder benefits. The company will also consider share buybacks to improve ROE.

For the 2025 March Term (FY2025), all four core segments achieved year-over-year revenue and profit growth:

1. Food Business: Strong sales of frozen seafood products (crab, scallops, northern frozen fish) offset weakness in surimi-related products, delivering growth. It currently contributes approximately 50% of total operating profit.
2. Ocean Business: Weak sales of traditional fishing nets and gear due to poor domestic inshore fishing catches were offset by steady growth in aquaculture-related materials and feed sales. This segment is positioned as a long-term growth driver focused on aquaculture and environmentally friendly materials.
3. Machinery Business: Delivered strong growth driven by broad-based order wins including large-scale projects, and was the top contributor to overall FY2025 earnings growth. In the first quarter of FY2026 (2026 March Term), strong broad-based domestic and international order flow led this segment to drive overall Q1 results.
4. Materials Business: Despite headwinds from rising raw material prices, profit-focused sales operations delivered steady growth. This segment is characterized by stable, low-volatility earnings. For 1Q FY2026, total company revenue was 35.305 billion yen (+16.5% YoY) and operating profit was 1.033 billion yen (+59.3% YoY), with all four segments continuing stable growth.

• FY2026 (2026 March Term) Full Year Guidance: Management maintained the initial opening guidance, projecting total revenue of 135 billion yen and operating profit of 3.3 billion yen, targeting another all-time high for both sales and profit. Revenue for the full fiscal year is projected to hit another all-time high at 133.9 billion yen for FY2025.
• New Mid-Term Management Plan (3-year, ending FY2028): Guidance calls for total revenue of 155 billion yen and operating profit of 4.3 billion yen, building on the completed base-building work of the prior plan to lift operating profit into the 4 billion yen range.
• 10-year Long-Term Vision (ending FY2035): Guidance projects total revenue of 230 billion yen and operating profit of 7.7 billion yen, which would represent a 2.5x+ increase in operating profit over FY2025 actual results.
• Dividend Guidance: FY2026 annual dividend is projected at 100 yen per share, a 3 yen increase from FY2025 (split 50 yen interim / 50 yen final).

• Uncertainty over the global economic outlook, including U.S. trade policy, creates headwinds for overseas business expansion.
• Food Business has inherent structural risks: seasonal seafood purchasing leads to temporary spikes in interest-bearing debt, and earnings are exposed to seafood price volatility, requiring strengthening of manufacturing capabilities to stabilize earnings.
• Ocean Business high-growth areas (aquaculture, biomass fishing nets) require long-term investment and will take time to become established and deliver meaningful profit contributions.
• Machinery Business earnings are dependent on customer capital investment cycles, leading to inherent order volatility; the company is pursuing overseas expansion to mitigate this and stabilize earnings.
• The fisheries and seafood industry faces multiple long-term structural challenges: declining domestic consumption, climate change, poor fishing catches, and the need for environmental and resource conservation, which increase operating uncertainty.
• Achieving the 10-year profit growth target requires accelerating profit growth far beyond the company's historical 2% annual average sales growth rate, which is a challenging goal in an increasingly uncertain operating environment.

Q: How does management view Nichimo's current stock price? / A: Management acknowledges that current PER and PBR valuations are at discounted levels, which they view as a reflection that the market has not fully priced in Nichimo's value, and this is a key issue for management to address. They note that the company already generates stable earnings from its core Food and Machinery businesses, while also growing future growth drivers such as aquaculture and overseas expansion. Management plans to improve information disclosure and investor communication to better convey the company's intrinsic value, and drive sustainable growth and higher capital efficiency to increase market expectations and improve valuation multiples.

Q: Are the 3-year and 10-year earnings targets ambitious or conservative? / A: Management views the targets as ambitious: to hit the 10-year goal, the company needs to achieve annual growth of over 5%, far above its historical 10-year average of ~2% annual sales growth, which requires much higher profit generation than in the past. At the same time, management notes that the targets represent the minimum required profit growth to account for cost inflation, rising wages, and increased shareholder returns. While the goal is challenging given industry headwinds and growing market uncertainty, the company has adapted to past paradigm shifts in the fisheries industry over its 100-year history, and management believes the targets are achievable by continuing to adapt to change and create new value.