Tokyo, Japan-based frozen foods company Nichirei's FY 2024 report revealed the company had increased revenue but a low return on equity as it faced high raw material and energy prices.
Nichirei, which also handles logistics and trade for seafood and meat products in addition to its frozen food operations, reported net sales of JPY 680.1 billion (USD 4.6 billion, EUR 4.2 billion) for FY 2024, up 2.7 percent year over year. Profit attributable to the owners of the parent company rose 14 percent from the previous fiscal year to JPY 24.5 billion (USD 167.3 million, EUR 151.8 million), and the company's profit margin also improved from 3.3 percent to 3.6 percent.
Though it saw some improved financial metrics, a major challenge for Nichirei, as well as for its competitors, has been low return on equity (ROE). Many companies aim to have a return on equity of at least 10 percent, and Nichirei was able to just clear that benchmark with a 10.3 percent ROE in FY 2024, up from 9.9 percent the year prior. The company said it aims to maintain ROE above 10 percent from FY 2025 onward.
The company said its Processed Foods segment performed well in FY 2024 due to price hikes implemented in the previous fiscal year and a focus on commercial use items. The net operating profit ratio for the segment was 6 percent, and the segment accounted for 47 percent of the company’s total operating profit of JPY 36.9 billion (USD 241.2 million, EUR 223.2 million).
The Logistics segment, which includes cold storage, was the second-biggest contributor to Nichirei’s total operating profit, accounting for 42 percent of the total. It had a net operating profit of 6.2 percent.
The Marine Products and Meat and Poultry segments lagged behind the performance of other segments, with net operating profit ratios of just 1 and 1.3 percent, respectively, and contributing a mere 0.01 and 0.03 percent of the total operating profit.
The company confirmed it focused “on sales of high-margin and Marine Stewardship Council- (MSC) and Aquaculture Stewardship Council (ASC)-certified products, along with revisions to selling prices in response to rising procurement costs,” but lower profitability of fish roe was a main factor in the poor results for its Marine Products segment, Nichirei said.
The firm’s Other segment, which includes biosciences products including Covid-19 antigen test kits, and its Real Estate segment, performed better, with net operating profits of 19 and 37.2 percent, respectively, contributing 3.4 and 4.4 percent to the total operating profit.
“We faced rising raw material and energy prices due to the uncertain international situation, as well as supply and demand imbalances due to supply chain disruptions, and rapid exchange rate fluctuations,” Nichirei said. “However, we are beginning to see positive signs, such as increased demand from inbound tourism and a recovery in personal consumption.”
Moving forward, the company will continue to try to improve the profitability of its fisheries- and livestock-related businesses by focusing on high-profit products and MSC- and ASC-certified seafood.
The Nichirei Group's overseas sales ratio is currently 21 percent, but the company plans to increase its overseas capital investment ratio to 26 percent during the current medium-term management plan period, eventually reaching 50 percent in the long term. The company said it sees growth opportunities in the North American processed food business, as well as the Asian frozen food market.
For the latter, it will take advantage of its seafood-processing production base in Vietnam: Trans Pacific Seafood. The subsidiary company has six production lines on site with a total floor area of 20,000 square meters, with over 500 employees producing 2,000 metric tons (MT) of products per year. A new freezer with a storage capacity of 2,000 MT was completed in June 2024.
In other segments, Nichirei announced it will expand its lineup of processed chicken products. Responding to the increased number of single-person households in Japan, the company will expand products for personal use, as well as its lineup of products with health benefits.
In the domestic cold-chain logistics business, the company will address a nationwide shortage of truck drivers resulting from new labor laws that limit overtime for drivers, dubbed the “2024 problem,” by expanding its temperature-controlled logistics system.
In this system, tractor-trailer drivers will simply detach their trailer at a Nichirei hub and connect to a new, pre-loaded container. Each company will handle the loading and unloading functions, eliminating loading dock wait times and reducing labor costs by accelerating the introduction of automation in warehouses.
In order to improve its return on invested capital (ROIC) in the cold chain logistics business, rather than using its own frozen and refrigerated warehouses, Nichirei will utilize the assets of other companies to increase profitability while reducing invested capital. It will also seek growth through mergers and alliances rather than relying solely on organic growth.
