Fishery & Aquaculture Operating income

Fishery & AquacultureOur overseas Joint Ventures are central to procurement of marine resources, playing a direct role. These efforts include longline fishing, along with offshore and Purse seine fishing, to catch tuna and other fish, as well as aquaculture to raise bluefin tuna, yellowtail, greater amberjack, and other fish with high added value.

Outlook by Segment

FY2019 performanceFishery & Aquaculture has endeavored to ensure profitability through streamlined operations as a supplier promising both sus-tainability and traceability for marine resources both in Japan and abroad. While revenues are increasing as we handle Skipjack in greater quantities and ship more tuna, the high cost of tuna and low Skipjack prices have driven down margins, resulting in Fishery & Aquaculture net sales of 39,171 million yen (up 10.4% year-on-year) and an operating loss of 277 million yen (down 1,803 million yen year-on-year).

Forward strategyBusiness will hinge on the Fishing Division, which is primarily engaged in purse seine fishing, and the Aquaculture Division that raises tuna, greater amberjack, and yellowtail. As for the impact of the COVID-19 pandemic, the Fishing is experiencing operating losses from fishing vessels based overseas due to different coun-tries’ restrictions on the movement of people. Meanwhile, the Aquaculture has been heavily impacted by falling sales of tuna and greater amberjack to restaurants and institutional users, as well as lower market price for these high-end products. Therefore, rev-enues and profits are forecast to fall significantly. Over the medium to long term, the segment will avoid risks from natural disasters while engaging in aquaculture, such as egg-to-harvest bluefin tuna, that has a lower environmental impact.

Consideration of the external environmentIn light of recent Seafood market trends in developed countries in Europe and United States, demand for healthier dietary are increasing throughout consumers. In emerging countries, economic development has pushed up incomes and caused a rapid rise in the consumption of seafood, which previously was a luxury in those places. Along with this expansion of demand, the marine products market is undergoing fierce competition to acquire resources along with soaring prices. The decrease in marine resources due to over-fishing of seafood has become an important international issue. Amid a growing movement to regulate fish catches around the world to ensure the sustainability of marine resources, production volume by fishing has trended flat, while those engaged in aquacul-ture have experienced dramatic growth worldwide. In Japan, mean-while, shrinking resources and stagnant consumption have led to lower production volume from fishing, while aquaculture produc-tion volume has remained flat due to reasons including a shortage of accessible ocean surface.

However, the impact of the COVID-19 pandemic has significantly altered the environment in which the Fishery & Aquaculture Seg-ment operates. Lockdowns and other border controls imposed by countries inevitably brought operations by high-sea fishing vessels to a standstill, while the global economic downturn has fueled concerns that international prices for seafood products will fall.

TOPICS

Catching the Antarctic toothfish, a premium fish in new Antarctic fishing groundsTaiyo A&F Co., Ltd. constructed the SHINSEI MARU No.8, a high-sea longline fishing vessel, and will begin operating the boat in FY2020. The new vessel is the only Japanese fishing boat catching premium Antarctic toothfish, which inhabits the deep waters in the high seas of the Antarctic Ocean and the southeastern Atlantic Ocean. Fishing of Antarctic toothfish in the Antarctic Ocean is controlled internationally by the Commission for the Conservation of Antarctic Marine Living Resources (CCAMLR). The introduction of an Antarctic toothfish fish-ing certification system prevents international distribution of illegally caught Antarctic toothfish.

The new vessel satisfies international stan-dards for ice resistant. This makes it possible for the first time for a Japanese vessel to oper-ate in the Ross Sea, near the South Pole, which is known for waters rich with Antarctic tooth-fish. Expectations are that the haul will be much larger than before and that operations will occur year-round. And in an effort to develop the next generation of fishing vessel personnel, the vessel offers the crew larger living quarters and access to Wi-Fi while onboard.

High-sea longline fishing vessel SHINSEI MARU No.8

Risks

● The global economic downturn pulls down seafood products prices● High-sea fishing vessel operations suspended due to border

closures in response to the COVID-19 pandemic● Death of farmed fish due to fish diseases and natural disasters

Opportunities

● Demand for marine resources increases due to a global seafood boom● Stronger regulations on fishing increases the need for aquaculture

Risks and Opportunities

FY2017 FY2018 FY2019

38,33235,469

39,171

■ Operating income(millions of yen)

FY2017 FY2018 FY2019

2,332

1,526

-277

Taiyo A&F Co., Ltd.

Aquafarm Co., Ltd.

Sakurajima Yougyo Co., Ltd.

Genkai Yougyo

Amami Yougyo

Kumano Yougyo

Kushimoto Marinefarm Co., Ltd.

Shimonoseki Gyogyo Co., Ltd.

Maruha Nichiro Kaminokuni Kaisan Co., Ltd.

Ishinomaki Gyogyo Co., Ltd.

Taiyo Namibia (Pty) Ltd.

Sakana del Peru S.A.

Taiyo Micronesia Corporation

Qingdao TAFCO Food Co., Ltd.

Main group companies

■ Net sales(millions of yen)

23

ProfilePresident’s Message Strategies and Results in Value Creation

Platform for Sustainable Growth

Maruha Nichiro Group Integrated Report 2020 22 Maruha Nichiro Group Integrated Report 2020

Trading

Outlook by Segment

This segment comprises the Marine Products Trading Unit possessing knowledge and a keen eye for fish around the world, the Meat and Products Trading Unit that delivers safe and reliable meat, and the Marine Products Wholesaling Unit, a core organization acting as a key player in distribution within markets.

FY2019 performanceWhile monitoring market trends in Japan and abroad, the Trading Segment endeavored to ensure profits through precise purchasing and selling calibrated to customers’ needs and stronger seafood processing operations.

The Marine Products Trading Unit’s net sales were on par with last year due to brisk sales to mass-market retailers and restau-rants, but profits fell because of lower tuna prices and slumping sales of high value products to China. The Marine Products Whole-saling Unit is handling less fish in general, while low prices and stagnant consumption of high-end items have brought down rev-enues and profits. The Meat and Products Trading Unit has increased revenues and profits because it is handling more beef and the market for pork is recovering.

The result is that the Trading Segment’s net sales were 434,643 million yen (down 2.3% year-on-year) and operating income was 2,509 million yen (down 23.5% year-on-year).

Forward strategyIt is assumed that revenues and profits from sales to restaurants and institutional users will fall significantly at the Marine Products Trading Unit due to the COVID-19 pandemic. While striving to improve access to resources for the sake of continued steady pro-curement of raw material, the unit will expand processed foods operations by reinforcing product development capabilities and will further beef up sales capabilities by collaborating with sales net-works in Japan and abroad. In the Marine Products Wholesaling Unit, sales of high value products on fresh fish and live fish for institutional users and restaurants have been hit particularly hard by the COVID-19 pandemic, putting heavy pressure on profits. The unit is realigning operations and cutting costs in an effort to improve profits. In the Meat and Products Trading Unit, the COVID-19 pandemic has caused a slump in sales to restaurants andinsti-tutional users , while the global shortage of meat will presumably have an impact. In response to increased dining at home that is pushing up demand at sellers such as mass-market retailers, the unit will focus on handling more meat produced in Japan and ensuring supplies of meat produced overseas, while proceeding to open new sales channels both in Japan and abroad.

Consideration of the external environmentIn global seafood consumption trends, a slowing global economy due to trade friction between the US and China, as well as the impact of the pro-democracy demonstrations in Hong Kong, have led to a notable slump in sales to China and Hong Kong, which have been leading seafood consumers in recent years. The COVID-19 pandemic that spread early in the year has exacerbated the effect to throw the balance of supply and demand into disarray. Now, markets are working to adjust. In contrast, processed goods have enjoyed brisk sales to households and to medical and nursing set-tings. These sales are forecast to grow further.

With regard to Marine Products Wholesaling Unit, rising tem-peratures in the world’s oceans and shrinking resources have sig-nificantly reduced the catch of low-end fish such as Pacific saury and chum salmon in the seas near Japan. This has led to wholesal-ing markets handling reduced volumes. Additionally, the COVID-19 pandemic has caused the markets for institutional users and res-taurants to suddenly contract. As we monitor trends in these mar-kets, an urgent shift is currently underway toward markets catering to mass-market retailers and home delivery, which have been supported by tremendous demand from individual consumers.

TOPICS

Koyo SuisanExpansion at fish meal plantKoyo Suisan Co., Ltd., based in Shiranuka, Hokkaido, is a marine processing company in the Marine Products Trading Unit whose primary operations involve processing of localfish brought to port in Kushiro and elsewhere in eastern Hokkaido. In July 2020, due to replenished sardine stocks in eastern Hokkaido and demand for fish meal* pro-duced in Japan, the company added signifi-cantly more equipment and will seriously expand its fish meal business.

From the company’s establishment in 1980 until sardine catches dropped sharply in 1991, the fish meal business had been the core component of Koyo Suisan. Later, the company developed a business focused on processed goods made from Pacific saury and chum salmon, but due to lower catches of these fish in recent years, Koyo Suisan is putting to good use the catches of sardines that have been meanwhile increasing to rebuild this business. Koyo Suisan is working under the assumption that sardines will be a key part of new business moving forward.

*Fish and leftover fish parts that are dried and pulverized into a powder, mostly used for animal feed or fertilizer.

Opening ceremony for the new fish meal plant

Risks

● Shrinking sales to restaurants and institutional users● A flagging economy leads to slumping sales of expensive

products● The COVID-19 pandemic halts overseas production and

complicates the import of raw ingredients and products

Opportunities

● Adjustments to international market rates lower procurement costs for ingredients used in processed goods

● The shift to at-home consumption expands sales to mass-market retailers and home delivery


Marine Products Trading Unit

Koyo Suisan Co., Ltd.

Ryukyu Taiyo Co., Ltd.

Marine Products Wholesaling Unit

Daito Gyorui Co., Ltd.

Funabashi Uoichi Co., Ltd.

Daitoh Gyorui Co., Ltd.

Meihoku Uoichiba Co., Ltd.

Daikyo Gyorui Co., Ltd.

Shinko Gyorui Ltd.

Kanonji Kaisan Kabushiki Kaisha

Sakaiminato Uoichiba Co., Ltd.

Maruha Kyushu Uoichi Holdings Co., Ltd.

Kyushu Uoichi Co., Ltd.

Kyushu Chuo Uoichi Co., Ltd.

Daitoh Foods Co., Ltd.

Meat and Products Trading Unit

Maruha Nichiro Meat and Products USA, Inc.

Arcland Maruha Meat Co., Ltd.



FY2017 FY2018 FY2019

449,484 445,094 434,643


FY2017 FY2018 FY2019

4,761

3,280

2,509

25



Maruha Nichiro Group Integrated Report 2020 Maruha Nichiro Group Integrated Report 2020 24

Overseas Business

Outlook by Segment

This segment comprises the Asia & Oceania Unit, which sells seafood products and processed food in China and Thailand and is strengthening our business foundation in Oceania, and the North America & Europe Unit, which sells surimi and other North American prod-ucts in Japan, North America, and Europe.

FY2019 performanceThe Asia & Oceania Unit was unable to grow sales over the previ-ous year, for example in exports of pelagic fish from Japan, while a stronger Thai baht pushed sales down. However, good catches in New Zealand and additional equipment that streamlined operations in the pet food business in Thailand led to higher profits despite lower revenues. The North America & Europe Unit increased rev-enues through aggressive sales at European distributors, but over-all revenues and profits were down for various reasons, including greater competition to procure North American salmon, lower market prices for Chilean coho salmon, and in Japan, lower prices and less volume handled for crab and less volume handled for Pacific cod due to reduced quotas.

The result is that the Overseas Business Segment’s net sales were 166,404 million yen (down 5.4% year-on-year) and operating income was 4,172 million yen (down 42.4% year-on-year).

Forward strategyAt the Asia & Oceania Unit, business locations in Thailand, Austra-lia, and New Zealand will proceed to strengthen their revenue base and increase access to resources, while selecting candidates for new locations as a growth strategy. With global demand for dining out expected to decline due to the COVID-19 pandemic, we seek to secure steady profits propped up by demand for processed foods. At the North America & Europe Unit, due to the same expectations for a decrease in global demand for dining out, we will efficiently produce products mainly from the steady supply of Alaska pollock and move forward with regionally-tailored marketing in Japan, other Asian countries, Europe, and elsewhere.

TOPICS

Environmental management efforts at Thai subsidiarySoutheast Asian Packaging and Canning Ltd. (SEAPAC), a producer and seller of pet food in Thailand, is shifting to renewable energy to reduce reliance on fossil fuels. The company installed a 2.2-MWh photovoltaic facility in 2019 and plans to install another generating 1.9 MWh in 2020, thereby cutting CO2 emis-sions by about 3,000 tons annually.

In addition, JPK Cold Storage, an associated company in Thailand, has taken similar action and has been operating fully on 990 kWh of solar power since April 2019.

The new photovoltaic power facility installed at SEAPAC

Risks

● The COVID-19 pandemic halts or paralyzes the fishing busi-ness, production plants, distribution, etc.

● Stronger by-catch regulations place constraints on Alaska pol-lock fishing

Opportunities

● Potential to secure sustainable marine resources in Alaska● Fewer outings by consumers lead to increased demand and

spending on commercially-available processed goods and pet food● More opportunities to explore investing in new businesses seen

from an industry realignment caused by the COVID-19 pandemic


Asia & Oceania Unit

Kingfisher Holdings Ltd.

KF Foods Ltd.

Southeast Asian Packaging and Canning Ltd.

Maruha Holdings (Thailand) Co., Ltd.

Maruha Nichiro (Thailand) Co., Ltd.

JPK Cold Storage Co., Ltd.

Zhejiang Industrial Group Co., Ltd.

Yantai RiLuDa Foodstuffs Co., Ltd.

Maruha (Shanghai) Trading Corporation

Maruha (N.Z.) Corporation Ltd.

Austral Fisheries Pty Ltd.

North America & Europe Unit

Maruha Nichiro Seafoods Corporation

Taiyo Shokuhin Co., Ltd.

Hayashida Shokuhin Sangyo K.K.

Maruha Capital Investment, Inc.

Westward Seafoods, Inc.

Alyeska Seafoods, Inc.

Premier Pacific Seafoods, Inc.

Peter Pan Seafoods, Inc.

Trans-Ocean Products, Inc.

Seafood Connection Holding B.V.



FY2017 FY2018 FY2019

169,413175,884

166,404


FY2017 FY2018 FY2019

8,765

7,238

4,172

(C) MSC/Heiner H.Schm itt

Consideration of the external environmentFishing quotas for pollock in Alaska have continued rising over the past few years to reach 1.4 million tons. This has been a reliable resource offering steady production every year. While snow crab quotas are rising, those for Pacific cod and red king crab have been continuously adjusted downward in recent years. The salmon busi-ness is experiencing tougher competition due to the entry of new participants. This poses a challenge for the steady procurement of fish. While favorable market conditions in North America and Europe have meant brisk sales of Alaska pollock and other products, the COVID-19 pandemic has pushed down sales to institutional users

In the Thai pet food business, the market is expanding steadily and is establishing a position as an excellent place for production in terms of raw materials and labor intensiveness. With wages and other costs rising in Thailand lately, we have been driving down costs through operational streamlining efforts, such as by imbuing products with added value and installing machinery. The business of catching fish in Australia and New Zealand is affected by conser-vation of resources under strict fish quotas and attempts to keep falling market prices in check amid excess supply. Therefore, with growing global demand for seafood products, sales of bottom fish from Australia and New Zealand, which do not have aquaculture alternatives, are strong.

27




Processing

Outlook by Segment

This segment comprises the Consumer Frozen Foods Busi-ness Unit that offers frozen foods for the home with added value, the Consumer Processed Foods Business Unit that produces and sells canned goods and other products, the Institutional Foods Business Unit that produces and sells products for institutional uses, and the Foods & Fine Chemicals Unit that supplies the bounty of the sea to the medical and health sectors.

FY2019 performanceThe Consumer Frozen Foods Business Unit increased revenues and profits through higher sales thanks to heavier promotions for lead-ing noodle and rice products. The Consumer Processed Foods Busi-ness Unit’s revenues dropped due to weakened demand from the canned mackerel boom and inclement weather affecting sales of cup jelly, but thanks to success with sales focused on profitability from leading canned products, profits were on par with the previ-ous year. The Institutional Foods Business Unit increased revenues and profits for reasons including efforts directed toward nursing care food and co-ops, as well as revamped production processes and other productivity gains. The Foods & Fine Chemicals Unit increased revenues and profits due to strong sales of DHA/EPA and freeze-dried products.

The result is that the Processing Segment’s net sales were 234,328 million yen (down 0.5% year-on-year) and operating income was 6,866 million yen (up 8.8% year-on-year).

Forward strategyWhile the Consumer Frozen Foods Business Unit continues to adapt to how the COVID-19 pandemic is changing the development struc-ture of demand, the unit is implementing an aggressive sales strat-egy to further increase profitability by improving product development capabilities and rolling out promotions. The Consumer Processed Foods Business Unit is making appropriate adjustments to fluctuating situations with raw materials, while seeking to further increase profits through further streamlining of sales and produc-tion systems in response to the altered consumption environment arising from the COVID-19 pandemic. With sales to restaurants and food service expected to drop at the Institutional Foods Business Unit due to the COVID-19 pandemic, the unit is working to improve profitability by amplifying product development and sales activities in response to needs in each business category and by implement-ing product policies based on managing gains and losses on an individual product basis. Seeking to expand the size of business, the Foods & Fine Chemicals Unit is endeavoring to promote sales of products such as chondroitin and DHA/EPA, while running sales promotions focused on high-margin freeze-dried products.

Consideration of the external environmentA continued decline in meals consumed is predicted in Japan’s food market due to a shrinking and aging population, but the declining number of people per household, aging population, and labor shortages will presumably increase needs more and more for time-saving and convenient products, single-serving and low-volume products, and health-conscious products. The Processing Segment will aggressively proceed to develop products suited to these needs and operate under the assumption that further busi-ness expansion is feasible.

On the other hand, many costs such as raw ingredients, labor, and distribution are trending upward over the medium to long term, presumably creating an environment that poses challenges to generating profits. We see a need for action that includes cost-reductions through productivity gains and development of products high in added value.

We assume that while the COVID-19 pandemic will lead to expanded sales of household products due to the shift to at-home consumption, sales to institutional users such as restaurants and food service will continue to slump for a while. We are working to gain a correct understanding of post-pandemic lifestyle changes so we can flexibly adapt our sales strategy and product develop-ment strategy.

TOPICS

“WILDish” series of commercial frozen foodOpening new opportunities with simple, quick frozen food

With the increasing number of single-person households and the amount of money spent by men on frozen foods, we launched the “WILDish” series in August 2019. The series currently contains eight products: five rice-based dishes and three noodle dishes. To prepare a dish, the entire package is placed in a microwave oven. The bag serves as a plate so it can be consumed immediately after cooking. There has never been a frozen food like this before. It comes with a standing package that has a bottom allowing it to stand when placed on a dining table. The patent for the design is pending.

As a product suited to diversifying life-styles, “WILDish” has won high accolades from the market. For example, it won the most popular product prize at the Fall-Winter 2019 Mart New Product Grand Prix, and on December 3, 2019, Nikkei MJ included “WILD-ish” in its hit product ranking for being a “frozen dish that doesn’t need a plate.”

From the “WILDish” series

Risks

● Sales to institutional buyers (restaurants, food service, etc.) slump● Sales fall due to decreased demand for inbound travel to Japan● Purchase prices soar due to fluctuating raw material prices

Opportunities

● Sales of household products expand due to the shift to at-home consumption

● Sales for health goods and functional ingredients expand due to increased health consciousness



FY2017 FY2018 FY2019

232,597 235,490 234,328


FY2017 FY2018 FY2019

5,309

6,3086,866


Maruha Nichiro Kyushu, Inc.

Nichiro Chikusan Co., Ltd.

Consumer Processed Foods Business Unit

Maruha Nichiro Kitanippon, Inc.

Maruha Nichiro Yamagata Co., Ltd.

Institutional Foods Business Unit

Maruha Nichiro Retail Service Co., Ltd.

Yayoi Sunfoods Co., Ltd.

Delica Wave Co., Ltd.

Sungourmet Corporation

N&N Foods Co., Ltd.

Foods & Fine Chemicals Unit

AK&MN BioFarm Co., Ltd.

Cixi Young-shin Foods Co., Ltd.

Ningbo, Jijin Xingye International Trade Co., Ltd.


29




Logistics

Outlook by Segment

The Logistics Segment runs distribution centers at major Japanese trade ports and elsewhere, with facilities capable of handling some 600,000 tons. Specializing in low-temperature distribution, the services provided by the segment include storage, transport, delivery, and customs clearance, primarily for low-temper-ature products such as marine products and meat products.

FY2019 performanceThe Logistics Segment offers services including storage, transport, delivery, and customs clearance for a wide range of products, mostly low-temperature foods such as marine products, meat products, agricultural products, and frozen foods. The segment has increased revenues thanks to the refrigerated storage business taking in tremendous demand for storage in Tokyo and other major metropolitan areas. Although higher power costs have accompa-nied such factors as fuel prices adjusted upward and labor costs are also up, reduction of depreciation have pushed up profits. The segment’s net sales were 16,524 million yen (up 1.1% year-on-year) and operating income was 2,073 million yen (up 10.4% year-on-year).

Forward strategyWhile we recognize business opportunities such as greater cus-tomer needs for integrated logistics and higher demand for frozen foods and imported processed foods, we are monitoring how the COVID-19 pandemic is impacting cargo movement trends. We shall seek to increase profits by continuing to cater to tremendous stor-age demand by making maximum use of core centers in major metropolitan areas, while offering customers nationwide a full suite of logistics services that also include transport, delivery, and customs clearance.

The capital spending plan for new equipment and expansions over the one-year period following FY2020 calls for an estimated 5,180 million yen of spending. In addition to plans for the new Nagoya Logistics Center operated by Maruha Nichiro Logistics, Inc. (refrigerated storage in Minato Ward, Nagoya, Aichi Prefecture), we will engage in aggressive capital spending to adapt to the changing public needs arising due to the COVID-19 pandemic and other factors.

TOPICS

Opening of Nagoya Logistics CenterMaruha Nichiro Logistics, Inc. plans to open the Nagoya Logistics Center in April 2021. The distribution center, with an approximate capacity of 37,000 tons, will save on labor with innovations including an automated ware-house and mobile racks. The refrigerated warehouse has a highly safe design with a seismically isolated prestressed concrete structure to withstand earthquakes, while the cooling equipment uses environmentally-friendly natural refrigerants (NH3/CO2). And because the distribution center’s location in the port district puts it in close proximity to the container terminal and expressway inter-change, it serves as a central location for us in the Chubu area of central Japan.

Nagoya Logistics Center

Risks

● Amended laws lead to stronger regulation (laws related to reforming working lifestyles, driver rest time requirements, HACCP obligations, etc.)

● Higher costs put pressure on profits (labor, power, construction)

● Population decline due to the falling birthrate and aging population

Opportunities

● Greater customer needs for integrated logistics● Increased demand for frozen foods and imported processed foods


Maruha Nichiro Logistics, Inc.

Maruha Nichiro Logistics Service Kanto Corporation

Maruha Nichiro Logistics Service Chubu Corporation

Maruha Nichiro Logistics Service Kansai Corporation

Maruha Nichiro Logistics Service Kyushu Corporation

Shin-Nagato Unso Co., Ltd.



FY2017 FY2018 FY2019

15,969 16,348 16,524


FY2017 FY2018 FY2019

1,870 1,878

2,073

Consideration of the external environmentWith lifestyles and family makeup changing and product lineups diversifying, inventories of refrigerated and frozen cargo in Japan have increased by 20% since 20 years ago. Owing primarily to higher demand for frozen foods, there has been a remarkable increase in bulk products requiring large storage space, while the importance of logistics operations seem to have grown to an unprecedented level.

In recent years, storage demand has been strong in large metro-politan areas, and the capacity to accept inventories has been chronically strained. In addition, beginning in 2020, the novel coro-navirus has stagnated demand for commercial products and cargo movement has slowed down. This phenomenon has strained ware-house capacity and caused the transport and delivery business to stagnate. These developments in 2020 have begun to also exert an impact on the Logistics Unit. Looking forward, as we try to gauge when the COVID-19 pandemic will be brought under control, we are ensuring excess capacity to accept frozen foods inventories amid a surge in consumer demand, and we are monitoring cargo move-ment trends for commercial products, all while we proactively operate so as to avoid missing business opportunities.

31




Fishery & Aquaculture Operating income

Documents

Transcript of Fishery & Aquaculture Operating income