Outlook for Delica Foods Holdings <3392>.
2. Fifth Medium-Term Business Plan
(1) Review of the Previous Medium-Term Business Plan
The fourth medium-term management plan, "Transformation 2024" (March 2022 to March 2024), which started in March 2022, was evaluated to have achieved the initial targets by focusing on the key initiatives of "reforming the business portfolio," "constructing fresh produce logistics infrastructure," and "promoting sustainability management" in order to respond to the new lifestyle changes in the market environment that changed significantly due to the pandemic, and achieved the business performance target for the final fiscal year of March 2024 (revenue of 45 billion yen, operating profit of 1 billion yen, ROE of 7.0%) by exceeding all the target items, as the external food service industry recovered at a faster pace than anticipated, and built a management foundation that enables sustainable growth.
Under the initiative of "reforming the business portfolio," we focused on developing customers such as volume retailers, retailers, and school meals to complement the sales to the external food service industry that declined significantly due to the pandemic, and also developed meal kits and BtoC businesses as new businesses. As a result, the composition ratio of sales to the external food service industry decreased from 83.3% in the fiscal year ending March 2020 to 69.7%. Although it exceeded the assumed 63.0% initially planned, due to the fact that the external food service industry bounced back at a faster pace than expected, the BtoC business, which was initially planned to account for 7.0%, only accounted for 1.0%, as the pace of "stay-at-home" demand subsided. There was a deviation from the initially planned ratio, but we were able to expand sales channels other than the external food service industry, which allowed us to flexibly respond to any significant changes in the food market environment in the future. In addition, under the initiative of "constructing fresh produce logistics infrastructure," we worked to expand the nationwide deployment of business bases such as the FS Center and strengthen our own logistics, and in both cases, we evaluated that we were able to build the necessary structures according to the initial plan.
Under the initiative of "promoting sustainability management," we developed a plant-based condiment made with vegetable scraps called "Vegie Brod" and started selling it to major external food service chains, as well as selling products that use "Vegie Brod" such as "burdock soup" and "radish soup" as our own products. There is an increasing trend of introducing our product as one of the efforts to reduce food loss. In addition, we are promoting a circular business activity that utilizes residual vegetable waste generated daily by introducing a residual recycling system in five business locations throughout the country and utilizing them as fertilizers for farm products, as well as energy-saving measures, while also launching projects to promote the active participation of non-Japanese employees, career development, and women's empowerment from the perspective of human capital management, aiming to foster a diverse range of resources.
(2) Overview of the Fifth Medium-Term Business Plan
Under the fifth medium-term business plan starting from March 2025, we will position it as a period of transformational change towards new growth by challenging everything with the theme of "keep on trying 2027" to achieve our long-term vision, which includes 1) establishing our position as a comprehensive vegetable processing manufacturer, 2) realizing sustainable agriculture, and 3) achieving the balance between individual happiness and corporate prosperity. By achieving these three points, we aim to achieve sales of 100 billion yen, an operating profit margin of 4-5%, and an ROE of 10-15% in 10 years.
The basic policy for the three-year effort is to 1) reform various portfolios, 2) change the structure of the fresh produce supply chain, and 3) invest in research and development departments, and set business performance targets for the final fiscal year of March 2027 to be revenue of 60 billion yen, operating profit of 1.8 billion yen, and ROE of 10.2%. Although the fiscal year ending March 2025 is expected to have a decline in earnings due to increased costs associated with the launch of a new factory, after the large-scale investment is completed, the effect of the advanced investment is expected to become apparent from the fiscal year ending March 2026, when we will begin to enter the profit growth phase. The annual growth rate for revenue is expected to be 4%, and the plan is realistic as it has weaker annual EBITDA growth rate of under 10%.
(Written by FISCO guest analyst, Jo Sato)