Summary: RIZAP Group<2928>The comprehensive enterprise, which is committed to proving that "people can change" as its unique management philosophy, develops a variety of businesses in the three areas of health creation, health care / beauty, lifestyle, and investment. Under the vision of "Global No.1 in the self-investment industry", it has achieved remarkable growth by actively utilizing M&A under the holding company structure and has grown to include 68 group companies, including 5 listed subsidiaries, and 4,606 consolidated employees. Listed on the Sapporo Stock Exchange's Ambitious Market in 2006, it formulated a medium-term management plan in September 2022, but revised it in February 2024 to achieve an operating profit of ¥400 million (fiscal year ending March 2027) by aggressively expanding the new business "chocoZAP". The fiscal 2024 performance was sales revenue of ¥16,629.8 million (+7.6% YoY), operating loss of ¥594 million (compared to a loss of ¥4948 million in the same period of the previous year), pre-tax loss of ¥4524 million (compared to a loss of ¥7,031 million in the same period of the previous year), and net loss attributable to the owners of the parent of ¥4,300 million (compared to a loss of ¥12,673 million in the same period of the previous year). Due to the black ink conversion of the chocoZAP business, it achieved a black ink of ¥417.5 million on an operating profit basis in the fourth quarter alone. As for sales revenue, the RIZAP-related business (including the chocoZAP business) significantly increased its revenue (+¥201 million) by focusing on expanding the convenience gym "chocoZAP". In existing businesses, there was an increase in revenue, including Antiroza Co., Ltd. (+¥419.8 million), while there was a decrease in revenue due to store structure reform in REXT Co., Ltd., etc. (-¥599.8 million) and the impact of selling the Sikata business under the subsidiary BRUNO<3140>at the end of the previous year (-¥511.1 million). As for operating loss, the group as a whole improved due to the transition of the chocoZAP business to the investment recovery period and the success of business portfolio reform such as REXT.

Delica Foods Holdings, Inc. <3392> is a value-added creation company that pursues the value of vegetables in the fresh produce processing and distribution industry and achieves "sustainable agriculture" and "health promotion through food" for the future. As a mission, the company is devoted to "contributing to the development of Japan's agriculture and the promotion of people's health through the distribution of fresh produce", and as a vision, aims to "build a sustainable infrastructure where future children can eat safe and delicious vegetables anytime" and is engaged in business activities.

1. Overview of the 5th medium-term management plan.

The company announced its fifth medium-term management plan, "keep on trying 2027" (from the fiscal year ending March 2025 to the fiscal year ending March 2027), in May 2024. Having completed the establishment of FS centers※ in all major locations in the previous fourth medium-term management plan, the company positioned the next 3 years as a period for achieving the sales target of 100 billion yen as a long-term vision (ideal state in 10 years) and improving profitability while challenging various initiatives (trying). As a business strategy, the company is working on three points: 1) Transformation of various portfolios (PF), 2) Structural reform of fresh produce supply chain, and 3) Expansion of investment in research and development department. Its performance targets for the fiscal year ending March 2027 are sales of 60 billion yen and operating income of 1.8 billion yen. The average annual growth rate for the next 3 years is 4.3% for sales and 12.7% for operating income. It also aims for a ROE (return on equity) of 10.2% that exceeds the current assumed cost of equity (5-10%) of the company.

※The FS (Fresh & Speedy) Center is a manufacturing, processing, and logistics center that realizes a cold chain (5℃ zone). It has already been established in Tokyo, Nishitokyo, Saitama, Aichi, Nara, Fukuoka, and Sendai (partner facility), and the installation of FS centers in major metropolitan areas will be completed with the opening of the Osaka FS center in April 2024.

2. Business strategy.

Regarding the transformation of the PF, the company will promote the transformation of each business PF, customer PF, and product PF. For the business PF, in addition to the core fresh produce business, the company will work on nurturing the logistics business by taking advantage of the "logistics 2024 problem". Regarding customer PF, the company will analyze the future prospects and profitability of each customer, and work on selecting and concentrating on customers. For product PF, the company will work on expanding sales of highly processed products (high value-added products) as well as whole and cut vegetables, and on developing BtoC and export businesses. The company's idea for the structural reform of the fresh produce supply chain is to promote an increase in the domestic procurement ratio of vegetables with a high degree of dependence on imports, the rebuilding of the procurement infrastructure by establishing long-term preservation technology, and rationalizing the entire supply chain in cooperation with business alliance partner companies※.

※In February 2023, Air Water <4088>, VegiTech Co., Ltd. announced a business alliance, followed by Kamimei Holdings Co., Ltd. joining the alliance in March 2024 to form a four-company collaboration system. The company has also signed a business alliance agreement with Zen-Noh in 2018.

3. Financial strategy and shareholder return policy.

The basic strategy for the financial strategy is to work on three points: 1) Allocating cash flow appropriately, 2) Switching to a dividend payout ratio perspective, and 3) Strengthening efforts that are aware of capital costs. Regarding cash allocation, the company will prioritize growth strategy investments (research and development investment, human resources development investment, procurement and storage infrastructure development, and others (M&A, etc.)) that lead to the expansion of corporate value, in addition to expected cash outflows such as maintenance and update investment (3-4 billion yen) and shareholder returns (0.8-1 billion yen), and allocate these funds to operating cash flows (about 6 billion yen over 3 years) and, if necessary, to borrowings and others. The shareholder return policy is to prioritize continuous and stable dividends while raising the consolidated dividend payout ratio from around 20% to around 30% from the fiscal year ending March 2025, now that large-scale facility investments have been completed. The scheduled dividend per share for the fiscal year ending March 2025 is 12.0 yen (dividend payout ratio of 30.1%), the same as the previous year. It is expected that the dividend will be increased if profits continue to grow in the future. In addition, the company has introduced a shareholder benefit system since before, and presents its products to shareholders depending on their shareholding and the period in which they continue to hold the shares.

■Key Points

- The 5th medium-term management plan is positioned as a period where various challenges are undertaken to achieve long-term vision.

- The goal is to achieve 60 billion yen in revenue, 1.8 billion yen in operating profit, and a 10.2% ROE for the fiscal year ending March 2027.

- We are working on transforming our business structure and reforming our supply chain structure to improve profitability.

- We will finance growth strategy investments, equipment maintenance and renewal investments, and shareholder return funds through operating cash flow and borrowings.

(Written by FISCO guest analyst, Jo Sato)