■Lacto Japan ＜3139＞'s medium- to long-term growth strategy

2. Progress of the medium-term management plan “NEXT-LJ 2025”

(1) Basic Policies and Major Policies

The three-year period from 2023/11 to 2025/11 is planned to focus on solidifying a foundation for growth as a first step to achieve the long-term vision. For business growth, the three basic policies of “base 'evolution' of existing businesses,” “growth expansion of Asian business,” and “challenge construction of next-generation businesses,” and measures to realize business growth and strengthen the management infrastructure that supports them were set in each basic policy.

In the “evolution” of existing businesses, it is a policy to achieve business growth through “stable supply through diversification of supply sources,” “consulting sales that create the best matching,” and “export of Japanese foodstuffs.” The key priority policy is “diversification of supply sources.” In order to avoid fluctuations in production volume of dairy farming and livestock products in various regions of the world due to climate change, viruses, and geopolitical supply risks, we will further expand our global procurement network not only in the dairy ingredients and cheese sector, but also in the meat food sector to achieve stable supply. Regarding the export of Japanese foodstuffs, we are considering exporting dairy products, health foods, etc. based on the export results of domestically produced skimmed milk powder.

Regarding the expansion of the Asian business, it is a policy to achieve business growth by “expanding the cheese manufacturing and sales business,” “strengthening the local sales system, expanding sales areas,” and “developing high value-added products compatible with religion and diverse food cultures.” The key priority policy is “expansion of the cheese manufacturing and sales business” in Asia. The new plant in Singapore, which is scheduled to be put into operation in 2026, is scheduled to leave room for expansion of the plant and equipment, and starting from the new plant in Singapore, we aim to manufacture and sell 15,000 tons, which is nearly three times the current total of the three Asian plants in the future. Currently, it is expected that the factory operation period will be slightly delayed due to delays in local permits and approvals. Until the new plant is completed, it is an issue to enhance the functions and improve productivity of the Thai plant so that only the current plant is burdened, and to maintain a supply system in Asia where demand is expanding while balancing both plants. Sales of processed natural cheese products, such as shredded cheese, where demand is growing, will also expand. Since processed cheese is processed and manufactured by applying heat to natural cheese, which is the raw material, the advantage of having a processed cheese production line and a natural cheese processing line attached to it can be utilized. Furthermore, it is planned to clear religious issues and develop and manufacture new products such as high value-added products such as vegan cheese and retail products in order to respond to diverse user needs.

Regarding the construction of next-generation businesses, the policy is to realize business growth through “development of new products, starting with functional foods,” “expansion of the downstream field of manufacturing and processing,” and “involvement in the upstream field of dairy farming, etc.” The key priority policy is “development of new products, starting with functional foods.” The functional food ingredients business plans to further expand sales of whey protein as an ingredient in the protein food market where consumption is expanding as sports nutrition and health-conscious functional foods. When developing products, it is a strategy to differentiate by proposing combinations of whey protein with food ingredients that have various functions. In terms of business development, we have already built a business model where products are planned, developed, and proposed by partnering and collaborating with partner companies that perform OEM production, mainly to brand owners and sports gyms that sell on EC sites. Going forward, the policy is to expand the business area by partnering and collaborating with general food manufacturers entering the market. In Asia, Japan's functional foods are also attracting attention, and in the future, trilateral trade, such as exports to Asia, is also being considered. Regarding involvement in the Kawakami sector, such as dairy farming, it is our policy to contribute to a sustainable dairy farming and livestock industry through development and manufacture of feed ingredients in cooperation with overseas suppliers and human exchanges between Japanese and Asian dairy farmers.

Under these three basic policies, we are considering a wide range of measures with a view to utilizing M&A such as business alliances in order to achieve business growth. In addition, sustainability efforts are also being strengthened in order to strengthen the management base. The sustainability promotion task team, which is responsible for sustainability activities, has been reorganized into company-wide members, and promotion progress management for the six materialities is being promoted. Furthermore, as an effort to adapt to climate change and reduce environmental impact, we will proceed with climate change-related information based on TCFD (Climate-related Financial Information Disclosure Task Force) recommendations, calculation of Scope 1, 2, and 3 emissions, and setting reduction targets, and continuously publish them. In addition, preparations for full-scale operation of the new personnel system and the renewal of the core systems of the headquarters are already progressing with the policy of strengthening human resource development, improving governance, and improving information systems.

(2) Numerical Targets

The medium-term management plan aims for consolidated sales of 200,000 million yen, consolidated ordinary income of 4,000 million yen, and net income of 2,900 million yen attributable to parent company shareholders for the fiscal year ending 2025/11, while simultaneously aiming for an ROE of 10% or more, a dividend payout ratio of 20 to 25%, and a consolidated equity ratio of 30 to 35%. Sales were planned to be 160,000 million yen for the 2023/11 fiscal year and 180,000 million yen for the 2024/11 fiscal year, but the results for the 2023/11 fiscal year were 158,328 million yen, which is slightly lower than planned, and the forecast for the 2024/11 fiscal year is 164,000 million yen lower than planned. Ordinary income is planned to be 3,200 million yen for the fiscal year ending 2023/11 and 3,600 million yen for the 2024/11 fiscal year, and the results for the fiscal year ending 2024/11 fell below the plan at 2,847 million yen, but the forecast for the 2024/11 fiscal year exceeded the plan by 4,100 million yen, and it is expected that 4,000 million yen, which is the target of the medium-term management plan, will be achieved one term ahead of schedule.

As a business environment that is a premise of the medium-term management plan, it is assumed that megatrends such as steady demand for domestically imported dairy ingredients, cheese, and meat, the progression of aging, heightened health awareness, and economic growth in Asia and the westernization of food will not change. However, I believe that negative factors in the business environment are inevitable, such as an increase in milk prices due to a rise in feed prices, etc., a decline in consumption due to an increase in the price of dairy products in general, a decrease in sales of imported milk powder formula products due to an extension of the domestic skimmed milk powder countermeasure business, a decline in sales of raw milk powder ingredients to Japan in Asia, and a decline in demand for dairy ingredients in Asia affected by the slump in the Chinese economy. The company has not changed its perception of the business environment at the moment, but the recovery in domestic business, which was expected in the second half of the 2024/11 fiscal year, is progressing ahead of schedule from the first half. However, there are many things that cannot be anticipated, such as exchange rates, domestic raw milk production trends, and economic trends in China and Asia, etc., and there are currently no plans to review the medium-term management plan, and a business strategy for the fiscal year ending 2025/11 will be formulated while looking ahead to a new stage called the next medium-term management plan.

Also, on the management side, we are not only expanding the top line, but we are also improving profitability and strengthening the corporate structure that is conscious of capital efficiency in order to improve corporate value. Therefore, we have set three goals of profitability (ROE), shareholder return (dividend ratio), and financial security (consolidated equity ratio) as financial targets, and we are aiming for ROE of 10% or more, dividend ratio of 20-25%, and consolidated equity ratio of 30-35% for the 2025/11 fiscal year. Currently, the company is testing the introduction of ROIC* for each business division, and full-scale implementation is planned from the 2025/11 fiscal year. At the same time, the personnel system is also planned to be revamped, ROIC will be added to employee evaluation standards, and efforts will be made to reform employee awareness about capital efficiency.

*Abbreviation for Return On Capital. It is called Loic and represents the return on invested capital. It is calculated by “operating profit after tax ÷ (equity capital+interest-bearing debt) = operating profit ratio on sales × turnover ratio of invested capital”.

(Written by FISCO Visiting Analyst Matsumoto Akihiro)