Executive Officer in Charge of Finance - Commitment

Hideki Motoi

Director, Managing Executive Officer Megmilk Snow Brand Co., Ltd.

Ideal future for the Megmilk Snow Brand Group

The Megmilk Snow Brand Group outlined our Group Long-term Vision 2026, which aims to achieve sustainable growth and increase our corporate value by making contributions to society, including engaging in initiatives to resolve social issues, through our business activities. The Long-term Vision reflects the current demand environment for dairy products, the procurement environment for milk resources, and other trends causing major environmental changes in our industry.
As specific growth goals, this Long-term Vision calls a goal of 700 to 800 billion yen in net sales and 30 to 40 billion yen in operating profit by FY2026 (FYE March 2027).
One policy will be to implement business portfolio reform to respond to market environment changes and achieve sustainable growth. As part of this policy, we will position the Nutrition Business, which proposes lifestyle quality improvements to consumers, as a new domain and develop new markets mainly in Asia.
Implementing this strategy will require innovation in our production structure, including improving our cost competitiveness. Our Long-term Vision includes investments of 300 to 400 billion yen for upgrades to existing facilities.

Financial direction in line with Group Long-term Vision 2026 and the Medium-term Management Plan 2019

As a capital strategy for supporting policies to increase our corporate value as outlined in the Group Long-term Vision 2026 and the Medium-term Business Plan, the Megmilk Snow Brand Group will focus on maintaining balance between capital efficiency, financial stability, and shareholder returns.
We also outlined goals for ROE, equity ratio, and dividend payout ratio based on this strategy.

<Capital efficiency>
Management will improve the efficiency of the precious capital entrusted to us by shareholders. Through the business portfolio reforms and production structure innovation outlined in our Long-term Vision, we will increase profitability and make solid improvements to ROE.
Investment decisions will be made with consideration given to capital costs. For growth investments, we will evaluate business risks while pursuing high profitability (ROI). For investments in existing facilities, we will base investment decisions on whether or not we can secure profitability that at a minimum exceeds capital costs.
Through growth investments and by ensuring financial stability, we can anticipate certain situations that will negatively impact capital efficiency. However, even in such cases we will maintain a continuous focus on capital efficiency to ensure an ROE of 8% and higher.
<Financial stability>
Financial stability is essential to creating surplus capital for investments, supporting growth, and supporting stable operations and dividends.
For growth investments, we are not anticipating conducting equity financing* or other such transactions that would result in stock dilution. During the period of the current Medium-term Management Plan, we will accumulate the internal capital required for the investments assumed as part of our Long-term Vision. Furthermore, we will maintain financial stability to ensure a minimum equity ratio of 40% and higher.
In July of this year (2018), the rating agency Rating and Investment Information, Inc. elevated our rating to A- (Stable). As we are in a positive environment for capital procurement through financial markets, we will focus on the diversification of procurement means and on reducing financing costs.

<Shareholder returns>
During the period of the current Medium-term Management Plan, we will maintain balance between growth investments aimed at increasing our corporate value and ensuring financial stability. We will aim for a dividend payout ratio of 20% as we aim to issue stable dividends. Our Long-term Vision outlines growth investments and ensuring financial stability while increasing shareholder returns with a goal dividend payout ratio of 30%.
*Capital procurement that increases equity (shareholder capital) by issuing new shares or CB (convertible bonds)

As a capital strategy for supporting policies to increase our corporate value as outlined in the Group Long-term Vision 2026 and the Medium-term Business Plan, the Megmilk Snow Brand Group will focus on maintaining balance between capital efficiency, financial stability, and shareholder returns.
We also outlined goals for ROE, equity ratio, and dividend payout ratio based on this strategy.

<Capital efficiency>
Management will improve the efficiency of the precious capital entrusted to us by shareholders. Through the business portfolio reforms and production structure innovation outlined in our Long-term Vision, we will increase profitability and make solid improvements to ROE.
Investment decisions will be made with consideration given to capital costs. For growth investments, we will evaluate business risks while pursuing high profitability (ROI). For investments in existing facilities, we will base investment decisions on whether or not we can secure profitability that at a minimum exceeds capital costs.

Through growth investments and by ensuring financial stability, we can anticipate certain situations that will negatively impact capital efficiency. However, even in such cases we will maintain a continuous focus on capital efficiency to ensure an ROE of 8% and higher.
 

<Financial stability>
Financial stability is essential to creating surplus capital for investments, supporting growth, and supporting stable operations and dividends.
For growth investments, we are not anticipating conducting equity financing* or other such transactions that would result in stock dilution. During the period of the current Medium-term Management Plan, we will accumulate the internal capital required for the investments assumed as part of our Long-term Vision. Furthermore, we will maintain financial stability to ensure a minimum equity ratio of 40% and higher.
In July of this year (2018), the rating agency Rating and Investment Information, Inc. elevated our rating to A- (Stable). As we are in a positive environment for capital procurement through financial markets, we will focus on the diversification of procurement means and on reducing financing costs.

<Shareholder returns>
During the period of the current Medium-term Management Plan, we will maintain balance between growth investments aimed at increasing our corporate value and ensuring financial stability. We will aim for a dividend payout ratio of 20% as we aim to issue stable dividends. Our Long-term Vision outlines growth investments and ensuring financial stability while increasing shareholder returns with a goal dividend payout ratio of 30%.
*Capital procurement that increases equity (shareholder capital) by issuing new shares or CB (convertible bonds)

Cashflow distribution policy

We are planning cashflow distribution based on the ideas outlined in the Long-term Vision. In the first stage, we will invest in growth sectors and value added categories to expand profits and generate cash. In FY2017, we invested approximately 6.2 billion yen to expand the small plastic bottle line in order to increase production of functional yogurt at our Kyoto Plant. In the second stage, we will utilize generated cash to conduct the large-scale investments necessary to reform our business portfolio.
As shareholder returns during this period, we will aim for a dividend payout ratio of 20% as we aim to issue stable dividends while maintaining a balance between financial stability and plans for large-scale investments. In the third stage, fulfilling our Long-term Vision will enable us to increase shareholder returns to a dividend payout ratio of at least 30%.

Achieving management benchmarks

The Megmilk Snow Brand Group will generate synergy with Group companies to respond to changes in market environments. We must strengthen Group corporate functions to achieve the core concepts of our strategies: Transform our business portfolio, renew our production structure to support business growth, and promote Group management. We will increase the Group’s level of expertise in various fields, including IT infrastructure and finance to support unified management and provide financial affairs support related to human resources and the utilization of Group management resources.