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“Future Creation Company with Milk”—
How the Megmilk Snow Brand Group Is Contributing to a Sustainable Society

Keiji Nishio

Representative Director and President
Megmilk Snow Brand Co., Ltd.

Megmilk Snow Brand History

We will Continue to Be a Responsible Company that Looks to the Future without Letting the Memory of the Two Compliance Incidents Fade.

Snow Brand Milk Products Co., Ltd., one of the predecessors of Megmilk Snow Brand Co., Ltd., was created to save Hokkaido’s
dairy farming, which fell into difficult times due to food policies following the Great Kanto Earthquake (1923). As part of the former Hokkaido Cooperative Creamery Association, an organization founded by producers, for the last 90 years the company has been a part of Japan’s dairy industry.

Our history began with making butter, after which the company expanded to cheese and numerous other milk products as it worked to contribute to ensuring enriched dietary lifestyles and health for the nation’s consumers. 

However, in 2000 and 2002, the Snow Brand Milk Products Group was involved in two compliance incidents that would impact food safety and security, and greatly impact society. As a result, the company instantaneously lost the trust and corporate value built over the years by our predecessors. In a struggle for our very survival, we received support from numerous parties. Through business divestiture and other measures, we slowly over time worked to rebuild ourselves into a company that once again had earned the public trust.

In 2009, a consolidation and merger between Snow Brand Milk Products Co., Ltd. and Nippon Milk Community Co., Ltd. resulted in a new start in 2011 as Megmilk Snow Brand Co., Ltd. The year 2019 is the tenth year of that consolidation. During this period, we have worked hard to build a foundation for sustainable growth. I am deeply grateful for everyone who has supported us over this crucial decade. 

The Megmilk Snow Brand Group Corporate Philosophy is to fulfill three missions: “To focus on consumers, to contribute
to dairy farming production, and to put our hearts into milk.” By creating new value for milk, we will continue to exist as a company that contributes to society. This commitment is expressed through our corporate slogan: “Make the Future with Milk.” We will never forget the history of those two incidents. We will use that experience as a lesson to solidify our position as a responsible company that looks to the future.

Market Environment and Forecasts

We Are Developing a Borderless Business in Anticipation of Trade Liberalization Buoyed by Solid Demand in and outside Japan.

Consumers’ growing health awareness and other factors have ensured a solid milk products market in Japan, particularly for
cheese. We expect the market to expand for functional foods as well, due to the aging of society and Japan’s unique “foods
with function claims” regulatory system. Consumption of milk products is on the rise, particularly in Asia, due to the global
population increase and changes in diet. In sum, we can expect the milk products market to enjoy high growth in the
medium and long term both in and outside Japan. 

That said, in fiscal 2018 both the Trans-Pacific Partnership Agreement (TPP11) and the EU-Japan Economic Partnership Agreement went into effect. Steps are being taken to globalize this market, with the import of dairy materials and products for household use, and the export of Japanese dairy products. We believe this kind of trade liberalization will bolster the growth of the global milk products market, including in Japan, but it could also lead to major changes in the supply and demand conditions for global dairy resources.

The Megmilk Snow Brand Group will continue to focus on Japanese dairy farms as a source of stable procurement while milk becomes a global commodity. On the management side, we will expand to a borderless business and respond to risks and opportunities.

Group Long-term Vision 2026 for Sustainable Growth

We Aim to Be a “Future Creation Company with Milk” to Build a New Era.

In May 2017, the Megmilk Snow Brand Group announced our Group Long-term Vision 2026, which outlines our ten-year
plan for achieving sustainable growth. Based on our Group Corporate Philosophy, the foundation of all our business activities, we titled our long-term vision “Future Creation Company with Milk,” and gave it a focus on three “futures”: the future of consumers, the future of dairy farmers, and our own future (the future of each employee). Our three strategies for achieving this vision are based on the concept of “Transformation and Renewal.” The first is a transformation of our business portfolio. To enable sustainable growth, we must shift to a business portfolio for a new age in which we generate income through multiple businesses. The second is a renewal into a production structure that supports business growth. By linking production structure renewal with business platform transformation, we will adopt new technology and restructure our production line composition to establish a highly efficient and competitive production line. Lastly, simultaneous to transformation and renewal initiatives, we will evolve Group management. We will make the most of management resources and the value chain to enhance the overall strength of our Group.

Our goal for fiscal 2026, the final fiscal year of our Long-term Vision, is to achieve consolidated sales of 700 to 800 billion yen and consolidated operating profit of 30 to 40 billion yen. Accordingly, we will invest 300 to 400 billion yen, primarily in production facilities.

We will achieve transformation and renewal to be a “Future Creation Company with Milk” as we look to usher in a new era of growth for the Megmilk Snow Brand Group by fiscal 2026.

Progress on the Group’s Medium-term Management Plan 2019

We Are Steadily Addressing the Issues We Need to Solve to Develop Multiple Earnings Bases, Maximize Cash Flow and Renew Our Production Structure.

The Long-term Vision consists of three stages spread over ten years. In the first stage, we worked on developing multiple
earnings bases, maximizing cash flow and renewing our production structure as part of the Group Medium-term Management Plan 2019, which started in fiscal 2017.

In our business portfolio transformation, we took specific steps to follow our Medium-term Management Plan with strategic measures. These included strengthening our drink-type yogurt products by expanding the production line at the Kyoto Plant, creating new growth opportunities by developing functional food products, and expanding the cheese business outside Japan.

As part of our efforts to renew the production structure, we are constructing new buildings in Isobunnai (to be completed in fiscal 2020) and building a new feed plant with Snow Brand Seed’s establishment of a joint venture company (to be completed in fiscal 2021). These steps are expected to strengthen the foundation for our business competition and raise production efficiency. In addition, we completed making an Australian natural cheese manufacturing and sales company and a Japanese mail order company our subsidiaries. We are making aggressive investments in further growth, including M&A, and steadily implementing measures in line with the Medium-term Management Plan.

However, in fiscal 2018, the second year of the Medium-term Management Plan, consolidated operating profit fell short of the previous year’s level because our response to higher costs, such as an increase in the price of raw milk, was not effective enough and some sales showed sluggish growth due to tough competition.

Initiatives in Fiscal 2019

We will Step Up Our Efforts to Achieve the Group’s Long-term Vision 2026 by Shifting to Accelerated Profit Growth.

In fiscal 2019, raw milk prices increased, as in the previous year. We also expect distribution costs, labor costs and other costs to continue rising. To address this, we revised pricing for beverage and dessert products, starting in April. We are also working to expand sales of cheese and yogurt, which we see as a priority category and earnings base, in order to transform our business portfolio. We also plan to boost sales of our Lactobacillus gasseri SBT2055 yogurt with an appeal to health-conscious consumers.

In our overseas business, we will reinforce our initiatives to establish a new earnings base by expanding the cheese business in Australia and Indonesia and strategically expanding into the nutrition business with an eye on the growing health foods market.

With these efforts, we forecast consolidated operating profit of 18 billion yen in fiscal 2019, an increase over the previous fiscal year. This is below the 22 billion yen in consolidated operating profit that we had targeted when we announced the Medium-term Management Plan, but we will strive to shift to a path of profit growth by steadily implementing the business measures we have planned.

We will start the new Medium-term Management Plan in fiscal 2020. As part of these efforts, we plan to take our business portfolio transformation even further and firmly establish earnings bases, while also beginning in earnest on production structure renewal.

ESG Initiatives

We will Focus on ESG Initiatives as the Foundation for Our Business Activities.

We are working to address environmental, social and governance (ESG) performance, a foundation that supports the business activities of the Megmilk Snow Brand Group, to achieve the goals in our Long-term Vision. 

With our environmental initiatives, we are striving to preserve a sustainable environment in various ways, such as reducing CO2 emissions at our plants, safeguarding water resources by improving our wastewater processing capacity, reducing the use of plastics for product containers, and expanding the use of paper materials from forests that are appropriately managed. In particular, problems with plastics have been receiving more attention in recent years, and we have added “initiatives to address the plastic resource cycle” to the company-wide environmental targets of Megmilk Snow Brand Co., Ltd. We have begun considering ways to systematically reduce the amount of plastic used.

Our basic goal on the social side is to provide products and services that are safe, which customers can use with peace of mind. We are involved in a wide range of activities, such as studies and research that contribute to the development of sustainable dairy farming, sports promotion,
and the promotion of food education for all generations.

Our corporate governance is focused on ensuring the transparency of management, reinforcing external monitoring functions, and maintaining a management system that can immediately respond to market changes, with compliance at the foundation. In particular, the Corporate Ethics Committee, an advisory body to the Company’s Board of Directors, has met every month since it was established in 2002. This
committee examines issues and makes recommendations from an outside expert perspective, and its findings are reflected in our corporate activities.

In 2018, the Megmilk Snow Brand Group revised its CSR policies, identified CSR material issues in order to ensure balanced sustainable development for both society and the Group, and announced that it would address these issues. We designated five CSR material issues—“milk for contributions to food and health,” “contributing to sustainable dairy farming,” “reducing environmental impact,” “realization of a
diverse and motivating workplace” and “contributing to local communities”—in the four domains of food and health, dairy farming, the environment, and people and society. These clarify the issues with the greatest materiality to both society and the Megmilk Snow Brand Group. In August 2019, we set specific initiatives and key performance indicators that we will use to steadily address these CSR material issues.
The Sustainable Development Goals (SDGs) adopted by the United Nations in 2015 are global targets for building a sustainable world in which no one is left behind. The Megmilk Snow Brand Group will address the social issues related to our business, including our CSR material issues, to help achieve the SDGs.

The Megmilk Snow Brand Group aims to be a “Future Creation Company with Milk,” as laid out in our Long-term Vision, by remaining in harmony with society. We ask our stakeholders for their continued understanding and support.

September 2019,
Keiji Nishio
Representative Director and President