Executive Officer in Charge of Finance - Commitment
Generating Group Synergies, Achieving Sustainable Growth, and Increasing Corporate Value
Managing Executive Officer Megmilk Snow Brand Co., Ltd
Future Vision for the Megmilk Snow Brand Group
We expect major changes in the environment surrounding the supply and demand of dairy products and the procurement of milk resources. Anticipating these changes, the Megmilk Snow Brand Group established the Long-term Vision 2026. This vision outlines our goal of achieving even more sustainable growth and raising corporate value by addressing social issues by living up to our corporate philosophy and contributing to the community.
As specific growth goals, this Long-term Vision calls for a goal of 700 to 800 billion yen in net sales and 30 to 40 billion yen in operating profit by fiscal 2026 (ending March 31, 2027). One policy will be to transform our business portfolio 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 Strategy 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 a 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.
We will work to improve the profitability of capital in management. Through the business portfolio transformation and production structure renewal outlined in our Longterm 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.
In the fiscal year ended March 2019, ROE fell below the 8% target designated in the Long-term Vision and the Medium-term Management Plan. This was due to the impact of an impairment loss following the construction of a new feed plant, which was a growth investment, and the augmentation of equity capital, to improve financial soundness. 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 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.
The equity ratio improved to 46.3% in the fiscal year ended in March 2019, up 2.2 points over the previous year. In July 2018, we received a rating of A- (stable) from a rating agency. As a result, Megmilk Snow Brand Co., Ltd. issued 10 billion yen in corporate bonds, its first such issuance. We will consider diversifying our procurement methods and reducing financial costs, in line with the market environment.
During the period of the current Medium-term Management Plan, we will maintain a 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 seek to issue stable dividends. Our Long-term Vision outlines growth investments and ensuring financial stability while increasing shareholder returns with a target dividend payout ratio of 30%.
Cash Flow Distribution policy
We are planning cash flow 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 March 2018, 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 the generated cash to conduct the large-scale investments necessary to reform our business portfolio.
For shareholder returns during this period, we will aim for a dividend payout ratio of 20% as we seek 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 synergies as a whole in order to respond to changes in market environments.
We will 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.