Summary of Q&A for Results Briefing of Fiscal Year 2020 held on May 21, 2021

May 21, 2021

Please tell us how we should imagine the growth strategy for the next medium-term business plan.

Aquaculture is one of the major keys to the growth strategy in the Marine Products Business, but we think that we did not fully consider the cost. One of the key measures is to quickly create a strong aquaculture business while reviewing the contents of the aquaculture business once again and firmly reducing costs.
Overseas expansion is a major key to growth strategies in the Food Products Business. The big challenge is how to proceed with overseas expansion as soon as possible. We have set up the Overseas Business Promotion Department to promote overseas expansion, so we would like to proceed as soon as possible while communicating with overseas group companies.
Exporting EPA overseas in the Fine Chemicals Business is one of the major growth strategies. This has the potential to expand beyond the United States to the rest of the world. In addition, we believe that it is important to continue to collect various evidence in order to expand the possibilities of EPA, which is a slightly steady effort but large growth strategy.

You are aiming for a dividend payout ratio of 30% in the future, but please tell us when you can achieve it.

It is difficult to specify when the payout ratio will be 30%. Considering the risk of having a large impact on the aquaculture business, such as the loss of farms, or the risk of major damage to fine chemical factories, we would like to secure about 200 billion yen in capital. We want to avoid the capital adequacy ratio falling below 20% when something happens.
We would like to raise the dividend payout ratio to 30% after the scale of equity capital reaches about 200 billion yen. We think we will release numbers in the next medium-term business plan, but I can't say the specific time at this point.

Regarding the capital investment, you mentioned that it was a level of over 80 billion yen during the period of the previous medium-term business plan. Please tell us whether you are planning to make a larger investment than the previous medium-term business plan in the next, or whether it will be compacter.

Please tell us what you can do to achieve a strong aquaculture business, and how you can achieve it in the face of high volatility due to the fishery market conditions.

There are various measures to strengthen the aquaculture business, but one is to increase resistance to fish prices. For that purpose, it is essential to increase the production efficiency of aquaculture. There are several specific methods, such as breeding, making large cages to increase productivity, and developing offshore fishing grounds. These measures will reduce costs and increase productivity. Issues in the aquaculture business include fish diseases, disasters, and natural disasters, but the aquaculture business can be particularly affected by typhoons. There are various ways to deal with typhoons, such as changing the shape of the cage to a subsidence type. In addition to lowering costs and increasing productivity, we want to promote research to improve quality and make it a strong aquaculture business, including increasing added value.

In the FY2021 plan for the South American salmon/trout farming business, the contribution to the increase in profits will be 400 million yen. I think this is due to an increase in landing volume, an increase in factory productivity, etc., but please tell us how you are looking at the premise of demand, and whether you are looking at the premise that fish prices will not return significantly.

Demand for fish is increasing worldwide, and the market has changed considerably. Fish prices are rising, as are resources such as oil and copper. The financial results of the salmon/trout farming business in South America include January to December in the consolidated financial statements. When looking at 2019 to 2020, the price was severe because it had dropped significantly. However, prices have returned since January 2021. Of course, we don't know what will happen in the second half, but considering the current return of fish prices, I understand that the 400 million yen contribution to the increase in profits in South America is the amount that we want to improve at least, and it is a solid figure.

Regarding domestic aquaculture, with the possibility that domestic demand will return in the future, what kind of efforts will be made in the aquaculture business to meet the demand? Please tell us if you can respond flexibly to demand.

Demand for domestic aquaculture is basically returning. Domestic aquaculture was quite difficult for a while, with subsidies being issued. Looking at the species of fish, the demand for amberjack has not returned yet. This is a fish species used for food services, so the influence of corona is strong. There is no choice but to lower the cost and wait for the demand to recover, but the demand is increasing considerably with others. As a result, it is also linked to the selling price. Regarding the rebuilding of domestic aquaculture, the point is how to control the cost.

Regarding the Food Products Business, you commented that the cost of raw materials such as surimi was rising. What do you think about the possibility of price increases in Japan and overseas?

McDonald's is developing putty using meat substitutes in the United States. Can you handle it if there is a need from a major global fast-food company, not only in the United States but also in Asia?

Regarding the Food Products Business, the subsidiary Delmar is scheduled to be merged in July. Will the relationship be strengthened as a group? Please tell us what you think about the Asian strategy of the Food Products Business.

Delmar, as an independent operating company, was engaged in various activities including research and development. However, based on the judgment that it would be more beneficial to make total efforts within the company, the merger will be carried out. From July 1st, we will continue to work as a department of our company. At the same time, the factory of Thai Delmar, a subsidiary of Delmar, was renovated last year. Starting from this factory, we are thinking of expanding sales of not only products for Japan but also products for the local market.
For expansion into Asia, we will continue to expand in the future while considering various methods such as whether to send people and money from Japan or to localize in Vietnam and China.

Please tell us if the increase in profit of 600 million yen in the FY2021 plan for the Fine Chemicals Business is expected to export pharmaceutical raw materials overseas.

Regarding inquiries from the FDA, it is said that preparations are being made to respond to remote inspections, but please tell us if you can recognize that the accuracy of shipping as expected is increasing in the second half.

The FDA has announced that it will stop regular inspections until September of this year and focus on new projects that have not been conducted. In that release, the FDA commented that they don't do it overseas, but do remote inspections in the United States.
We have also received a written question from the FDA and have just begun to respond. As for when the final factory inspection will be conducted, the FDA says that it wants to stop the regular inspection and finish the remaining projects by September, so we also hope that the inspection will be completed by September.

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