Summary of Q&A for Results Briefing of Fiscal Year 2021 held on May 19, 2022

We would like to achieve an operating margin of 5% in the future. The operating margin for FY2021 was 4.4%. We think it is possible to increase its margin to 5% by fish price rise and processed marine products close to customers like a distribution platform. We believe that we will be able to increase profit margins by increasing the number of products that can be useful and easy for customers to handle. There is also room for expansion in the aquaculture business in Japan. For example, our company is also engaged in salmon farming in Iwate Prefecture in cooperation with local fishing cooperatives. Unfortunately, Japan's coastal fisheries industry is gradually shrinking. However, we would like to increase the profit margin of the Marine Products business by cooperating with local fishing cooperatives and authorities.

There is no doubt that the Marine Products business is a business that is influenced by the market price. However, to do the business as resilient as possible, we will strengthen domestic aquaculture and improve inventory turnover. By increasing the processing ratio of Marine products, adding value, and promoting the conversion of marine products into food ingredients, we will be able to increase profits when the market price falls. That's what we're aiming for.

We think it will be positive for us so far, and it will be continuously upbeat as long as it can be added to prices to some extent. However, if it goes too high, there would be a negative impact that customers will move away from marine products. I think that the rising market price of the fishery will not change in FY22 so it would be positive for us. However, if the market price rises further after FY23, we need to consider how we add the rise to our product prices.

For example, we refer to international market products such as fish blocks and surimi.

We have already raised prices in Europe and the United States. Since the price rise can be relatively acceptable in Europe and the United States, we believe that it is possible to absorb cost increases through price increases. However, in Europe, price increases are expected to fall short of cost increases. We need to find a way to cover the increased costs because we found that we will not fully cover the expenses by the first half of the fiscal year. In Japan, we have just raised the price (February this year), so there is a time lag to cover the increased costs by the price rise in FY2022. Although we are making efforts, we think that we will not earn the same level of profits as that in FY2019 when the cost increase did not start. In FY2023, we hope to achieve gains at the same level as FY2019.

In Japan, it is expected to increase costs by 9.5 billion yen, and it is assumed that the price rise will absorb 9.3 billion yen of the increased costs. We have already implemented price increases in North America, but if the cost increase progresses further, it will be necessary to review it. As for Europe, we will raise prices from May, but it is about half of what we can cover the negative impact of cost increases. The food business will continue to be challenging, but we believe that price increases and aggressive sales activities can absorb most of the increased costs.

I think the cost will still go up. However, we believe that cost and price are also important aspects of product quality, so we are absorbing them by raising the price and strengthening the management and production efforts.

The medium-term management plan clearly states that portfolio management will be carried out, and we would like to decide based on various numerical values and discussions. Among them, options such as reducing the number of items and re-organizing the business can also be considered.

Reductions in the number of items and business revises are not included in the FY2022 plan. However, I have them as options and want to judge them carefully. In an environment where costs are rising, we will see this as an opportunity and take on the challenge of improving productivity and yield ratio to eliminate wasteful things. Regarding measures such as cost reduction, we intend to implement them together with price increases.

To some extent, there is a strong product group that occupies a market share in that field, and we believe that even if we raise prices slightly, sales will not decrease significantly. Strong product groups include surimi products, fish sausages, salmon flakes, edamame, and grilled rice balls.

As for the difference between North America and Europe, North America and Europe will increase costs, but the unit price of the amount to be raised is significant in Europe. The total amount is lower in Europe, but the unit price differs from North America regarding raw material and fuel costs. If we try to absorb all the fees in Europe, the product's price will be very high, so we　will raise the price to cover about half of it. In particular, the impact of the Ukraine crisis is affecting the increase in unit prices in Europe. In the United States, the range of cost increases is within the range that price increases can deal with.

The characteristic of the product called Q-dish is that it will be in freezer storage, and you can enjoy the freshness of chilled food by thawing it. In addition to deliciousness, it is also characterized by being able to set relatively long shelf life. We want to achieve both preservation and product quality. To some extent, we believe that the business will grow while promoting the replacement of frozen foods and chilled foods. We think it will drive profit margin improvement as a value-added product.

The plan includes the recent significant increase in mail-order sales of healthy foods. Because of the high-profit margin, pharmaceutical raw material is the key to profit earnings. Although we forecast sales of pharmaceutical raw materials to be 1.5 to 2 times that of the previous fiscal year, we will refrain from giving numerical answers on sales, including exports. The immediate challenge　is to increase EPA exports to the U.S. and start exporting to Europe in the future.

We have set a mission in the medium-term management plan. We advocate creating a healthy life and a sustainable future through food. This is also the criterion for creating a new business.

We want to create the seeds of new businesses. While there are unavoidable issues such as cost　increases and fluctuating exchange rates, we will make efforts to brush up on existing businesses　and develop new businesses, such as distribution platforms and Q-dish, etc. To that end, it is　necessary to foster momentum within the company to create new businesses. Last year, we established the Business Development Department, and we would like to instill something like a kind of innovation from a new perspective and make it a form that connects as a culture.