Summary of Q&A for Results Briefing of the 2nd Quarter of Fiscal Year 2022 held on November 8, 2022

The demand would shift to meat as an alternative protein if the fish price became too high. However, the awareness that marine products are good for health is growing both in Japan and overseas. We believe that the demand for seafood won't decrease significantly. We will continue to promote the good qualities of seafood and provide high-value-added products with enhanced processing to stimulate consumption.

All fish species except sardines are poor catches in Japan's coastal fisheries, and the supply is decreasing. In the U.S., the fish catch quota of pollock fell in 2022. We expect that the supply will continue to be tight, although it may recover a little in the next year.

The Nissui Group has thoroughly managed procurement and inventory, building a business model with a high inventory turnover rate. So, the group is becoming more resilient to market fluctuations. By strengthening management, the aquaculture business has become more profitable even if the market conditions fall.

For the recirculating aquaculture system, the water quality environment and temperature management are very important. In addition, energy costs such as electricity charges affect the business. Although it takes time to commercialize land-based mackerel aquaculture, we will continuously make efforts to provide an anisakis-free mackerel.

Based on the exchange rate of 145JPY/USD, we are planning to revise the selling price at the beginning of next year. If we do not suffer from cost increases caused by more yen depreciation next year, we will improve profitability. Decreasing stock-keeping units (SKU) is an additional cost-cutting measure. Although the sales temporarily decline after the price rise, we think that the sales will recover within some months.

As a company-wide effort, we set up a project team to tackle the issue. We consider increasing price as the last means for a manufacturer. We are currently working on improving our business profitability, setting specific targets for the next fiscal year.

We cannot comment on the breakdown of profits by specific category. However, we expect to resume sales of pharmaceutical raw materials to the U.S. market and start sales to Europe in the second half of next fiscal year, so we will prepare for expansion by that time. The factory trouble that temporarily occurred in the first half of this fiscal year has already been solved.

We are also preparing to apply for the U.K., and the application process will be completed by the end of this year. If all goes well, it is expected that the application will be approved six months after the application.

The seafood wholesale business is not a core business for us, so it is a low possibility to invest in this kind of business. As a manufacturer, we will continue to invest in value-added production facilities, including the aquaculture business.

We are assuming an exchange rate of 145 yen/USD in the second half of FY2022. In the seafood business, we believe that the fish market price will not fluctuate significantly unless the exchange rate moves. However, it is necessary to pay close attention to fluctuations in seafood demand at such high market prices. On the other hand, in the food business, if the yen depreciation goes forward more than expected, we might need to implement price increases and changes in weight per package.