Processed Foods Business Briefing

Nichirei Corporation
September 7, 2022
© Nichirei Corporation. All rights reserved.

▎Today’s Themes
I. Frozen Foods Market – Outlook and Present Situation
1. Outlook for the Frozen Foods Market
2. Main Financial and Non-financial Targets (Processed Foods Business)
3. Present Situation

II. Sustainability Management
Sustainability Management (Overview)
1. Strengthen Strategic Categories• Rice Products• Chicken Products

2. Strengthen the Next Mainstay Categories• Processed Meats

3. Create New Value
4. Expand Overseas Business
Reference Material: Measures to Address Climate Change© Nichirei Corporation. All rights reserved.

I. Frozen Foods Market – Outlook and Present Situation© Nichirei Corporation. All rights reserved.

1▎Outlook for the Frozen Foods Market (1/2)
Demand for frozen foods continues to increase, driven by changes in lifestyles,
diversification of needs regarding meals, and a reevaluation of priorities during
the COVID-19 crisis.
Household-use Frozen Foods Market(100 million yen)

Commercial-use Frozen Foods Market
10,00010,000Frozenvegetables
1,400

9,000

(100 million yen)

10,0009,500
Meal Services
1,800

8,000

Restaurants
1,900
6,000

8,000

Frozenprepared
foods
8,600

7,000

6,000

4,000
HMR
5,800
2,000

0

5,000
2018

2019

2020

Source: Nichirei, created with data from INTAGE Inc. SCI consumer panel (Spending per
100 people up to 70s on frozen foods, all industry category including consumer
cooperatives delivery services) Market scale reaches new record highs each year.
 Market visibility has increased with new entrants
into the restaurant business.

© Nichirei Corporation. All rights reserved.

2019

2021

2020

2021

Source: Nichirei

 The market is recovering from the temporary
slump during the COVID-19 crisis.
 Home meal replacement (HMR) (deli items) andinstitutional meal service businesses are
performing well.

2▎Outlook for the Frozen Foods Market (2/2)
The COVID-19 crisis has accelerated macroenvironmental changes in Japan, and areasin which frozen foods play a role are expected to expand further going forward.
Sharp Increase in the Number
of Elderly People

Decline in the Working
Population(Thousand people)(10 thousand people)

39,5006,800

10% increase compared to 2015

Increase in the Numberof Single-person Households(Thousand households)

20,5005.2 million fewer people
compared to 2017

38,50010% increase compared to 2015

20,0006,600

37,50019,5006,400

36,50019,00035,5006,200

18,50034,5006,000

33,5002015 2020 2025 2030

2040

Increase in small-group style andminimum consumption

18,000
2017

2030

2040

Acceleration of serious labor shortage

2015

2020

2025

2030

Further increase in meals eaten
outside the home

Source for all graphs: National Institute of Population and Social Security Research

Food
Preparation
Stage
First-stage processed food material

Ready-to-cook meal kits

Finished products

Frozen foods are used at all stages of the food preparation process, and have a high potential
to help address future societal problems.
© Nichirei Corporation. All rights reserved.

3

▎Main Financial and Non-financial Targets (Processed Foods Business)
Nichirei is implementing a business strategy emphasizing sustainability, aiming forcontinuous growth.
(Billion yen)

Financial Targets

Net sales
Overseas sales

Operating profit
Operating margin
EBITDAEBITDA margin

FY22/3Results

244.2
40.8

FY25/3
Plan

275.0
51.0

Compared to
FY22/3

30.8
10.2

4.0%
7.7%

14.2

18.4

4.2

8.9%

5.8%

6.7%

0.9%

—

21.7

28.3

6.6

9.2%

8.9%

10.3%

1.4%

(Three-yea cumulative in mediumterm business plan)

34.0

38.7

4.7

ROIC

9.6%

10% orhigherCapital expenditures

CAGR© Nichirei Corporation. All rights reserved.

—

Non-financial Targets

Reduction in CO2emissions1
Higher proportion ofnatural refrigerants2

FY22/3Results

FY25/3
Plan

-20%

-30%

58%

80%

Notes: 1. Nichirei Group overall (compared with 2015 levels,
domestic Scope 1, 2)
Notes: 2. Production facilities (Japan)

Breakdown of Capital Expenditures¥38.7 billion
total Increase production
capacity for rice products
 Expand production lines
for processed chicken
 Environment-related
investment (CFC
elimination, etc.)
 Renewal of aging facilities

4▎Present Situation
In response to the prolonged rise in food material costs and the weak yen, Nichirei
has been steadily implementing price revisions since August and September.

Increase in Market Price of Food Material（Yen/1kg）

410

Price of Soybean and Canola Cooking Oil◼ Market prices for certain food material havestabilized, but prices of certain items continue to
rise◼ The increase in market prices has resulted in timelags due to inventory status and contract periods,
and this situation is expected to become increasingly
evident from the second half of the fiscal year

390

370
350
330
310
290
270

Soybean Oil
大豆白絞油© Nichirei Corporation. All rights reserved.

Canola Oil
菜種白絞油

5

II. Sustainability Management© Nichirei Corporation. All rights reserved.

6▎Sustainability Management (Overview)
Nichirei aims to enhance both its economic and social value by pursuing a sustainablegrowth strategy that emphasizes its strengths.

Implement sustainable growth strategies

Economic Value

Drive the market for processed
1. Strengthen
rice and chicken products, wherestrategic categories. robust demand continues.

2. Create new value.

3. Expand overseas
business.

Single-serving meals, healthfulfoods, meal ingredients
Establish a high-earnings businessmodel with high value-added.

Earnings growth in the North
American and acerola businesses

Social Value

Establish a sustainable supply
chain.

Contribute to solutions forsocietal issues faced by Japan.

Cultivate deep connections withlocal communities.

71. Strengthen Strategic Categories

8▎Establish a Sustainable Supply Chain
Focus on sustainable procurement in the strategic categories of chicken and rice products.

Food material

Riceproducts

procurement

Production

Business Sustainability
Environment, climate change,
human rights, animal welfare, etc.

Chickenproducts

Sales

Storage anddistribution9▎Demand Trends for Rice Products
Rice consumption is declining year by year, but production volume of processed riceproducts is increasing.
Food Self-Sufficiency Ratio
(%)
120
Rice

Production Volumeof Processed Rice Products

Rice Consumption Per Person(kg)（10,000 tonnes）

62

45

60

40

Wheat

100

35

58

80

30

56

25

60

54
20
52

40

15
50

20

10

48

0

5

46

1995

2005

2015

2020

0
2010

2012

2014

2016

2018

2020

2010

2012

2014

2016

2018

2020

Source: Ministry of Agriculture, Forestry and Fisheries (MAFF) “Production Trends in Food Manufacture Industry” and MAFF “Food Supply and Demand Chart”

Societal
Issue

Decline in rice consumption(cooking rice at home)

Nichirei’s
Goal

Help maintain the food selfsufficiency ratio by expanding
the lineup of frozen processed
rice products.

10▎Room for Growth in the Frozen Fried Rice Market
Market Scale for Household-Use
Frozen Fried Rice

Ratio of Fried Rice Servedat Home by Cooking Type(100 million yen)

■ Frozen ■ Ready-made, etc. ■ Homemade

450
100%

400
350
300
250

50%

200
150
100
50
0

0%

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Source: Nichirei, based on data from INTAGE Inc. Figures for 2022-2025 are
Nichirei’s forecasts.

2000

2015

2021

Source: Data from Lifescape Marketing Co., Ltd.

Nichirei will continue to drive market expansion byproactively capturing the continued robust demand.
11▎New Frozen Rice Production Center
Nichirei is building a new plant for frozen rice in Fukuoka Prefecture, enhancing its
production capacity to ensure a stable supply to meet robust demand.
Kyurei Inc.
Overview of the New Facility• Items to be produced : Household-use andcommercial-use rice products, mainly fried rice
• Scheduled start of operations: April 2023

Funabashi Plant

Conceptual image of the new building

・Together with the Funabashi Plant, production capacity for rice products to increase 1.2 times
・Dual production centers in east and west Japan also benefit business continuity planning (BCP)
12▎Rice Procurement Structure
 Nichirei is strengthening business with suppliers to ensure the stable procurement of rice
 Efforts contribute to an improved self-sufficiency ratio in the rice category overall

Strengthened
cooperative
framework

・ Maintain the solid cooperative framework
established with suppliers over many years,
and build a structure to allow procurementof rice from other prefectures.

 Selection for efficient harvestingand varieties best suited tofrozen rice products.
Test field

Getting
involved inrice varieties
13▎Sales Strategy for Rice Products
Lift the market for processed rice products overall by further expanding sales of riceproducts, focusing on our mainstay product Honkaku-Itame Cha-Han® (Authentic
Fried Rice).
Sales of Honkaku-Itame Cha-Han®

Sales reached ¥10 billion

2015

2016

2017

2018

2019

2020

2021 年度

14▎Sales Strategy for Processed Chicken Products
 Sales temporarily declined with a slowdown in operations at the production plant inThailand due to the COVID-19 crisis, but have now begun to recover Nichirei will expand sales of processed chicken products by refining techniques for
product differentiation and strengthening high value-added products
当社チキン加工品の売上高推移（日本国内販売のみ）
Sales of Nichirei’s
Processed Chicken Products (Japan sales only)

Launch of Toku-karadeep-fried chicken

Full-fledged operations
at GFPT Nichirei

FY2009 10年度
2010 11年度
2011 12年度
2012 13年度
2013 14年度
2014 15年度
2015 16年度
2016 17年度
2017 18年度
2018 19年度
2019 20年度
2020 21年度
2021 2209年度

15▎Supply Structure for Processed Chicken Products
Stable production of products utilizing the characteristics of facilities in Thailand,
Japan, and China.

Thailand

Production of differentiated products
based on good quality food material

GFPT Nichirei

Japan

Production of high-value-added products
based on superior processing capabilities

Nichirei
Main products

Main products
Commercial-use (Chicken
Steak)
Household-use (Munekara)

Commercial-use

スラポンニチレイ
Household- use (Goodfor Bento® Fried
Chicken)

Surapon Nichirei
Main productsHousehold-use (Toku-kara,
Deep-fried chicken withdipping sauce)

China

OEM production of mainly reasonably
priced items

16

▎Measures to Enhance Earnings (GFPT Nichirei, Thailand) Take advantage of full integration to effectively utilize the entire bird, with sales inJapan and overseas Pursue higher earnings and stability by expanding production of processed foods, andadded value for by-products
Business Model

Full Integration
GFPT
Joint venture partner(Major chicken
processing andpoultry industry
company)

Incubation →Poultry raising

PurchaseofchickenJapan(Nichirei)

ThighEuropeBreastBreastTenders

Wings

Processing with roasting, etc.

GFPT Nichirei

Thailand

Carcass

Giblets
By-products

Dismembering → Heating andprocessing → Freezing and packaging
Gizzards

China

Feet
By-products

Increased Earnings and Stability

Measures for Personnel Reductions

Introduction of automated bone removal andcutting machines at the food material processing
stage to enhance production efficiency.

Measures for Adding Value to By-products (Examples)
Ingredients for pet foodBoneIntestines

Head

Feed for farmed fish

Feathers

17

▎Measures for Sustainable Procurement (GFPT Nichirei, Thailand)
Greater Engagement

Animal Welfare

Stress reduction
at poultry farms

Housing facilities
for local workers(GFPT)

Sustainableprocurement
Mini markets withfood and clothing

Handling fromthe standpointof animal welfare(GFPT Nichirei/GFPT)

18

2. Strengthen the Next Mainstay Categories

19▎Strengthen and Expand the Processed Meats Category
Strengthen the growing categories of hamburger steak and cutlets, and develop
them as new earnings pillars alongside rice, chicken, and frozen vegetables.
Market Scale for Household-use Processed Frozen Meat Products(100 million yen)120

Launch of Prime Pork Cutlet

100

80

50

Nichirei will maximize its strength in techniques
for reproducing delicious taste, and generate
further demand by providing quality value.
New products launched in fall 2022

60
25
40
20

40

0
2016

Upper figure: Cutlets formain dishes
Lower figure: Hamburger
steak for main dishes
2017

2018

2019

55

2020

2021

Household-use: Prime
Hamburger SteakCommercial-use: Cheese-Stuffed
Grilled Hamburger Steak 110

Source: Nichirei, based on data from INTAGE Inc. Figures for 2022-2025 are Nichirei’s forecasts.

Measures for Health and Sustainability▎Use of meat substitutes
Household-use products made with soybean material
jointly developed with DAIZ Inc.

▎Establishment of technologies for meat
substitutes with the same delicious flavor of beef
Aim for R&D Division to establish technology quickly
Flavor

Mouthfeel Appearance20

3. Create New Value

21▎Create New Value that Solves Societal Issues
Nichirei aims to expand sales of high-value-added products that meet the needsof society, positioned as a growth driver alongside our mainstay categories.
Increase in Single-Person Households

Aging Society

Serious Labor Shortage

Single-Serving Meals(Personal-Use Products)

Delicious and Healthful

Prepared Meal Ingredients

 Utilize our unique technologies todevelop products with both good
taste and nutritional supplement
 Begin development of health-focusedtechnologies uniquely applying tofrozen foods

 Strengthen development ofassemblable meal ingredients to meetneeds for labor savings andstreamlining in kitchens and backyards

 Develop single-serving, ready-to-eat
meals with good taste and appearance,and market them to a variety ofbusiness categories
Household-use
Hiyashi Chuka (chilled Chinese noodles),Thick Dipping Noodles

Commercial-use
Main dishes for institutional meals, etc.

Household-use (for e-commerce channels)
Kikubari Gozen® (Care Meals) series, etc.

Commercial-use
Fried chicken thighs (low salt), etc.

Assemblable meal ingredients
Vegedelica® series, etc.

Frozen friedchickenFrozenvegetables

Sauce

22

▎Measures to Create New Value (Single-Serving Meals)
Nichirei will create demand for new single-serving meals (personal-use products)
characteristic of Nichirei, and further expand the frozen foods market.
Business Scale Target for Single-serving Meal Products
2021

2024

¥18 billion¥30 billion

New
Existing

Existing

New

Newly developed products+ 25% growth
Existing Single-Serving
Meal Products
Expand the lineup, andmaintain high profitability.
E.g. Imagawayaki (frozen snack
cakes)

Newly Developed Single-Serving
Meal ProductsHousehold-use
Develop products with firm
demand in categories new to
Nichirei.

Provide New Value Characteristic of Nichirei
Three-in-one value
A range of ingredientsavailable to allow
combinations of mainand side dish.

Good taste

Nutritionalbalance

With selected goodaroma andappearance as well

Instant
meal
Convenienceof a tray

Technical Value
Microwaves

Ice reduces theeffectivenessof microwaves(E.g. Noodles)

Commercial-use
Develop single plate products tocope with labor shortages andsmall lot production.
(E.g. Main dish sets)

Noodles andtoppings areheatedHiyashi Chuka (Chilled Chinese noodles), which are timeconsuming to prepare at home, can be enjoyed cool anddelicious by heating in a microwave.
Provide unexpected and high quality new technical value.

23▎Measures to Create New Value (Healthful Foods)
With priority on delicious taste, adopt an approach of everyday healthy eating that also
makes use of freezing.
Health Business Opportunities Created by Nichirei
Enhance the foundations for
Nichirei’s strength of capability toreproduce both delicious andhealthy food.

Enjoydelicious
meals

Good taste
makes a healthy
diet easy
to maintain

Refine products from theconsumer’s perspective, andincrease awareness.

Delicious taste
is the basis ofeverything.
Invest resources inenvironmentally sustainablegrowth.

Further
Investment
in delicious
taste

Value Conveyed by Products (Example)
This fall Nichirei will launch the exclusive e-commerce product Pearl
Barley One Dish Plus, a nutritional fortified food that provides morethan half the necessary daily amounts of four essential nutrients
commonly deficient in women.

Accelerate
the continuous
cycle

Gain economic value from greater
consumer and customer
satisfaction.

Pearl Barley One Dish Plus

Chicken and Spinach Gratin

Demiglace Hamburger Steak Rice Gratin24

▎Measures to Create New Value (Meal Ingredients)
Nichirei will maximize the effectiveness of its functionality to help resolve the issues
faced in the HMR and restaurant businesses, made worse by the serious labor shortage.
Assemblable Products
Product form

Packaged in one box
Store operation25

4. Expand Overseas Business26▎North American Business (Market Environment)
The frozen foods market in North American is growing steadily, with particularly strong
growth in Asian foods due to the increase in the Asian and Hispanic populations.
North American Market for Frozen Asian Foods
1,210(Million dollars)

758

1,051

139%

What are Asian foods?
Asian foods are a category that includes mainly
Chinese (American Chinese) menu items, such as
fried rice, jiaozi (dumplings), spring rolls, and deepfried chicken.

102%

119%

FY20192019年度

118%

Asian Foods as an Established Part of Food Culture

2020
2020年度

2021
2021年度

Sales of frozen Asian foods
アジアンフーズ冷凍食品売上高
加工冷凍食品（成長率）
Processed frozen foods (growth rate)
Source: Calculated for household-use national brand products basedon Nielsen data.

27

▎North American Business (Present Situation for Nichirei)
InnovAsian Cuisine continues to grow by building on its strengths, including
development of products tailored to local tastes, and sales to major retail chains.
InnovAsian Cuisine Net Sales

Overview of InnovAsian Cuisine

Aiming for growth of 10% or more in fiscal 2022
(Million dollars)

Business
Category

Distinctive
Characteristics

Principal Sales
Channels

Product
LineupHousehold-use(Approx. 70%)

199

Commercial-use(Approx. 30%)

• Capacity for product developmentthat reflects market trends from an
American perspective• Ability to sell to major retail chains• Marketing-based promotions
Frozen foods
section of major
volume retailers

Delicatessen
section of major
volume retailers,
restaurant chains

Mainly chicken
and rice products

Providing Asianfood solutions
suited to menus
and serving
methods

156
108

118

134

Average annual growth rate of 15%
Dec. 2017

17/12

Dec. 2018 Dec. 2019 Dec. 2020 Dec. 2021

18/12

19/12

20/12

21/12

Dec. 2022

22/12E(Forecast)Market Share among National Brand
Household-use Asian Foods

21%
Second Highest(As of March, 2022)

Aiming to gain top market share as quickly as possible
Source: Calculated for household-use national brand products basedon Nielsen data.

28

▎North American Business (Strategy) Acquire company-owned production facilities to support expanded sales of rice products Accelerate growth by strengthening sales of mainstay products, and entering new
business categories
Overview of the New Production Company

Production and Sales Strategy

Nichirei Sacramento Foods Corporation

 Expand lineup of mainstay chicken and riceproducts
 Going forward, focus on household-use
appetizers, a sector in which demand is expected
to increase.
 Strengthen sales to major small retailers, andconduct promotions linked to online sales
through retailers.
Rice Products

Background Dec. 2019: Investment as joint venture,
positioned as a facility to produce riceproducts for InnovAsian Cuisine.
 Jul. 2022: Company made subsidiary of
Nichirei Foods.

Distinctive
Characteristics

 Certified as a manufacturer of cookedrice with meat as required by the U.S.
Department of Agriculture (USDA).

29

▎Acerola Business (Market Environment and Measures)
Nichirei is aiming for further growth by strengthening sales of acerola powder, a clean
label* ingredient for which demand is growing in the European and U.S. markets.
* Clean label is a recent trend in food labeling, established mainly in Europe and U.S., of labeling foods as made with simple ingredients, andpresented in an easily understood manner. Typical examples include such claims as additive-free, natural, organic, or non-GMO.

Clean Label Productsin the Worldwide Market

Overview of Nichirei do Brasil Agricola (Niagro)

Procurement

Processing

Customers

Products• Manufacturers of drinks,
foods, and cosmetics inJapan and Europe• Fruit juice, puree, powder→ Food and drinks• Extract → Cosmetics

116%

110%

100%

109%

➢ Nichirei handles theentire process, fromprocurement of raw
ingredients fromcontracted farms tosales➢ Sold as a clean label
ingredient with secure
traceability

101%

New Powder Production Plant➢ Capital expenditures of approximately ¥900 million➢ The new acerola powder production line is expected to increase sales
volume (fruit basis) by more than 35% in 2023 compared with 2021 levels

2017

2018

2019

2020

2021

New Niagro Plant

Acerola Powder

Operations scheduled to commence inFebruary 2023

Used as an ingredient in supplements
and as a discoloration inhibitor

Rate of increase for Clean labels (%)
Source of rate of increase: Innova Market Insights, annual
indices, with 2017 as 100.

30

▎Acerola Business (Sustainability)
Nichirei practices sustainable procurement in order to ensure economic stability forfarmers, and enhance the quality of acerola for Niagro.
Around 300 contracted farms

Purchase ofentire crop

Cultivation
guidance

Technical guidance
for new growers

Economic
stability

MutualsupportAgricultural
financial support

Improved
cultivation skill

Continued
business growth

Stable supply of high-quality acerola
EcoVadis Sustainability Rating of “Gold” for two consecutive years
Niagro has received a Gold rating from EcoVadis, a global
rating agency for sustainability and supply chains, for two
consecutive years, placing it among the top 5% of more than
90,000 companies and organizations worldwide.
 Silver rating for five consecutive years from 2016
 Gold rating for two consecutive year from 2021

Environment

EthicsFour criteria Labor and human rights
for businessevaluation

Sustainable material
procurement31

Reference Material: Measures to Address Climate Change

32▎Measures to Address Climate Change
Nichirei is installing solar panels and clean energy systems, as well as converting
facilities to natural refrigerants, as part of its environmental investments under the
medium-term business plan.
Renovation of Facilities to Use Natural Refrigerants
100%
complete

100%

Initiatives at the Yamagata Plant
New production lines for single-serving meals wereintroduced at the Yamagata Plant in 2021, and zeroCO2 emissions from the energy used at the plantachieved through: Installation of a solar power system Utilization of renewable energy generated athydroelectric
power stations in Yamagata
水力発電による電気供給
Prefecture

50%

0%

FY2021 2022年度
2022 2023年度
2023 2024年度
2024
2021年度

2028
2028年度 Currently, around 60% of facilities have been
converted to natural refrigerants.
 Going forward, Nichirei plans to renovate around 10%of its facilities annually, and completely eliminate
CFCs by 2028.

Hydroelectric power stations
in Yamagata Prefecture

Tohoku Electric Power
Nichirei Foods
Yamagata Plant

山形工場

33

Appendix

34

Processed Foods Business – Sales Mix and Products
Composition of Sales (FY22/3) and Main ProductsHousehold-use
PreparedFrozen Foods

Commercial-use
PreparedFrozen Foods

31%

38%

Processed
Agricultural
Products

Net Sales¥244.2 billion

8%

Overseas

Others17%

6%Highest Proportion of Sales: Sales Channels for Commercial-use Prepared Foods
Supermarkets, GMS

HMR

Delicatessen sections

Convenience stores

HMR

Hot items section near registers,
ingredients in bentos and stuffed bread

Restaurants (fast food, restaurants, bars, etc.)
Food Services (schools, offices, hospitals,
welfare facilities, etc.)

Restaurants

Used for menu items and meal ingredients
Meal Services

35

Forward-looking Statements
Aside from historical facts, Nichirei’s present plans,
forecasts and strategies as outlined in this publicationconsist of forward-looking statements about futurebusiness performance. These forecasts of futurebusiness performance and explanations of futurebusiness activities may or may not include words such as“believe,” “expect,” “plan,” “strategy,” “estimate,”“anticipate” or other similar expressions. Thesestatements are based on the information available to
Nichirei management at the time of publication. Actual
results may differ significantly from these forecasts for avariety of reasons, and readers are therefore advised torefrain from making investment decisions based solely
on these forward-looking statements. Nichirei will notnecessarily revise its forward-looking statements inaccordance with new information, future events, andother results. Risks and uncertainties that could affectNichirei’s actual business results include, but are notlimited to:(1)Changes in the economic conditions and businessenvironment that may affect the Nichirei Group’sbusiness activities.
(2)Foreign exchange rate risks, especially as regards the
US dollar and the euro.

(3)Risks associated with the practicability ofmaintaining quality controls throughout the processfrom product development, procurement of raw
materials, production, and sale.
(4)Risks associated with the practicability ofdevelopment of new products and services.
(5)Risks associated with the practicability of growthstrategies and implementation of low-cost systems.
(6)Risks associated with the practicability of achieving
benefits through alliances with outside companies.
(7)Contingency risks.

However, factors that may affect the performance of the
Nichirei Group are not limited to those listed above.
Further, risks and uncertainties include the possibility of
future events that may have a serious and unpredictable
impact on the Group.
This publication is provided for the sole purpose ofenhancing the reader’s understanding of the Nichirei
Group, and should not be taken as a recommendation
regarding investment decisions.