Nichirei Corporation

Logistics Business Briefing Q&A Session
Date and time: Monday, February 20, 2023
Format:Held concurrently as Teams meeting and at the Nichirei
Suidobashi BuildingPresenters:(Nichirei Logistics Group Inc.)
Kazuhiko Umezawa, Representative Director, President
Kazunori Miki, Director, Senior Managing Executive Officer
Kazunori Shimamoto, Executive Officer(Nichirei Corporation)
Kenji Suzuki, Director, Executive Officer
Yasunori Sato, General Manager of Business Management

Q. What are the reasons for the steady improvement in return on invested capital(ROIC) in Japan?
A. There are three main reasons. The first is the high proportion of handling volume forprocessed foods, which have a high turnover rate. We see this as a successfulreflection of our strategy to target frozen food producers as customers. The second
reason is cross-selling. We have been gradually integrating the divisions handling
regional storage and those handling transport and delivery on an area basis,
allowing us to provide a seamless, integrated service from storage to delivery,
which has led to an increase in the asset turnover rate. Of note, we are planning a
final integration in the Kanto region in fiscal 2023. The third reason is the revision ofstorage fees to a more appropriate level, implemented under the previous businessplan, which has contributed greatly to increased profitability. In addition, in recentyears, along with investing in our own refrigerated warehouses, we haveincorporated schemes utilizing assets of other companies, aiming for continued
improvement in the asset turnover rate and operating margins.
Q. Some companies have announced increases in driver wages and price revisions in
response to the new work regulations for drivers that will take effect in 2024.
What is Nichirei’s view, and how will you adapt?
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A. Changes in social rules will also change the cost structure, so we plan to makerevisions to transport tariffs. For example, we will incorporate a concept similar to
dynamic pricing, with a focus on revisions that lead to a greater evening out offreight, and more efficient transport and delivery for customers.
Q. What is your view regarding the operating margin and capital investment during
the “Benefit Period” from FY26/3?
A. In the storage business, up to now we have made in-house investments and taken
on a certain degree of risk, maintaining a structure in which profitability rises withdepreciation. The transportation business, however, is primarily dependent on
usage, so while the risk has been comparatively small, profit margins have also
remained low. By acquiring detachable trailers that will be owned by the corporategroup, and taking on a certain degree of risk, we will be able to provide a highvolume, high turnover service. As a result, along with an increase in transport
handling volume supported by a combination of tariff revisions, a frozen foodsdelivery platform, and other measures, we believe that we can improve operating
margins. Combining the storage business and the transport and delivery business,
we aim to achieve an operating profit margin of around 7% by FY28/3.
Under the current business plan, we plan to make large-scale capital
investments for the Japan business that will allow us to meet needs fordecentralization of customer inventory and greater efficiency in the transport anddelivery network in order to adapt to the changes in working conditions for truck
drivers from 2024, while also serving to help attract potential customers. The actual
investments will be settled during the plan period. Up to now, we have always
carefully selected the necessary capital investments in Japan, and going forward weplan to focus on investments to renovate aging facilities, and enhance the EBITDA
margin.
Q. What are the prospects for market growth and increasing Nichirei’s market share?
A. The scale of the temperature-controlled logistics market in Japan is estimated ataround ¥2 trillion (US$15 billion). Nichirei’s share of total refrigerated warehousecapacity in Japan is around 10%. Going forward, we think that demand fortemperature-controlled logistics will continue to rise along with the increase inusage frequency and amount for frozen and processed foods, and that our market
share will expand to more than 10%.
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Q. What is the current status of efforts to eliminate the use of CFCs?
A. Because of the semiconductor shortage a little more time will be required, but wehave taken steps such as placing advanced orders with manufacturers for thenecessary equipment, and our plan to eliminate CFCs by switching to naturalrefrigerants remains on schedule. There is also the additional step of confirming theselection for government subsidies before placing orders, but we consider theelimination of CFCs to be important, and have adopted a policy that prioritizes
implementation in line with plan.
END
Note: This document is not a complete record of the Q&A session, and has been editedby Nichirei Corporation.

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