Meiji Holdings Co Ltd
TSE:2269
Meiji Holdings Co Ltd
Meiji Holdings Co., Ltd. has long been a staple in the world of Japanese consumer goods, specifically in the food and pharmaceutical sectors. Established in 2009 as a result of merging Meiji Seika Kaisha, Ltd. and Meiji Dairies Corporation, the company stands as a testament to the power of strategic consolidation, leveraging over a century of expertise from its predecessors. The company's robust product portfolio spans a diverse array of offerings, including dairy products like yogurts and milk, confectioneries like chocolate and candy, as well as nutrition bars and supplements. This triumvirate of product lines allows Meiji Holdings to position itself in both the everyday consumer market and in specialized health-centric industries, exploiting economies of scale and extensive distribution networks that reach far beyond the Japanese archipelago.
In the pharmaceutical arena, Meiji Holdings operates under its subsidiary, Meiji Seika Pharma, focusing predominantly on antibacterial drugs, central nervous system treatments, and veterinary products. By integrating research and development with a comprehensive marketing strategy, the company capitalizes on global health trends and regional disease challenges, expanding in markets that emphasize health and dietary improvements. Financially, Meiji Holdings generates revenue by producing goods that tap into both traditional consumer desires and modern nutritional trends. It makes money by introducing high-margin pharmaceutical innovations alongside its well-established consumer brands, thus benefiting from both everyday sales and solutions aimed at pressing global health needs. Together, these strategic components make Meiji Holdings an agile player in a competitive global market, combining heritage with innovation.
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In the first half of fiscal 2024, Meiji Holdings achieved consolidated net sales of JPY 569.0 billion, up 4.2% year-on-year, boosted by a strong performance in the Pharmaceutical segment, which grew sales by 12.9%. However, profit attributable to owners declined 3.8% to JPY 26.8 billion, largely due to reduced extraordinary gains. Looking to the second half, consolidated net sales are projected at JPY 589.9 billion, a 5.5% increase, with operating profit expected to rise 4.3% to JPY 41.6 billion. The company anticipates a 10% operating profit increase in the Food segment despite challenges, including increased raw material costs.
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Thank you for the kind introduction. My name is Kawamura, CEO, President and Representative Director of Meiji Holdings. Thank you very much for taking time out of your busy schedule to join us today. And I would also like to take this opportunity to thank you for all of your continuous support.
Today's presentation will be based on the points as shown on this slide. First, I would like to present the financial summary for the first half of fiscal 2024. Consolidated net sales for the first half was JPY 569.0 billion, year-on-year increase by 4.2%. Operating profit was JPY 44.3 billion, almost same as last year. Compared to the initial plan of Op, this was JPY 8.3 billion more due to a significant increase in the Pharmaceutical segment.
On the other hand, profit attributable to owners of parent was JPY 26.8 billion, year-on-year decline by 3.8%. This was mainly due to a decline in extraordinary gains such as gains on sales of shares of subsidiaries and affiliates recorded in the same period last year. Compared to the initial plan, net profit was JPY 5.8 billion higher than the original plan due to a significant increase in operating profit.
Next is an overview by segment. In the Food segment, net sales was JPY 455.4 billion, year-on-year increase by 2.2%, and this is almost in line with the initial plan. On the other hand, operating profit was JPY 27.6 billion, down 6.9% year-on-year. Looking at Japan business alone, profit increased, but had a bigger decrease from overseas operations, which brought a significant impact. Analyzing the changes in Op as shown in the graph, increase in raw material costs was a factor by JPY 8.0 billion of decrease in profit. At the same time, positive impact of price increase was JPY 9.1 billion.
Product amount changes was JPY 1.1 billion. Even excluding the impact of volume and product mix by JPY 1 billion, these positive impacts could more than offset cost increase. Logistics and marketing expenses were negative factors to push down the profit by JPY 0.7 billion, but decrease in other expenses such as indirect manufacturing costs contributed by JPY 0.1 billion of profit increase. Result of subsidiaries was a factor pushing down profit by JPY 2.5 billion. Profit of Asian and feed subsidiaries increased, but subsidiaries in China and U.S. had declining profit.
Next, let's look at the Pharmaceutical segment. Net sales in this segment totaled JPY 113.8 billion year-on-year increased by 12.9%. Operating profit was JPY 18.5 billion, year-on-year increased by 16.7%. So both sales and profit increased compared to last year. As shown in the graph, sales of antibacterial injection, our mainstream drug and sales of REZUROCK, launched in May, increased. In addition, advanced shipment of influenza vaccines contributed by JPY 1.3 billion for increase in profit.
The impact of NHI drug price revision was a positive factor by JPY 0.9 billion to profit due to the positive price revision of antibacterial agent. In addition, cost reductions contributed JPY 0.3 billion to the increase in profit. As for costs, cost increased for the promotion cost of REZUROCK and Quintovac ,five-in-one combination vaccine as well as R&D and personnel expenses leading to a combined JPY 3.1 billion decrease in profit. Subsidiaries contributed to increase in profit by JPY 3.3 billion.
In Japan, the generic drug sales contributed to growth in profit. Completion of product transfer from pharma contributed to increase in sales. Overseas subsidiaries in India and Thailand recorded increasing profit. These are the main points of the first half results. Progress against the full year plan had some differences in different businesses, but the group performance overall is on track.
Next, I would like to explain the key points of the second half and full year outlook. First of all, there is no change to the full year financial plan. We will aim to achieve the initial targets for both Food and Pharmaceutical segments. However, we have revised subsegmental sales and profit forecast based on progress in the first half of the year.
Looking at second half alone, consolidated net sales plan is JPY 589.9 billion, year-on-year increase by 5.5%. Operating profit is expected to increase by 4.3% to JPY 41.6 billion, with increase in profit of Food segment and decrease in sales of Pharma segment. I will explain this point in more details. First is the Food segment. We are maintaining the initial operating profit plan. So although first half was a year-on-year decline in operating profit, we will aim to achieve year-on-year 10% increase in the second half.
There are 3 main reasons for the differences in the first half result versus the initial plan. The first is that raw material price for cacao rose more than planned. In response to this, we have revised the B2B business prices since September. And in October, we announced a 20% price increase for B2C chocolates.
Second, the product mix deteriorated with high-margin products such as probiotics, functional yogurt and infant formula failing to reach the plan. In the second half, we will not only enhance these products, but also recover by leveraging our brand power in deploying product strategy.
Third point is that frozen dessert business in China struggled. Second half is a non-demand period for frozen dessert in China, so not expecting contribution in second half and therefore, wouldn't bring much gap as we saw in the first half. We have based our second half forecast on these assumptions.
Next, I would like to explain our specific initiatives. First, we will address the issue of cost increases. As shown in the graph on the left, cost increases peaked in the first half of fiscal '23 and have since subsided, but there are still some risks such as volatility in foreign exchange rates and sharp rise in cacao raw material price. The cost increase factor in the second half was initially expected to be JPY 5.9 billion, but have now revised our forecast to JPY 12.9 billion. Of the approximately JPY 7 billion revisioned, JPY 4.8 billion is attributable to cacao raw material.
We have already taken steps to address this issue through price increase. Considering the 20% revision, there is a concern about its impact on volume. Although previous price increases have had a short-term impact on volume, we have made efforts to minimize the impact by investing in marketing from an early stage. At the same time, please understand that we are improving the product capabilities as well. Some initiatives such as the structural reform of Bulgarian yogurt are taking a certain amount of time to take effect.
However, we believe that without efforts to strengthen the product capability and pursue added value, we will not be able to improve profitability. We will respond to future cost increases through a combination of price increase, stronger marketing and product enhancement.
First, let me explain the chocolate business, which has been most affected by the sharp rise in the raw material prices. The cost of cacao raw materials increased versus initial plan by JPY 2.5 billion in the first half and by JPY 4.8 billion in the second half of the year, which is more than we had expected, in particular, cocoa butter, which has short inventory period, have been affected significantly. As shown in the graph on the left, although all companies have raised prices since '22, they have done this several times already, so the October price hike was not an easy task.
Naturally, the impact on volume could possibly be greater than before. Therefore, we are first reviewing product specifications without affecting brand value. On the other hand, for products such as Chocolate Kouka, for which the cacao ingredient is directly related to the value of the product itself, we will not change the specification, but we'll continue to strengthen the appeal of value through marketing investments.
In addition, we will continue to communicate the rarity and value of cacao. In a survey conducted in March, we found that customers who knew about our sustainable cacao initiatives purchased about 1.7x more products than those who did not know about it. In order to link the promotion of sustainability to increased sales and loyalty, we will continue to disseminate information through our website and product packages. In addition, we will change our channel strategy in order to strengthen inbound demand and e-commerce. In particular, inbound demand is not only for souvenirs, but also for consumption during their stay in Japan. So they have a bigger presence as a purchasing segment of confectioneries.
Inbound customers do not hesitate to purchase by comparing with the past prices. So we need to strengthen our approach to this customer group from various aspects such as products, marketing and sales stores. Specifically, in stores that are frequently visited by tourists, we will create sales areas with Japanese essence and have a popular product lineup to meet the needs of inbound customers.
In addition, we will also work with marketing representatives in each country to connect their purchases in Japan to more purchases in the home country after returning home. Through these efforts, we will aim to increase profits for the entire business, including overseas operations. Next, I will explain the mainstay products of dairy business, which is a functional yogurt business.
As shown in the graph on the left, the yogurt market in the first half of the year was on the same level as last year. However, functional yogurt declined by 7%, indicating a tough situation. The pie chart on the right shows the situation of our functional yogurt business, which had a 5% decline in sales in the first half. Sales of R-1, however, declined by 1% and sales of consumer products alone was up 1%, doing well.
This is due to successful communication of physician recommendations making a strong appeal at storefront and R-1 The GOLD, which had a high unit price, is gaining new customers and growing. In October, cup-type of GOLD was launched. So we intend to continue the positive trend by achieving both stable growth of existing products and improving the mix of products through the growth of GOLD.
In home delivery category where we have some issues, we will strengthen communication of physician recommendation as we have seen its success with consumer category. On the other hand, 3 brands other than R-1 were down double digits in the first half. In the second half, we will step up promotions in an effort to turn around the trend.
Even though it is difficult to invest in marketing for a single product, we will develop joint promotions by utilizing the common feature of functional claim. In addition, we are also renewing PA-3 and Shibou Taisaku yogurt, our body fat reduction yogurt in order to halt the downward trend.
Next is Bulgarian yogurt. In the first half of the year, overall sales were on a par with the same period of the previous year, but sales of plain yogurt were up 10% and sales of personal and multipurpose yogurt were also up, indicating that the decline in the sales of drinks was having an impact.
In the second half of the year, this effect will run its course, and we expect the growth in plain and other types of yogurt to have a positive effect on our performance. Of course, this does not mean that things will just run their course and things will get better. We will continue to expand our strong areas. We will strengthen the appeal of high value-add products in each category, including the plain homemade story and introduce new products.
Next, let's look at Oishii Gyunyu. In the first half of the year, the milk market grew about 3% year-on-year according to SRI data. While the growth of PV products, which have expanded their market share amid the trend toward lower-priced products, was in line with the market of our Oishii Gyunyu increased 6%, and we believe that the strength of our brand has made the difference.
In order to turn the milk market into a profitable business, it was originally necessary to appropriately do price increase and to increase the ratio of value-add products. In the second half of the year, we will continue to promote the value of Oishii brand, including through TV commercials. In addition, we will steadily optimize our production system. The new Hokkaido plant, announced in December last year, is a consolidation of plants that produce skim milk products and other products. So it is an investment that will have a ripple effect on all of our business, including the daily food business, Nutrition and Food Solutions.
The new Kanagawa plant announced in September is a consolidation of yogurt plants. So it is an investment related to the daily products business. Although the new plant will not be operational for some time, the discontinuation of the production at some of the plants is scheduled for the next fiscal year. This investment will enable us to reduce cost levels by optimizing production capacity and also to reduce fixed costs, including labor costs. In addition, new production technologies will be introduced at the same time to strengthen the value-add product lineup and improve ROIC.
Next, I will explain our B2B business, which has been positioned as a growth driver in Japan. Since domestic B2B business sales are included in the Food Solution business, it has been difficult to see the actual status of the business. Left bar chart shows increase of JPY 87.3 billion this year, particularly growing our commercial use products based on our proprietary technologies as shown in the slide. In the future, we intend to expand the scope of our business to include materials and by offering a lineup of differentiated products and increasing sales centered on these products. We will also improve the profitability of the overall business. So far, I have explained the main points of our domestic business.
Next, I will explain our overseas business. As shown in the table on the left, overall overseas sales and operating income for the full year are estimated to be JPY 82.6 billion and minus JPY 7.2 billion, respectively, down from the initial plan. By area, both sales and operating income in China have been revised downward from the initial plan based on the results of the first half of the fiscal year. But sales and income are expected to exceed the initial plan for the full year because other areas are performing well.
Let me begin with the situation in China. Although ice cream sales were sluggish in the first half, structural reforms, including a review of sales destinations, as outlined in the revival plan, are progressing as planned. Although sales will decline in the short term, the sales marginal profit margin has been improving, and the key point is how to increase profits in the future. To achieve this, it is essential to expand products with unique value, and we are promoting horizontal development of initiatives in the confectionery business, which continues to expand despite the sluggish consumption environment.
In the confectionery business, the wholesale channel is growing and products such as Almond Chocolate that are differentiated by their taste and technology are performing well. Based on this point, in the commercial milk and yogurt business, we are strengthening the development of high value-add products by utilizing the perspectives of local snacks. In terms of marketing, we are incorporating the local mainstream through tie-up campaigns, et cetera. In the ice cream business, we are currently rushing to strengthen our product lineup in preparation for the next season, which will begin in the second half of the fiscal year. Specifically, we are developing new products by utilizing a new factory and enhancing our lineup of low- and mid-priced products.
In both businesses, we are also developing new channels, including the use of distributors. We will continue our efforts based on the principle of developing products with unique value through favorable channels. Next, I would like to talk about our confectionery business in China, Asia and the United States. Our mainstay, Hello Panda is expected to achieve sales of JPY 19.9 billion fiscal year, which is comparable in scale to our mainstay brands in Japan, such as Kinoko no Yama and Chocolate Kouka.
In the U.S., where there is strong growth, we will invest JPY 4 billion to increase capacity. We are aiming for a 1.5-fold increase in sales in fiscal 2026. Since production has also begun in China, we believe there is still room for expansion of the Hello Panda brand. We will also expand the area of differentiated products other than Hello brand as needed. Another key point is to establish production system. By taking advantage of the unique characteristics of the room temperature products, we will promote the commonization of product specifications and successfully combine them with exports to improve productivity and profitability.
In the overseas business as a whole, we will steadily build up profits by promoting measures in line with the revival plan in China and achieving growth in a profitable manner, mainly in the confectionery business. I have explained the main points of the Food segment in the above. Next is the Pharmaceuticals segment. Since we have not changed our full year operating income forecast of JPY 25 billion, we expect a decrease in the second half of the fiscal year and a JPY 10 billion decrease from the initial plan. In the first half of the fiscal year, the influenza vaccine sales of approximately JPY 4 billion were shipped early, so the corresponding profit was recorded ahead of schedule.
In addition, approximately JPY 5 billion of R&D expenses were shifted to the second half of the fiscal year. Since these expenses are in line with the plan for the full year, they will be a factor in lower profits of the second half of the fiscal year. In addition, the key point is the outlook for the new Corona virus vaccine, KOSTAIVE, although we had originally planned to ship 4.27 million doses, as you are all aware, we are facing a difficult situation, partly because it is a new type of vaccine.
We have thought that demand for the Corona vaccine itself would be around 20 million people in total based on last year's fall inoculation, but the current inoculation situation is extremely sluggish, and it is now possible that only half of that number will be inoculated. In light of this, we have revised our shipment forecast to less than half, and both sales and operating income have been reduced. However, the strong performance of the domestic business from the first half of the year is expected to continue in the second half, and we expect growth in sales, including for newly launched items with high profitability.
The downward revision of KOSTAIVE will be covered mainly by the domestic business, and we will aim to achieve the initial plan. I would like to supplement the status of KOSTAIVE. We have recently applied for an additional domestic manufacturing facility. And if approved, we will ship domestically produced products from December onward. We view this as a great achievement as it will enable us to establish a system to quickly and reliably produce and supply the necessary vaccines in Japan within our own country. On the other hand, the reactions to this new type of vaccine have been more serious than expected, leading to avoidance of not only the Corona virus vaccine, but also the vaccine itself. So we are doing our utmost to overcome the situation in cooperation with the government academic societies.
In that movement, 3 academic societies recently expressed their views, presenting data and evidence, they strongly recommended routine vaccination. They also mentioned the characteristics of individual vaccines in which concerns about the shedding of KOSTAIVE were clearly rejected. In addition to these developments, the company alone has launched a special KOSTAIVE website on its drug product website and is also working to provide information and promote the product to medical institutions through AMRs.
Since this is the first regular vaccination after the transition to Category 5 infectious diseases, it is difficult to forecast the vaccination rate and returns, but we will work together with all related parties to address the issues.
Next, I will explain our strong domestic business in the area of infectious disease. As shown in the table on the left, the market continues to grow in terms of value and injectable antibacterial agents in particular, are growing in terms, in both volume and value. In addition to the increase in the number of patients seen after Corona virus and the prevalence of infectious disease as the human population recovers, demand for injectable antibiotics is expected to continue to grow as the aging of the population increase their usage.
However, the barriers to entry in this field are very high, and there are only a limited number of supply manufacturers, which means that we believe we can further increase our market share. A prerequisite for this is the strengthening of our production system to ensure stable supply and increase production. We have already established a system to increase production of MEIACT, and we are making steady progress in our efforts to domestically produce bulk pharmaceuticals, which has become a bottleneck for injectable antibiotics. In the second half of the fiscal year and beyond, we intend to steadily grow our domestic business in the infectious disease field as a stable base.
I have explained the key points of each segment above. Although there are changes in the business environment and challenges in each business segment, we will steadily implement these initiatives and strive to realize the full year plan. This concludes my presentation. Thank you very much for your kind attention.