Financial Results Presentation
‐ First Half of the Fiscal Year Ending March 31, 2018 ‐
I. Overview of 1H of FYE March 2018 Financial Results
II. Outlook of Financial Results for the Year Ending March 2018
November 2017
Corporate Mission & Guiding Principles for
Morinaga Milk Group
Corporate Mission & Guiding Principles
For Ever Brighter Smiles
Corporate slogan
Contribute to healthy and enjoyable lifestyles
through offering unique products derived from
advanced milk technology.
1. Do we share our passion with our customers? 2. Do we feel and express gratitude to all stakeholders? 3. Do we have confidence in our quality?
4. Do we always pursue safety and reliability? 5. Do we continue to challenge ourselves?
6. Do we contribute to building “Team Morinaga”? 7. Do we engage in and enjoy what we do?
8. Do we exchange our visions and progress toward them?
Corporate Philosophy
Corporate
Slogan Corporate Mission
Corporate
Philosophy
Guiding Principles:
Our Eight Questions
Guiding Principles: Our Eight Questions
I. Overview of 1H of FYE March 2018 Financial Results
※
The symbols represent the evaluation of each initiative.Pulling out of a high‐cost and low‐revenue structure
• Response to higher unit costs, raising efficiency, and strengthening
structure
Taking up the challenge of improving the efficiency of costs and expenses, such as
manufacturing costs and sales promotion costs
Optimizing the effect of reductions in the number of products made in the previous fiscal
year
Price revisions
The challenge of creating value for sustainable growth
• Initiatives to reach new profit records, the start of the next 100 years
Further expansion of added-value products
Proactive promotional activities with functional food materials for medium and long term
Addressing diversifying needs (product development, marketing)
Evaluation of progress made on
initiatives addressing issues
Management Environment and Management Issues
Overview of Financial Statements
Record‐high income (operating income, ordinary income, net income)
1H income exceeded the record-high in the previous fiscal year (FYE March 2017) to
reach a new record
20
15
10
5
FYE March 2009 FYE March 2010 FYE March 2011 FYE March 2012 FYE March 2013 FYE March 2014 FYE March 2015 FYE March 2016 FYE March 2017 FYE March 2018
F l u c t u a t i o n s i n 1 H o p e r a t i n g i n c o m e
9.2
13.0
14.3
11.0
9.6 9.6 10.1
5.2
16.9
15.6
(Unit: billion yen)
Overview of 1H of FYE March 2018 Financial Results
(Unit: billion yen)
FYE March 2017 First Half
FYE March 2018 First Half
Year‐on‐ Year Change
Year on Year (%)
Change
from
Forecast
Key Points
Net Sales 315.7 316.8 +1.1 +0.3% ‐1.2
↑Higher sales of mainstay products such as ice cream and cheese
↑Contributions from subsidiaries (Morinaga Engineering, Clinico, others)
↓Withdrawal from tea leaves, chilled cup-type fruit juice
Operating
Income 15.6 16.9 +1.2 +8.0% +0.9
↑Increase in gross profit due to higher revenue
↑Improvements to product mix, such as cuts to SKU
↑Streamlined sales promotion expenses
↑Delays in increasing cost of sales
Ordinary Income 16.1 17.8 +1.8 +11.1% +1.4
↑Increase in operating income↑Increase in dividends received (+300 million yen)
Profit
attributable to owners of parent
10.1 13.8 +3.7 +37.1% +2.2
↑Increase in operating (ordinary) income
↑Increase in gains on sale of fixed assets (+3.1 billion yen)
↑Decrease in losses due to disasters (+500 million yen)
ROS
(Operating Income / Net Sales)
5.0 % 5.3 %
Net Sales & Operating Income by Business Field
(Unit: billion yen)
1H of
FYE March
2018
Net Sales Operating Income
Key Points
1Q Results 1H Results 1Q Results 1H Results
Net Sales Year on
Year Net Sales Year on Year
Operating Income
Year on Year Change
Operating Income
Year on Year Change
B‐to‐B Business
23.9 +5% 48.0 +6% 1.5 +0.2 3.2 +0.4
• Increase in commercial dairy products, such as fresh cream
• Effect of price revisions
• Increase in number of products utilizing Shield Lactobacillus®
International
Business
5.7 +2% 12.5 +23% -0.1 -0.3 ‐0.2 ‐0.6
• Increase in Milei’s sales unit price
• Depreciation costs for Milei’s new equipment, increase in personnel costs
• Forward investment in the US’s Aloe Yogurt
Health and Nutritional Food
Business
12.1 +5% 24.2 +4% 0.8 ± 0 1.4 ‐0.1
• Decrease in sale of infant milk
• Increase in liquid food (Clinico) and baby food
• Investments to develop new products
B‐to‐C Business
84.9 -4% 174.2 ‐2% 4.9 +0.5 10.6 +1.1
• Increase in sales of mainstay products such as ice cream and cheese
• Withdrawal from tea leaves and chilled cup- type fruit juice
Other / Deleted
27.2 +7% 57.8 ‐1% 1.0 +0.3 1.9 +0.5
•Contribution from subsidiaries (Morinaga Engineering, others)Total
153.9 ± 0% 316.8 ± 0% 8.1 +0.8 16.9 +1.2
Net Sales by Product Field in B‐to‐C Business
(Non‐consolidated)
(Unit: billion yen)
1 H o f F Y E
M a r c h
2 0 1 8
1Q Results 1H Results
Key Points
Net Sales
Year on YearNet Sales
Year on YearChilled cup‐type drinks 11.3 -3% 23.9 ‐1%
↓Struggles of Mt.RAINIER CAFFÈ LATTE product line-up↑New product “GODIVA Milk Chocolate Drink”
Contributions of drinks containing Shield Lactobacillus®
Chilled tea 3.7 -5% 8.0 ‐2%
↓Contraction in market for 500ml cup-type drinks, focus on seasonal flavors↑Strong sales of 1000ml size for families
Ice cream 13.9 +4% 31.3 +4%
↑Increased production of PARM and PINO; strong performance of MOW↓ Impact of unseasonal weather in August
Yogurt 13.2 -5% 26.0 ‐4%
↓Reduction in “Thick Greek Yogurt PARTHENO”↑Strong sales of fruit yogurt
Cheese 8.4 +4% 16.5 +5%
↑Contributions from new products “Pure (Muku)” and“Creamy Triple-layer Cheese”
↑Increase in sales of mozzarella and parmesan
Milk 14.6 -4% 30.2 ‐4%
↓Shift to NB, reduction in SKU↑Revitalization of dairy market (reassessment of health functions)
Chilled desserts 3.6 -6% 7.0 ‐5%
↓Better efficiency due to reduction in number of products↑Launch of new products
Commercial milk
(Home deliveries, etc.) 5.7 ± 0% 11.0 ‐1%
↓Sluggish market growth
↑Creation of new channels
Factors Attributable to Increases and Decreases
in Operating Income
14.0 16.0 18.0 20.0
(billion yen)Figures in the < > are changes from initial forecast figures.
+0.2 〈 ± 0 〉
+0.2 〈 ‐0.3 〉
+0.7 〈 ‐0.1 〉
15.6
16.9 〈 +0.9 〉
Price revisions were implemented, primarily for institutional use
Increased revenue from ice cream, cheese, and others; contributions from subsidiaries <sales target not achieved>
Effect of reductions in SKU
Greater efficiency in advertising placements
Expected to increase from H2
<Decrease from Kobe plant has played out>
Increase in unit costs, primarily for cheese and imported dairy ingredients <Impact pushed back> Streamlining of manufacturing costs (+0.3), increase in management and operating costs (-0.5), increase in transport costs (-0.2)
Change in selling unit prices Increased sales volume Improved product mix (PM) Streamlined sales promotion expenses Decreased fixed cost of production (Depreciation) Increased raw Material milk prices
Increased operating cost
1H of FYE March 2018
Increased raw material prices
1H of FYE March 2017
Increase in unit costs for cheese and dairy products
+1.1 〈 +0.8 〉
+0.2 〈 ± 0 〉
‐0.2 〈 ‐0.1 〉
‐0.6 〈 ‐0.7 〉
‐0.4 〈 ‐0.2 〉
II. Outlook of Financial Results for the Year Ending March 2018
FYE March 2018 Full‐Year Business Forecasts
(Unit: billion yen)
FYE March
2017
FYE March
2018
Year‐on‐Year
Change
Year on Year
(%)
Net Sales 592.6 600.0 +7.4 +1.2%
Operating Income 21.1 21.5 +0.4 +1.9%
Ordinary Income 22.0 22.3 +0.3 +1.5%
Profit
Attributable to owners of parent
13.2 14.0 +0.8 +6.0%
ROS
(Operating income / Net Sales)
3.6% 3.6%
ROA
(Operating Income / Total
Assets)
5.5% 5.6%
ROE
(Net Income / Equity Capital)
9.8% 9.5%
*No revisions to forecasts
(Unit: billion yen)
FYE March
2018
Net Sales Operating Income
1H Full Year 1H Full Year
Net Sales Year on Year Net Sales Year on Year Operating Income
Year‐on‐Year Change
Operating Income
Year‐on‐Year Change
B‐to‐B Business 48.0 +6% 96.0 +6% 3.2 +0.4 6.6 +0.7
International
Business 12.5 +23% 26.5 +21% ‐0.2 ‐0.6 ‐0.9 ‐1.4
Health and
Nutritional Food
Business
24.2 +4% 48.8 +3% 1.4 ‐0.1 2.6 +0.1
B‐to‐C Business 174.2 ‐2% 326.2 ‐1% 10.6 +1.1 11.2 +1.1
Other / Deleted 57.8 ‐1% 102.5 ±0% 1.9 +0.5 2.0 ‐0.1
Total 316.8 ±0% 600.0 +1% 16.9 +1.2 21.5 +0.4
*Revisions to full-year forecasts based on 1H progress
Net Sales & Operating Income by Business Field
Target Net Sales by Product Field in B‐to‐C Business
(Non‐consolidated)
(Unit: billion yen)
FYE March 2018
1H Full year
Net Sales Year on Year Net Sales Year on Year
Chilled cup‐type drinks 23.9 ‐1% 43.0 +2%
Chilled tea 8.0 ‐2% 15.0 ‐2%
Ice cream 31.3 +4% 49.5 +5%
Yogurt 26.0 ‐4% 51.0 ‐1%
Cheese 16.5 +5% 33.5 +5%
Milk 30.2 ‐4% 57.0 ‐4%
Chilled desserts 7.0 ‐5% 14.0 ‐2%
Commercial milk
(Home deliveries, etc.) 11.0 ‐1% 22.0 ± 0%
*Revisions to full-year forecasts based on 1H progress
0.0 10.0 20.0 30.0
(billion yen)+0.4 〈 ± 0 〉
+0.9 〈 ‐0.5 〉
+1.7 〈 ‐0.3 〉
+1.1 〈 ± 0 〉
‐0.3 〈 ‐0.3 〉
21.1
21.5 〈 ± 0 〉
Figures in the < > are changes from initial forecast figures.
*Revisions to full-year forecasts based on 1H progress
FYE March 2017
Change in selling unit prices
Increased sales volume
Improved product mix (PM)
Streamlined sales promotion
expenses
Increased raw material milk
prices
Increased operating cost
Increased fixed cost of
production (Depreciation)
FYE March 2018
Increased raw material prices ‐2.6 〈 +1.1 〉
‐0.3 〈 ± 0 〉
‐0.5 〈 ± 0 〉
Outlook of Increases and Decreases in Consolidated
Operating Income (FYE March 2018)
Priority Initiatives (1)
Progress with international business
Milei business
<Create a foundation for businesses with medium‐ and long‐term growth>
Continue with marketing proposals for high-function, high value-added products
Change marketing system, strengthen business support management system
Establish a foundation for stable procurement of dairy ingredients
Overview of new Milei factory (1) Location, Leutkirch, Germany (2) Managing Directors
Takahiro Yanagida: Management overall, manufacturing, quality management, R&D, engineering
Jens Kutschera: Sales, management finance, procurement, logistics and supply-chain, human resources
(3) Site area: About 160,000 m2 (4) Floor area: About 30,000 m2 (5) Items produced
Whey protein concentrate, milk powder, and other dairy ingredients
Priority Initiatives (1)
US yogurt business
<Group’s first expansion overseas>
Expansion started on west coast (July) market cultivation, marketing investments
Expansion from a focus on Asian stores to local wholesale stores
Overview of sales (1) Product name
alove original, strawberry, blueberry
(2) Product overview: Individual servings of aloe yogurt (3) Volume: 170 g (6 ounces)
(4) Sales price: About 115-170 yen (US $1-1.50) (5) Manufacturing: Contracted to a local company (6) Sales target
2019 (third year): About 3.8 billion yen (about US $34 million)
*US$ = 113 yen
Progress with international business
Priority Initiatives (2)
Increase in publicized information about functional food materials
<Proactively obtaining opportunities for interaction>
Strengthening advertising through functional food materials (TVCM, Web videos, newspaper ads, etc.)
Introduction of results of the latest research on bifidobacteria
International symposium held (January 2018, project to commemorate the100th anniversary of our founding)
Contributions to gut flora; expansion of Morinaga bifidobacteria brand
Chilled cup-type drinks, ice cream, brands that are also in the dessert category, “Living with Lactobacillus (Nyusankin to Kurasou)” series using Shield Lactobacillus®
Advertising for functional materials, bifidobacteria research commercial
International symposium on bifidobacteria
Development of standard logo for bifidobacteria
Brand development in several categories
Further expansion of value‐added products
Living with Lactobacillus (Nyusankin to Kurasou)
How are lactic acid bacterium and bifidobacteria different?
Priority Initiatives (2)
Yogurt
<Investment in functional new products for new market growth>
“Refreshing and healthy” yogurt with new functions Launch of “Everyday Refreshing Yogurt”
Expansion of standard “Morinaga bifidobacteria” brand
Plans to market functional yogurt in spring 2018 in conjunction with the expansion of the new line at the Kobe plant
Appeal with the health functions of Greek yogurt PARTHENO
9 5
A p r i l M a y J u n e J u l y A u g u s t S e p t e m b e r 2 0 1 7
Further expansion of value‐added products
Yogurt sales by month (Comparison over previous month) 100
(%)
9 0
Priority Initiatives (2)
Chilled cup‐type drinks
<Launch of new products focusing on preferences and functionality>
GODIVA milk Chocolate Drink creates a feeling of luxury,
“Living with Lactobacillus (Nyusankin to Kurasou)” series uses Shield Lactobacillus®
New proposal that expands possibilities for enjoying coffee with a 97% reduction in caffeine while keeping the smell, depth of flavor, and taste Mt.RAINIER CAFFÈ LATTE Decaf Ice cream
<Expectations as a year‐round product>
Cultivate mainstay brands such as PARM, PINO, and MOW Propose high value-added products
Acquire share of the winter ice cream market
Chilled cup‐type drink sales by month (Comparison over previous year)
1 0 5
（%） 1 0 0
9 5
9 0
A p r i l M a y J u n e J u l y A u g u s t S e p t e m b e r 2 0 1 7
Further expansion of value‐added products
Priority Initiatives (2)
Cheese
<Steady growth of existing products and expansion of new products>
Expand products with high market share to meet a greater demand for cheese
Strong performance of the Pure (Muku) series, a cheese with no unpleasant tastes that uses the new Pure (Muku) manufacturing technology (a patent has been filed) and uses no emulsifiers A three-layered cheese for a bit of luxury on weekends Desserts
<Development of products that balance delicious taste with health>
Strengthen lineup of health desserts
Development of “Living with Lactobacillus (Nyusankin to Kurasou)” series using Shield Lactobacillus®
Collaborative products with other companies
Further expansion of value‐added products
Priority Initiatives (2)
Expansion of health and nutritional foods
<Break into new markets>
Expand liquid diet foods and nursing care foods, increase demand for oral feeding
Revitalize market for powdered milk for adults; “Milk Life” to support health with milk; increase number of orders through mail orders
Expand sales of supplements derived from milk research Strengthen BtoB (Food ingredients business) proposals
<Expand functional materials and propose dairy alternatives>
Increase in number of companies using Shield Lactobacillus® (over 150)
Measures to address shortage of domestic dairy resources, proposals for compound cream as dairy alternative
Further expansion of value‐added products
Shield Lactobacillus® powder Compound cream with vegetable oil
Shareholder Returns
Increase in dividends, decrease in number of shares
constituting one unit, implementation of reverse stock split
In addition to stable and ongoing dividends, returns to shareholders taking earnings into account (Higher dividends)
50 yen in FYE March 2018 = 5 yen increase (Dividend commemorating 100th anniversary of founding) (Provisional)
Increased dividend
Reduction in number of shares constituting one unit (1,000 shares to 100 shares), reverse stock split (five to one) implemented on October 1, 2017
Reduction in number of shares constituting one unit, reverse stock split
Dividends per share (Left-hand axis: yen) Dividend payout ratio (Right-hand axis: %)
50 45 40 35 30 25
90
60
30
FYE March 2017 FYE March 2018 0
*After adjusting for reverse stock split 5 yen increase in dividends
(Normal dividends)
10 yen increase in dividends (Normal dividends)
5 yen increase in dividends (Commemorate
dividend)
30 35 35 35 35 35 35 35
45
50
35.7
22.0 28.5
38.1 34.9 35.7 41.5
16.4 16.9 17.7
FYE March 2009 FYE March 2010 FYE March 2011 FYE March 2012 FYE March 2013 FYE March 2014 FYE March 2015 FYE March 2016
Project to Commemorate 100th Anniversary
<Campaign>
Sharing “best times” with a challenge
to make the Guinness World Records
with customers
Desert Decoration Lesson (March 2018)
<Website>
Updated with more
content
Improved usability
(September)
Cautionary Note Regarding Business Forecasts
Figures for plans, policies, and other figures included in this report other than actual past results are forecasts of future business performance, and are calculated based on management’s estimates and understanding of the information available to the Company at the time this presentation was prepared.
Accordingly, these forward-looking figures contain elements of risk and uncertainty, and actual results may differ from these forecasts for a variety of reasons. These elements of potential risk and uncertainty include economic conditions in the Company’s major markets, trends in demand for the Company’s products, exchange rate movements, and regulatory changes and changes in accounting standards and business practices in Japan and other countries.
Monetary amounts in this presentation are shown in billions of yen, with amounts of less than 0.1 billion yen rounded to
