The performance trends of Ichimasa Kamaboko Co., Ltd. <2904>

1. Overview of Performance for the Year Ending June 2024

For the fiscal year ending June 2024, consolidated performance is projected to show revenue of 34,487 million yen (up 5.1% year-on-year), operating profit of 1,271 million yen (compared to a loss of 193 million yen in the previous period), ordinary profit of 1,247 million yen (compared to a loss of 146 million yen in the previous period), and net income attributable to shareholders of 957 million yen (compared to a profit of 84 million yen in the previous period), indicating an increase in revenue and a rapid recovery in profits. The previous period had an operating loss due to rising raw material and energy costs and consumer reluctance to buy, but profits have turned around. The effects of the price revisions implemented in the seafood processed products and prepared foods business in the previous period have emerged, leading to increased sales volumes as prices have penetrated among consumers, and the expansion effect of the stick-type crab sticks has been successful. Although the mushroom business experienced a decline in revenue, it was offset by growth in the seafood processed products and prepared foods business, resulting in an overall increase in revenue. However, due to the warm winter, sales volumes of oden products and maitake mushrooms struggled to grow, falling short of the planned revenue of 37,800 million yen. On the profit and loss side, the rise in surimi prices has stabilized, and the second factory of the head office, which is a dedicated plant for the "Salad Stick" that started operations in April 2023, contributed throughout the year, resulting in a gross profit margin of 20.7%, exceeding the previous year by 4.3 percentage points. Although selling, general and administrative expenses increased by 4.8% due to promotional expenses for the 50th anniversary of the crab sticks, increased logistics costs due to higher sales volumes, and rises in personnel costs including salary increases, these increases were absorbed by the growth in gross profit, significantly improving operating profit.

Furthermore, starting from the fiscal year ending June 2024, the method of depreciation for tangible fixed assets has been changed from the declining balance method to the straight-line method, resulting in a reduction of 412 million yen in depreciation expenses, thereby increasing profits at each stage. In conjunction with the operation of the second factory of the head office, the depreciation method was reconsidered based on usage, and it was determined to be appropriate to evenly allocate costs over the useful life period as stable operation of the equipment is anticipated.

In the analysis of the increase and decrease of operating profit, the increase in sales volume due to the expansion of crab sticks contributed 0.77 billion yen, the price revision effects from September 2022 to March 2023 contributed 0.91 billion yen, the cogeneration system and photovoltaic technology introduced at the second factory of the head office, along with a reduction in energy costs due to government subsidies, contributed 0.26 billion yen, and cost reductions through labor-saving investments contributed 0.19 billion yen, resulting in a total profit expansion of 2.13 billion yen. On the other hand, although the rise in surimi prices has stabilized, high prices remain as inventory from the time of soaring prices is being used, resulting in a cost increase of 0.17 billion yen. Additionally, increases in promotional costs, logistics costs, and personnel costs related to crab sticks led to the overall increase in selling, general and administrative expenses by 0.5 billion yen, resulting in a total decrease in profit factors of 0.67 billion yen, but operating profit showed a significant increase compared to the previous period by 1.27 billion yen.

2.Business segment trends (1) SP business QuickBoot (QB: high-speed startup product), which is the company's main product and a major part of the SP business, was mainly sold to loyalty customers in automotive devices and overseas household appliances, but decreased by 18.6% compared to the previous year to JPY 324 million due to the discontinuation of some existing customer products. The database products (DB) increased by 46.4% to JPY 101 million due to an increase in royalty from industrial equipment customers and the acquisition of new development cases with commissioned development. For the Embedded Platform Products (EP), one-time payments at contract signing and commissioned orders for automotive equipment, medical and industrial equipment are doing well, resulting in an increase of 23.0% to JPY 187 million. GrapeSystem products (GS) recorded sales of JPY 77 million, mainly from sales and one-time payments at contract signing to existing and new customers of printer-related products and voice codec products. Operating profit was supported by the growth of commissioned development and commissioned orders in the existing business, excluding GrapeSystem, improving by JPY 40 million to a profit of JPY 17 million. It seems that strengthening digital marketing utilizing WEB and SNS, such as the enhancement of the company's website, also worked by increasing access and inquiries via the web. Demand for automotive ECU microcontrollers, static code analysis tools and services for analyzing bugs in software, and IoT device security verification tools and services are doing well, and sales of the existing SD business exceeded the previous year by JPY 131 million to JPY 1,137 million. Combined with GrapeSystem's sales of JPY 105 million, total sales were JPY 1,242 million, up 23.4% from the previous year. There was also an exchange rate gain effect due to the yen depreciation, as well as an increase in royalty from existing customers, new customer acquisition of IoT device security verification tools and services, and an increase in commissioned development sales related to product sales. Operating profit improved by JPY 78 million from the previous year, but remained at a loss of JPY 14 million.

(1) Seafood processed products and prepared foods business

Revenue was 30,304 million yen (up 6.5% year-on-year), and segment profit was 1,309 million yen (compared to a loss of 288 million yen in the previous period), indicating an increase in revenue and a rapid recovery in segment profit. In the fall of 2023, despite continued high temperatures affecting the sales of oden products, the demand for spring and summer products persisted, and the "Salad Stick" which was promoted showed growth of nearly 120% in both amount and quantity compared to the previous period. The dedicated factory for "Salad Stick" at the head office began operations in April 2023 and achieved a 20% increase in production. Following price revisions implemented in March 2023 (the third price revision after March and September 2022), there has been a trend towards increased purchases of bulk and economical products due to consumer frugality, resulting in increased sales of low-priced product lines and economical products. The "Koban Tempura" with a long shelf life and the ability for frozen storage matched consumers' frugal tendencies, leading to significant sales increases. Despite early expansion in the sales season for 2023 New Year's products, sales remained at the previous year's levels but reached a record high. Among the products, the "100% Domestic Material Osechi 'Jun' series" sold in December 2023 saw an increase of 106% compared to the same month the previous year. Regarding profits, increases were attributed to improved productivity from full operations at the head office's second factory, reductions in costs from automation and labor-saving measures, a stabilization in rising surimi prices, and energy costs being lower than expected.

(2) Mushroom business

Revenue was 3,790 million yen (a decrease of 4.0% compared to the previous period), with a segment loss of 157 million yen (compared to a profit of 14 million yen in the previous period), resulting in a decrease in revenue and a loss. All products of maitake have been renewed to display "Vitamin D Maitake," and sales have been strengthened by proposing large-capacity products, but due to the extreme heat and warm winter of 2023, the sales volume struggled to grow. The market, which had been disrupted by excessive production from competitors, showed a recovery trend due to production adjustments by each company, but negotiations for price revisions coincided with the decrease in sales volume, preventing any substantial increase in price. Additionally, the increase in raw materials and labor costs also impacted results.

(3) Other

Revenue was 392 million yen (a decrease of 6.5% compared to the previous period), with a segment profit of 110 million yen (an increase of 52.8% year-on-year), resulting in decreased revenue and increased profit. The trucking business experienced a decrease in revenue and profits mainly due to the termination of some regular transportation services for imported fruits and vegetables. Although there was a tight inventory situation in the warehouse business during the first half of the year, an increase in incoming quantities compared to the previous period was secured throughout the term, and as a result of implementing warehouse efficiency improvements and price adjustments corresponding to rising costs, revenue and profit increased.

3. Financial Condition and Management Indicators

For the fiscal year ending June 2024, the pre-tax net income was 1,402 million yen, and due to a reduction in inventory of raw materials and others by 1,148 million yen, the necessary working capital was significantly reduced, resulting in cash flow from operating activities of 5,198 million yen. Cash flow from investing activities had an outflow of 1,743 million yen due to expenditures such as the acquisition of tangible fixed assets totaling 2,059 million yen, improving free cash flow to an inflow of 3,454 million yen, a significant improvement compared to an outflow of 4,967 million yen in the previous period. Consequently, 1,104 million yen of short and long-term borrowings was repaid net, leading to cash flow from financing activities being an outflow of 1,648 million yen, however, the ending balance of cash and cash equivalents was increased by 1,812 million yen compared to the previous period, totaling 3,183 million yen.

Moreover, the net income attributable to the parent company's shareholders increased profit surplus by 735 million yen after deducting dividend expenditures of 222 million yen from the net income of 957 million yen, resulting in a total net assets increase of 924 million yen compared to the end of the previous period.

With the improvement in cash flow, total liabilities decreased by 210 million yen compared to the end of the previous period, leading to an increase in the equity ratio to 46.2%, surpassing the previous period by 1.9 percentage points. At the same time, the D/E ratio also decreased by 0.1 times from the previous period to 0.7 times, further enhancing financial safety and soundness.

(Author: FISCO Guest Analyst Shuji Matsumoto)