Japan’s Meiji Holdings has cut its forecast for full-year shareholder profits related to yet another impairment on its food operations in China.
Tokyo-headquartered Meiji warned today (25 March) that it expects to book a fourth-quarter extraordinary loss of Y19.4bn ($122m) on its China subsidiary operations, including its dairy and B2B business, ice cream and chocolate.
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The breakdown of the impairment on what Meiji calls “non-current assets” was detailed in a statement as Y2.7bn for the dairy and B2B segment, Y7.9bn for ice cream and Y8.8bn for chocolate.
As a result, Meiji’s profits to its owners are expected to be impacted in the year ended on 31 March (fiscal 2025), although the outlook for group sales and operating profit remain unchanged.
Profit attributable to shareholders is likely to fall to Y36.5bn from a previous forecast of Y54bn, the company said today.
Sales guidance was left unchanged at Y1.18trln, as was the operating profit projection of Y91bn.
However, Meiji added “net sales growth continues to underperform our plans”.
Meanwhile, Meiji raised its estimate for ordinary profit to Y93bn from Y87.5bn.
Meiji also booked a Y14.3bn impairment in fiscal 2023 related to its drinking milk and yogurt business in China.
In a separate presentation today in connection with the dairy and B2B business since the Y14.3bn charge, Meiji said, “we promoted contribution margin improvement and cost reforms but net sales fell below plans”.
Explaining the impairment on ice cream, Meiji added today: “Profitability for the ice-cream business is worsening due to significant changes in the sales environment compared to initial assumptions, and an increase in indirect manufacturing costs associated with the launch of operations at the Shanghai plant in March 2024.”
The chocolate impairment was also partially related to a manufacturing plant.
“The Chocolate business has seen a decline in profitability due to an increase in indirect manufacturing costs associated with the launch of operations at the Guangzhou plant in January 2024 and rising raw material procurement costs,” Meiji explained.
Fixes for dairy and B2B include efforts to improve costs and sales, expanding distribution and a review of “low-profitability” products.
For ice cream, Meiji plans to “temporarily” suspend production at the Shanghai plant and increase capacity at the Guangzhou facility.
Meiji said it will focus on growing volumes for “strong-performing” chocolate products, expand distribution and increase exports.
When Meiji announced the fiscal 2023 impairment in April 2024, it put the difficulties down to its AustAsia dairy farm business unit in China, which, it said, “saw a decline in profitability attributable to soaring feed prices and a drop in raw milk prices”.
Today, Meiji said it has “removed” AustAsia “from the scope of entities accounted for using the equity method due to a decline in our group’s equity ratio in the company”.
It added: “As a result, we project an improvement in equity method investment gains/losses and expect to record foreign-exchange gains.”
