1. Bankruptcy prediction
- Morinaga-milk, Meiji, Meg Milk -

2. Introduction
• Method
– To apply SAF model to three main companies
in dairy industry
• Objective
– To find out the reason why the difference
between them is observed
If one of their SAF values is not good, we could
suggest how they can improve it
2

3. Market Environment
Customer demand
Milk demand
Demand is gradually decreasing because of the acceptance of the the taste
Everyday
per a week
5-6 3-4 1-2
Less than
Drinking
frequency
of milk
Japan Dairy Industry Association
Milk and Food industry sensitivity
Demand loss because of cold summer (ex. Ice-cream)
Production loss because of an extremely hot weather (ex. Milk)
Downturn in demand due to low birthrate and aging population
3

4. Companies’ Profile
Morinagamilk
Meiji
Yukijirushi
Meg-milk
Logo
Established
Main business
1917
1917
2009 (1925)
Milk
Confectionery
Milk
Ice-cream
Milk
Food products
¥578,299 m
¥1,109,275 m
¥509,413 m
Main product
Sales(2011)
Financial report 2012
4

5. Morinaga milk
- Main business Morinaga milk
(Sales ¥578,299m)
Milk / Dairy / Ice cream / Others
Chairman
Akira Ohno
President
Michio Miyahara
Employees
3,091 (as of March 31, 2012)
Major Business
Production and sales of milk, dailybased beverages, yogurt, custard,
condensed milk, powdered milk,
butter, cheese, ice cream, non-dairy
beverages (juice, tea, coffee),
clinical liquid diets, manufacture and
sales of animal feed; design and
construction of plant equipment
Capital
Sales branches
Head
office - Plants
Tokyo
Subsidiaries
# of Consolidated
companies
21,704 million yen
(as of March 31, 2012)
9
16
30
75
Financial report 2012
Financial report
5

6. Meiji
- Main business Meiji
(Sales ¥1,109,275m)
Milk / Dairy / Ice cream / Others
Chairman
Shigetaro Asano
President
Shigetaro Asano
Employees
15,338 (as of March 31, 2012)
1.
2.
Major Business
3.
4.
Capital
# of Consolidated
companies
Dairy: milk, condensed milk,
powdered milk, butter, cheese,
ice cream, daily-based
beverages, nutrition, livestock
products, etc.
Confectionary: sugar, corn
sweeteners
Healthcare: healthcare products,
drugs, management of sports
club
Pharmaceuticals: ethical
pharmaceuticals, agricultural
chemicals, veterinary drugs
30,000 million yen
(as of March 31, 2012)
59
Financial report
6

7. Yukijirushi Meg-milk
- Main business Yukijirushi Meg-milk
(Sales ¥509,413m)
Chairman
President
Yoshiharu Nakano
Employees
Milk / Dairy / Ice cream / Others
Yoshiharu Nakano
4,989 (as of March 31, 2012)
1.
Major Business
2.
3.
Capital
Dairy: milk, condensed milk,
powdered milk, butter, cheese
Beverages and Dessert: ice
cream, daily-based beverages,
Yogurt
Feedstuff: Feedstuff
20,000 million yen
(as of March 31, 2012)
# of Consolidated
companies
26
Financial report
Each company have various different business segments, but we
focus on the main segment which is common, dairy industry.
7

8. Companies’ financial statement
based on SAF2002
Morinaga-milk
2009
X7: Retained
earnings to total
assets
X10: Net income
before tax to total
assets
2010
Meiji
2011
2009
2010
Meg-milk
2011
19.25% 19.83%
X37: Inventory
turnover period
23.80 23.80
%
%
3.03% 2.20%
2009
2.48% 1.99%
0.70
0.71
1.17
1.17
2010
16.43%
2011
20.04
%
3.28% 3.52%
0.85
0.82
X26: Interest
expenses to sales
0.30% 0.32% 0.30% 0.23% 0.20% 0.18% 0.35% 0.24% 0.19%
SAF2002
- 0.94 0.92 - 0.94 0.93 - 0.90 0.95
Rating
-
BB BB
-
BB
BB -
BB
BB 8

9. Comparison of SAF model
• 3 companies are placed on higher level
over cutoff point 0.68 of SAF model
Why?
How to improve?
Meiji 0.93
Morinaga 0.92
Meg 0.95
9

10. Cause of Changes in Financial Position
- Logic treeSAF 2002
Divided into each valuables to clarify the cause of changes
Retained earnings
to total assets
Retained
earnings
Net income b/f tax
to Total assets
Inventory turnover
period
Interest
expenses
Total Assets
Net income
b/f tax
Interest expenses
to Sales
Sales
Total Assets
Inventory
Merchandises
and Finished
Goods
Work In
Process
Raw Materials
and Storage
Inventory
Sales
10

11. Cause of Changes in Financial Position
- Logic TreeSAF 2002
Retained earnings
to total assets
Retained
earnings
Net income b/f tax
to Total assets
Inventory turnover
period
Interest
expenses
Total Assets
Net income
b/f tax
Interest expenses
to Sales
Sales
Total Assets
Merchandises
and Finished
Goods
Work In
Process
Raw Materials
and Storage
Inventory
Sales
11

12. Cause of Changes in Financial Position
- Logic TreeSAF 2002
Retained earnings
to total assets
Retained
earnings
Total Assets
Net Sales
Operation profit
Ordinary profit
Net income before tax
Net income
12

13. Profit Analysis
Morinaga-Milk
unit: millions of yen
In 2011, loss on inventory
due to quality deterioration
(172 million yen) lowered the
ordinary profit. Retained
earnings have been
accumulated from positive
net income.
Meiji
unit: millions of yen
Net income is on the same
trade as sales. Retained
earnings have been
accumulated from positive
net income.
Meg-milk
unit: millions of yen
In 2011, revaluation of land
(3,542 million yen) was
incorporated into retained
earnings.
13

14. Cause of Changes in Financial Position
- Logic TreeSAF 2002
Retained earnings
to total assets
Retained
earnings
Total Assets
Total Asset
Total non-current Asset
Total current Asset
Total tangible fixed asset
Total intangible asset
Investments and other assets
14

15. Cause of Changes in Financial Position
Total assets are basically stable
Morinaga-Milk
unit: millions of yen
Inventory is increasing from
2010 to 2011 due to
slow demand after earthquake
Meiji
Meg-milk
unit: millions of yen
unit: millions of yen
Inventory is increasing from
2010 to 2011 due to slow
demand after earthquake.
Buildings for leases were
reclassified as other assets
Inventory is increasing from
2010 to 2011 due to
slow demand after earthquake
15

16. Cause of Changes in Financial Position
- Logic TreeSAF 2002
Retained earnings
to total assets
Retained
earnings
Net income b/f tax
to Total assets
Inventory turnover
period
Interest
expenses
Total Assets
Net income
b/f tax
Interest expenses
to Sales
Sales
Total Assets
Merchandises
and Finished
Goods
Work In
Process
Raw Materials
and Storage
Inventory
Sales
16

17. Cause of Changes in Financial Position
- Logic TreeSAF 2002
Net income b/f tax
to Total assets
Net income
b/f tax
Total Assets
-26.5%
Net Sales
Operation profit
Ordinary profit
Net income before tax
Net income
+5.1%
Total Asset
Total non-current Asset
Total current Asset
Total tangible fixed asset
Total intangible asset
Investments and other assets
Decrease of net sales
Extra ordinary loss due to earthquake
Decrease of loss of securities for
investment
Same as previous slides
17

18. Cause of Changes in Financial Position
- Logic treeSAF 2002
Retained earnings
to total assets
Retained
earnings
Net income b/f tax
to Total assets
Inventory turnover
period
Interest
expenses
Total Assets
Net income
b/f tax
These 3 criteria
are inventory.
Interest expenses
to Sales
Sales
Total Assets
Merchandises
and Finished
Goods
Work In
Process
Raw Materials
and Storage
Inventory
Sales
18

19. Cause of Changes in Financial Position
- Inventory Turnover PeriodMorinaga-Milk
0.70→0.71
unit: millions of yen
Even though the sales was
decreased and inventory was
increased, they kept inventory
turnover period as 0.71. That
means they controlled the
inventory very well.
(right scale)
(left scale)
Meiji
1.17→1.17
unit: millions of yen
They kept inventory turnover
period as 1.17. That means they
controlled the inventory very
well. But due to their
pharmaceutical business, the
period is longer than other
competitors.
Unit: million yen
Meg-milk
0.85→0.82
unit: millions of yen
The inventory was increased, but
the sales remained stable due to
their diversified product line-up.
They improved the inventory
turnover period.
(left scale)
(left scale)
19
Financial report

20. Cause of Changes in Financial Position
- Logic Tree SAF 2002
Retained earnings
to total assets
Retained
earnings
Net income b/f tax
to Total assets
Inventory turnover
period
Interest expenses
to Sales
Interest
expenses
Total Assets
Net income
b/f tax
These 3 criteria are
interest bearing liabilities.
Short term loan
Long term loan matured within 1 year
Long term loan
Total Assets
Merchandises
and Finished
Goods
Sales
Work In
Process
Raw Materials
and Storage
Inventory
Sales
20

21. Cause of Changes in Financial Position
-Interest Expenses to SalesMorinaga-Milk
0.30→0.32→0.30%
unit: millions of yen
Even though the interest bearing
debt was decreased, the interest
expenses was increased from
2009 to 2010 because their
financial situation became
worse. They borrowed the
liabilities which has higher
interest rate.
(right scale)
(left scale)
Meiji
0.23→0.20→0.18%
unit: millions of yen
Even though the interest bearing
debt was decreased, the interest
expenses was remained from
2009 to 2010 because Meiji’s
rating is very good.
(left scale)
Unit: million yen
Meg-milk
0.35→0.24→0.19%
unit: millions of yen
The interest bearing debt was
decreased and interest
expenses was kept very small,
that means their financial
situation is stable.
21
Financial report

22. Conclusion
•
SAF values for 3 companies are below cut-off point of 0.68. They
need counter-measure to improve their business performance.
•
Meiji (worst SAF value : 0.63) is trying to expand their business
through capturing Asian market. However, since SAF value
indicated, they are not healthy company and have possibilities to go
bankrupt.
•
We suggest following measures before expanding their businesses
to new fields.
– Reduce inventory turnover period to at least competitors’ level
– Increase profit by capturing demand with before earthquake level by
strengthening brand of products.
– Limit dividend payments to increase retained earnings for earthquake
recovery.
22

23. Appendix A: Morinaga milk
- History Morinaga milk and Morinaga confectionary are not related
company at the moment.
Morinaga confectionary was originally found as “Morinaga syouten” in
1910, and Morinaga milk was originally found as “Morinaga rennyu” in
1917. They merged in 1920, and again they separated in 1949.
Milk
Confectionary
1917 Nihon rennyu
Co,
1920
1910 Morinaga syouten
Merger “Morinaga confectionary”
1949 Morinaga milk
1949 Morinaga
confectionary
Financial report
23

24. Appendix B: Morinaga milk
- Main factors -
Financial report
24

25. Appendix B: Meiji
- Main factors -
Financial report
25

26. Appendix B: Yukijirushi Meg-milk
- Main factors -
Financial report
26