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Rating Action:

MOODY'S UPGRADES NICHIREI'S RATINGS TO Baa2 FROM Baa3; OUTLOOK POSITIVE

28 Mar 2006
MOODY'S UPGRADES NICHIREI'S RATINGS TO Baa2 FROM Baa3; OUTLOOK POSITIVE

Approximately Yen 15 Billion of Long-Term Debt Affected

Tokyo, March 28, 2006 -- Moody's Investors Service has upgraded to Baa2 from Baa3 the senior unsecured debt ratings of Nichirei Corporation (Nichirei). The rating upgrade reflects Moody's expectation that incremental revenue and earnings contributions from the company's processed food and low temperature-controlled logistics operations -- backed by its strong market position -- will support improvement in operational stability and cash flow generation. The positive rating outlook incorporates Moody's expectation that the company will be able to further improve its financial leverage through the use of its more stabilized cash flow generation. This action concludes the review initiated on February 16, 2006.

In line with its medium-term strategy, ending in March 2007, Nichirei has implemented several measures to improve profitability and asset efficiency. These have met with favorable results.

Following this strategy, Nichirei has improved the profitability of its processed food business -- a major profit contributor -- by focusing on profitable products, reducing costs and improving production capacity. Despite difficult market conditions, characterized by evolving consumer preferences, continuing severe price competition and earnings pressure from increasing promotion costs, Moody's believes that such ongoing efforts will enable the company to maintain its strong market position and improve its profitability going forward.

In the low temperature-controlled logistics sector, Nichirei's second core business, the company mainly conducts refrigerated warehouse and logistics network operations, which have also contributed to overall revenue and earnings.

The refrigerated warehouse business was spun out into regional subsidiaries in fiscal 2004 and has seen expanded revenue, strengthened profitability and increased operating stability as a result of meeting local demand and promoting low-cost operations.

In addition, Nichirei is expanding its logistics network operation, offering a food logistics system for use between food manufacturers and major retailers / restaurant chains, as well as a service that on behalf of large retailers sorts out product, transfers to stores and further processes various foods. Demand for temperature-controlled food logistics networks has grown, and this has created a business opportunity for Nichirei in this area.

Moody's expects that the temperature-controlled food logistics business has the potential both for growth and to further improve the stability of the company's profitability in the intermediate term, although the company needs to further develop its expertise in effectively operating this business.

Nichirei also conducts real estate businesses, such as leasing and build-for-sales businesses using former warehouse sites. Cash flow, especially from the leasing business, is likely to be fairly stable and predictable because Nichirei plans to continue using only its preexisting assets

Moody's views that Nichirei's well diversified business portfolio will mitigate its overall business risks and contribute to stabilizing its operating performance.

In contrast, Nichirei's poultry and marine products businesses have recently faced a challenging environment. Both these segments' performances are volatile due to raw material price movements. Meat and poultry results, for example, fluctuate depending on factors such as supply and demand, import restrictions and disease.

The marine products business has been recording operating losses for the past several years. Nichirei has started to reform this segment's structure and cut fixed costs, aimed at a recovery of performance by March 2008. However, in Moody's opinion, this business is not likely to significantly contribute to the company's earnings and cash flow in the intermediate term.

Nichirei has reduced its debt level over the past few years, including decreasing external debt to 102.1 billion yen at end-December 2005 from its peak of 217.3 billion yen eight years earlier. The company's business plan targets decreasing debt to less than 97 billion yen by March 2007 and Nichirei estimates that it will achieve a level of less than 100 billion yen for end-March 2006. Moody's expects that although Nichirei's growing logistics network business will continue to exhibit high investment requirements, the company will maintain appropriate financial flexibility without significantly increasing debt under its conservative financial policy, allowing it to further improve its financial leverage going forward.

Nichirei Corporation, headquartered in Tokyo, is a holding company with five operating companies in the areas of processed foods, marine, meat and poultry products, logistics, bioscience and shared service. Its fiscal 2004 sales were 461.4 billion yen.

Tokyo
Mina Sawamura
Analyst
Rating Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Tokyo
Emiko Otsuki
VP - Senior Credit Officer
Rating Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

No Related Data.
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