In accordance with the Sapporo Group Management Plan 2012–2013, a rolling two-year plan, the Group will focus on three fundamental strategies:
(1) Creating new opportunities for growth, (2) Challenge toward growth in all businesses, and (3) Carrying out growth measures. We regard the next two years as a period for starting up a new management structure that will place the Sapporo Group firmly on a robust growth trajectory and enable us to further raise our corporate value.
Consequently, the Company is forecasting consolidated net sales of
¥510,000 million, (up 12.3% year on year), operating income of ¥20,000 million (up 5.9% year on year), and net income of ¥6,300 million (up 99.1%
year on year). Please see pages 16 to 23, Management Plan 2012–2013 Key Points for details on targets for sales and operating income by segment, and strategies. The main factor behind the net income variance is the absence of losses stemming from the application of revised accounting standards relat-ing to asset retirement obligations, lower extraordinary losses related to earthquake damages, and an increase in corporate taxes owing to a rise in income before income taxes and minority interests.
For 2012, the Company plans to maintain annual dividends of ¥7 per share by steadily executing the Sapporo Group Management Plan, while also making strategic investments and strengthening its financial foundation.
management as of December 31, 2011.
High Dependency on Specific Business Areas
In 2011, Japanese Alcoholic Beverages, one of the Sapporo Group’s core business segments, accounted for 59% of consolidated net sales.
The Group could thus be significantly affected by the performance of this business.
Overseas Business Activities
The Sapporo Group is aiming to grow earnings by expanding business activi-ties in overseas markets. In particular, it is expanding the alcoholic beverages business in the U.S. and Canada.
In Asia, an overseas subsidiary of the POKKA Group conducts business activities centered on the Beverage & Restaurants business. In Vietnam, the Sapporo Group has commenced sales of locally produced beer on a full scale after completing construction of the Long An Brewery.
The overseas business activities of the Sapporo Group are subject to a variety of factors that could adversely affect operating results.
These factors include economic trends, changes in the competitive landscape, and exchange rate fluctuations, in addition to changes to regula-tions governing investment, trade, taxation, foreign exchange and other areas, differences in business customs and labor relations, as well as other governmental and social factors.
Food Product Safety
Beyond quality issues originating solely at the Group, quality problems relating to generally available products and/or raw materials, as well as food poisoning and other incidents in the restaurants business, could adversely affect operating results.
OEM Products and Purchased Products
The Sapporo Group outsources the manufacturing of some products to external parties. It also handles products purchased from outside the Group.
While the Sapporo Group does its best to ensure the quality of such prod-ucts, quality problems beyond the control of the Group could result in the suspension of sales, product recalls and other actions that may in turn adversely affect operating results.
Capital Investment Plans
The Sapporo Group conducts capital investment and systems development on an ongoing basis, but related scheduling delays, investment budget overruns and other factors may adversely affect operating results.
Leaks of Customer Information
In the event of the leak of personal information and other related issues resulting from an unforeseen intrusion of a computer virus, unauthorized access to information or other incident, the Sapporo Group could face claims for damages and suffer a decline in its trustworthiness. This could have a negative impact on operating results by increasing costs and reducing earnings.
Credit Risk of Customers
The collection of receivables may be hindered by such factors as an unfore-seen bankruptcy of customers or investees. This could have a negative impact on the Group’s operating results.
Impact of Laws and Regulations
The unanticipated application of laws and regulations to Sapporo Group businesses in the future could restrict business operations, with an adverse affect on operating results.
Risk of Natural Disasters
The Sapporo Group could sustain damage as a result of a large-scale natural disaster or a secondary disaster. This could have a negative impact on the Group’s operating results such as by disrupting the supply of products.
Financial Liabilities
The Sapporo Group raises a significant portion of the funds it requires for various businesses through the issuance of corporate bonds and borrowings from financial institutions. Accordingly, the Group has a high balance of financial liabilities relative to total assets. Moreover, the Group’s financial liabilities may increase further as a result of large-scale investments accompa-nying the execution of its growth strategy. In the event of an increase in market interest rates, or a downgrading of the Company’s ratings by ratings agencies, the Group’s interest expenses could increase or fund raising condi-tions could deteriorate. This could have a negative impact on the Group’s operating results.
Retirement Benefit Obligations
The Sapporo Group calculates employees’ retirement benefit expenses and obligations based on actuarial assumptions, such as the discount rate, and the expected rate of return on pension assets.
In the event of differences between actual performance and actuarial assumptions, or a change in these assumptions, the impact will be recorded as an actuarial difference on a cumulative basis and amortized over the average remaining period of service of employees at the time of accrual.
There would consequently be an impact on future retirement benefit expenses and the amount of retirement benefit obligations booked.
Separately, the net retirement obligation at transition, which arose upon a change in accounting standards for retirement benefits, is amortized over 15 years.
Loss on Impairment of Property, Plant and Equipment and Leased Assets
The Sapporo Group records impairment losses on property, plant and equipment and leased assets, and on intangibles at the Company and con-solidated subsidiaries in Japan in line with impairment criteria based on Japanese accounting standards for the impairment of fixed assets.
Overseas, consolidated subsidiaries record impairment losses, as necessary, based on local accounting standards. However, going forward, the Sapporo Group may need to book additional impairment losses if assets meet impairment criteria due to changes in market and operating conditions or other factors, or the Company may need to book losses on sales and disposal of property, plant and equipment, depending on the sales price.
This could adversely affect the Sapporo Group’s operating results and financial position.
Business and Capital Alliances
The Sapporo Group is promoting business and capital alliances with other companies worldwide as part of efforts to increase its competitiveness, with a view to achieving growth in line with the Sapporo Group Medium-Term Management Plan. However, the Group may not achieve results as initially anticipated, depending on market conditions, changes in the business environment and other factors. In certain situations, the Sapporo Group’s operating results and financial position may be negatively affected in the event of deterioration in the business operations, assets and other aspects of an alliance partner or investee. In addition, the Sapporo Group may record the amortization of large amounts of goodwill in line with investments, or may record an impairment loss on goodwill and other assets due to deterio-ration in the business results of investees. These factors could have a negative impact on the Sapporo Group’s operating results and financial position.
Holding Company Risk
Sapporo Holdings derives income from brand licensing fees and commis-sions for management guidance, as well as interest and dividends paid by Group operating companies.
Any deterioration in the financial position of Group operating compa-nies could result in nonpayment, which may adversely affect Sapporo Holdings’ business performance.
Millions of yen U.S. dollars (Note 1)
ASSETS 2011 2010 2011
Current assets:
Cash and cash equivalents . . . ¥ 9,058 ¥ 13,270 $ 116,530 Time deposits . . . 147 120 1,892 Notes and accounts receivable—trade . . . 79,340 61,353 1,020,717 Marketable securities (Note 12) . . . – 2 – Inventories (Note 5) . . . 28,354 22,169 364,776 Allowance for doubtful receivables . . . (387) (161) (4,977) Deferred tax assets (Note 17) . . . 4,539 2,811 58,398 Other current assets . . . 7,966 10,173 102,488 Total current assets . . . 129,018 109,737 1,659,824
Investments and long-term loans:
Investment securities (Notes 12 and 14):
Unconsolidated subsidiaries and affiliates . . . 3,418 10,437 43,979 Other . . . 27,790 27,591 357,521 Long-term loans receivable . . . 10,143 10,396 130,486 Allowance for doubtful receivables . . . (1,412) (1,595) (18,160) Deferred tax assets (Note 17) . . . 2,203 2,649 28,344 Other investments . . . 16,251 14,494 209,074
58,394 63,972 751,243
Property, plant and equipment (Notes 6 and 14):
Land . . . 83,826 77,584 1,078,428 Buildings and structures . . . 376,201 357,770 4,839,840 Accumulated depreciation . . . (201,765) (185,485) (2,595,716) Machinery and vehicles . . . 203,307 180,519 2,615,554 Accumulated depreciation . . . (163,081) (142,521) (2,098,039) Lease assets . . . 19,151 – 246,375 Accumulated depreciation . . . (9,071) – (116,700) Construction in progress . . . 2,059 3,564 26,487 Other . . . 20,149 20,400 259,223 Accumulated depreciation . . . (16,397) (15,201) (210,947)
Property, plant and equipment, net . . . 314,379 296,629 4,044,506
Intangibles:
Goodwill . . . 40,148 14,128 516,506 Other . . . 8,845 10,332 113,786
48,993 24,460 630,291
¥ 550,784 ¥ 494,798 $ 7,085,864
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Millions of yen
Thousands of U.S. dollars (Note 1)
LIABILITIES AND NET ASSETS 2011 2010 2011
Current liabilities:
Short-term bank loans (Note 14) . . . ¥ 26,434 ¥ 4,177 $ 340,068 Current portion of bonds (Note 14) . . . 10,000 20,000 128,650 Current portion of long-term debt (Note 14) . . . 30,937 23,912 398,003 Current portion of lease obligations . . . 3,899 – 50,162 Notes and accounts payable—trade . . . 32,355 24,348 416,245 Liquor taxes payable . . . 32,535 34,253 418,568 Income taxes payable (Note 17) . . . 2,986 1,819 38,412 Accrued bonuses (Note 2 (k)) . . . 2,118 2,056 27,253 Deposits received . . . 15,302 19,218 196,860 Other current liabilities . . . 56,024 37,260 720,756 Total current liabilities . . . 212,590 167,043 2,734,978 Bonds (Note 14) . . . . 32,000 35,843 411,681 Long-term debt (Note 14) . . . . 106,798 97,402 1,373,962 Lease obligations . . . . 7,715 – 99,258 Dealers’ deposits for guarantees . . . . 32,624 31,936 419,703 Employees’ retirement benefits (Note 15). . . . 7,452 7,191 95,871 Directors’ and corporate auditors’ severance benefits . . . . 53 42 685 Deferred tax liabilities (Note 17) . . . . 12,187 13,455 156,784 Other long-term liabilities . . . . 14,590 15,240 187,700 Contingent liabilities (Note 9)
Total liabilities . . . 426,009 368,153 5,480,622 Net assets
Shareholders’ equity:
Common stock (Note 22):
Authorized — 1,000,000,000 shares
Issued — at December 31, 2011 393,971,493 shares . . . 53,887 – 693,254
— at December 31, 2010 393,971,493 shares . . . – 53,887 – Capital surplus . . . 46,311 46,316 595,790 Retained earnings (Note 7) . . . 28,741 28,317 369,755 Treasury stock, at cost . . . (1,197) (1,190) (15,405)
Total shareholders’ equity . . . 127,741 127,329 1,643,394 Accumulated other comprehensive income (Note 4):
Unrealized holding gain on securities . . . 1,993 2,985 25,644 Deferred hedge gains . . . (8) (8) (106) Foreign currency translation adjustments . . . (6,433) (5,259) (82,760) Total accumulated other comprehensive income (Note 4) . . . (4,448) (2,281) (57,222) Minority Interests . . . . 1,482 1,598 19,070 Total net assets . . . 124,775 126,645 1,605,242
¥550,784 ¥494,798 $7,085,864