SAPPORO HOLDINGS LIMITED
ANNUAL REPORT 2008
THE SAPPORO EXPERIENCE
CREATING VALUE
IN FOOD
SAPPORO BREWERIES LTD.
SAPPORO INTERNATIONAL INC.
SAPPORO BEVERAGE CO., LTD.
SAPPORO LION LTD.
YEBISU GARDEN PLACE CO., LTD.
CREATING COMFORTABLE
SURROUNDINGS
03
FINANCIAL HIGHLIGHTS
04
MESSAGE FROM THE PRESIDENT10
AT A GLANCE
12
REVIEW OF OPERATIONS12 ALCOHOLIC BEVERAGES(Japan) 14 ALCOHOLIC BEVERAGES (International)
15 SOFT DRINKS 16 RESTAURANTS 17 REAL ESTATE
CONTENTS
18
MANAGEMENT
19
FIVE-YEAR SUMMARY20
MANAGEMENT’S DISCUSSION AND ANALYSIS24
CONSOLIDATED BALANCE SHEETS
26
CONSOLIDATED STATEMENTS OF INCOME
27
28
CONSOLIDATED STATEMENTS OF CASH FLOWS
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS45
CORPORATE DATAPROFILE
The Sapporo Group has provided customers with new excitement and
enjoyment for more than 130 years, in the process building a strong
Sapporo brand. In October 2007, the Sapporo Group formulated the
Sapporo Group’s New Management Framework, a medium- to long-term
management vision. The goal is to quickly respond to a fast-changing
business environment and continuously enhance corporate value.
With 2016—our 140th anniversary—as a target date, we are determined
to aggressively develop businesses so that we mark this milestone with
due success.
The Sapporo Group operates under a holding company framework, with
Sapporo Holdings Limited as a pure holding company, and has four business
segments: Alcoholic Beverages (Japan and International), Soft Drinks,
Restaurants and Real Estate.
FINANCIAL HIGHLIGHTS
Years ended December 31
NET SALES
(¥ Million)
NET INCOME
(¥ Million)
FINANCIAL LIABILITIES AND CAPITAL EXPENDITURES
(¥ Million)
OPERATING INCOME
(¥ Million)
Millions of yen
Thousands of U.S. dollars
2008 2007 2008
Net sales . . . ¥414,558 ¥449,011 $4,555,084 Operating income . . . 14,685 12,363 161,360 Net income . . . 7,640 5,509 83,949
Yen U.S. dollars
Per share: Net income:
Primary . . . ¥19.49 ¥14.10 $0.21 Diluted . . . 18.89 13.76 0.21 Cash dividends . . . 7.00 5.00 0.08
Millions of yen
Thousands of U.S. dollars Net assets . . . ¥116,862 ¥125,189 $1,284,060 Total assets . . . 527,287 561,859 5,793,722 Capital expenditures . . . 29,378 19,548 322,803 Depreciation and amortization . . . 21,605 24,527 237,390 Financial liabilities . . . 189,252 212,464 2,079,466 Note: U.S. dollar amounts are translated from Japanese yen, for convenience only, at the rate of ¥91.01=US$1, the exchange rate prevailing on December 31, 2008.
494,930 453,671 435,090 449,011 414,558
04 05 06 07 08
0 100,000 200,000 300,000 400,000 500,000
23,648 10,300 8,613 12,363 14,685
04 05 06 07 08
0 5,000 10,000 15,000 20,000 25,000
4,643 3,630 2,338 5,509 7,640
04 05 06 07 08
0 2,000 4,000 6,000
8,000 289,854
220,723 236,033
212,464
189,252
10,269 16,218 30,790 19,548 29,378
04 05 06 07 08
0 100,000 200,000 300,000
0 10,000 20,000 30,000 40,000 50,000
Capital Expenditures
MESSAGE FROM THE PRESIDENT
By concentrating business resources on core brands and services in each
business segment, the Sapporo Group is conducting business leveraging its
competitive advantages. At the same time, the Group is sharpening its cost
competitiveness by stepping up business restructuring.
FISCAL 2008 PERFORMANCE
Fiscal 2008, the year ended December 31, 2008, was the first year of the Sapporo Group’s New Management Framework. In a tumultuous operating environment, we worked to address two priorities— conducting business leveraging our competitive advantages and bolster- ing our earnings base, and paving the way for sustained growth. As a result, I’m pleased to report that we posted operating income of
¥14,685 million, 18.8% higher year on year and surpassing our initial forecast. The higher-than-planned earnings came despite lower net sales. Net income also increased 38.7% year on year to ¥7,640 million. In terms of segment performance, all business segments were profitable for the first time since we shifted to a pure holding company structure in 2003. In addition, we steadily reduced financial liabilities.
Operating Income Net Income Net Sales
Capital Investment Depreciation and Amortization Financial Liabilities
0 5 10 15 20 25
0 100 200 300 400 494.9 500
10.3 3.6
23.6 4.6 8.6 2.3 12.4 5.5 14.7 7.6
453.7
435.1 449.0
414.6
08 07
06 05
04
289.9
220.7 236.0
212.5
189.3
0 5 10 15 20 25 30
08 07
06 05
04
12.5 22.1
8.4 25.3 21.8 21.9 19.9 24.5 27.3 21.6
0 100 200 300
Alcoholic Beverages (Japan) Business
Looking at the Japanese beer and beer-type beverages market, in the first half of fiscal 2008, consumers increasingly tightened their belts in response to generally higher prices as food prices were hiked. Consumer spending weakened further in the second half as a sharp economic recession took hold, fueling a stronger-than-expected preference for low-priced products. Additionally, Japanese brewers raised beer prices to cope with higher raw ingredient and materials costs. Against this back- drop, the Japanese beer and beer-type beverages market saw total demand decrease by 2.5% year on year.
In addition to raising prices for beer and beer-type beverages in April 2008, we concentrated business resources on core brands, and worked hard to boost sales by launching new products and taking other actions. However, these actions were unable to compensate for waning demand in the Happo-shu market and declining new product genre sales, resulting in lower overall sales in the Alcoholic Beverages (Japan) segment. On a brighter note, one major success of fiscal 2008 was that Mugi to Hop, a new product released in June 2008, sold far better than initially expected. Mugi to Hop garnered a strong market reputation for being as refreshing as beer despite its new product genre classification.
We also continued to implement restructuring measures as in 2007. Concrete measures included reducing fixed costs centered on sales
promotion expenses as well as other cost-cutting initiatives. And we established a more flexible management structure by conducting a thorough efficiency drive that included boosting capacity utilization by closing Sapporo Breweries’ Osaka Plant. As a result, we posted earnings growth again in fiscal 2008.
Alcoholic Beverages (International) Business
In the international Alcoholic Beverages business, with the U.S. econ- omy, stalling abruptly, the North American beer market saw total demand increase only slightly, as demand shifted from premium- to value-beer categories. While factoring in a temporary impact on earn- ings, we conducted vigorous sales activities to position our operations for future expansion in the North American market. For example, we commenced test-marketing of Yebisu beer in the U.S. to gauge its potential acceptance in the local high-end market.
Despite these efforts, net sales in the international Alcoholic Beverages business decreased due to forex effects. However, we recorded steady growth in sales volume, with SLEEMAN BREWERIES LTD. and Sapporo U.S.A., Inc. reporting increases in sales volume of 6% and 9%, respectively, in year-on-year terms. Sales volume of exports to other countries rose by 11% year on year, thanks to continuing strong growth in demand in Asian countries and elsewhere.
NET SALES, OPERATING INCOME, AND NET INCOME
(¥ Billion)
FINANCIAL LIABILITIES, CAPITAL INVESTMENT, AND DEPRECIATION AND AMORTIZATION
(¥ Billion)
Alcoholic Beverages (Japan)
Alcoholic Beverages (International)
Soft Drinks Restaurants Real Estate
315.9 299.7 27.8 25.0 52.2 36.8 29.0 29.5 24.1 23.5
0708 0708 0708 0708 0708
0 50 100 150 200 250 300 350
6.2 7.7 1.7 0.9 –0.8 0.2 0.7 0.6 7.1 7.6
0708 0708 0708 0708 0708
–2 0 2 4 6 8
Alcoholic Beverages (Japan)
Alcoholic Beverages (International)
Soft Drinks Restaurants Real Estate
BUSINESS RESULTS BY SEGMENT—NET SALES
(¥ Billion)
BUSINESS RESULTS BY SEGMENT—OPERATING INCOME
(¥ Billion)
Soft Drinks Business
In the Japanese soft drinks market, overall demand was estimated to have contracted by around 1% year on year. Amid such an environment, we continued to face fierce competition due to an over-crowded market. Aiming to craft a sustainable earnings structure, we formed a strategic alliance with YK, Crescent Partners and expedited restructuring by focusing resources on strategic operations. This had mainly entailed reducing unprofitable sales, narrowing our product range, and stream- lining personnel systems. In addition, we formed vending machine alliances with ITO EN, LTD. and Pokka Corporation that were designed to boost sales in line with our growth strategy. Aiming to develop high- value-added brands, we also strove to entrench in the market Ocean Spray Cranberry, Gerolsteiner and other distinctive and unique brands.
Thanks to these efforts, the Soft Drinks business saw profitability improve despite lower net sales, and was able to restore operating profitability one year ahead of schedule.
Restaurants Business
Meanwhile, the Japanese restaurant industry continued to face a challenging operating environment, as suburban restaurants underperformed due to soaring gasoline prices, and the ongoing economic recession led to faltering demand for pre-booked group
events and falling sales at restaurant formats that typically generate high spending per customer. In this climate, we worked to expand earnings by improving the quality of cuisine and services, focusing on the themes of food safety, quality and authenticity. As many restaurant operators struggled, sales at our existing restaurants were mostly on a par with the previous year, reflecting strong performances by beer halls at prime Tokyo locations. However, cost reductions were unable to compensate for a sharp decline in fourth-quarter sales, leading to lower year-on-year earnings.
Real Estate Business
Over the past few years, Japan’s real estate market had achieved relatively stable growth. However, the recent financial market turmoil led to a sharp deterioration in market conditions. The central Tokyo office leasing market saw vacancy rates rise from the outset of 2008. Moreover, rent levels, while still relatively high, declined. Against this backdrop, we raised rents while maintaining high occupancy rates primarily at Yebisu Garden Place and other existing leasing properties in the Tokyo area. As a result, operating income rose ¥0.5 billion year on year. Furthermore, in order to expand our property portfolio, we developed real estate projects in Ebisu, Shinjuku and other areas, while actively acquiring new income-generating properties in central Tokyo.
Operating Income Net Sales
Net Income Capital Investment Depreciation and Amortization
Financial Liabilities 0
3 6 9 12 15
0 100 200 300 400 500
09 08
07 06
435.1
8.6 2.3 12.3 5.5 14.6 7.6 12.0 3.0
449.0
414.6
408.3
09 08
07 06
236.0
21.8 21.9 19.9 24.5 27.3 21.6 22.7 23.2
212.4
189.2 188.0
0 5 10 15 20 25 30
0 50 100 150 200 250
Forecast Forecast
EARNINGS FORECASTS—NET SALES, OPERATING INCOME, AND NET INCOME
(¥ Billion)
EARNINGS FORECASTS—FINANCIAL LIABILITIES, CAPITAL INVESTMENT, AND DEPRECIATION AND AMORTIZATION
(¥ Billion)
FISCAL 2009 OVERALL BUSINESS PLAN
In fiscal 2009, we are forecasting lower net sales. This forecast is primarily based on a higher weight of sales from new product genres in our product mix in the Alcoholic Beverages (Japan) business; forex effects in the Alcoholic Beverages (International) business; and ongoing reductions in unprofitable sales in the Soft Drinks business. On the cost front, we are projecting higher costs due mainly to increased raw ingre- dient and materials prices and higher depreciation following a change in accounting standards. Our business environment is currently undergoing seismic shifts. In response, the Sapporo Group will advance further cost structure reforms in all businesses so as to steadily build a powerful earnings base that can generate stable earnings in any business environment. We also intend to concentrate business resources on fields where we can demonstrate competitive advantages, with the aim of driving lasting growth in our businesses.
Through these and other initiatives, we aim to generate higher operating income in fiscal 2009 than in the previous fiscal year, excluding the impact of accounting standard changes.
Segment Business Plan
In the Alcoholic Beverages (Japan) business, we aim to achieve our full-year forecasts by offering new value propositions for our premium Yebisu brand beer, while strengthening Draft One and Mugi to Hop as core product brands in growing new product genres. We will also launch Reisei SAPPORO, a new type of great-tasting alcoholic beverage.
In the Alcoholic Beverages (International) business, we will continue investing in marketing aimed at maintaining and enhancing the value of core premium brands centered on those of Sleeman Breweries. In the U.S. market, we aim to expand sales volume faster than total demand growth by strengthening operations targeting market segments other than local Japanese businesses and individuals.
In the Soft Drinks business, we will continue implementing a strat- egy for crafting a sustainable earnings structure and a growth strategy for building powerful brands to cement a strong market presence. On the sales front, in addition to relaunching the Ribbon Citron brand to mark its centennial, we will work to capture new demand with Gerolsteiner and other unique products. On the cost front, we will continue to prioritize strategic operations to bolster earnings power, while laying the groundwork for the next phase of business expansion.
In the Restaurants business, we will attract customers by highlight- ing the trusted Sapporo Lion brand through a 110th anniversary event. Additionally, we will develop a new small and mid-sized restaurant format catering to relatively low per-customer spending to address new economic realities. On the cost front, we will reform our cost structure to stabilize earnings.
In the Real Estate business, we will develop real estate projects and acquire income-generating properties mainly in central Tokyo, with the aim of expanding our property portfolio. Regarding existing properties, we will strive to maintain high occupancy rates as we phase in rent increases, to bolster earnings.
MANAGEMENT TARGETS
(¥ Billion)
2009 Targets 2010 Targets
New Management Framework (2016 Plan) Before
revision revisionAfter
Operating Income
Group-wide 15.5 12.0 14.7 40.0
Alcoholic Beverages (Japan) 8.0 5.6 6.1 15.0
Alcoholic Beverages
(International) 1.4 0.9 1.0 5.0
Soft Drinks 0.1 0.3 0.8 2.0
Restaurants 1.0 0.7 1.0 2.5
Real Estate 8.4 7.7 8.1 15.0
New Businesses – – – 3.0
Corporate (3.4) (3.2) (2.3) (2.5)
2009 Targets 2010 Targets
New Management Framework (2016 Plan) Before
revision revisionAfter
Net Sales
Group-wide 451.0 408.3 413.1 600.0
Alcoholic Beverages (Japan) 321.0 295.6 296.0 350.0 Alcoholic Beverages
(International) 30.0 22.1 23.0 42.0
Soft Drinks 43.0 35.5 36.7 70.0
Restaurants 32.0 30.5 31.4 50.0
Real Estate 25.0 24.6 26.0 50.0
New Businesses – – – 38.0
In the Foods business, Sapporo Potekaru non-fried potato chips went on sale in February 2009. Going forward, we plan to boost sales of these sorts of healthier food products. To this end, we have built a new facility in Ota City, Gunma Prefecture, which commenced full-scale operations in January 2009 with the start of Sapporo Potekaru production. We are also paving the way for future growth by starting new projects in the yoghurt, dessert, and chilled beverage businesses. These and other measures will help us to achieve our earnings targets in all businesses.
SAPPORO GROUP MANAGEMENT PLAN
2009–2010
Basic Policies
In 2008, we unveiled Management Plan 2008–2009, the first action plan of the New Management Framework. However, the operating environment has undergone significant changes since then. Accordingly, we have decided to revamp the management plan on a revolving basis by formulating the new Management Plan 2009–2010.
We consider the two-year plan as a roadmap based on Sapporo Group’s New Management Framework—a long-term management policy targeting 2016, the Group’s 140th anniversary, that was announced in 2007. Faced with a tumultuous business environment, we must solve many issues on the way to reaching our 2016 targets. This roadmap will help us to balance short- and long-term perspectives as we manage operations with an eye to the future. We have defined the next two years as a period for laying the groundwork for our next phase of growth.
We are overhauling our strategies based on conservative estimates for the plan’s assumed market conditions. We have revised our manage- ment plan based on the following four concrete imperatives:
-
ness environment;
realities of the prevailing business environment;
expansion overseas; and,
Two-Year Management Targets
We have revised our fiscal 2009 sales assumptions for the entire Group based on conservative estimates for market conditions in each business. We have also factored in the impact on operating income of changes in depreciation and other accounting standards. We will continue to do our utmost to further reform our cost structure with the aim of structur- ing operations to generate steady earnings even based on conservative net sales assumptions.
The basic strategies for each business segment are covered in greater detail later in this report on pages 12–17 of the Review of Operations section. In essence, we will concentrate business resources on core brands and services in each segment, and conduct business leveraging our competitive advantages. At the same time, we will step up ongoing business restructuring measures to sharpen our cost competitiveness.
EARNINGS FORECASTS: KEY POINTS
Measures to ensure sustainable growth
Negative factors
and ingredients costs
-
ing standards
exchange rates Build on
competitive strength
Strengthen earnings base
SAPPORO GROUP’S MANAGEMENT PLAN:
OVERALL STRATEGY FOR 2009–2010
Basic Policy on Strategic Investments
Strategic investments are an important strategy for driving Group-wide growth. Current economic conditions have both positive and negative implications for corporate strategic investments. We will make strategic investments that have clear targets, while conducting stricter evaluations of opportunities and risks. We intend to prioritize investment in M&As in premium food businesses, as well as overseas business operations.
Group Synergies
In the past, we have attempted to reap economies of scale, including by integrating back-office departments within the Group. Going forward, we plan to integrate the IT infrastructure that will be crucial to capturing further Group synergies, among other measures.
Promoting CSR-Focused Management
The Sapporo Group sees the promotion of CSR-focused management as an important strategy given its involvement in food and other businesses. Crucial CSR themes include food safety issues, drunk- driving and other alcohol-related issues, and the environment and global warming. To address these themes, the Sapporo Group is stepping up CSR-related educational programs for Group employees and thereby boosting CSR awareness.
Policy on Returning Earnings to Shareholders Returning an appropriate level of earnings to shareholders is an important management policy for the Sapporo Group. Our basic policy is to maintain stable dividend payments, while taking into consideration earnings and the Group’s financial position in setting dividends. We increased the annual dividend applicable to fiscal 2008 by ¥2 per share from fiscal 2007 to ¥7 per share. Furthermore, we plan to maintain the annual dividend at ¥7 per share for fiscal 2009 by steadily implementing the management plan outlined in this message.
Although the operating environment is increasingly challenging, the entire Sapporo Group remains committed to steadily implementing the management plan to reach its goals.
TAKAO MURAKAMI
President and Representative Director, Group CEO
AT A GLANCE
ALCOHOLIC BEVERAGES (JAPAN)
SAPPORO BREWERIES LTD.
ALCOHOLIC BEVERAGES (INTERNATIONAL)
SAPPORO INTERNATIONAL INC.
SOFT DRINKS
SAPPORO BEVERAGE CO., LTD.
RESTAURANTS
SAPPORO LION LTD.
REAL ESTATE
YEBISU GARDEN PLACE CO., LTD.
PRODUCTS AND SERVICES
Beer
Happo-shu (low-malt beer)
New product genres
Wine and spirits
Shochu
(Japanese distilled spirits)
Beer
Soft drinks
Mineral water products
Ginza Lion and other general restaurant chains
Yebisu Garden Place
Sapporo Factory
STRATA GINZA
SAPPORO HOLDINGS
LIMITED
NET SALES
(¥ Million)
2008
¥414,558 72% 6%
9% 7%6%
OPERATING INCOME
(¥ Million)
46%
5% 1% 45% 2008
¥14,685
3%
Alcoholic Beverages (Japan) Soft Drinks
Alcoholic Beverages (International) Restaurants
Real Estate
321,128 315,893 299,699
06 07 08
0 100,000 200,000 300,000 400,000
5,292 27,777 25,021
06 07 08
0 10,000 20,000 30,000
58,731 52,239 36,849
06 07 08
0 20,000 40,000 60,000
26,995 28,954 29,538
06 07 08
0 10,000 20,000 30,000
22,828 24,148 23,452
06 07 08
0 10,000 20,000 30,000
3,798 6,189 7,709
06 07 08
0 2,000 4,000 6,000 8,000
385 1,665 901
06 07 08
0 500 1,000 1,500 2,000
–426 –839 221
06 07 08
–1,000 –800 –600 –400 –200 0 200 400
457 656 551
06 07 08
0 200 400 600 800
6,414 7,073 7,612
06 07 08
0 2,000 4,000 6,000 8,000
NET SALES
(¥ Million)
OPERATING INCOME
(¥ Million)
FISCAL 2008 OPERATING HIGHLIGHTS
Market Conditions:
Food industry price hikes, tighter consumer spending, 2.5% total demand drop, stronger preference for low-priced products, price increases by Japanese brewers, higher raw material and ingredient costs, food safety and quality concerns Actions:
Raised prices in April 2008, concentrated on core brands, boosted Mugi to Hop sales, controlled sales promotion expenses based on earnings targets, enhanced capacity utilization by realigning production network
Market conditions:
Financial crisis U.S. economic downturn, only a slight increase in total North American beer demand, shift from premium to value beer categories, rising raw ingredient and material costs, strong yen
Actions:
Conducted active marketing Sales volume rose 6% and 9% at SLEEMAN BREWERIES LTD. and Sapporo U.S.A., INC. respectively; commenced test-marketing of Yebisu beer in the U.S.
Market conditions:
Weak economy, increasingly tighter consumer spending, continued fierce competition due to market over-crowding, 1% decline in total demand, rising raw ingredient and materials costs
Actions:
Brought forward restructuring by concentrating on strategic operations (restored operating profitability)
Reduced unprofitable sales, optimized organizational structure, spent more efficiently on sales promotions, established unique brands
Market conditions:
(First half) Soaring gasoline prices Weak suburban restaurant performance
(Second half) Abrupt economic slowdown Direct impact on restaurants that typically generate high spending per customer
Actions:
Focused on the themes of food safety, quality and authenticity; improved and set apart the quality of cuisine and services from competitors
Competitive edge of prime urban locations Existing restaurant sales mostly the same as previous fiscal year
Market conditions:
Credit crunch real estate slump, worsening housing market conditions, increased central-Tokyo office vacancy rate, drop in rent levels
Actions:
Expanded real estate portfolio Property development in Ebisu, Shinjuku, etc., acquisition of new income properties in the Tokyo Metropolitan area
Maintenance of high occupancy rates for existing properties, rent revisions, value enhancement of Yebisu Garden Place properties
REVIEW OF OPERATIONS ALCOHOLIC BEVERAGES (JAPAN)
2008 IN REVIEW
The Japanese beer and beer-type beverages market saw total demand decrease by 2.5% year on year. This was mainly a reflection of consumers increasingly tightening their belts in response to generally higher food and other consumer prices; brewers raising prices to cope with soaring raw ingredient and materials prices, and the sharp global economic downturn from midway through the year. In terms of main product categories, overall beer and Happo-shu sales decreased about 6% and 7%, respectively, but total sales of new product genres rose roughly 14% year on year. Consequently, beer, Happo-shu and new product genres accounted for 53%, 23%, and 24% of overall sales in the Japanese market, respectively.
In terms of results in this business, net sales decreased ¥16.2 billion, or 5%, year on year to ¥299.7 billion, while operating income climbed ¥1.5 billion, or 25%, year on year to ¥7.7 billion.
In beer, our mainstay Sapporo Black Label Beer and keg draft beer for commercial use both performed strongly. Meanwhile, sales of our premium Yebisu brand declined, although the fall was largely the same as that of the market as a whole thanks to various sales promotions. In other key developments, Mugi to Hop, a new product released in June 2008, sold far better than we initially expected. However, these factors were unable to compensate for lower sales of Happo-shu and our existing lineup of new product genres. Consequently, overall sales volume of beer and beer-type beverages decreased 8.5% year on year.
In wine, total demand for domestic and imported wines was mostly the same as in the previous year. In domestic wines, we recorded higher sales volume than last year thanks to brisk sales of the Aroma Mutenka line and large-volume wines. In imported wines, the strong performers were flagship Yellow Tail wines as well as Santa Rita, which we resumed stocking in September. Sales volume of imported wines was on a par with 2007. Overall wine sales rose 1% year on year.
Our shochu (Japanese distilled spirits) business posted a 12.6% year on year increase in sales. This was mainly attributable to greater penetration into the commercial-use market of Waramugi, Karariimo and other singly distilled shochu; the launch of Triangle Smooth; and steady growth in large-volume product sales.
On the cost front, the cost of goods sold rose because of rising prices of raw ingredients and materials, most notably imported malt and aluminum cans. In response, besides raising beer and beer-type beverage prices from April 2008, we spent more effectively on sales promotions, and reduced general overhead expenses and other costs. Through these efforts, we achieved much higher operating income than in the previous year.
SAPPORO BREWERIES LTD.
The Alcoholic Beverages (Japan) business posted lower sales year on year, as the
Japanese beer market contracted further. However, operating income rose by a
substantial 25% year on year, despite soaring prices for raw ingredients and
materials, because we were able to raise prices for beer and beer-type beverages
and implemented cost-cutting measures.
2008 Result 2009 Target
Net Sales 299.7 295.6
Operating Income 7.7 5.6
Operating Margin 2.6% 1.9%
FISCAL 2009 PERFORMANCE TARGETS (¥ Billion)
299.7 295.6 296.0 350.0
0 100 200 300 400
7.7 5.6 6.1 15.0
0 5 10 15 20
SAPPORO BREWERIES WINS PRESTI-
GIOUS “NATIONAL HONOR IN GOLD”
FOR COLLABORATIVE CONTRACT
FARMING SYSTEM
Since its founding, Sapporo Breweries has always insisted on using only the finest raw ingredients. In 2006, it achieved its goal of sourcing all its
malt and hops—the main ingredients of beer—through a Collaborative Contract Farming System (CCFS). On May 5, 2008, Sapporo Breweries was awarded Germany’s “National Honor in Gold” (Bundesehrenpreis in Gold) for its CCFS. Through this award, the German government recognized CCFS and gave Sapporo Breweries the highest marks for collaborating with barley and hops growers worldwide so that the quality of beer is assured from the time seeds are planted.
The “National Honor” awards were established in 1952 by the German Federal Government to recognize and honor outstanding contributions to the welfare of Germany and its citizens. The awards are given to food producers and growers who have worked hard to enhance food safety and reliability for consumers, and whose efforts have led to consistently high standards of quality. In Germany, the
“National Honor in Gold” is considered to be the highest commen- dation of quality. Sapporo Breweries was the first brewer based outside Germany to receive this prestigious award. The news of a Japanese company winning the award thus caused considerable local interest and admiration.
THE JAPANESE BEER INDUSTRY AND
SAPPORO BREWERIES
Demand Trends
In 2008, Japan’s beer market—made up of beer, Happo-shu and new product genres—saw demand for new product genres increase by a sharp 3.4% year on year, while demand for beer and Happo-shu fell 2.3% and 1.1%, respectively. This reflected a shift in consumer preferences to low-priced products in response to a markedly deepening recession since midway through the past year. Consequently, total demand in Japan’s beer market decreased 2.5% year on year.
Sapporo’s Basic Approach
In light of the above, Sapporo believes the shift to new product genres will continue in the near future as consumers increasingly tighten their belts. Over the medium and long terms, however, we expect to see more and more customers purchase products that
FORECAST OF OPERATING INCOME
(¥ Billion)
FORECAST OF NET SALES
(¥ Billion)
FISCAL 2009 BUSINESS PLAN
The fundamental principle of value for customers = Pursuit of “new flavor and value” beverages
Achieve full-year forecasts with emphasis on Yebisu; Mugi to Hop and Draft One in new product genres; and Reisei SAPPORO, a new type of
“new flavor and value” alcoholic beverage
BUSINESS STRATEGIES
1. Concentrate business resources on mainstay beer and beer- type beverage products
Concentrate business resources on the premium Yebisu brand in order to strengthen our presence in the high-end market.
Strengthen Draft One and Mugi to Hop in the growing new product genre, while offering new taste propositions befitting Sapporo to enhance the product portfolio.
2. Bolster cost controls
Establish a flexible, responsive production system Conserve energy
Improve controls over marketing and freight expenses
3. Create new value
Further enhance R&D and product development systems, with the aim of developing high-value-added products
2008 SHARE BY ALCOHOL TYPE IN HOME-USE MARKET
2008
(SCI data by INTAGE Inc.)
reflect their own unique preferences, without being unduly swayed by price. In both the high-priced beer segment and new product genres, Sapporo defines “customer value,” its core strategic theme, as essen- tially being derived from the “never-ending pursuit of great taste.” Accordingly, in 2009 Sapporo will work to enhance the Yebisu brand while bolstering its product portfolio in new product genres.
2007
New product genres 29.1%
Happo-shu 22.4%
Beer 16.7%
Others 31.8%
New product genres 25.7%
Happo-shu 23.5%
Beer 19.0%
Others 31.8%
REVIEW OF OPERATIONS ALCOHOLIC BEVERAGES (INTERNATIONAL)
2008 IN REVIEW
In the North American beer market, total demand was estimated to have increased only slightly amid escalating competition. However, parts of the premium beer segment, such as domestic craft beers, continued to grow firmly. That said, the U.S. economy experienced a noticeable slowdown since fall 2008 in the wake of the sub-prime mortgage crisis that began in 2007.
In 2008, Sapporo International Inc. conducted vigorous sales activi- ties in premium beer markets, where it is strongly competitive. We commenced test-marketing of Yebisu beer in the U.S. to gauge its potential acceptance in the local high-end market. These efforts lifted sales volume at Canada-based SLEEMAN BREWERIES LTD. by 6% year on year, while Sapporo U.S.A., Inc. reported a solid 9% increase in sales volume. Sales volume of exports to other countries rose by 11% year on year.
On the cost front, the cost of sales was driven up by rising prices for raw ingredients and materials, centered on malt and aluminum cans. We have also been actively investing in marketing since the previous fiscal year.
Overall, net sales in the Alcoholic Beverages (International) business decreased ¥2.8 billion, or 10%, to ¥25 billion, as forex effects out- weighed steady growth in sales volume. Operating income declined
¥0.8 billion, or 46%, year on year to ¥0.9 billion.
FISCAL 2009 BUSINESS PLAN
Boost sales through positive marketing initiatives in North America and other growth markets
BUSINESS STRATEGIES
1. Strategies for the Canadian market
Concentrate marketing investments on Sleeman Breweries’ mainstay premium brands.
Enhance productivity at all breweries and lower manufacturing and other costs.
2. Strategy for the U.S. market
Further strengthen brand power by bolstering sales networks and carefully choosing strategic regions and customers.
SAPPORO INTERNATIONAL INC.
The Alcoholic Beverages (International) business worked hard to develop the
premium market in North America through the test-marketing of Yebisu beer and
other measures. As a result, sales volume rose 9% year on year. Operating income,
however, decreased 46% year on year due partly to forex effects.
2008 Result 2009 Target
Net Sales 25.0 22.1
Operating Income 0.9 0.9
Operating Margin 3.6% 4.1%
FISCAL 2009 PERFORMANCE TARGETS (¥ Billion)
FORECAST OF OPERATING INCOME
(¥ Billion)
FORECAST OF NET SALES
(¥ Billion)
40 50
5.04 5
REVIEW OF OPERATIONS SOFT DRINKS
2008 IN REVIEW
Overall demand in the Japanese soft drinks market was estimated to have contracted by around 1% year on year.
In 2008, the Group worked to build its own unique brands, while expediting restructuring of the Soft Drinks business by focusing resources on strategic operations, as it pursued strategies for crafting a sustainable earnings structure.
Specifically, we worked hard to develop and nurture high-value- added products. Other initiatives included optimizing our organization and personnel systems, reducing unprofitable sales, spending more efficiently on sales promotions, and optimizing vending machine costs.
Although sales volume decreased by 19% year on year, we strove to connect with more customers and entrench our products in the market. This entailed strengthening our soft drinks lineup with products such as Kissui, a new brand of canned coffee; Gerolsteiner naturally carbonated water; and functional fruit juices such as the Karada ni Oishii Ume and Ocean Spray Cranberry series.
Overall, the Soft Drinks business posted a ¥15.4 billion, or 29%, decrease in net sales to ¥36.8 billion, partly due to a change in account- ing standards. However, the segment returned to profitability by imple- menting business restructuring ahead of schedule; operating income improved ¥1 billion year on year to ¥0.2 billion.
FISCAL 2009 BUSINESS PLAN
Continue to craft a sustainable earnings structure and promote growth strategies
Relaunch the Ribbon Citron brand to mark its 100th anniversary; capture demand with Gerolsteiner and other unique products.
BUSINESS STRATEGIES
1. Nurture and enhance existing brand products
Strengthen brands by channeling business resources into mainstay products such as Gerolsteiner, Karada ni Oishii Ume, Ocean Spray Cranberry, and Gabunomi, as well as Ribbon Citron, which will celebrate its 100th anniversary.
2. Implement further cost structure reforms
Implement cost structure reforms including reducing unprofitable sales, concentrating on strategic areas, and revamping operator subsidiaries. Reduce opportunity loss, inventory, and disposal loss; raise organiza-
tional efficiency in logistics networks, ordering and other areas.
SAPPORO BEVERAGE CO., LTD.
In 2008, the Soft Drinks business implemented restructuring measures to focus
resources on strategic operations, at the same time as reducing unprofitable sales
and taking other actions. While sales volume was down 19% year on year, the
segment returned to profitability thanks to strategies for crafting a sustainable
earnings structure. Operating income was ¥0.2 billion, an improvement of
¥1 billion from the previous fiscal year.
2008 Result 2009 Target
Net Sales 36.8 35.5
Operating Income 0.2 0.3
Operating Margin 0.6% 0.8%
FISCAL 2009 PERFORMANCE TARGETS (¥ Billion)
FORECAST OF OPERATING INCOME
(¥ Billion)
FORECAST OF NET SALES
(¥ Billion)
36.8 35.5 36.7 70.0
0 20 40 60 80
0.2 0.3 0.8 2.0
0 0.5 1.0 1.5 2.0
REVIEW OF OPERATIONS RESTAURANTS
2008 IN REVIEW
In the Japanese restaurant industry, higher gasoline and food prices squeezed operations in the first half of 2008, significantly affecting the family restaurant sector, whose restaurants were predominantly in suburban areas. In the second half of the year, global financial instability triggered an abrupt and severe economic downturn, leading to lower sales at dinner restaurants and other establishments that typically generate high spending per customer. In the Japanese izakaya dining format, sales also weakened chiefly at restaurants that generate relatively high spending per customer, as companies curbed expenses and consumers tightened their purse strings.
In this climate, the Restaurants business worked to expand earnings by setting its operations apart from competitors. Actions included improving the quality of cuisine and services, focusing on the themes of food safety, quality and authenticity.
Sales at existing restaurants increased only slightly year on year, reflecting strong performances by beer halls in the Tokyo area. These sales offset lower sales at Japanese-style restaurants, where pre-booked group events that generate relatively high spending per customer account for the bulk of business. However, sales at almost all restaurant formats and in all regions decreased in year-on-year terms around the end of 2008 when business sentiment deteriorated sharply.
In 2008, we opened 8 restaurants with a combined total floor area of 6,500 m2, including a large all-you-can-eat buffet restaurant complex within the Nasu Mori No Beer En located in Nasu, Tochigi prefecture. However, we also closed 5 restaurants, including restaurants operated under contract at golf clubs. The net result was that we had 204 restau- rants at the end of 2008.
In terms of results, the Restaurants business posted a ¥0.6 billion,
FISCAL 2009 BUSINESS PLAN
Hold a commemorative event to celebrate Sapporo Lion’s 110th anniversary
Open small and mid-sized new format restaurants and implement further cost structure reforms
BUSINESS STRATEGIES
1. Boost sales at existing restaurants
Implement quality enhancement measures to revitalize existing stores, such as offering new menus and enhancing services
2. Implement strategies for opening restaurants in line with new economic realities
Open new restaurants centered on small and mid-sized new format restaurants
3. Cost structure reforms
Optimize personnel expenses by raising the efficiency of restaurant-staff scheduling through the deployment of a new employee time-keeping system and by reducing recruitment costs through group recruitment.
Reduce general overhead expenses through stronger controls over spend- ing on sales promotions, such as Web-based promotions and discounts.
SAPPORO LION LTD.
The Restaurants business achieved existing restaurants sales on a par with 2007
despite a challenging business environment, thanks to strong performances by
beer halls in prime urban locations in the Tokyo area. However, with the economic
downturn rapidly taking its toll, operating income in the Restaurants business
decreased 16% year on year to ¥0.6 billion.
2008 Result 2009 Target
Net Sales 29.5 30.5
Operating Income 0.6 0.7
Operating Margin 1.9% 2.3%
FISCAL 2009 PERFORMANCE TARGETS (¥ Billion)
FORECAST OF OPERATING INCOME
(¥ Billion)
FORECAST OF NET SALES
(¥ Billion)
50.040 50
2.52.0 2.5
REVIEW OF OPERATIONS REAL ESTATE
2008 IN REVIEW
The worsening economy brought the Japanese real estate sector to a major turning point. The office leasing market in central Tokyo saw vacancy rates continuously rise since the beginning of 2008. Rent levels remain relatively high, but swung from flat growth to a decline in the second half of 2008.
Against this backdrop, in the real estate leasing field, we raised rents while maintaining high occupancy rates primarily at Yebisu Garden Place and other existing leasing properties in the Tokyo area. Meanwhile, in the real estate development field, stable occupancy rates at develop- ment properties completed in 2007 steadily contributed to earnings. Properties held in the Ebisu and Nagoya areas, as well as a new site in the Shinjuku area, were also developed. We also acquired new income-generating properties in central Tokyo.
Sales decreased year on year due to the sale of a 15% co- ownership stake in Yebisu Garden Place. However, in addition to the above measures, lower depreciation and amortization expenses contributed to higher operating income in year-on-year terms.
Overall, the Real Estate segment posted net sales of ¥23.5 billion, a decrease of ¥0.7 billion, or 3%, year on year. Operating income rose
¥0.5 billion, or 8%, year on year to ¥7.6 billion.
FISCAL 2009 BUSINESS PLAN
Bolster earnings power through real estate development and acquisi- tion of new income-generating properties, and by maintaining and boosting occupancy rates.
BUSINESS STRATEGIES
1. Enhance property value of Yebisu Garden Place
Work to raise office rents while maintaining high occupancy rates
Invest in renovation of Yebisu Garden Terrace Nibankan, a leased residential facility, while improving and upgrading facility features through energy-saving investments, etc.
2. Pursue real estate development projects mainly in central Tokyo
Continue property development at a site acquired in the Shinjuku 6-chome area (Commercial/office building planned for completion in 2010) and a site adjacent to Yebisu Garden Place (Commercial/ restaurant facility scheduled to open in September 2009).
3. Acquire new properties mainly in central Tokyo
Identify and acquire new properties in Ebisu, which we see as a strategic area.
Enhance property values by capturing synergies with owned properties.
YEBISU GARDEN PLACE CO., LTD.
The Real Estate business posted operating income of ¥7.6 billion, 8% higher year
on year, despite the impact of a worsening economic climate. This was partly the
result of efforts to raise rents while maintaining high occupancy rates at existing
properties, and the acquisition and development of new properties.
2008 Result 2009 Target
Net Sales 23.5 24.6
Operating Income 7.6 7.7
Operating Margin 32.5% 31.3%
FISCAL 2009 PERFORMANCE TARGETS (¥ Billion)
FORECAST OF OPERATING INCOME
(¥ Billion)
FORECAST OF NET SALES
(¥ Billion)
23.5 24.6 26.0 50.0
0 10 20 30 40 50
7.6 7.7 8.1 15.0
0 5 10 15
MANAGEMENT
(As of March 27, 2009)
BOARD OF CORPORATE AUDITORS
KENICHI SHISHIDO ISAO TAKEHARA ** NORIO HENMI ** KEIZO AE
BOARD OF DIRECTORS
1 TAKAO MURAKAMI President and Representa- tive Director, Group CEO
2 MASARU FUKUNAGA Representative Director and Executive Managing Director
3 YOSHIYUKI MOCHIDA Managing Director
4 TSUTOMU KAMIJO Managing Director
5 HIROAKI ETO Director *
6 HIROSHI TANAKA Director *
7 NOBUO KATSUMATA Director *
1 2
3 4
5
6 7
8
9 10
8 KAZUO USHIO Director
9 HIDENORI TANAKA Director
10 YOICHI KATO Director
FIVE-YEAR SUMMARY
Years ended December 31
Millions of yen
2008 2007 2006 2005 2004
Net sales . . . ¥414,558 ¥449,011 ¥435,090 ¥453,671 ¥494,930 Alcoholic Beverages . . . 324,720 343,670 326,420 341,077 364,585 Soft Drinks . . . 36,849 52,239 58,731 63,897 69,324 Restaurants . . . 29,538 28,954 26,995 26,331 26,611 Real Estate . . . 23,452 24,148 22,828 21,696 22,506 Other . . . – – 116 670 11,904
Operating cost and expenses . . . 399,873 436,649 426,477 443,371 471,282 Operating income . . . 14,685 12,363 8,613 10,300 23,648
Income before income taxes and minority interests . . . 17,970 221 3,978 6,573 7,762
Net income . . . 7,640 5,509 2,338 3,630 4,643
Yen Per share:
Net income:
Primary . . . ¥ 19.49 ¥ 14.10 ¥ 6.38 ¥ 10.20 ¥ 13.07 Diluted . . . 18.89 13.76 5.88 9.18 12.01 Net assets . . . 297.60 319.07 300.13 305.00 259.81 Cash dividends . . . 7.00 5.00 5.00 5.00 5.00
Millions of yen Year-end data:
Net assets . . . ¥116,862 ¥125,189 ¥113,496 ¥111,411 ¥ 92,263 Total assets . . . 527,287 561,859 589,597 563,845 602,112 Financial liabilities . . . 189,252 212,464 236,033 220,723 289,854 ROE (%) . . . 6.3 4.6 2.1 3.6 5.2 Capital expenditures . . . 29,378 19,548 30,790 16,218 10,269 Depreciation and amortization . . . 21,605 24,527 21,930 22,075 25,330
SAPPORO HOLDINGS LIMITED AND THE SAPPORO GROUP Fiscal 2008, the year ended December 31, 2008, was the first year of the Sapporo Group’s two-year management plan, which is based on the New Management Framework announced in 2007. In the past fiscal year, the Sapporo Group worked to bolster its earnings base and pave the way for sustained growth.
Regarding the former, the Group lowered the breakeven point further by tightening cost controls so as to reduce the susceptibility of earnings to variability in sales and soaring prices for raw ingredients and materials.
In order to pave the way for sustained growth, the Group took a number of steps toward achieving the goals of its management plan. In the Alcoholic Beverages segment, the Group boosted capacity utiliza- tion by closing Sapporo Breweries’ Osaka Plant and launched high- value-added products using small-lot production facilities. In the Soft Drinks segment, the Group expedited operational execution through business restructuring. Elsewhere, the Group sought to expand its property portfolio in the Real Estate segment, while implementing new initiatives in the Food segment.
In terms of the scope of consolidation, the Company had 35 consolidated subsidiaries and 5 equity-method affiliates in the year ended December 31, 2008.
OPERATIONAL OVERVIEW
In 2008, the financial market turmoil triggered by the U.S. subprime mortgage issue grew into a global financial crisis, the repercussions of which have tipped much of the world into recession.
Against this backdrop, the Japanese economy experienced a slow- down in consumer spending in the first half of the year amid extreme volatility in international commodity prices, soaring grain and crude oil prices, and resurgent consumer price inflation. In the second half,
SG&A EXPENSES AND PERCENTAGE OF NET SALES
(¥ Billion, %)
NET SALES AND COST OF SALES RATIO
(¥ Billion, %)
NET INCOME AND NET INCOME PER SHARE (PRIMARY)
(¥ Billion, ¥)
OPERATING INCOME
(¥ Billion)
corporate sentiment deteriorated sharply in the wake of an equity market downturn, the yen’s sharp appreciation, and a fall-off in demand in key industries such as the auto and electrical machinery sectors. This turn of events further dampened consumer confidence.
In the alcoholic beverage, soft drink, and restaurant industries in which the Group operates, earnings remained under pressure from input-cost inflation. Additionally, public confidence in the food supply chain was shaken by a series of food contamination incidents. Companies’ social responsibility for food safety consequently came under closer scrutiny.
Real estate market conditions, which had been holding up relatively well, likewise deteriorated in response to the financial market turmoil. This downturn triggered downward revisions of future cash flow projections and increases in risk premiums, exacerbating down- ward pressure on the real estate investment market.
CONSOLIDATED OPERATING RESULTS Net Sales
Net sales decreased ¥34,453 million, or 7.7%, year on year to
¥414,558 million. By business segment, Alcoholic Beverages saw a 5.5% year-on-year decline in net sales to ¥324,720 million. This decrease partly reflected lower sales volume in the Alcoholic Beverages (Japan) business, as well as the impact of a stronger yen on the Alcoholic Beverages (International) business. The Soft Drinks segment recorded a 29.5% year-on-year drop in net sales to ¥36,849 million, partly due to the discontinuation of unprofitable sales and changes in accounting standards. Meanwhile, net sales in the Restaurants segment rose 2.0% year on year to ¥29,538 million, helped in part by the open- ing of new restaurants. The Real Estate segment recorded a 2.9% year-on-year decrease in net sales to ¥23,452 million, partly the result of the sale of a 15% co-ownership stake in Yebisu Garden Place.
MANAGEMENT’S DISCUSSION AND ANALYSIS
68.6 68.6 69.0 67.969.5
494.9 453.7 435.1 449.0 414.6
200 300 400 500
70 80 90 100
26.6
29.1 29.0 29.3 27.0
131.9 132.2 126.4 131.6 111.7
60 90 120 150
30 35 40
23.6 10.3 12.4 14.7
10 15 20 25
19.5
4.6 3.6 5.5 7.6
40 60 80
4 6 8
Cost of Sales and Gross Profit
Cost of sales decreased ¥16,932 million, or 5.5%, year on year to
¥288,146 million in line with the lower net sales. The cost of sales ratio increased 1.6 percentage points to 69.5%, due largely to higher raw ingredients and materials costs.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses decreased ¥19,844 million, or 15.1%, year on year to ¥111,726 million. The main reason was a combined reduction of ¥14,785 million in sales incentives and commissions, reflecting more effective spending on sales promotions, and a change in sales incentives paid to clients (wholesalers and retailers) in line with the adoption of new accounting standards in the Soft Drinks business. Under these new accounting standards, sales incentives paid to clients corresponding to retail prices are now deducted from net sales.
Operating Income
Operating income rose ¥2,323 million, or 18.8%, year on year to
¥14,685 million.
Other Income (Expenses)
Other income improved ¥15,426 million to ¥3,285 million.
With regard to net financial income (expenses), calculated as the sum of interest and dividend income minus interest expense, the Company recorded expenses of ¥2,748 million in fiscal 2008, compared with ¥3,279 million in expenses in the previous fiscal year. The decrease reflected a sharp decline in financial liabilities.
The Company booked a gain on the sale of property, plant and equipment of ¥25,893 million, ¥19,123 million higher year on year due to the sale of a 15% co-ownership stake in Yebisu Garden Place.
The Company also recorded a ¥5,836 million loss on disposal of property, plant and equipment, which included expenses related to dismantlement work at the former Osaka Plant site.
The Company booked a loss on revision of its retirement benefit plan of ¥1,307 million. This loss related to revisions to the existing retirement benefit systems of the Company and consolidated subsidiary Sapporo Breweries Ltd.
Business reorganization costs were ¥1,444 million. This mainly reflected spending on business restructuring in line with the New Management Framework announced in October 2007.
Income Before Income Taxes and Minority Interests
As a result of the above and other factors, income before income taxes and minority interests increased ¥17,749 million to ¥17,970 million.
Income Taxes and Net Income
Income taxes applicable to the Company, calculated as the sum of corporation, inhabitants’ and enterprise taxes, were ¥10,354 million. Income taxes accounted for 57.6% of income before income taxes and minority interests. The difference between this percentage and the
SEGMENT INFORMATION
(Millions of yen)
Net Sales
Operating Income
Depreciation and Amortization Expenses
Capital Expenditures
Alcoholic Beverages 324,720 8,610 14,125 15,099
(Japan) 299,699 7,709 – –
(International) 25,021 901 – –
Soft Drinks 36,849 221 272 999
Restaurants 29,538 551 779 856
Real Estate 23,452 7,612 6,427 12,420
ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY The Sapporo Group has a cash management system (CMS), which enables Sapporo Holdings to centrally manage fund allocation within the Group in Japan.
The concentration at the Company of cash flows generated by individual Group companies helps preserve fund liquidity, while flexible and efficient fund allocation within the Group serves to minimize financial liabilities.
The Company strives to secure fund procurement channels and liquidity to make certain that ample funds are on hand to cover present and future operating activities, as well as the repayment of debts and other funding needs. Necessary funds are procured mainly from cash flows from operating activities, loans primarily from financial institutions, and the issuance of corporate bonds.
Assets
Total assets at December 31, 2008 stood at ¥527,287 million, down
¥34,572 million, or 6.2%, from a year ago. This was mainly the result of a decrease in property, plant and equipment due to the sale of a 15% co-ownership stake in Yebisu Garden Place; a decrease in intangibles due to the booking of impairment losses on goodwill and other items; and a decline in investment securities following a decrease in unrealized holding gains on securities due to tumbling share prices. However, these declines were partly offset by an increase in cash and cash equivalents.
Liabilities
Financial liabilities decreased ¥23,212 million to ¥189,252 million, thanks to efforts to reduce financial liabilities. Total liabilities decreased
¥26,245 million, or 6.0%, to ¥410,424 million.
Net Assets
Retained earnings increased ¥5,679 million to ¥19,972 million at the fiscal year-end, due to the higher net income. The application of fair market accounting for financial instruments resulted in a ¥6,595 million decrease in unrealized holding gain on securities to ¥3,046 million, a reflection of plummeting share prices. Foreign currency translation adjustments worsened ¥7,390 million to a negative ¥5,536 million,
