Enhance value
Strengthen profitability
Bolster operations
Focus investments
Expand sales
t 2007
Annual Report 2007
Year ended March 31, 2007
Hastening Change,
Meeting Market Needs
Stationery Furniture Store Fixtures
Cautionary Statement With Respect to Forward-looking Statements
This annual report contains statements about Kokuyo’s future business plans and strategies as well as estimates. Statements regarding the Company’s projected business results are not based on historical facts and are subject to various risks and uncertainties. These risks and uncertainties relate to eco- nomic conditions in Kokuyo’s business environment, particularly the state of private-sector and public-sector capital investment, competitive pricing pres- sures in the marketplace, and Kokuyo’s ability to continue designing and developing products that will be accepted in markets. However, it should be noted that elements affecting performance are not limited to the previously mentioned factors.
prevail as the world’s unique provider of general office supplies and services,
with a major focus on stationery, furniture, and store fixtures businesses.
In 2004, Kokuyo shifted to a holding company structure, a step that has
enabled it to fully exert the Group’s collective strengths and aggressively
expand its business fields. Eyeing the coming century, Kokuyo is poised to
progress still further as a vibrant company that will continue to boast the spirit
of innovation and a unique business approach.
01 Message to Stakeholders
05 A Letter From the Chairman
06 Hastening Change, Meeting Market Needs
16 Review of Operations
21 Kokuyo’s CSR Initiatives
Corporate Governance
25 Board of Directors
26 Six-year Summary
27 Management’s Discussion and Analysis
34 Consolidated Balance Sheets
36 Consolidated Statements of Income
37 Consolidated Statements of Changes in Net Assets
38 Consolidated Statements of Cash Flows
39 Notes to Consolidated Financial Statements
54 Independent Auditors’ Report
55 Corporate Data
Contents
paracuruno
Campus Notebook
“paracuruno” has pages that are easy to leaf through even when it is on a desk. A special technique for cutting at an angle produces page edges that gently “slope” diagonally in one direction on the top half of the notebook, and in the other direction on the bottom half. Kokuyo’s product develop- ment ethos entails putting itself in the customer’s shoes, and
“paracuruno” is the tangible result of its efforts.
Message to Stakeholders
In 2005, the Kokuyo Group formulated its current medium-term
management plan to guide structural reforms in response to its
changing operating environment. In fiscal 2007—the year ended
March 31, 2007 and the second year of the plan—net sales reached
an all-time high of ¥339.6 billion. However, intensifying competition,
escalating raw material costs and other factors resulted in operating
income of only ¥11.4 billion, falling short of our original forecast by
¥6.7 billion. This was a very disappointing result, for which I sincerely
apologize. But Kokuyo intends to learn from this experience: We will
review what went wrong and where we are now to accelerate the
pace of change in our businesses, and do all in our power to enhance
shareholder value.
Akihiro Kuroda President
Delayed reform was significant
factor in weaker performance
I would like to start by explaining why Kokuyo’s performance deteriorated despite Group-wide efforts to restructure our business under the medium- term management plan.
The first reason is that returns on some of our investments in Growth Businesses were delayed. As a company, we constantly prepare for change by predicting future trends, and incorporate outside businesses and companies into our operations to provide the resources we do not already have at our disposal. Some Growth Businesses in which we made upfront invest- ments—our entry into the Chinese market, and B2C business M&As, for example—have developed more slowly than initially projected and this, I believe, led to below-target returns.
The second reason was higher-than-expected raw material prices. Stationery-related businesses were particularly affected by an unprecedented situation whereby prices for base paper and plastics rose several times during the space of one year. Of course, we cannot place all the blame for
our results on the operating environment. The real problem was that we failed to foresee and prepare for these changes; in short, we were not keeping pace with developments.
The third reason was the slow progress of reform in our distribution affiliates. Kokuyo is shifting to a structure that will enable it to lead the industry in reacting promptly to customer needs. This was the purpose of our structural reforms, which included splitting the Group into individual companies, thereby giving employees more freedom to act. Despite these efforts, however, the sales capabilities of employees at our distribution affiliates are still well below the level of our industry peers, and it has become apparent that our people are not actually managing to respond to changing customer needs.
In view of the above, the decline in our operating results was, I believe, not due to any intrinsic problem with the reforms themselves, but because we did not implement the reforms fast enough to keep up with the speed of change in our markets.
Thousands of Millions of yen U.S. dollars
2007 2006 2006
For the year:
Net sales ¥339,559 ¥303,959 $2,875,426
Operating income 11,363 14,105 96,223
Net income 5,622 4,145 47,608
Return on equity (%) 3.0 2.2
At year-end:
Total assets 320,033 314,573 2,710,077
Net assets 188,673 191,844 1,597,705
Yen U.S. dollars
Per share data:
Basic net income per share ¥ 46.94 ¥ 33.82 $ 0.40 Cash dividends per share applicable
to the year 15.00 15.00 0.13
Note: The U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥118.09=U.S.$1, the approximate exchange rate prevailing at March 31, 2007.
Financial Highlights
KOKUYO CO., LTD. AND CONSOLIDATED SUBSIDIARIES Years ended March 31
A more customer-oriented
approach is key to renewed growth
Net sales during fiscal 2007 were the highest ever, despite falling short of initial forecasts. The primary driver of net sales growth was Kokuyo Office System Co., Ltd. (KOS). I believe this illustrates an important point with regard to ensuring further growth for the Group as a whole.
Since its establishment, Kokuyo has made concerted efforts to build a market for good quality, affordable products by finding ways to offer appealing products at prices customers can afford. However, markets these days have polarized to cater to two types of customer: those seeking products and services offering even greater added value, and those who are more concerned than ever with price. Among the products themselves, it is without doubt the high added-value products and services that offer the opportunity for growth going forward. If we are to cater to this demand, we need to deal head-on with the diversifying needs of customers, and the speed of our response will be the key issue.
In fact, I believe it is speed of response that explains the rapid growth in sales at KOS. The company addresses the range of issues faced by customers in office environments—including information security, paperless systems, and environmentally friendly practices—by making swift decisions at the sales frontline, the first point of contact with customers. By offering optimal solutions tailored to the requirements of individual customers, KOS has earned strong support in the marketplace.
Learning from this example, the Kokuyo Group will review its business portfolio, marketing methods, and production and logistics frameworks from a more customer-oriented point of view. By extending the agility and flexibility of approach put into practice by KOS to other businesses, Kokuyo will further improve the way it deals with customers.
Accelerate reform at distribution
affiliates
Among our strategies for renewed growth, most urgent in my opinion is to step up the pace of reform at distribution affiliates. Created by merging
regional wholesalers, these affiliates conduct a large proportion of their business in the form of wholesaling to retailers. In recent years we have been enacting reforms in an attempt to reduce this reliance on retailers and increase the percentage of direct-to-customer business. However, customers’ requirements are wide-ranging and we have not yet been able to increase the proportion of direct-to- customer business to the level we would like.
Looking ahead, we will improve collaboration between distribution affiliates and manufacturers to respond to the rapidly changing requirements of customers who seek greater added value. We will also ensure that the whole Kokuyo Group shares the same awareness of the issues at stake to enable us to develop and provide to customers exactly the products and services they need. In addition, we will streamline our wholesaling operations, shift personnel to growth areas, and ensure that everybody in the Group shares best practice.
It goes without saying that the key issue for distribution affiliates is how promptly they can respond to customer needs. Kokuyo will actively extend the agility and flexibility of approach put into practice by KOS to other businesses, and not let up as it pushes ahead with reforming its distribution affiliates.
Continue active investment in
growth businesses
In fiscal 2007, upfront investment was one factor contributing to lower operating results. Nonetheless, I believe that for the Kokuyo Group to resume further growth, it is essential to continue investing, even when our results are temporarily below par.
In our China-based operations, we did not achieve our original net sales target, but the reason for this was a delay in extending the Easy buy office supply mail order business to the Beijing market. This is not something I am particularly worried about. Meanwhile, in the office design and installation field, we expect to start making a profit from services for Japanese clients in the coming fiscal year, and my assessment is that our plans for entering the Chinese market are still on track.
Turning to Kaunet, Kokuyo’s domestic office supply mail order business, a progressive
slowdown in market growth has meant that the issue now is how to attract new customers. In this context, we conducted an advertising campaign in March 2007 which had considerable success, producing double-digit growth in sales. Going forward, we will conduct similar campaigns on an ongoing basis with a view to enhancing our profile and stimulating demand in hitherto untapped sectors of the market.
Kokuyo will continue to assess the potential growth rate and market size for each of the markets and products it has identified as Growth Businesses, formulating proactive investment plans for each.
Aggressively pursuing M&As
To boost its growth potential going forward, the Kokuyo Group plans to take an aggressive approach to M&As. In February 2006, we acquired Actus Co., Ltd., a major interior goods and furniture retailer.
Looking ahead, we will continue striving to enhance corporate value by pursuing M&As with companies that possess management resources we do not have and that offer good prospects for generating synergies.
Medium-term management plan
targets to be achieved in fiscal
2010
In terms of our medium-term management plan, we expect to attain our net sales target of ¥360 billion more or less in line with projections. However, escalating raw material prices and fiercer competition mean that unfortunately we do not now expect to achieve our targets of ¥25 billion for operating income and 8% for ROE until fiscal 2010. Nonetheless, we will steadily put the strategies detailed above into practice to attain our goals earlier if at all possible.
Enhance shareholder value for all
stakeholders
At the annual general shareholders’ meeting held in June 2007, Kokuyo Group shareholders approved the implementation of takeover defense measures to deal with any major acquisition of Kokuyo shares. The measures are intended to secure and enhance
Kokuyo’s corporate value and, by extension, the common interests of shareholders. With approval for these measures, Kokuyo has put in place the necessary provisions to deter any purchase of its shares seen as detrimental to corporate value or the common interests of shareholders.
The Kokuyo Group is also putting new provisions in place for business management. To maintain sound corporate governance the Group is upgrading its internal control framework with a focus on transparency, speed and impartiality to establish systems for legal and regulatory compliance and to ensure the appropriate conduct of business operations.
In a separate measure, the Kokuyo Group has changed its fiscal year-end from March 31 to December 31. This move is intended to prevent the fiscal year-end from coinciding with the annual peak demand season, thereby enabling more efficient monitoring and more accurate disclosure of earnings and other management information.
In deciding the above changes, the
maintenance of shareholder value was the primary consideration in all cases.
With regard to returns to shareholders, the Kokuyo Group implements a dividend policy based on a target dividend payout ratio of 20% or higher, taking into account consolidated operating results as well as our established policy of paying a stable dividend. The Kokuyo Group also repurchases its own shares on an ongoing basis as part of a flexible capital policy and to increase ROE.
Our disappointing performance in fiscal 2007 is a serious matter for us, but we will use it as the impetus to hasten the pace of change in our businesses. We will strive to meet the expectations of all our stakeholders by working together as a company to enhance shareholder value. In doing so, I ask our shareholders and investors for their continued support.
August 2007
Akihiro Kuroda, President
Responding to Customers’ Wishes
The Kokuyo Group’s founder risked the disapproval of industry peers by taking a pioneering approach at the time: putting himself in the customer’s shoes to produce appealing products that cut no corners in terms of quality. Subsequently, Kokuyo went to great lengths to find ways to offer these appealing products at prices customers could afford. The development of the Kokuyo Group was founded upon these efforts, and the approach remains unchanged to this day. In addition to the production and sales divisions that develop and market its products, Kokuyo also
incorporates a variety of divisions offering solution-based services, including those that take on outsourced functions. As a result, the Group’s all-round capabilities, enabling it to offer “one-stop” solutions for a range of office- related issues, are unparalleled. Kokuyo commands strong support in the marketplace, having earned acclaim not only within Japan, but also among Japanese companies establishing themselves in the Chinese market and elsewhere.
Nonetheless, it is by no means easy to maintain growth in an era of rapid change and increasingly challenging business conditions. Kokuyo has responded to this environment by accelerating the pace of innovation and implementing a variety of measures. Unfortunately, however, our efforts have not been reflected in the results for the fiscal year under review. In these circumstances we must take the situation seriously and find a way to move forward. To this end, every single Kokuyo employee should do their utmost to listen carefully to what customers are saying and truly understand their differing require- ments, then strive to apply what they have learned in product development.
The Kokuyo Group will continue to do everything in its power to meet the expectations of shareholders by creating value. We are grateful for the understanding extended to us by our shareholders and investors and hope that we can continue to rely on your support in future.
Shounosuke Kuroda, Chairman
A Letter From the Chairman
Developing a highly customer-
oriented approach to sales
Customer needs are becoming progressively more sophisticated and more diverse. In order to precisely accommodate these needs and provide customers with value-added solutions, the Kokuyo Group is enhancing its overall ability to respond, which encompasses not only sales divisions but also production and distribution divisions.
To this end the Kokuyo Group is currently developing a highly customer-oriented approach to sales to ensure that we are able to precisely accommodate the ever-changing needs of our customers. More than anything this involves humbly listening to customer comments and opinions, considering their problems and proposing solutions.
For example, we collect the comments and opinions of large numbers of customers thorough various seminars and questionnaires, then identify issues for each industry format. Moreover, by maintaining close communica- tions with customers we uncover latent issues of which customers themselves may not be aware, to which we then create specific solutions. For example, we received a request for a desk system that can be shared by workers doing various types of jobs. Members of the sales division that received the request and the development division thoroughly investigated the customer’s requirements and came up with a next-generation platform-based workstation that ended up being extremely well received.
In this way this highly customer-oriented approach to sales is penetrating the frontlines of our sales divisions and steadily generating results.
Increasing sales at distribution
affiliates
Learning lessons from success stories such as the one described above, the Kokuyo Group’s sales strategy going forward involves working to spread this highly customer-oriented approach to sales, along with our expertise in value-added solutions, to distributors, which hold the key to our future growth.
At the same time we are working to fully rationalize wholesale operations. For example, we were the first in the industry to institute a mobile phone-based ordering system, dubbed
“Mobile KiSPA,” in order to raise the efficiency of ordering. Inventory can be checked and orders can be placed in real time when traveling or on a sales call. This allows us to proactively respond to customer issues quickly and in line with their specific needs.
In this way we are striving to convert to a growth model through business development and rationalization to meet customer needs.
Expand sales
Offices equipped with the latest
workstations Hybrid Cell layouts can be
changed easily
Transform our
operations and
business models
to meet
customer needs
Hastening Change, Meeting Market Needs
Accelerating development
in China
The Kokuyo Group divides its operations into Mature Businesses, Growth Businesses and New Businesses. Growth Businesses are positioned as the area that will generate the most earnings in the future.
Among Growth Businesses, our operations in China are undergoing especially noteworthy growth. In China, we are involved in furniture, office supply mail order and business convenience stores. Our competitive strength lies in the fact that we are the only company capable of providing a one-stop office service, which provides us with a major advantage over our competitors.
Based on our record of achievement we intend to expand our sales channels to Western companies and develop furniture products for these companies. We believe that now is the time for launching Kokuyo’s office supply mail order service, Easy buy, on the Chinese market. We are steadily making preparations for growth while striving to further raise awareness of the service.
In the area of business convenience stores, we are working to develop multiple stores in Shanghai and other major cities and expand the store network to all of China using a franchise model.
Strengthening sales promotions
for office supply mail order
In our domestic office supply mail order, we augmented advertising activities for Kaunet starting in March 2007 and developed an advertising campaign with famous celebrities featured in TV commercials. We also strove to acquire new customers and increase use of the service by existing customers. These efforts generated significant results, including a 10% increase in sales in March. We intend to continue to carry out advertising campaigns that differentiate us from competitors.
Moreover, along with adding new product lineups and increasing original items, we plan to accommodate customer needs with even greater precision through With Kaunet, a purchasing system for large and medium-sized companies.
The Group will work to increase sales in the office supply mail order business through continuing to conduct these kinds of initiatives.
Focus investments
China Business (Results): Net Sales (Billions of yen)
Stationery
Office direct sales: Easy buy Furniture
To non-Japanese companies To Japanese companies
Note: Chinese affiliates have account closing dates in December.
Kaunet catalog and website (target)
07/12
06/12
05/12
6.5
3.3
1.6
Make selective and
focused investments
in businesses with
earnings potential
Hastening Change, Meeting Market Needs
Further enhancing
Universal Design
The Kokuyo Group has been involved in Universal Design from early on and has supplied a large number of innovative products over the years, such as Wavelet, a document holder with a transparent cover, and the Kadokeshi eraser. The number of such products now numbers over 800, and in fiscal 2006, we received the Prime Minister’s Commendation for Contributors to the Promotion of a Barrier-free Environment and were recognized as the top company in Japan for Universal Design.
Our Universal Design products have been acclaimed overseas as well, with the many- cornered Kadokeshi eraser and the Punyo Punyo Pin, a pushpin surrounded by soft plastic, being selected for the collection at the Museum of Modern Art in New York.
Kokuyo will continue to diligently research and develop products in this area. Our focus is currently on developing new products with high added value. For example, JUST ONE is a computer mouse shaped to fit the wrist and reduce stress on it. Campus Notebook
“paracuruno” has a diagonal profile to make the pages easier to turn. Products such as these have earned plaudits for their original design features. In the furniture business as well, we design products that give consider- ation to Universal Design principles, and we intend to continue to develop products befitting the top Universal Design company in Japan.
Aggressively developing
New Businesses
“Contributing to society through the provision of superior products” is the basic management principle of the Kokuyo Group. We are committed to being a company that supplies value in the form of “Inspiration, Efficiency and Amenity.”
Based on this management principle, we have a “creativity enrichment” business, which consists of products and services that provide creative value. As an example, we are currently developing the “refullerene” chain of stores, which offer a select lineup of products that provide materials and environments that foster creative thinking. We have opened two stores thus far, one in LaLaport Kashiwanoha in November 2006 and one in LaLaport Yokohama in March 2007. We plan to open more stores going forward.
Kokuyo is also engaged in an “inspiration support” business, which helps individuals develop their abilities. We offer a game that allows players to learn practical business knowledge while having fun called “Biz-Taiken Series: Kigyodo,” and we plan to continue to aggressively launch game products.
In this way, Kokuyo intends to develop a wide range of businesses that are not confined to the framework of our existing businesses, while taking advantage of partnerships and collaboration with companies, universities and other organizations in Japan and overseas.
Bolster operations
Computer mouse “JUST ONE” “refullerene,” a specialty store for products that foster creative thinking
Generate
new products
and businesses
Hastening Change, Meeting Market Needs
Cost reductions
Raw material prices are expected to continue to rise due to higher crude oil prices, rapidly increasing demand in China, and other factors. In response, the Kokuyo Group is aggressively working to reduce costs by transforming its production and distribution systems.
As an example, we intend to work to reduce costs by expanding overseas production and increasing the ratio of products procured overseas. We already have a plant in Thailand that makes office stationery and a plant in Malaysia that produces office furniture, and in November 2006, we completed construction of a plant in Vietnam that manufactures files and other office supplies. We plan to further reduce costs while ensuring stable levels of quality.
In Japan, we are adding a new manufactur- ing facility to our Shibayama Plant in Chiba Prefecture, and plan to launch production of system storage units in October 2007. This will serve to augment production facilities in the Kanto area, which should raise the efficiency of distribution and inventory management.
Pushing ahead with
distribution reform
Stationery distribution includes both manufacturer deliveries and consumer deliveries, and the two are operated out of different distribution centers.
Manufacturer deliveries consist of box shipments from factories to wholesale and retail outlets, while consumer deliveries are
represented by office supply mail order and consist of direct shipments of small lots—as small as one pen or one notebook.
Going forward, we intend to integrate these two delivery centers and rebuild our distribution network. Continuing on from the Kanto region, in May 2007, construction was completed on the Kinki IDC, a new distribution center that merges the distribution operations of both companies in the Kinki region. Distribution centers rendered unnecessary by this
integration will be progressively sold off. At the same time, in the area of furniture distribution, we plan to revamp our production sites, which are heavily weighted toward western Japan, and rebuild our distribution system, as we continue to execute a shift to eastern Japan in line with demand volume.
Additionally, products produced overseas will be delivered in import containers to both the Kansai and Kanto areas, not just Kansai, which will enhance the efficiency of distribution management and reduce shipping charges.
Through completing this overhaul of our distribution system, the Group intends to work to further increase its mobility, improve customer service and further reduce costs. We expect that reorganizing our distribution system in this way will reduce costs by ¥800 million in the year to December 2007 and by ¥2.6 billion in the year ending December 2008.
Strengthen profitability
Kokuyo’s plant in Vietnam reduces costs
while ensuring quality Cost Reductions from Distribution (Billions of Yen)
Notes: 1. Amount actually affecting total income 2. From the fiscal period ending
December 2007 Kokuyo’s fiscal year-end will be December 31.
(target)
08/12
(target)
07/12
07/3
2.6
0.8
0.3
Respond
to changes
in the business
environment
Hastening Change, Meeting Market Needs
Dividend policy
The Kokuyo Group is committed to a more shareholder-oriented form of management and has adopted a dividend policy that targets a dividend payout ratio of at least 20%. Consideration is given to paying a stable dividend, as in the past, as well as to consolidated financial results.
In line with this policy, for the year under review we plan to pay a total dividend of 15 yen per share (7.5 yen interim dividend and 7.5 yen period-end dividend). The per-share dividend for the coming term will be affected by a change in our closing date that will make the term nine months long. We therefore expect to pay a total per-share dividend of 11.25 yen (7.5 yen interim dividend and 3.75 yen period-end dividend). The planned dividend is a nine-month pro-rata amount based on a full-year dividend of ¥15.
Retained earnings will be used for
investment to further strengthen management and raise corporate value in the future.
Continuing a capital policy
involving the acquisition of
treasury stock
Kokuyo will continue to acquire treasury stock to carry out a flexible capital policy. In the year to March 2006, we invested ¥2.8 billion to acquire 2 million shares and in the year ended March 2007 we spent ¥4.5 billion to acquire 2.5 million shares. We now possess 10.43 million shares of treasury stock, which amounts to 8.11% of the total 128.74 million shares outstanding.
Kokuyo intends to continue to acquire treasury stock in order to increase the flexibility of its management and financial strategies, further raise return on equity, and redistribute more earnings to shareholders. In the period to December 2007, we plan to acquire 2.5 million shares of treasury stock at a maximum outlay of ¥4.0 billion.
Proactively carrying out initiatives
to raise corporate value
The Kokuyo Group intends to meet the expectations of shareholders by continuing to work as a company for further growth while taking a medium- to long-term perspective.
In terms of corporate governance, upon switching over to a holding company structure in 2004 we established mechanisms by which Kokuyo Co., Ltd. assesses and oversees the Group’s operating companies from the shareholder’s perspective. Outside experts have been contracted as advisors and systems are in place for incorporating their opinions as appropriate.
Kokuyo is committed to building long-term relationships of trust with shareholders. We are working to this end by holding briefings for institutional investors and securities analysts and enhancing investor relations activities for individual investors.
Kokuyo will strive to raise corporate value while placing top priority on increasing returns for shareholders.
Enhance value
Return on Equity (ROE) (%)
Acquisition of Treasury Stock Value of shares purchased (Millions of yen)
Number of shares purchased (Millions)
Note: From the fiscal period ending December 2007 Kokuyo’s fiscal year-end will be December 31.
07/3
06/3
05/3
3.0
2.2
2.8
07/3
06/3
4,000
4,500
2,800
2.5
2.5
2.0
(target)
07/12
Increase
Kokuyo’s value
for its shareholders
Hastening Change, Meeting Market Needs
Review of Operations
Stationery Segment
Results for the Year to March 31, 2007
The stationery goods market continued to be characterized by difficult conditions due to rising prices for base paper, plastics and other raw materials, heightened competition in the office supply mail order business, and diversification in distribution channels. The Kokuyo Group has responded by aggressively marketing high value- added products, including Universal Design products for which we received the 2006 Prime Minister’s Commendation for Contributors to the Promotion of a Barrier-free Environment.
In the office supply mail order business, we worked to acquire new customers for Kaunet, and increase use by existing customers by strengthening advertising activities and developing a new promotional campaign featuring well-known celebrities appearing in television commercials. We published our fourth catalog for Easy buy, the office supply mail order service we are developing in China, launched the service in the Beijing area to expand its coverage beyond Shanghai, and otherwise worked to increase its market penetration.
We also completed a plant in Vietnam in November 2006 and strove to make further cost reductions by increasing our overseas procurement ratio. Despite these efforts, the stationery segment reported lower income on higher sales, as net sales increased by 6.8% over the previous year, to ¥170.3 billion, and operating income fell 19.5%, to ¥6.9 billion.
Review of Principal Businesses
Product Development
The Kokuyo Group is focused on developing products from the customer’s point of view. DOTLINER tape glue boasts cumulative sales of over five million units, and we recently launched DOTLINER LONG, which provides twice as much tape as the conventional
product. This series has been exceptionally well received owing to its ease of use, minimal degradation, and long-lasting adhesive strength. We are also involved in developing other products with the added value customers seek, including keshipita mini correction tape, which is the smallest of its kind in the industry. Keshipita mini is specifically designed for easy application horizontally across the page, distinguishing it from similar products which are more appropriate for correcting Japanese script written vertically.
In addition, our Universal Design products have also received acclaim. For example, the Punyo Punyo Pin, a Universal Design pushpin featuring soft plastic that surrounds the actual pin, was selected for inclusion in the collection at the Museum of Modern Art in New York, and the Slim B5 Notebook, a notebook that is easy to hold open with one hand, received a 2006 Good Design Award.
Office Supply Mail Order Business
With the market for mail order office supplies cooling, competition among companies is heating up. We are working to differentiate ourselves by regularly carrying out promotional campaigns for Kaunet to stimulate potential customers. Also, in 2006, Group company Forest Co., Ltd. worked to expand its presence on the Internet. Going forward, we intend to increase sales by differentiating ourselves in terms of merchandising and by providing new services.
In China, we extended our Easy buy office supply mail order service beyond the Shanghai area, where it has been available since October of last year, to include the Beijing area. Our sales goal for the year ending December 2007 is ¥3.0 billion, which we plan to achieve by working to differentiate the service from local competitors by emphasizing the high quality of the products offered and by expanding the service coverage area.
Net Sales
(Billions of yen)
Share of Total Net Sales Operating Income
(Billions of yen)
50.2%
07 06
05
170.3 159.4
142.8
07 06
05
6.9 8.5
7.1
DOTLINER LONG
Providing twice as much glue as the existing DOTLINER, this new version offers minimal degradation and long-lasting adhesive strength in addition to being easy to use.
Slim B5 Notebook
This notebook, which won the 2006 Good Design Award, was the result of an ergonomics-oriented approach.
keshipita mini
The smallest correction tape product in the industry, designed specifically for correcting script written horizontally, rather than vertically.
Furniture Segment
Results for the Year to March 31, 2007
The furniture business in the year ended March 31, 2007 experienced demand growth from office relocations and the refurbishment of existing buildings, which occurred in connection with the recovery in corporate earnings in the Tokyo metropolitan area. With a few exceptions, however, regional economies were not able to deliver substantial growth in demand. Amid such conditions, the Kokuyo Group launched a number of innovative new products, including the Hybrid Cell, a desk system that can be configured in a variety of layouts. Meanwhile, in response to demand generated by the construction of large-scale office buildings, relocations and renovations in the Tokyo metropolitan area, the Kokuyo Group targeted higher sales by using aggressive proposal-based marketing to offer solutions for work-based issues.
In the Chinese market, along with helping Japan-affiliated companies establish offices, we actively conducted proposal-based marketing, such as product exhibitions, for both Western-affiliated companies and local Chinese companies. We also devoted substantial efforts to reducing costs. However, the furniture segment saw income decrease on higher sales. Sales were up 18.2% over the previous year, to ¥145.8 billion, but operating income declined 18.4%, to ¥4.4 billion, due to unexpectedly fierce competition over prices and market share.
Review of Principal Businesses
Actus
Actus Co., Ltd. provides urban lifestyle solutions through its interior products including original furniture and imported furniture primarily from Scandinavia. The company opened five directly managed stores in the year under review to bring its total to 14. Plans call for increasing sales through continued store openings. In addition, a B2B office environment consulting service was started through collabora- tion between Actus and Kokuyo Office System Co., Ltd. (KOS). The service involves listening to the needs of the client to propose, for example, unique lighting, sound, aromas and other enhancements for spaces furnished with Actus furniture where communication
predominates, like lobbies and meeting rooms. Leveraging synergies between Actus’ strengths and KOS’ strength in sales and solutions for large corporations, we intend to expand this business by providing added value that has not existed until now.
Overseas Development
The Chinese market is the current focus of our overseas development activities. With Japanese companies continuing to aggressively enter the Chinese market, the Kokuyo Group is earning their strong support and steadily increasing sales, not only by selling office furniture but also by providing a comprehensive lineup of services, ranging from market entry preparations to office establishment, administration, expansion and relocation. Moving forward, we plan to expand sales by proposing solutions for Western-affiliated companies, developing specialized products, holding exhibitions for Western-affiliated companies, and promoting other sales activities.
Net Sales
(Billions of yen)
Share of Total Net Sales Operating Income
(Billions of yen)
42.9%
07 06
05
145.8
123.4 122.5
07 06
05
4.4 5.4
4.5
Portofino Series
The Portofino furniture series has been designed to help people do creative work even while relaxing.
KOKUYO Lounge LUXSE
KOKUYO Lounge LUXSE showcases office reception and meeting spaces that appeal to all five senses.
FOSTER ETHOS
The FOSTER ETHOS chair combines breathable mesh fabric with outstanding comfort.
Store Fixtures Segment
Results for the Year to March 31, 2007
In the year to March 31, 2007, the operating environment for the store fixtures segment remained challenging. Despite demand from volume retailers and convenience stores related to new store openings and renovations, there was disparity in retail store opening plans between sectors and market competition continued to intensify. The Kokuyo Group strove to develop proactive solutions and sales initiatives for existing customers and to acquire new customers. We also promoted new businesses, including STORE GOODS, a catalog mail order service for store fixtures, and “total backyard solution” services that offer assistance with store cleaning and facility maintenance. As a result of these efforts, sales increased 11.2% over the previous year, to ¥23.5 billion, but operating income fell 52.1% to ¥80 million, largely as a result of increased competition.
Business Review
In the year ended March 31, 2007, we enhanced the lineup of products available through our STORE GOODS catalog mail order business and strengthened sales. At the same
time, we launched the LED spotlight Honeybee. This product makes it possible to spotlight products from various angles depending on how they are displayed, which lends them greater presence on the sales floor. The
STORE GOODS catalog
This mail-order catalog enables customers to purchase products such as store fixtures and display units easily.
Net Sales
(Billions of yen)
Share of Total Net Sales Operating Income
(Billions of yen)
6.9%
07 06
05
23.5 21.1
18.3
07 06
05
0.2 0.1 0.6
product received a 2006 Good Design Award. In addition, our outsourcing business, which provides optimal solutions through advanced utilization of customer databases, will strengthen its
“backyard” services, which consist of cleaning, facilities maintenance and related services, and provide customers with comprehensive product and service offerings. These efforts are intended to increase sales while improving customer satisfaction.
Kokuyo‘s CSR Initiatives
For the Kokuyo Group, corporate social responsibility (CSR) means
being accountable to and trusted by society. Striving ultimately to help
realize a sustainable society, Kokuyo is aiming to fulfill its social
obligations through its business activities and by contributing to society.
In this way, Kokuyo aims to retain the trust placed in it by the public.
Establishing a Framework to
Promote CSR
In 2004, Kokuyo drafted the Kokuyo Group CSR Charter clarifying the Group’s obligations to society. In this charter, Kokuyo set out specific policies for conduct in each of its five areas of focus: customers, local communities, environmental
protection, business activities, and human rights. Then, in fiscal 2007, Kokuyo established a new framework in which the CSR Committee, headed by the president
of the holding company, Kokuyo Co., Ltd., functions as the leading entity. This new framework aims to more actively promote the policies for conduct. In addition, the Group established specialized committees to formulate new measures on risk compliance, the environment, workplace safety and hygiene standards, and work/ life balance. Similar committees are also being established in each Group company to enable a speedy response to each issue and clarify responsibilities.
Social contribution Customer satisfaction/ Quality
CSR publicity Communication (CSR education) Group CSR Promotion Conference
CSR Planning CSR Promoters
Provision and sharing of information Support of activities Requests for cooperation Internal education
Risk and Compliance Committee General Affairs
Customer Satisfaction and Quality CSR Division
Group operating companies
Information Security Working Group (director in charge)
Status checking
Training and education (guidance) Sharing of information Compliance Working Group
(director in charge)
Training and education/auditing
Risk Management Working Group (director in charge)
Prevention and sharing of risk Risk response support Risk and Compliance Committee
(chairman: senior managing director)
Workplace Safety and Hygiene Committee Central Workplace Safety and Hygiene Committee
(chairman: director in charge)
Environmental Committee
ISO Promotion Auditing
Promotion and support Requests for cooperation, sharing of information Compilation of results Environmental Policy Working Group
Survey of current conditions Status checking Implementation support Environmental Committee
(responsible director: senior managing director)
Work/Life Balance Promotion Committee (chairman: president)
CSR Committee (chairman:president)
Keeping all employees thoroughly informed Group
parent company
New Organization and Roles (From April 2006)
Local Community Relations
Guided by its emphasis on CSR, the Kokuyo Group consistently discloses information to customers and a variety of other stakeholders for better communication. To fulfill its obligation to disclose information to stakeholders and enhance transparency, Kokuyo has established Information Disclosure Guidelines. In these and other ways, Kokuyo aims to ensure that its communications are part of a two-way dialog in addition to being appropriate and timely.
Product Planning in
Collaboration With Elementary
School Children
For six months from September 2006, Kokuyo offered classes in which children could experience the product planning process and other types of work. The initiative was a collaborative endeavor between the Kokuyo Group and the “D-project,” an educational association run by the elementary school affiliated to Kanazawa University and volunteers from staff at other schools and universities across Japan. Through the classes we aimed to give the children an opportunity to experience the workplace, and to convey the value and rewards of work. An additional goal was to cultivate the cognitive abilities required to create something entirely new and the communication skills that come from teamwork. The classes inspired plans for a range of stationery products designed by, and for, elementary students. We are examining the feasibility of these plans with a view to commercialization.
Inclusion in SRI Indices in
Japan and Overseas
Today, greater attention is given to Socially Responsible Investment (SRI), or investments in companies taking active steps to protect the environment, realize better employment practices, and make a social contribution.
The Kokuyo Group’s proactive approach to CSR has been well received, and is evidenced by the inclusion of the Group in the following SRI stock indices:
Ethibel Sustainability Index (Sweden) FTSE4Good (UK)
MS-SRI ( Japan’s Morningstar Socially Responsible Investment Index)
Children experience the world of work through classes offered in Kanazawa
Ethibel Sustainability Index (Sweden)
FTSE4Good (UK) MS-SRI
(Japan’s Morningstar Socially Responsible Investment Index)
Kokuyo Shimanto Yui no Mori Forest Project Launched
Kokuyo Works with the Local Community to Create
Luxuriant Forestland
The Kokuyo Group relies upon forests for the resources it needs to manufacture paper products and furniture. Spurred by a desire to give something back to the environment, Kokuyo has been implementing the Kokuyo Shimanto Yui no Mori Forest Project since April 2006. This project involves planting a new
forest by the Shimanto River, which is said to be Japan’s last perfectly clear river. During the first year of the project, Kokuyo worked to achieve its goal of acquiring FSC certification, the international standard for good forest management, with certification being achieved on schedule. Supported by partnerships with local communities, the Kokuyo Group intends to link its businesses to the planting of healthy forests, aiming to create sustainable corporate-sponsored forests
unparalleled elsewhere. Participants enjoy an “ecological tour” in Kokuyo’s Shimanto Yui no Mori Forest
Customer Relations
The first principle of the Kokuyo Group CSR Charter is “earning the satisfaction and trust of customers.” In line with this principle, the Group has defined “dedication to customer satisfaction” as a management slogan. In addition, by continuing to provide the values highlighted in its new brand message—“Inspiration, Efficiency, and Amenity”—the Group is aiming to build a unique and unrivalled position.
Reflecting 159,000 Customer
Requests a Year in Products
and Services
The Customer Service Center receives inquiries, requests, and complaints from customers nationwide regarding Kokuyo products and services. The center’s goal is to respond in an accurate, speedy, friendly, and polite manner. In fiscal 2007, Kokuyo heard from approximately 159,000 customers, mostly via a toll-free phone number for customer service. Customers can also contact Kokuyo by e-mail and fax. All customer requests are registered in a database and disclosed to all Group companies, excluding personal information. The data can be sorted by date, product category, and product number, supporting Kokuyo’s product development and service improvement efforts. In parallel, customer complaints regarding Kokuyo products are processed in accordance with the Product Complaint Guidelines applicable to the entire Group so that concerted efforts can be made to prevent reoccurrence.
Kokuyo Wins Award for
Helping Create Barrier-free
Environments
In 2006, the Kokuyo Group was awarded the Prime Minister’s Commendation for Contributors to the Promotion of a Barrier-free Environment. This recognized Kokuyo’s significant contribution to creating a society that is equally accessible to all. Kokuyo’s efforts in this regard center on supplying safe, convenient products by designing items that are equally easy for anybody to use, in addition to being adaptable and minimizing stress on the body. Kokuyo’s most notable achievement in this regard is its development and launch of around 800 Universal Design products in the stationery category alone. Kokuyo will continue to develop Universal Design products that can be used safely and comfortably by as many people as possible, as well as take a proactive approach to spreading the word about Universal Design and encouraging its popularization.
Corporate Governance
The Kokuyo Group implements transparent, speedy, and fair corporate governance. When it adopted the holding company structure in October 2004, Kokuyo formulated the new Kokuyo Group Basic Policy on Corporate Governance. This policy outlines basic guidelines for Group operations to implement a number of measures more efficiently. These include conducting speedier business operations, focusing on frontline operations, enhancing skills of employees, and reforming the corporate environment—all of which are now possible through company spin-offs and under the holding company structure. In this way, Kokuyo strives to renew its strengths.
Kokuyo operates under the corporate auditor system. The Board of Directors comprises 10 directors (no outside appointments), with a term of office of one year, ensuring a management structure that can react responsively to changes in the operating environment. There are four Statutory Auditors (including two outside auditors) supported by a full-time staff of two.
Kokuyo has also signed a legal counsel contract with four lawyers, who provide advice whenever necessary. In addition, Kokuyo has reinforced its framework allowing the holding company and each Group company to collaborate in conducting internal audits. Kokuyo’s president, Akihiro Kuroda, receives the
Prime Minister’s Commendation for Contributors to the Promotion of a Barrier-free Environment
Operating company directors and executive officers participate in compliance training
In terms of internal control, Kokuyo has established basic policies on a number of issues, including a system that stores and manages information related to business execution of directors; rules applicable to management of risks related to financial losses; and a framework that ensures directors and employees execute business in a manner compliant with laws, regulations, and Kokuyo’s Articles of Incorporation.
At the annual general shareholders’ meeting held in June 2007, Kokuyo Group shareholders approved a resolution on advance warning-based takeover defense measures to deal with any major acquisition of Kokuyo shares. Kokuyo will continue striving to secure and enhance corporate value and, by extension, the common interests of shareholders, in accordance with their wishes.
Risk Management and
Compliance
Kokuyo endeavors to remain a company always trusted by society. Therefore, adherence to corporate ethics and compliance underlies Kokuyo’s business activities. By this, we mean striving to ensure thorough compliance so that each employee can demonstrate integrity in his actions as an individual member of society and the representative of an organization.
Kokuyo promotes compliance-oriented management throughout the Group. To this end, Kokuyo has established the Risk and Compliance Committee chaired by a senior managing director in the Group head office and at key operating companies. Through these committees, it has created a framework that manages serious risks attached to corporate
activities, ensures thorough compliance, and enables the Group to respond appropriately to problems.
Kokuyo believes that raising each employee’s awareness of compliance issues is essential to minimizing exposure to risk and observing laws and regulations. With this in mind, a variety of compliance training programs are offered to employees and officers throughout the Kokuyo Group in line with their business responsibilities. Having issued its Compliance Guidebook in fiscal 2007, Kokuyo aims to establish an environment in which all Group employees understand compliance as an ethos and put it into practice.
Meanwhile, to ensure that all employees protect and manage personal information in an appropriate manner, Kokuyo has drawn up a rule book relating to information protection. Other measures include equipping each floor in its head office and Shinagawa office buildings with an IC card reader to monitor movements in and out, ensuring that documents or discs containing such information are always appropriately filed, and upgrading security measures for PCs. Through these and other measures Kokuyo is reinforcing its management framework so that it can ensure strict protection of personal and confidential information.
Kokuyo’s Compliance Guidebook
Independent auditor
Group operating companies Internal auditing units Board of Directors
President
Management Committee
CSR Committee
Accounting audit
Internal audit Recommendations
and advice
Collaboration
Control
Appointment Appointment
Appointment
Board of Auditors
Management Audit Department General Meeting of Shareholders
Holding company
Work/Life Balance Promotion Committee
Central Workplace Safety and Hygiene Committee Risk and
Compliance Committee
Environmental Committee
Corporate Governance Framework
Shounosuke Kuroda Chairman
Akihiro Kuroda President
Kingo Kuroda Senior Managing Director
Yasuhiro Kuroda Senior Managing Director
Reizo Okamura Director
Youichi Kotani Director
Toshifumi Ookubo Director
Tsukasa Ozaki Director
Takuya Morikawa Director
Yoshiaki Yoshimoto Director
Fumio Kawata Youzo Sekiguchi Yasuma Matsumoto* Yukio Harima*
*Outside auditor
Board of Directors
(As of June 28, 2007)
Directors
Statutory Auditors
Six-year Summary
KOKUYO CO., LTD. AND CONSOLIDATED SUBSIDIARIES Years ended March 31
Thousands of
Millions of yen U.S. dollars
2007 2006 2005 2004 2003 2002 2007
For the year:
Net sales ¥ 339,559 ¥ 303,959 ¥ 283,519 ¥ 273,462 ¥ 272,199 ¥ 276,584 $2,875,426
Cost of sales 228,959 202,879 187,008 181,279 184,800 192,894 1,938,852
Selling, general and
administrative expenses 99,237 86,975 84,352 83,317 82,401 82,911 840,351
Operating income 11,363 14,105 12,159 8,866 4,998 779 96,223
Net income (loss) 5,622 4,145 5,207 1,949 231 (1,422) 47,608
Capital expenditure 4,999 6,042 6,431 9,369 8,186 5,725 42,332
Depreciation and amortization 6,057 6,082 6,220 6,197 6,722 6,871 51,291
Net cash and cash equivalents
provided by operating activities 7,936 11,488 10,168 7,457 18,148 11,293 67,203 Net cash and cash equivalents used
in investing activities 2,389 (17,217) (20,778) (7,112) (9,789) (9,159) 20,230
Net cash and cash equivalents provided by (used in)
financing activities (5,272) 2,059 7,075 (4,586) (10,353) (12,613) (44,644)
At year-end:
Total assets 320,033 314,573 291,651 289,194 285,789 307,010 2,710,077
Working capital 56,120 50,733 58,486 57,790 54,242 70,860 475,231
Property, plant and equipment, net 79,349 89,733 94,778 97,134 98,482 98,522 671,936
Total liabilities 130,125 121,051 104,268 103,693 103,913 115,925 1,101,914
Interest-bearing debt 37,460 36,491 26,770* 17,777 20,188 20,554 317,216
Total net assets 189,908 193,522 187,378 185,501 181,876 191,085 1,608,163
Minority interests 1,235 1,678 340 360 446 811 10,458
Net assets 188,673 191,844 187,038 185,141 181,430 190,274 1,597,705
Yen U.S. dollars
Per share data:
Basic net income (loss) ¥ 46.94 ¥ 33.82 ¥ 41.88 ¥ 15.38 ¥ 1.51 ¥ (11.05) $ 0.40
Diluted net income — 31.80 41.88 15.38 — — —
Cash dividends applicable to the year 15.00 15.00 18.50 15.00 15.00 15.00 0.13
Net assets 1,594.79 1,587.49 1,522.17 1,506.80 1,483.73 1,498.19 13.50
%
Ratios:
Ratio of operating income to net sales 3.3% 4.6% 4.3% 3.2% 1.8% 0.3%
Return on sales 1.7 1.4 1.8 0.7 0.1 (0.5)
Return on equity 3.0 2.2 2.8 1.1 0.1 (0.7)
Return on assets 1.8 1.4 1.8 0.7 0.1 (0.4)
Equity ratio 59.0 61.0 64.1 64.0 63.5 62.0
Debt-to-equity ratio 19.9 19.0 14.3 9.6 11.1 10.8
Thousands of shares
Common stock:
Number of shares issued 128,742 128,742 128,742 128,742 128,742 128,742
Note: The U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥118.09=U.S.$1, the approximate exchange rate prevailing at March 31, 2007.
* In August 2004, Kokuyo issued ¥12 billion in bonds with stock acquisition rights, but as their coupon was zero, no interest liability arose.
Overview
During fiscal 2007, the fiscal year ended March 31, 2007, the Japanese economy continued to recover gradually as a result of improved corporate earnings and expanded private-sector capital investment. However, the outlook remained cloudy for a number of reasons, including concerns about a U.S. economic slowdown.
Amidst this business environment, the Kokuyo Group in fiscal 2007 continued working to achieve the goals of its medium-term management plan, “The Next 100—Creating an Alliance of the Best.” To this end, Kokuyo aggressively promoted solution-based proposals for enhancing the value of client companies in addition to developing and marketing products offering high added value. Kokuyo strove to provide inexpensive, high-quality products and services by taking actions to curtail costs and increase efficiency.
In running its operations, the Kokuyo Group remained steadfast to the basic management principle of “contributing to society through the provision of superior products.” The Group’s brand message highlights “Inspiration, Efficiency, and Amenity” as the type of added value that Kokuyo will continue to deliver to assist users in their “knowledge work.”
Management’s Discussion and Analysis
The Kokuyo Group has also positioned return on equity (ROE) as an important management benchmark, based on its shareholder- centric perspective, and has a target of at least 8% in its current medium-term management plan. Going forward, each operating company will strive to expand shareholder value by executing our main objectives of “speed, on-site accountability, human resource development, and reforming employee awareness and corporate culture.” By these means, each company will build new strengths and strive to become No. 1 in its particular market and industry. As of March 31, 2007, the Kokuyo Group consisted of the holding company (Kokuyo Co., Ltd.), 61 subsidiaries, and 16 affiliates. Of these, 27 companies were consolidated subsidiaries and 1 was an affiliate accounted for by the equity method.
Results of Operations for Fiscal 2007 and
Comparisons with Fiscal 2006
Net Sales
Consolidated net sales increased 11.7% to a record high ¥339.6 billion, the fourth consecutive term with higher sales. The break- down by segment is as follows: stationery, 50.2%, furniture, 42.9%, and store fixtures, 6.9%. These figures remained similar to those reported for fiscal 2006.
0 100,000 200,000 300,000 400,000
02 03 04 05 06 07
339,559
02 03 04 05 06 07
3.3 11,363
02 03 04 05 06 07
29.2 32.6
0 10 20 30 40
0 5,000 10,000 15,000 20,000 25,000
0 1 2 3 4 5 6
Net Sales
(Millions of yen)
Stationery Segment Furniture Segment Store Fixtures Segment Former Furniture Segment (Office Furniture + Store Fixtures)
*In fiscal 2005, Kokuyo reclassified its business segments.
Ratio of Gross Profit to Net Sales and SG&A Expenses to Net Sales
(%)
Ratio of Gross Profit to Net Sales Ratio of SG&A Expenses to Net Sales
Operating Income and Ratio of Operating Income to Net Sales
(Millions of yen, %)
Operating Income
Ratio of Operating Income to Net Sales
Cost of Sales and Cost of Sales Ratio, Gross
Profit and Gross Profit Ratio
Cost of sales amounted to ¥229.0 billion, increasing 12.9%, with a cost of sales ratio of 67.5%, constituting an increase of 0.7 of a percentage point over the previous fiscal year. This was largely due to higher raw material costs resulting from soaring prices for paper, plastics, and steel.
However, gross profit was up ¥9.5 billion, or 9.4%, year on year at ¥110.6 billion. The gross profit ratio was 32.6%.
SG&A Expenses and SG&A Expenses Ratio
Selling, general and administrative (SG&A) expenses increased
¥12.3 billion to ¥99.2 billion, giving an SG&A expenses ratio of 29.2%, an increase of 0.6 of a percentage point over the previous fiscal year. This increase was due to the consolidation of new subsidiaries during fiscal 2007, and upfront investments in the mail order and China businesses.
Operating Income and Operating Income Ratio
Operating income was ¥11.4 billion, a decrease of ¥2.7 billion, or 19.4%, year on year. This was mainly due to a lower gross profit ratio resulting from higher raw material prices and intensified competition, and increased SG&A expenses resulting from upfront investments. The operating income ratio was 3.3%, down 1.3 percentage points year on year.
Other Income (Expenses)
Other income increased ¥5.7 billion year on year to ¥1.8 billion due to gains of ¥4.4 billion on the sale of property, plant and equipment, net resulting from real estate securitization, as well as a decrease in loss on disposal of property, plant and equipment.
Income before Income Taxes and Minority
Interests, Net Income, Return on Sales and ROE
Income before income taxes and minority interests was ¥13.2 billion, an increase of ¥3.0 billion, or 29.6%, year on year. Con- sequently, net income was ¥5.6 billion, an increase of ¥1.5 bil- lion, or 35.6%. This was due to the booking of gains on sales of property, plant and equipment, net.
Return on sales increased 0.3 of a percentage point to 1.7%. ROE was 3.0%, an increase of 0.8 of a percentage point from the previous fiscal year. This was due to the increase in net in- come as well as an increase in total shareholders’ equity resulting from share buybacks.
Capital Expenditure
Capital expenditure was ¥5.0 billion. This consisted primarily of
¥1.6 billion for rebuilding of offices, ¥2.1 billion for investment in information systems, and ¥0.8 billion for machinery and equipment.
Research and Development
Research and development expenses for fiscal 2007 amounted to ¥1.6 billion, comprising ¥0.8 billion for the stationery seg- ment, ¥0.7 billion for the furniture segment, and ¥0.1 billion for the store fixtures segment.
By Segment
Stationery Segment
We estimate the value of the Japanese stationery market to have been flat to slightly down in fiscal 2007, with annual sales of about
¥1.0 trillion and about ¥300.0 billion in the B2B and B2C mar- kets, respectively. The business environment is harsh, with accelerat- ing diversification of distribution channels and intensifying
competition in the office supply mail order area, as well as soaring prices for raw materials such as base paper and plastics. Amidst this environment, we believe that we have the leading market share of approximately 11% , as the only comprehensive manufacturer of stationery goods in Japan. The Kokuyo Group aggressively launched products offering high added value, such as Universal Design products, and received the 2006 Prime Minister’s Commen- dation for Contributors to the Promotion of a Barrier-free Environ- ment. At the same time, Kokuyo pushed ahead with further cost reductions through an increased overseas procurement ratio, com- pleting its Vietnam plant in November 2006.
In the office supply mail order market, the Kokuyo Group worked to attract new customers and promote usage by existing customers. Kokuyo strengthened Kaunet advertising activities and used well-known celebrities for TV commercials. Our Easy buy office supply mail order business in China made steady progress penetrat- ing the market, as we expanded its operational reach by initiating services in the Beijing area in addition to Shanghai.
As a result of the above, the stationery segment posted net sales of ¥170.3 billion, an increase of 6.8% year on year.
Despite cost reduction efforts, gross profit rose only ¥1.7 billion to ¥56.0 billion and the gross profit ratio dropped 1.2 percentage points to 32.8%, mainly due to soaring prices for raw materials. The ratio of SG&A expenses to net sales was 28.9%, up 0.2 of a percentage point.
Consequently, the stationery segment posted operating income of ¥6.9 billion, down ¥1.7 billion, or 19.5%, and the operating income ratio was 4.0%, down 1.3 percentage points.
1Kokuyo’s own estimate based on industrial and commercial data, and Kokuyo Group research.
Furniture Segment
The Japanese office furniture market is worth around ¥300 billion annually, and is thought to reflect economic conditions with a time lag of six months to one year. Kokuyo is estimated to hold the No. 1 position, having captured 28% of the market by leveraging its nationwide sales network.
In the Chinese market, we assisted with fitting out offices for Japanese companies entering the local market, and also conducted proposal-based marketing to U.S. and European companies, as well as local Chinese companies. Earnings at Actus Co., Ltd., which was newly included in the consolidated accounts, performed strongly as a result of opening five new directly operated stores.
02 03 04 05 06 07
5,62246.94
02 03 04 05 06 07
6,057 4,999
02 03 04 05 06 07
3.0
0 2,000
–2,000 4,000 6,000 8,000
–15 0 15 30 45 60
–1 0 1 2 3 4
0 2,000 4,000 6,000 8,000 10,000
Net Income (Loss) and Basic Net Income (Loss) per Share
(Millions of yen, Yen)
Net Income (Loss)
Basic Net Income (Loss) per Share
ROE
(%)
Capital Expenditure and Depreciation and Amortization
(Millions of yen)
Capital Expenditure Depreciation and Amortization
1
