SAPPORO HOLDINGS LIMITED
ANNUAL REPORT 2007
THE VALUE OF NEW PERSPECTIVES
The Sapporo Group has provided customers with new excite-
ment 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 envi-
ronment and continuously enhance corporate value. With
2016—our 140th anniversary—as a target date, we are deter-
mined 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 Bever-
ages (Japan and International), Soft Drinks, Restaurants and
Real Estate.
01
FINANCIAL HIGHLIGHTS02
NEW MANAGEMENT FRAMEWORK04
THE JAPANESE BEER INDUSTRY AND SAPPORO BREWERIES05
MESSAGE FROM THE PRESIDENT12
REVIEW OF OPERATIONS 12 ALCOHOLIC BEVERAGES(Japan)
14 ALCOHOLIC BEVERAGES (International)
15 SOFT DRINKS 16 RESTAURANTS 17 REAL ESTATE
18
MANAGEMENTPROFILE
CONTENTS 19
FIVE-YEAR SUMMARY
20
MANAGEMENT’S DISCUSSION AND ANALYSIS24
CONSOLIDATED BALANCE SHEETS26
CONSOLIDATED STATEMENTS OF INCOME27
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY28
CONSOLIDATED STATEMENTS OF CASH FLOWS29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS45
FINANCIAL HIGHLIGHTS
Years ended December 31
Thousands of
Millions of yen U.S. dollars
2007 2006 2007
Net sales ¥449,011 ¥435,090 $3,933,521
Operating income 12,362 8,613 108,301
Net income 5,509 2,338 48,260
Yen U.S. dollars
Per share: Net income
Primary ¥14.10 ¥6.38 $0.12
Diluted 13.76 5.88 0.12
Cash dividends 5.00 5.00 0.04
Thousands of
Millions of yen U.S. dollars
Net assets ¥125,189 ¥113,496 $1,096,707
Total assets 561,859 589,597 4,992,110
Capital expenditures 19,548 30,790 171,250
Depreciation and amortization 24,527 21,930 214,865
Note: U.S. dollar amounts are translated from Japanese yen, for convenience only, at the rate of ¥114.15=US$1, the exchange rate prevailing on December 31, 2007.
NET SALES
(¥ Million)
NET INCOME
(¥ Million)
OPERATING INCOME
(¥ Million)
2003 2004 2005 2006 2007
0 100,000 200,000 300,000 400,000
500,000 479,520 494,930 453,671 435,090 449,011
2003 2004 2005 2006 2007
2,413 4,643 3,630 2,338 5,509
0 1,000 2,000 3,000 4,000 5,000 6,000
2003 2004 2005 2006 2007
13,331 23,648 10,300 8,613 12,362
0 5,000 10,000 15,000 20,000 25,000
NEW MANAGEMENT FRAMEWORK
The Sapporo Group has defined two
broad business domains under its New
Management Framework: “Creating
Value in Food” and “Creating Com-
fortable Surroundings.” The Group is
determined to develop businesses in
these domains, taking full advantage
of its assets and competitive strengths.
SAPPORO BREWERIES LTD.
Alcoholic Beverages (Japan)
●Exclusiveness and new value offered by the Yebisu brand
●The Nasu Plant went into operation this year as a facility for creating high-value-added products
●Grand Polaire: Won a gold award for the fifth consecutive year in the Japan Wine Competition and has received high acclaim both in Japan and overseas
SAPPORO INTERNATIONAL INC.
Alcoholic Beverages (International)
SAPPORO BEVERAGE CO., LTD.
Soft Drinks
SAPPORO LION LTD.
Restaurants
YEBISU GARDEN PLACE CO., LTD.
Real Estate
Unearth and expand new demand by leveraging strengths such as uniqueness, high quality, and technological prowess
SLEEMAN BREWERIES LTD.
●Leading premium beer brewer in the Canadian market
●The Unibroue brand received the Platinum Award at the 2007 Montreal Beer Festival for the Trois Pistoles
SAPPORO U.S.A., INC.
●No.1 Japanese brand in terms of sales for 23 consecutive years
●No.1 in sales for 17 consecutive years among Asian brands Strong track record in the growing premium /
imported beverages market
● Go beyond existing Group boundaries to restructure the business and build unique competitive advantages through new strategies
Strategic business alliances
● Lion, an historic beer hall in Ginza, Tokyo, opened in 1934
● Recently opened, new-format Japanese restaurants: Tomoru, Kakoiya, and Irimoya
Existing restaurants producing sales above the industry average
Highly acclaimed, new-format Japanese restaurants
● Expand operations and business domains in the booming real estate market to maximize asset value
2016
Targets
PERFORMANCE TARGETS
2007
Results
GROUP STRATEGIES FOR GROWTH
NET SALES (incl. liquor taxes)
●Sapporo Breweries Ltd.
●Sapporo International Inc.
●Sapporo Beverage Co., Ltd.
●Sapporo Lion Ltd.
●Yebisu Garden Place Co., Ltd.
●New Business
2016
¥600
billion2007
¥449
billion335.9 321.1 315.8 350.0
5.1 5.2 27.7 42.0
63.8 58.7 52.2 70.0
26.3 26.9 28.9 50.0 2005
2006 2007 2016 Target
2005 2006 2007 2016 Target
2005 2006 2007 2016 Target
2005 2006 2007 2016 Target
2005 2006
2005 2006 2005 2006 2007 2016 Target
2005 2006 2007 2016 Target
2005 2006 2007 2016 Target
2005 2006 2007 2016 Target
0.0 100.0 200.0 300.0 400.0
21.6 22.8
6.3 3.7 6.1 15.0
0.2 0.3 1.6 5.0
–0.6 –0.4 –0.8 2.0
0.5 0.4 0.6 2.5
0.0 5.0 10.0 15.0
0.0 10.0 20.0 30.0 40.0 50.0
0.0 20.0 40.0 60.0 80.0
0.0 10.0 20.0 30.0 40.0 50.0
0.0 10.0 20.0 30.0 40.0 50.0
0.0 1.0 2.0 3.0 4.0 5.0
–1.0 0.0 1.0 2.0
0.0 0.5 1.0 1.5 2.0 2.5
5.8 6.4
0.0 5.0 10.0 15.0
2016
¥40
billion2016
9.0
%2016
>8.0
%2016
1.0
OPERATING INCOME
OPERATING MARGIN
ROE
D/E RATIO
OPERATING INCOME (¥ Billion) PRODUCTS AND SERVICES NET SALES (¥ Billion)
● Beer
● Happo-shu (low-malt beer)
● Draft One (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
2007
¥12.3
billion2007
4.0
%2007
4.6
%2007
1.7
THE JAPANESE BEER INDUSTRY AND SAPPORO BREWERIES
MARKET ENVIRONMENT
The alcoholic beverages market is being impacted by shifts in consumer values regarding alcoholic bever- ages, the social environment and distribution, as well as changes in government policy and regulations.
With regard to the latter, April 2008 saw the start of a new system of specified health checkups and health guidance based on the Japanese Ministry of Health, Labour and Welfare’s strategy to detect and prevent lifestyle-related diseases. In addition, the government is bringing in measures to combat global warming, tighten regulations governing alcohol and ensure fairer trading.
In terms of consumers’ changing values regard- ing alcoholic beverages, the issue of providing healthy products that also taste great is taking on increasing importance. Consumer interest in food safety and quality is also rising, in part due to a number of food scandals that have aroused public interest. Companies are also being called upon to give greater consideration to environmental issues. Another trend in recent years is that consumers in Japan are embracing more mod- erate drinking habits.
On the social and economic front, households are directly feeling the pinch of rising product prices due to soaring raw material prices and this trend is expected to continue. The effect of a declining drinking-age population and the mass retirement of baby boomers is also of concern.
DEMAND TRENDS
Japan’s beer market—made up of beer, Happo-shu and new product genres—saw total demand remain largely unchanged as a whole in 2007. Beer demand edged down 1.0% year on year and Happo-shu demand was down 2.6%, while new product genres saw demand rise 4.8%. A 2007 survey of the home- use alcohol market found that beer accounted for a share of 18.4%, up 0.8%, Happo-shu had a share of 23.5%, down 0.8%, and new product genres had a share of 25.7%, up 0.1% year on year.
The beer market appears to have finally put a halt to a 10-year slide that has seen its share of overall demand for alcoholic beverages continue to decline.
The market environment suggests that there will inevitably be a change in the makeup of the market going forward, with a decline in total demand unavoid- able as the number of people over the legal drinking age declines and price rises start to bite. Moreover, expansion of the premium beer market is expected to continue, as is the trend of consumers demanding products that are both healthy and tasty.
SAPPORO’S BASIC APPROACH
In light of the above, our approach is to propose value unique to Sapporo. This will entail developing market- ing programs that address changing market dynamics and consumer needs; further enhancing the Yebisu brand, the frontrunner in the high-priced beer seg- ment; strengthening the brand power of Draft One in the low-priced segment; and launching functional new beverages that cater to rising health consciousness. Through these and other actions to deliver Sapporo-only value propositions, we aim to raise our corporate value.
2007 SHARE BY ALCOHOL TYPE IN HOME-USE MARKET
New product genres 25.7%
Happo-shu 23.5%
Beer 18.4%
Others 32.4%
New product genres 25.6%
Happo-shu 24.3%
Beer 17.6%
Others 32.5% 2007
2006
(SCI data by INTAGE Inc.)
In October 2007, we unveiled a New Management Framework
for the Sapporo Group, which will serve as our basic guide-
line for adopting an aggressive management stance, one that
eyes long-term goals. Indeed, we have set the year 2016—the
140th anniversary of the Sapporo Group—as a milestone date
for achieving our basic strategies under the framework. As
part of efforts to ensure we mark our anniversary success-
fully, since the beginning of 2008 we have been implementing
Management Plan 2008-2009, which was drafted
based on our new framework. In this year’s
letter, I will review our performance during
2007 and look at the initiatives we plan to
implement to achieve the Group’s vision.
TAKAO MURAKAMI
President and Representative Director, Group CEO
MESSAGE FROM THE PRESIDENT
2007 PERFORMANCE
2007 saw the operating environment remain challenging for the Sapporo Group’s businesses. In the alcoholic bev- erages, soft drinks and restaurant industries, profits came under pressure from escalating competition sparked by lackluster demand, as well as soaring raw materials and materials costs. The real estate industry, meanwhile, was a mixed bag, with robust demand for office space in central Tokyo pushing up rents still higher, whereas regional areas suffered from a glut of properties.
Against this backdrop, we strove to achieve the second-year goals of the medium-term management plan we launched in 2006. As in 2006, we continued to review our cost structure from all conceivable angles, enabling us to minimize the impact of rising raw materials and materials costs. We also continued to nurture the seeds of growth in a host of areas in a bid to sustain growth in the future. For instance, we launched products boasting high added value in our alcoholic beverages and soft drinks businesses. Other areas we nurtured included our shochu (Japa- nese distilled spirits) business, which is now in its second year of operations; our alcoholic beverage operations in Canada; and development of Group-owned assets in our real estate business.
These efforts led us to post both sales and earnings growth in 2007. We recorded consolidated net sales of
¥449.0 billion, operating income of ¥12.3 billion and net income of ¥5.5 billion. Another highlight was that financial liabilities at ¥212.4 billion and a debt-to-equity (D/E) ratio of 1.7 times were largely in line with our plan.
NEW GROUP MANAGEMENT FRAMEWORK
Although the medium-term management plan we initiated in 2006 had one year left, we decided late last year that it was imperative to launch new measures before the comple- tion of that plan. Changes in our markets that weren’t anticipated when we launched the previous plan and the need to address expansion of the Group’s business domains due to M&As and other developments made it necessary to revise measures contained in our previous plan. That’s why we formulated our New Management Framework and with the goal of laying out a clear Group vision and to promote speedy strategic develop- ment based on our view of the future. The New Management Framework sets forth a basic strategy for the whole Group, which is based on our management philosophy and fundamental management policy. We regard the new framework as the backbone of our business plan and medium-term strategy. While we steadily implement the structural reforms that must be made by 2016 across the Group, each operating company aims to achieve their management targets by devising and developing concrete business plans in line with the new management framework.
BASIC STRATEGY
GROUP STRATEGIES FOR GROWTH
There are four Group strategies for growth under the New Management Framework: create high-value-added products and services, form strategic alliances, promote international expansion, and expand synergies among Group companies.
CREATION OF HIGH-VALUE-ADDED PRODUCTS AND SERVICES
BUSINESS DOMAINS Creating Value in Food
Creating Comfortable Surroundings
OVERALL STRATEGY CSR-Focused Management Corporate Governance Human Resources Strategy Financial Strategy
GROUP STRATEGIES FOR GROWTH
1. Create High-Value-Added Products and Services 2. Form Strategic Alliances
3. Promote International Expansion
4. Expand Synergies Among Group Companies
Accelerate growth through bold revisions to the allocation of management resources PRIORITIZED ALLOCATION OF MANAGEMENT RESOURCES
Pursuit of potential growth
•PromoteinternationalexpansioninAlcoholicBeveragesandotherfoodproductareas
•ExpandactivitiesintheRealEstatebusiness Expand profi tability
•Movetowardshigh-value-addedproductsandservicesinallbusinesses
Increase Corporate Value
BASIC STRATEGIES
SAPPORO GROUP’S NEW MANAGEMENT FRAMEWORK
MEDIUM- TO LONG-TERM MANAGEMENT POLICY WITH A VIEW
TO 2016—THE 140
THYEAR SINCE THE GROUP’S FOUNDING
2016 TARGET
Net sales (incl. liquor taxes)
Net sales (excl. liquor taxes)
Operating income Operating margin (excl. liquor taxes)
ROE D/E ratio
¥600 billion ¥450 billion ¥40 billion 9% > 8% 1:1
MANAGEMENT PHILOSOPHY
To make people’s lives richer and more enjoyable.
FUNDAMENTAL MANAGEMENT POLICY
The Sapporo Group strives to maintain integrity in
corporate conduct that reinforces stakeholder trust, and
aims to achieve continuous growth in corporate value.
the development of products and services imbuing clear added value will be more vital than ever to stand out from the crowd. We are therefore determined to leverage our accumulated strengths to develop business with a focus on creating products and services offering even higher levels of added value.
FORMATION OF STRATEGIC ALLIANCES
As markets rapidly change, we will promote strategic alliances with leading corporate partners to enable us to quick- ly build competitive advantages in our businesses on a large scale. We have already teamed up with YK, Crescent Partners in our soft drinks business to bring in external knowledge and personnel. The goal here is to revitalize busi- ness and secure unique proprietary competitive advantages through new strategies. In the real estate business as well, we have formed an alliance with the Morgan Stanley Group. The main aim of this tie-up is to acquire expertise for maximizing the value of real estate assets and expanding business domains. Going beyond these two alliances, we will consider other partnerships that can develop new businesses to create new value.
PROMOTION OF INTERNATIONAL EXPANSION
With the Japanese market maturing, we are casting our eyes further afield to the global market to also drive growth. In the alcoholic beverages, soft drinks and food business domains, in particular, the Sapporo Group aims to build brands leveraging its technologi- cal capabilities, business alliances and other means to promote business development in overseas markets. Our first goal is to expand business further in North America. We have positioned North America as an expansion area because we have a strong presence there already in alcoholic beverages. We plan to make substantial additional investments to build on this strength in North America and achieve business growth that will make this area a larger contributor to our earnings. Next, we will target the Asian market as a nurture area. Asia is a growing market and we are presently searching for business opportunities to ad- vance our alcoholic beverages, soft drinks and other operations there. We want to quickly establish bases that will serve as beachheads in the region and turn Asia into a pillar of the Group’s growth. The promotion of international operations will center on business expan- sion at Sapporo U.S.A., Inc., Sleeman Breweries Ltd. and Sapporo International Inc. The latter was established in 2007 to conduct business operations as the Sapporo Group’s fifth operating company. Centered on these three entities, we are enhancing our business base, human resources, expertise and other aspects of our international operations. Looking ahead, our plan is to make further investments to achieve business expansion and growth to lift net sales to ¥600 billion in 2016.
EXPANSION OF GROUP SYNERGIES
When we shifted to a pure holding company structure in 2003, we listed capturing Group synergies as an impor- tant theme. Further steps are now being taken in this regard. As a concrete foundation for driving synergies, we are putting emphasis on R&D projects that cut across Group organizations. This is linking the very core parts of our businesses. We are also looking to capture synergies by consolidating support work in the Group. In 2006, we initiated a drive to consolidate personnel, general affairs, accounting and other Group support divisions. In October 2007, we spun off this consolidated body and established it as Sapporo Pro Assist Co., Ltd. Support functions for all the Group’s operating companies now reside in one entity as a result of this move. This consolidation will see us make further gains in efficiency and in the quality of administrative support provided to business divisions.
SAPPORO GROUP’S NEW MANAGEMENT FRAMEWORK
GROUP STRATEGIES FOR GROWTH
1. CREATE HIGH-VALUE-ADDED PRODUCTS AND SERVICES Business segments Goals under the New Management Plan Alcoholic Beverages
(Japan)
●To achieve sustained growth, evolve to become a creator of an alcoholic beverages culture
•Transitiontoabusinessmodelofcreatinghighlevelsofvalue-addedsoastocontinuouslyoffercustomers products and services they value highly
•Buildasolidoperatingbasetofacilitatetheabilitytorespondtochangesandthecapacitytoexecutestrategies Real Estate Establish a strong competitive foundation for the Real Estate business
●Maximize the value of Group properties exhibiting high real-estate value
•Relationshipswithlocalcommunitiesbuiltonalonghistory
•Excellentlocationsascommercialsites
•Fairlylargescaleoperations;thereforealsoabletoengageinindependentdevelopmentprojects
●Expand business by acquiring new properties
•Utilizeaccumulatedknow-howtoenhancevalue
•Harnessresultsofstrategicalliances
Restaurants Expand business by strengthening unique brands
●Strength brand loyalty to Sapporo Lion’s unique, vintage-yet-new value, based on the concept of “Tradition, Safety, Reliability, Satisfaction”
•Maximizethebrandvalueoflargebeerhallswithlonghistories
•Offernewdiningformatsthatpreemptcontemporarydemands
●Group efforts to expand the Restaurants Business
•ExpandtheRestaurantsBusiness,manifestingclearvalueandcompetitiveadvantages
2. FORM STRATEGIC ALLIANCES
Business segments Objective and details of strategic alliances Soft Drinks
Restructure the Soft Drinks business to establish a stable earnings base
Re-engineer the business based on new frameworks
●Enhance profi tability through business restructuring
•Highestpriorityonexecutingcomprehensivestructuralreforms
•Transitiontooperatingandsalesframeworkthatemphasizesearnings
●Create high-value-added brands with strong market presences
•Strengthenproductdevelopmentcapabilities,utilizealliancesandotherinitiativestostrategically expand high-value-added brands
Real Estate
Expand business domain of the Real Estate business
Strategic alliance with the Morgan Stanley Group
●Establish framework for joint ownership of the Yebisu Garden Place property
●Cooperation in real estate management and new property acquisition Establish Real Estate business entity in Hokkaido
●Establish new company: Sapporo Toshi Kaihatsu Co., Ltd.
•StrengthenfoundationsoftheRealEstatebusinessintheHokkaidoarea
3. PROMOTE INTERNATIONAL EXPANSION Business segments Efforts in expanding areas
(North American market)
Efforts in developing areas (Asian markets) Alcoholic beverages,
soft drinks and food
●Aiming to expand superiori- ty in the premium beer genre in the Canadian market, execute focused marketing investment in major pre- mium brands
●In the US market, bolster efforts to push commercial- use through kegs and the Yebisu Beer brand
●Start surveys in search of tangible business opportunities in Asia as a joint effort between Sapporo International Inc. and Sapporo Holdings
●Bolster frameworks to allow rapid mobilization of business development efforts when opportunities are discovered
● Actively seek out business opportunities
•UtilizetheGroup’stechnologyandbrands,etc.,andenterbusi- nesses where synergies are possible
•Implementeffortstoensurerapiddevelopment,includingalli- ances and business tie-ups
4. EXPAND SYNERGIES AMONG GROUP COMPANIES Harness Group synergies in research and development
● Organic collaboration through R&D frameworks (Group-K)
•PromoteR&DthatfosterssynergiesandadvancementattheGroup-widelevel Core technical competencies
Expertise to extract full potential of ingredients, Pursuit of fl avor, Contribution to health, Refi nement of ingredients, Future technologies, Production support, Guarantee of quality
OVERALL STRATEGY FOR ENHANCING CORPORATE VALUE
In executing the various strategies I have just outlined, four overarching strategies will also be important since they will govern the direction of the Group as a whole.
The first of these is CSR-focused management. We have established the Sapporo Group CSR Policy, under- scoring the position that CSR-focused management has as one of our key strategies for supporting the sustained growth of the Group. Corporate governance is the second element of our overall strategy for enhancing Group value. Based on the Group’s basic policy on the development of a group governance framework, we will endeavor to strengthen management monitoring functions with two goals in mind: improving management transparency and achieving management goals. At the same time, we will put in place new internal control systems that will under- pin governance of the Group and embed them in the organization. The third overarching strategy concerns human resources. After all, it is people who create value. We intend to foster personnel exchanges within and outside the Group and provide career support as we seek to develop our people. Fourth is our financial strategy, consist- ing of strategic investments and actions to strengthen our financial foundations. Regarding the former, we will make strategic investments in fields that are expected to grow going forward. Priority fields for investment from the standpoint of Group and earnings growth will be international business, particularly in North America, and real estate operations. With respect to our financial foundations, we plan to reduce financial liabilities further and bolster our capital base. We believe that this will earn us a higher valuation in capital markets and higher ratings from rating agencies. Our efforts to strengthen our financial condition are vital for supporting future business activities and to enable us to respond to interest rate fluctuations and other business risks we may encounter in the future.
MANAGEMENT TARGETS AND SHAREHOLDER RETURNS
With our 140th anniversary in 2016 as one checkpoint, we have set a number of quantitative targets under our New Management Framework. We are targeting consolidated net sales of ¥600 billion and ¥450 billion inclusive and exclusive of liquor taxes, respectively, as two goals. Other goals include consolidated operating income of ¥40 billion, an operating margin exclusive of liquor taxes of 9%, ROE of at least 8%, and a D/E ratio of around 1.
Our New Management Framework also includes a basic policy on the distribution of profits to shareholders. While our policy is to first increase retained earnings, focus investments on growth areas and strengthen the Group’s financial base, we also aim to provide a stable distribution of profits to shareholders. We are determined to increase dividends by improving Group performance.
I have used my letter this year to talk mainly about our New Management Framework. In January, we launched Management Plan 2008-2009, which we devised based on this basic policy, and have already taken active steps in line with it. As the first year of the New Management Framework, I see 2008 as a major turning point in our bid to drive growth. We are committed to pushing forward as a united group to deliver higher corporate value.
Takao Murakami
President and Representative Director, Group CEO
CSR-FOCUSED MANAGEMENT •CSR-focusedmanagementispositionedasoneofthekeystrategiesforsupportingthe sustained growth of the Sapporo Group.
•BasedontheSapporo Group CSR Policy, the Group will work to ensure continuous
understanding of and adherence to the rationale, objectives, and practices that CSR-focused management entails within the Group, and implement concrete measures that meet the requirements of the business.
CORPORATE GOVERNANCE •AdheringtotheGroup’sbasicpolicyonthedevelopmentofagroupgovernanceframework, Sapporo will bolster management monitoring functions to improve transparency and achieve man- agement goals with the aim of continuously enhancing the corporate value of the entire Group.
•SapporowilldevelopnewinternalcontrolsystemstoactasthefundamentalbasisforGroup governance and establish them fi rmly within the organization.
HUMAN RESOURCES STRATEGY •SapporowillfosterinteractionandexchangebetweenGrouppersonnelandprovidecareer- development support with the aim of developing human resources able to contribute to the creation of value.
•Towardsthecreationofvalue,Sapporowillworktoinstillvibrancyandabundantmotivation into the organization by providing opportunities for Group personnel to utilize and experience the skills and abilities they have acquired.
FINANCIAL STRATEGY •Executestrategicinvestmentsinareasofpotentialfuturegrowth,withdueconsideration given to the business domain and basic strategies.
•TobuildsolidfoundationsthatsupporttheGroup’sfuturebusinessactivitiesandenableit to respond and adapt to changes in the operating environment, such as future interest rate fl uctuations, work to reduce fi nancial liabilities and strengthen the capital base with the aim of raising the Group’s market valuation.
BASIC APPROACH TO STRATEGIC INVESTMENT 2008-2009
Over the two years, execute ¥45.0 billion in strategic investment; reduce fi nancial liabilities by ¥35.0 billion
●Enhance profi tability
●Bolster operating base
●Expansion of business opportunities
●Response to risks
●Cash fl ow from operating activities
●Partial divestiture of ownership in Yebisu Garden Place
●2-year total ¥100 billion
Sustained enhancement of corporate value
SAPPORO GROUP’S NEW MANAGEMENT FRAMEWORK
OVERALL STRATEGY FOR ENHANCING CORPORATE VALUE
●Capital investment ¥20.0 billion
● Strategic investment ¥45.0 billion
•Business restructuring toward creation of high levels of value-added
•Expand the Real Estate business through acquisition of new properties
•Business expansion through M&As, etc.
●Strengthen fi nancial base ¥35.0 billion
•Reduce balance of fi nancial liabilities
In our Japanese Alcoholic Beverages business, we are aiming to strengthen our
brands in beer, Happo-shu, new product genres and other alcoholic drinks. Our
approach is to deliver value propositions unique to Sapporo under the corporate
slogan: “Flavor and confidence; Sapporo Breweries is committed to pure qual-
ity.” We are setting our sights on achieving still more growth going forward as a
core business of the Sapporo Group.
2007 IN REVIEW
The Japanese beer market, which is made up of beer, Happo-shu and new product genres, witnessed stagnant total demand through to the end of the third quarter in 2007, despite a host of new product launch- es by all industry players from the outset of the year. Thanks to an upturn in demand in the fourth quarter, however, overall demand for the full year is estimated to have only declined by a marginal 0.3% from 2006.
In terms of results in this business, Net Sales declined ¥5.2 billion, or 2%, year on year to ¥315.8 bil- lion, contrasting with operating income, which climbed
¥2.3 billion, or 63%, to ¥6.1 billion.
In beer, sales of our premium Yebisu brand grew 18% year on year. Not only did this brand increase its market share for the 15th straight year on this growth but Yebisu cemented its top share in the premium beer category. Keg draft beer for commercial use also turned in a solid performance, with a sales growth rate exceeding that of total demand.
Our wine business saw sales rise over 2006 on the back of healthy growth in total demand for both domestic and imported wines. Price increases on
imported wines also boosted monetary sales. In its second year, our shochu (Japanese distilled spirits) business posted a ¥2.5 billion increase in sales, the result of an increase in sales in the first quarter (Sap- poro Breweries entered this business in April 2006), and steady sales in the second half of 2007.
Notwithstanding these encouraging performanc- es, net sales were down as a whole in the Japanese Alcoholic Beverages business. This decline primarily reflected lower Happo-shu sales volume, and the fact that the new genre category fell short of its sales vol- ume targets due to the impact of market changes and other factors.
On the cost front, the cost of goods sold in- creased because of rising prices of raw ingredients and materials, most notably aluminum cans. In response to these higher costs, we took steps to reduce costs on factory production lines and to curb advertising and sales promotion expenses. At the same time, all areas of our operations pushed forward with rigorous cost- cutting measures. In large part due to these efforts, we were able to post a year-on-year increase in operat- ing income.
SAPPORO BREWERIES LTD.
PERFORMANCE TARGETS OF MANAGEMENT PLAN 2008-2009 (Billions of yen)
2007 2008 2009
Target Target
NET SALES
315.8 323.2 321.0
OPERATING INCOME
6.1 7.5 8.0
REVIEW OF OPERATIONS ALCOHOLIC BEVERAGES (Japan)
ANTICIPATING MARKET CHANGE AND DIVERSIFYING CUSTOMER NEEDS The Japanese alcoholic beverages industry is expected to see lackluster growth in total demand in the wake of price rises and due to a declining drinking-age population. As a result, we are likely to see a change in competitive relationships between product catego- ries. In the beer market, total demand is projected to decline and the composition of the market by product category is expected to change due to the impact of price increases. In contrast, the markets for functional beverages and premium beers are expected to con- tinue growing.
Determined to lift earnings through the proposal of value unique to Sapporo, we are conducting a marketing program that seeks to address these market changes, as well as diversifying customer needs. Spe- cifically, we plan to concentrate business resources on the Yebisu brand, the top brand in the premium beer market segment, and Draft One in the low-priced segment. Our goal is to build even stronger brands. We also aim to grow sales volume by more than the market growth rate by responding to increasing health consciousness with new products possessing func- tional properties.
In October 2007, full-scale operations com- menced at the Nasu Plant, which is capable of manufacturing products in small lots as required. Sap- poro Breweries regards this facility as a strategically important new base and intends to use it to manufac- ture high-value-added products.
In other areas, we intend to strengthen wine operations, where more growth is expected going forward, as a mainstay category of our alcoholic bever- age business in Japan. Our flagship domestic wine Grand Polaire has garnered strong market acceptance, underscored by a fifth consecutive gold award in the Japan Wine Competition. We aim to raise the power of this brand further and link it to new market growth.
Cost is another area we are focusing on to re- spond to new dynamics in our operating environment. With the cost of raw materials and ingredients set to rise further, we are working within Sapporo Breweries on a number of fronts, including reviewing the produc- tion system and making sure that sales promotion expenses are used efficiently. Through these steps tar- geting costs and other measures, we hope to increase operating income year on year. Other measures we have already taken include terminating production at our Osaka Plant (in March 2008) and in April, we plan to raise prices for beer and beer-type beverages.
“FLAVOR AND CONFIDENCE;
SAPPORO BREWERIES IS COMMITTED TO PURE QUALITY.”
Sapporo Breweries continues to place top priority on safety and quality amid rising public interest in food safety triggered by various food scandals in Japan. Under the corporate slogan “Flavor and Confidence; Sapporo Breweries Is Committed to Pure Quality,” we are striving to take our quality to even higher levels of excellence. Our commitment to ensuring the quality of beer starts from the time seeds are planted. We will leverage our system of sourcing 100% of our malt and hops through our Collaborative Contract Farming System (CCFS) —a noteworthy achievement for a beer company anywhere in the world and unquestionably one of our strengths—to continue this commitment to quality. We believe that this sort of competitive edge will also translate into higher brand equity in our alcoholic beverage business, including in respect to shochu and wine.
Nasu Plant
A Collaborative Contract Farming hop grower for Sapporo Breweries
Our international Alcoholic Beverages business was boosted by the recent con-
solidation of Sleeman Breweries Ltd. In this business, we are aiming to grow
sales with a focus on the premium market in North America in particular by
conducting marketing that leverages the strength of our brands. We are also
strengthening the structure of our overseas business to ensure we can capture
opportunities presented by market expansion going forward, especially in Asia.
2007 IN REVIEW
Beer consumption in North America is approximately 26 million kl annually, more than 4 times that of the Japanese market. However, growth in total demand is estimated to have been minimal in 2007 in a market where competition is escalating. However, parts of the premium beer segment such as imported beers and craft beers continued to grow as demand remained firm. Sapporo has been the leading Japanese beer brand in terms of market share in the North American market for 23 years now.
In 2007, Sapporo International Inc. conducted vigorous sales activities in growth markets, centered on premium beer markets. The past fiscal year also saw the consolidation of Canada-based Sleeman Breweries. Established in 1834 and boasting leading brands in the premium beer category, this company helped boost sales. Meanwhile, Sapporo U.S.A., Inc. reported solid growth, recording an 8% increase in sales volume year on year. Sales volume of exports to other countries also rose, increasing by 17%.
Together, these factors lifted net sales in the international Alcoholic Beverages business by ¥22.4 billion, or 425%, year on year to ¥27.7 billion. Operat- ing income soared ¥1.2 billion, or 332%, to ¥1.6 billion on the back of this top-line growth.
BRAND-DRIVEN GROWTH
Total demand in the North American beer market in 2008 is projected to be flat or marginally higher at best. With Sleeman Breweries as a beachhead in the premium market, we are looking to outperform the market in terms of sales volume growth in both Canada and the U.S. in 2008.
In Canada, Sleeman Breweries will invest heavily in marketing to build on the superiority of its mainstay brands in the premium market, namely Sleeman, Oka- nagan Spring and Unibroue. Where the U.S. market is concerned, in addition to developing the Sapporo brand, we will look to develop in the commercial-use market, focusing mainly on Japanese food restaurants, with the start of Yebisu beer exports targeting the high-end market.
Outside North America, we will look to advance into Asia. Not only in the alcoholic beverages market, but also food markets, as we have positioned this as a region to develop further.
SAPPORO INTERNATIONAL INC.
REVIEW OF OPERATIONS ALCOHOLIC BEVERAGES (International)
PERFORMANCE TARGETS OF MANAGEMENT PLAN 2008-2009 (Billions of yen)
2007 2008 2009
Target Target
NET SALES
27.7 28.6 30.0
OPERATING INCOME
1.6 1.2 1.4
The Soft Drinks business recorded lower sales and earnings in 2007. To turn
results around in the current fiscal year, we are undertaking a rigorous review
of our business strategy and working to create high-value-added brands and
to improve operating efficiency quickly. By developing distinctive products
grounded on Group synergies, we will make this business profitable again.
SAPPORO BEVERAGE CO., LTD.
REVIEW OF OPERATIONS SOFT DRINKS
PERFORMANCE TARGETS OF MANAGEMENT PLAN 2008-2009 (Billions of yen)
2007 2008 2009
Target Target
NET SALES
52.2 43.6 43.0
OPERATING INCOME
-0.8 -0.5 0.1
2007 IN REVIEW
In 2007, the soft drinks industry in Japan saw strong shipments continue from the very beginning of the year, thanks in part to favorable weather. Mineral water products, both domestic and imported, continued to grow from 2006, while the addition of products under major brands in the carbonated beverages and tea drinks categories also boosted the market. Owing to these and other factors, overall demand in the Japa- nese soft drinks market is estimated to have increased around 4% year on year.
In this market, we worked to reach more cus- tomers through efforts to nurture and strengthen core brands, namely Yebisu Sabo and Gabunomi. We also engaged in the development of distinctive new products based on cooperation with Group companies, leading to the launch of Hop Kenkyu-sho, a product of joint-development efforts with Sapporo Breweries. Furthermore, we began selling Cranberry Original as a key offering in products with health benefits. Despite these efforts to establish our products in the soft drinks marketplace during 2007, sales volumes fell short of 2006 due to the impact of a large drop in sales of Fujiya brand beverage products.
In terms of costs, we worked to cut transporta- tion expenses, sales promotion expenses and vending machine costs. However, these efforts were not enough to compensate for lower gross profits ac- companying the lower sales and rising costs of raw
Overall, the Soft Drinks business posted a ¥6.4 billion, or 11%, decline in Net Sales to ¥52.2 billion. The business also posted an operating loss of ¥0.8 billion, which was ¥0.4 billion more than 2006.
REFOCUSING BRAND STRATEGY TO BUILD A GREATER MARKET PRESENCE With the aim of establishing a more powerful presence in the market, we are refocusing our brand strategy. This will entail reducing the number of items in our product lineup while also creating high-value-added brands, which will highlight our commitment to the qual- ity of ingredients, one of our hallmarks. Harnessing the potential of fruit juice, in particular, we will propose new value in functional fruit juice beverages.
Our business strategy also calls for us to improve our profit structure and efficiency, and strive for low- cost operations in a bid to improve operating income and stay on top of costs, which are expected to increase due to rising prices for raw materials and ingredients.
In October 2007, we forged a strategic business alliance with YK, Crescent Partners, which will move into full gear in 2008. Under this tie-up, we hope to improve our cost structure through greater business prioritization and to make gains with our brand strategy through an improved ability to develop products.
Existing restaurants recorded higher sales for four years running in the past
fiscal year. In 2008, we will endeavor to maintain this momentum. Our strategy
for the Restaurants business will also see us propose and accelerate the opening
of new format establishments, all while balancing expenses. By strengthening
legacy brands and continuing to create distinctive and unique formats, our goal
is to expand our business.
2007 IN REVIEW
In the Japanese restaurant industry in 2007, same res- taurant sales continued to increase year on year from the beginning of the year, driven by fast food establish- ments. Signs of a slowdown intensified, however, in the latter half of the year as a string of interest-grabbing food scandals and news of price increases raised fears that consumers would not eat out as much. In the Japanese izakaya dining format, while large chains continue to open more restaurants, sales at existing restaurants are consistently underperforming year on year. This despite the continued exit of small establish- ments from the industry.
Responding to this market environment, our Res- taurants business worked to set its operations apart through improvements to the quality of cuisine and services. It also aggressively opened new restaurants in a bid to drive sales growth.
Regarding existing restaurants, Sapporo Lion and other beer halls turned in solid performances above the industry average. With new format exist- ing establishments—such as Tomoru, Kakoiya and Irimoya, which serve distinctive Japanese cuisine in high-quality settings—also posting a high growth rate in sales, net sales in existing restaurants as a whole rose for the fourth consecutive year.
In 2007, we opened 12 restaurants with a com-
these openings and other factors led to an increase in expenses. On the other hand, we closed six aging establishments, including restaurants where there was no hope of turning operations around by refurbishing or converting them to a different format. The net result was that we had 201 restaurants at the end of 2007.
In terms of results, the Restaurants business posted a ¥1.9 billion, or 7%, increase in net sales to
¥28.9 billion, and a ¥0.1 billion, or 43%, jump in oper- ating income to ¥0.6 billion.
TOP-LINE GROWTH THROUGH THE PURSUIT OF UNIQUENESS
One of our goals in the Restaurants business in 2008 is to deliver a fifth straight year of sales growth at existing establishments. We will differentiate our restaurants by improving quality and raising their brand profiles as we seek to raise the amount spent per customer. In pursuit of greater differentiation in formats and uniqueness, we will continue with efforts to strengthen our brand. M&As will form part of our strategy here. In April 2008, we will open Nasu Mori no Beer En, a large restaurant complex, as we strive to create distinctive establishments that leverage the power of our brand. Actions to grow sales in 2008 will also include opening new restaurants mainly in the To- kyo metropolitan area. Profit margins will be improved
SAPPORO LION LTD.
REVIEW OF OPERATIONS RESTAURANTS
PERFORMANCE TARGETS OF MANAGEMENT PLAN 2008-2009 (Billions of yen)
2007 2008 2009
Target Target
NET SALES
28.9 30.1 32.0
OPERATING INCOME
0.6 0.8 1.0
Yebisu Garden Place Co., Ltd. is continuing to advance its urban development
business, which seeks to raise the value of the Group’s assets accumulated
over many years. Two flagship projects are Yebisu Garden Place and Sapporo
Factory, a multifaceted commercial complex in Sapporo City, Hokkaido.
2007 IN REVIEW
In the Japanese real estate industry during 2007, occu- pancy rates and rents for office buildings, particularly in central Tokyo, continued to improve in a robust office leasing market.
In this favorable market, the Real Estate business was able to maintain high occupancy rates at Yebisu Garden Place and other existing lease properties in the Tokyo area. It succeeded as well in raising rents for tenants. Besides Yebisu Garden Place, other proper- ties contributed handsomely to higher sales. One was FRONTIER-KAN, which started operating inside the Sapporo Factory complex in the latter half of 2006. Others to contribute were STRATA GINZA and newly developed properties that commenced business in 2007, including two rental apartment buildings target- ed at university students in Sendai and Fukuoka, and leased facilities for commercial use around Sapporo Garden Park in Sapporo.
As a result, the Real Estate business posted Net Sales of ¥24.1 billion, representing an increase of ¥1.3 billion, or 6%, year on year. Operating income also rose, increasing ¥0.6 billion, or 10%, to ¥7.0 billion.
USING STRATEGIC ALLIANCES TO RAISE VALUE FURTHER
The Japanese real estate industry as a whole is expected to continue growing steadily, centered on the office leasing market.
In March 2008, Sapporo Toshi Kaihatsu Co., Ltd., a new company formed with investment from local Hokkaido companies, began operations. The follow- ing month a business alliance began at Yebisu Garden Place with the Morgan Stanley Group.
These sorts of new strategic partnerships will enable us to build on our real estate management and other expertise. At the same time, we will step up our efforts to acquire and develop new properties from outside the Group and enhance the value of existing businesses. In 2008, we will also continue working to maintain high occupancy rates and to raise rents for existing leased properties. These actions are all part of our strategy to conduct an urban development business that aims to raise the value of Group-owned assets accumulated over our long history.
YEBISU GARDEN PLACE CO., LTD.
REVIEW OF OPERATIONS REAL ESTATE
PERFORMANCE TARGETS OF MANAGEMENT PLAN 2008-2009 (Billions of yen)
2007 2008 2009
Target Target
NET SALES
24.1 23.7 25.0
OPERATING INCOME
7.0 7.4 8.4
BOARD OF CORPORATE AUDITORS
* Outside Director
** Outside Auditor
Kenichi Shishido Isao Takehara ** Norio Henmi ** Keizo Ae
Hiroshi Tanaka
Director*
Hidenori Tanaka
Director
Nobuhiro Hashiba
Director
MANAGEMENT
(As of March 30, 2008)
BOARD OF DIRECTORS
Tsutomu Kamijo
Director
Hiroaki Eto
Director*
Yoshiyuki Mochida
Managing Director
Takao Murakami
President and Representative Director, Group CEO
Tetsuo Seki
Director*
Kazuo Ushio
Director
Masaru Fukunaga
Representative Director and Executive Managing Director
FIVE-YEAR SUMMARY
Years ended December 31
Millions of yen
2007 2006 2005 2004 2003
Net sales . . . ¥449,011 ¥435,090 ¥453,671 ¥494,930 ¥479,520 Alcoholic Beverages . . . 343,670 326,420 341,077 364,585 341,924 Soft Drinks . . . 52,239 58,731 63,897 69,324 65,169 Restaurants . . . 28,954 26,995 26,331 26,611 26,591 Real Estate . . . 24,148 22,828 21,696 22,506 33,430 Other . . . – 116 670 11,904 12,406
Operating cost and expenses . . . 436,649 426,477 443,371 471,282 466,189 Operating income . . . 12,362 8,613 10,300 23,648 13,331 Income before income taxes
and minority interests . . . 221 3,978 6,573 7,762 2,270 Net income . . . 5,509 2,338 3,630 4,643 2,413
Yen Per share:
Net income:
Primary . . . ¥ 14.10 ¥ 6.38 ¥ 10.20 ¥ 13.07 ¥ 6.95 Diluted . . . 13.76 5.88 9.18 12.01 – Net assets . . . 319.07 300.13 305.00 259.81 245.80 Cash dividends . . . 5.00 5.00 5.00 5.00 5.00
Millions of yen Year-end data:
Net assets . . . ¥125,189 ¥113,496 ¥111,411 ¥ 92,263 ¥ 87,364 Total assets . . . 561,859 589,597 563,845 602,112 630,637 Financial liabilities . . . 212,464 236,033 220,723 289,854 323,369 ROE (%) . . . 4.6 2.1 3.6 5.2 2.5 Capital expenditures . . . 19,548 30,790 16,218 10,269 10,081 Depreciation and amortization . . . 24,527 21,930 22,075 25,330 28,435
100 200 300 400 500
479.5 494.9 453.7 435.1 449.0
70 80
70.6 68.6 68.6 69.0 67.9 127.6 131.9 132.2 126.4 131.6
30 60 90 120 150
26.6 26.6 29.1 29.0 29.3
30 40
SAPPORO HOLDINGS LIMITED AND THE SAPPORO GROUP
The Sapporo Group recently formulated a New Management Frame- work, setting forth management goals and basic strategies for the Group for 2016, its 140th anniversary. Management is now steadily working toward these long-term goals, adopting an aggressive stance to raise the Group’s competitiveness. This will involve reviewing the allocation of business resources, strategic investments and other management actions.
In terms of the scope of consolidation, the Company had 32 consolidated subsidiaries and 5 equity-method affiliates in the year ended December 31, 2007.
OPERATIONAL OVERVIEW
Although corporate performance in Japan was relatively strong through fiscal 2007, growth in personal spending eased off, and signs of a slowdown in economic activity have spread. The impact of the subprime mortgage crisis in the US was felt during the second half of the year, and the future remains uncertain as sharp fluctuations occur in exchange rates, stock prices, oil prices, and other indicators.
The discovery of numerous cases of false food labeling has affected the alcoholic beverages, soft drinks, and restaurants indus- tries, in which Sapporo Group companies operate, and the stance of companies in these industries toward the safety and reliability of food has come under increased scrutiny. Intensifying competition between companies amid floundering aggregate demand, in addition to the rising trend in the cost of raw ingredients and materials, is putting a squeeze on corporate earnings.
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES AND PERCENTAGE OF NET SALES
(¥ Billion, %)
NET SALES AND COST OF SALES RATIO
(¥ Billion, %)
In the real estate industry, however, demand for offices in central Tokyo is vibrant and rents remain on an upward trend, but disparities between areas are widening as excess supply emerges in regional areas.
CONSOLIDATED OPERATING RESULTS Net Sales
Net sales rose ¥13,921 million, or 3.2%, year on year to ¥449,011 million. By business segment, Alcoholic Beverages saw a 5.3% increase in net sales to ¥343,670 million due to growth in the inter- national Alcoholic Beverages business, including sales from Sleeman Breweries Ltd., which was included in consolidated results for the first time in 2007. This increase came despite lower Happo-shu sales volume. The Soft Drinks segment recorded an 11.1% decline in net sales to ¥52,239 million owing to a large drop in sales volume of Fujiya brand beverage products. Net sales in the Restaurants segment rose 7.3% year on year to ¥28,954 million on strong sales at existing restaurants and the benefits of new openings. The Real Estate seg- ment continued to grow, posting a year-on-year increase in net sales of 5.8% to ¥24,148 million.
Cost of Sales and Gross Profit
The cost of sales increased ¥4,956 million, or 1.7%, from 2006 to
¥305,078 million, mainly due to the inclusion of Sleeman Breweries in the consolidated financial statements for the first time in 2007. The cost of sales ratio decreased 1.1 percentage points to 67.9%, thanks in part to a cost-cutting program applied to factory production lines.
MANAGEMENT’S DISCUSSION AND ANALYSIS
2003 2004 2005 2006 2007
2.4 4.6 3.6 2.3 5.5
0 1 2 3 4 5 6
7.0 13.1 10.2 6.3 14.1
0 20 40
30
10
2003 2004 2005 2006 2007
13.3 23.6 10.3 8.6 12.3
0 5 10 15 20 25
NET INCOME AND NET INCOME PER SHARE (PRIMARY)
(¥ Billion, ¥)
OPERATING INCOME
(¥ Billion)
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses increased
¥5,215 million, or 4.1%, to ¥131,571 million, the result mainly of a
¥3,009 million rise in personnel expenses due to the consolidation of Sleeman Breweries and other factors.
Operating Income
Operating income jumped ¥3,750 million, or 43.5%, year on year to
¥12,362 million.
Other Income (Expenses)
Other expenses increased ¥7,506 million to ¥12,141 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 ¥3,279 million, compared with
¥2,127 million in expenses in 2006. The rise reflected an increase in financial liabilities in line with the Company conducting aggressive M&A activities, and rising interest rates.
The Company booked gains on the sale of property, plant and equipment of ¥6,770 million, ¥6,700 million higher than a year earlier due to the sale of real estate in a bid to more efficiently utilize business resources and raise asset efficiency.
The Company also recorded depreciation expenses resulting from revision of residual value of ¥6,583 million, due to the booking of extraordinary depreciation expenses following the decision to termi- nate production at Sapporo Breweries’ Osaka Plant.
Furthermore, there was a loss on impairment of property, plant and equipment of ¥6,939 million. This reflected the recording of an
impairment loss in the Real Estate segment due to the decision to transfer the Sapporo Factory complex and its business to a newly established company.
Income Before Income Taxes and Minority Interests
As a result of the above and other factors, income before income taxes and minority interests declined ¥3,757 million to ¥221 million.
Income Taxes and Net Income
Income taxes applicable to the Company, calculated as the sum of corporation, inhabitants’ and enterprise taxes, were ¥3,349 million. Deferred income taxes, however, increased ¥8,548 million due to the booking of deferred tax assets in conjunction with the impairment loss on Sapporo Factory and the extraordinary depreciation of the Osaka Plant. As a result, net income was ¥5,509 million, up 135.6% year on year.
SEGMENT INFORMATION
(Millions of yen)
Net Sales
Operating Income
(Loss)
Depreciation and Amortization
Expenses
Capital Expenditures Alcoholic Beverages 343,670 7,854 15,525 13,988
Japan 315,893 6,189 – –
International 27,777 1,665 – –
Soft Drinks 52,239 (839) 425 395
Restaurants 28,954 656 799 1,706
Real Estate 24,148 7,073 7,777 3,459
630.6 602.1 563.8 589.5 561.8
200 400 600 800
1.0
0.5 1.5
0.4 0.8 0.6 0.4 1.0 279.2 209.2 157.8 132.0 144.0
100 200 300
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 liquid- ity, 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 pres- ent 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, 2007 stood at ¥561,859 million, down ¥27,738 million, or 4.7%, from a year ago. This was the result mainly of declines in cash and cash equivalents, and notes and accounts receivable—trade, as well as property, plant and equip- ment, net due to accumulated depreciation and impairment losses.
Liabilities
Financial liabilities decreased ¥23,569 million to ¥212,464 mil- lion due to decreases in short-term bank loans and current portion of long-term debt. This decrease was despite an increase due to the issuance of corporate bonds. Total liabilities decreased ¥39,432 mil- lion, or 8.3%, to ¥436,670 million.
LONG-TERM DEBT
(¥ Billion)
TOTAL ASSETS AND ROA
(¥ Billion, %)
Net Assets
Common stock and capital surplus each rose by around ¥3,820 million as a result of the exercise of stock acquisition rights attached to corporate bonds and the conversion of convertible bonds to stock. Retained earnings increased ¥3,820 million to ¥14,293 million. Furthermore, the application of fair market accounting for financial in- struments resulted in a ¥1,677 million decrease in unrealized holding gain on securities to ¥9,641 million. As a result, net assets increased
¥11,693 million to ¥125,189 million.
CASH FLOWS
Consolidated cash and cash equivalents as of December 31, 2007 were
¥5,882 million, a decline of ¥2,400 million, or 29.0%, from the previ- ous fiscal year-end. Factors behind this decrease are as follows.
Cash Flows From Operating Activities
Net cash provided by operating activities was ¥30,691 million,
¥2,102 million, or 7.4%, higher than in 2006. This is the net result primarily of income before income taxes and minority interests of
¥221 million, depreciation and amortization of ¥24,527 million, depreciation expenses resulting from revision of residual value of
¥6,583 million, and loss on impairment of property, plant and equipment and leased assets of ¥6,939 million. It also reflects a decrease in notes and accounts receivable of ¥4,388 million, as well as outflows such as a ¥3,015 million decrease in notes and accounts payable and ¥3,159 million decrease in deposits received.
Cash Flows From Investing Activities
Investing activities used net cash of ¥13,495 million, ¥40,920 million less than in 2006. This mainly reflects ¥17,816 million for
87.4 92.3 111.4 113.4 125.1
50 100 150
2.5 5.0 7.5 10.0
2.5 5.2 3.6 2.1 4.6
NET ASSETS AND ROE
(¥ Billion, %)
