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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 economic conditions in Kokuyo’s business environment, particularly the state of private-sector and public-sector capital investment, competitive pricing pressures 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.
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KOKUYO CO., LTD. AND CONSOLIDATED SUBSIDIARIES The years ended December 31, 2010 and 2009
Millions of yen
Thousands of U.S. dollars
2010 2009 2010
For the year:
Net sales ¥261,874 ¥266,726 $3,212,390
Operating income 3,282 579 40,260
Net income 815 595 9,998
Return on equity (%) 0.5 0.4
At year-end:
Total assets 252,880 252,053 3,102,056
Net assets 155,923 157,475 1,912,702
Yen U.S. dollars
Per share data:
Basic net income per share ¥ 6.89 ¥ 5.03 $ 0.08
Cash dividends per share applicable to the year 15.00 15.00 0.18
Note: The U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥81.52 = US$1, the approximate exchange rate prevailing on December 31, 2010.
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B636/@7</1AAB/>:3:3AAAB/>:3@ The design of this annual report incorporates the unique clasp fold and other characteris- tics of the Harinacs Staple-Less Stapler which can bind up to eight sheets of paper without staples.
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Since its establishment more than a century ago, the Kokuyo Group has
drawn on a corporate philosophy of “contributing to society through the
provision of superior products” in manufacturing and marketing statio-
nery and furniture, mainly in the Japanese market. In recent years, we
have won acclaim for developing high value-added products that deliver
cutting-edge value.
Annual Report 2010
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We aim to dominate the domestic market by expanding our share
through high value-added stationery while cultivating space creation
solutions in our furniture segment.
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We developed this product based on researching notebooks used by students who passed entrance examinations for the University of Tokyo. It has won accolades for evenly spaced dots on the ruled lines, which make it easy to write evenly and neatly. We have sold more than 20 million units annually.
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Annual Report 2010
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The Kokuyo Group was involved in everything from consulting to plan- ning, architecture, spatial design, construction, furnishings, manage- ment and operations to convert a preparatory school into a hotel. The hotel provides foreign tourists and students on school trips with various services for learning about Kyoto’s culture.
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We developed this chair based on a concept of “providing a chair com- fortable to all,” notably through upholstery with outstanding ventilation characteristics, a weight-sensing mechanism, a large back, and a lever installed near the armrest to adjust height.
Note: Comparable chairs normally require two or three levers.
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We have sold 740,000 units of the Harinacs Staple-less Stapler, four times more than planned, on the strength of high marks for its environmental friendliness and child safety.
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We have developed a lineup of more than 100 notebooks matching the size, color, page, and other requirements of specific countries. Prices closely match those of local counterparts. A Campus Notebook featuring Doraemon on the cover is very popular in Vietnam, where many people are fans of this Japanese anime character.
Note: The Campus Notebook series featuring Doraemon is only available in Vietnam.
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Become an Asia-wide company in three years and generate 30% of our
net sales overseas within 10 years. Especially in Asia, intensively invest
profits from Japanese operations and swiftly build a business model
that makes Asia a center of local production for local consumption.
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We maintain our own plants for stationery in Thailand and Vietnam and for furniture in Malaysia. We will undertake M&A and other initiatives to build an Asian value chain based on local production and consumption.
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Unlike their emerging counterparts, the developed nations of Europe, the U.S. and Australia have mature markets, where we draw on original equipment manufacturing agreements to supply the DOTLINER roller- type adhesive dispenser and other products offering cutting-edge value and sell educational toys.
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Annual Report 2010
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Corporate clients had to focus on survival more than 18 months after the Lehman Shock and had little scope for buying office supplies and furniture. We had hoped when orders poured in during February and March 2010 that demand would remain high through- out the fiscal year ended December 31, 2010. But the Greek sovereign debt crisis of April 2010, deteriorat- ing economic sentiment in Japan, and the yen’s sharp appreciation from the summer onward again clouded the horizon.
That said, I believe that the year was one in which the Kokuyo Group progressed decisively toward growth. In the stationery segment, we undertook a policy of supplying products that offer either cutting- edge value or cost competitiveness. We achieved visible success as a result, notably with the extremely popular Harinacs Staple-Less Stapler. In the furniture segment, we steadily improved profitability by focus- ing on markets with little exposure to economic fluc- tuations, notably educational and government institutions, while striving Companywide to cut costs.
Overseas, we exhibited The Futuristic Post Office within the Japan Industrial Pavilion at Expo 2010 Shanghai China. We showcased as well as sold high- quality Kokuyo stationery products and services for visitors to experience what tomorrow’s post offices might be like. Around 3.5 million people visited our booth, significantly boosting our brand recognition and overseas business potential.
As a result of these factors, net sales declined 1.8% to ¥261.9 billion. Successful efforts to improve the gross margin and reduce selling, general and administrative costs boosted operating income 466.8% to ¥3.3 billion. Net income was ¥0.8 billion, for our second straight year in the black.
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We recently formulated a new growth strategy. I will detail this initiative further down, but the prime objec- tive is to boost overseas sales to 30% of net sales within 10 years. We will require massive investments to get there from the current level of around 3%. We will need to swiftly establish a cycle of increasing domestic earnings and investing abroad.
Overseas, we will solidify our foundations in Asia by making it a center for local production and con- sumption. In Japan, we will serve target customers at target prices, the aim being to make Kokuyo a com- pany that customers continue to choose rather than one merely chosen by customers. Our strategy will pursue balanced growth both domestically and abroad.
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We intend during the 2011 fiscal year to build the foundations for becoming an Asia-wide company in three years and for generating 30% of our net sales overseas within 10 years. We will consider M&A and business alliances so we can progress swiftly over- seas in creating a business model that emphasizes local production and consumption.
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Here, we will build on strengths as a manufacturer globally. We dominate the Japanese market for note- books, for example, and have world-class production technologies for these offerings, so, we will begin by cultivating the Asian market for notebooks.
In fiscal 2010, we sold 1.8 million notebooks in China, the world’s largest market. We began our busi- ness there in 2005 by engaging in mail order sales of office supplies, procuring items from local wholesal- ers for our lineup. From now on, we plan to sell note- books through those wholesalers. Our notebooks for China were imported from Japan, but we have switched to importing them from our factory in Vietnam, where costs are lower. We cannot sell note- books to Chinese school students, as the government distributes those items for free. We aim, however, to expand our share of China’s markets for middle and upscale notebooks, which college students and work- ing adults use. We will expand our lineup this fiscal year and undertake promotional and other sales initia- tives to sell 30 million notebooks in China.
We started test marketing in India through alli- ances with local companies. We are considering M&As and other vehicles so we can expand rapidly in that country.
We sold more than 3 million notebooks in Vietnam in fiscal 2010, and aim to sell 15 million of them in fiscal 2011. To accommodate such massive growth in volume, we invested ¥1 billion to upgrade our Vietnamese factory, where we installed two addi- tional notebook-making machines from Japan. This move boosted the facility’s annual capacity roughly fourfold, to 30 million notebooks. We are now able to export these notebooks from there throughout Asia. On top of that, we were Japan’s first stationery manu- facturer to set up a sales company in Vietnam. We will establish five sales bases throughout Vietnam and expand our sales channels all across that nation.
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Annual Report 2010
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The perfect solution for storing and managing essential data such as PIN numbers and legal information, just in case the worst happens
Dotted ruled lines make it easier to write evenly and neatly
Book spine expands and contracts to match the number of enclosed pages Incorporates our proprietary
glueless blade that prevents the adhesion of adhesives such as glue to the cutting surfaces Binds multiple sheets without
the use of metal staples, making it both safe even for children to use and eco-friendly
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We target Japanese corporate clients in this business, supplying upscale furniture imported from Japan or items that we procure locally at low costs. The number of Japanese companies entering China has plunged amid Japan’s recession, however, and while there was some improvement in fiscal 2010, the business climate among targeted Japanese corporate clients was unavoidably adverse.
We are therefore switching focus from Japanese to local corporate clients, to which we will supply high-end and midrange office furniture. Our first move in that regard was to form an alliance with Practika Co., Ltd., a Thai office furniture maker. We also invested in Pinghu Tailik Office Automatic & Equipment Co., Ltd. a local steel furniture manufacturer, which will produce Practika’s upscale furniture lines. We have accumulated sales expertise in China since entering that market six years ago. We believe that we can greatly expand sales there if we can supply furniture that attracts Chinese companies.
Subsidiary Urban Design System Co., Ltd., pro- vided planning, design and consulting services for a children’s careers theme park named EEcity set up on the top floor of a shopping mall in Beijing. That com- pany will create valuable new space solutions over- seas, including by continuing to participate in factory site redevelopments in Beijing.
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In my view, it will be difficult to dramatically increase sales in Japan’s mature market. That said, we should be able to boost revenues and earnings by developing products that attract people for their cutting-edge value. In that respect, I think that Kokuyo has entered an era in which it can leverage its strengths, as corpo- rate growth these days depends on competitive advantages far beyond price and speed. There are increasingly two types of customer. One equates value with price. Another is happy to pay higher prices for value, and there still seems scope for growth if we can deliver the value that such a customer seeks. And in fact, by supplying products offering cutting-edge value in the mature notebook market, we have been able to raise sales while expanding our niche in an otherwise shrinking market. So, Kokuyo looks to extend this successful business model beyond note- books to replicate it one step at a time in other types of stationery.
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Around 30% of domestic demand in this business evaporated after the Lehman Shock. I believe that we need to formulate new strategies on the assumption that demand will not recover to its previous level.
In the furniture business, there are downside limits to the prices that we can supply to customers because we sell in single units. So, we are shifting to a business model that delivers value-added solutions in space creation by focusing on layouts and work styles. A good example of this approach is the HOTEL KANRA KYOTO, which opened in October 2010 and which formerly housed a preparatory school. Kokuyo was involved in everything from consulting on effi- cient property use to planning, spatial and other archi- tecture and design, construction, furnishings, management and operations. We have continued since last fiscal year to focus on educational, medical and government institutions, which are less vulnera- ble than general businesses to economic fluctuations. We seek business growth of at least 10% in sales from the educational and healthcare fields.
On top of that, we integrated the sales and manu- facturing teams in our furniture business for the first time in our long history. We will draw on our unified production, shipment and sales structure to create a business model based on providing value-added solu- tions through space creation. On the infrastructural front, our ¥3.7 billion in investments in new mission- critical computer systems and other initiatives have helped us to streamline weekly production and cut inventories.
We integrated the store fixtures business with the furniture business on January 1, 2011. This move enabled us to supply the furniture business’s diverse solutions to our key retail sector clientele and enhance corporate value.
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Annual Report 2010
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Following several cases of misconduct in the Kokuyo Group in 2008, including illicit transactions in the con- struction materials business, bid-rigging, and improper acts by some employees, in 2009 we conducted a compliance survey of all employees and key business partners. From the more than 5,000 reports compiled in this survey, we found one case in which a quality performance assessment for raised-access computer flooring was improperly obtained. But, while we were conducting this survey, we learned elsewhere of alleged complicity in a bid-rigging incident involving the Japan Air Self Defense Force. Any further outbreak of incidents would threaten the very existence of Kokuyo. I was overwhelmed by a sense of impending crisis.
We thus appointed three new people to the Board of Directors in fiscal 2011 to strengthen oversight. One such addition was Masa Matsushita, a director, who formerly served on the board of FAST RETAILING CO., LTD. The others were outside directors Takeharu Nagata, previously president of Sumitomo Mitsui Banking Corporation, and Nobuyuki Oneda, formerly a board member and executive vice president of Sony Corporation. We will draw on the extensive knowl- edge and experience of these people to consider broader alternatives and risk perspectives in making management decisions. Another goal is for those people to play significant roles in creating a new cor- porate culture throughout Kokuyo. We are certain that with these three gentlemen on the Board of Directors as our final decision-making body, we will make far more appropriate decisions. That will be particularly important when assessing alternatives in entering new markets overseas, building frameworks that prevent on-site risks from arising, or when undertak- ing domestic and overseas M&As and deciding to pursue new businesses.
Also from fiscal 2011, we launched an executive officer system. These officers oversee a business framework comprising the stationery and furniture
segment, reorganized from the intramural division company system we had maintained until last year. The presidents of our stationery and furniture businesses are no longer on our Board of Directors and now serve as senior executive corporate officers. The purpose was to grant them greater responsibility and authority in imple- menting our growth strategies overseas and in Japan.
So, I would like to harness these significant changes to our Board of Directors to start transforming management, employees, and Kokuyo itself.
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The Kokuyo Group offers returns to shareholders 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. We therefore paid a cash dividend of
¥15.0 per share for fiscal 2010. Dividends for fiscal 2011 are also scheduled to be ¥15.0 per share.
That said, the first order in enhancing returns to shareholders amid this austere business environment will be to provide each of our customers with cutting- edge value as we accelerate the development of over- seas operations to become an Asia-wide company. My responsibilities, to which I will devote myself, are to overcome the hardships we face and implement corpo- rate reforms. I ask for the continued support of all our shareholders, investors and stakeholders.
July 2011
Akihiro Kuroda, President and CEO
Annual Report 2010
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customers, in line with our basic approach of “offering products that customers will continue to choose.”
The Group divided the prod- ucts in this segment into three categories: high value-added products such as roller-type adhesives, products still growing in market share such as files, and mature products such as blank slips and forms. In devel- oping new products, we concen- trated on the high value-added products. For products still grow- ing in market share, we focused on reducing costs. With mature products, we basically did not undertake any new product development.
In the fiscal year under review in the high value-added products category, Kokuyo launched a small Harinacs
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Handy-Type Staple-Less Stapler, and the super-compact DOTLINER petit and DOTLINER Knock, a roller-type adhesive with a slim, knock-action dis- penser that is easier to use and fits easily into a pen case, to expand the lineup of the DOTLINER series of roll-on adhesives, of which over 25 million units have been shipped.
Among products still grow- ing in market share, we pushed forward with reducing costs for various files, and worked to increase market share of thick- cover files, flat files and other products.
In overseas markets, the Group launched notebooks designed for local requirements in Vietnam and China.
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In the office supply mail order business, Kaunet Co., Ltd. achieved solid sales, striving to stimulate demand by reducing product prices and adding to the lineup of original products. Net sales were firm, rising 10.6% to
¥49.9 billion.
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Net sales amounted to ¥149.0 billion, down 3.0% year on year. However, operating income was recorded at ¥6.5 billion, up a significant 34.1% year on year.
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The Kokuyo Group focused on developing high value-added products endorsed by
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Kokuyo undertook product devel- opment with the aim of trans- forming the furniture segment
into a business that delivers value in space creation, based on an entire range of solutions in space creation to support cus- tomers and their activities.
In the fiscal year under review, among new products, Kokuyo launched the M4 Chair with Kokuyo’s original built-in auto adjust rocking function that automatically adjusts the chair’s rocking power according to the weight of the person sitting in it.
In the educational market, the Group launched the Campus series of desk chairs that are designed to be used mainly in small- and medium-sized lecture
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On January 1, 2011, the store fixtures segment was inte- grated with the furniture segment, a business involved halls in universities.
In overseas markets, the Group developed, manufactured and launched the AIRFORT Chair, mainly for the Chinese market. As a standard feature, it provides lumbar support that reduces the burden on the sit- ter’s back, and this and other features have been highly evalu- ated by customers.
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The Kokuyo subsidiary Urban Design System Co., Ltd. con- verted and renovated a building once housing a preparatory
in creating a wide variety of office and other spaces, with the aim of enhancing the Group’s capabilities for deliver- ing value in space creation. school, and reopened it in Octo- ber 2010 as the HOTEL KANRA KYOTO. This was the first proj- ect in which the Kokuyo Group was involved in all stages of the building from planning and archi- tecture to spatial design, con- struction, management and operation.
Looking ahead, the Kokuyo Group will work to enhance the value it delivers to customers, by accumulating a track record in creating various types of spaces with added value.
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The Group worked to improve profitability, including by withdraw- ing from low profit-margin projects and by reducing the number of Kokuyo’s business partners.
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Annual Report 2010
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Changes are accurate at time of publication of General Catalog for each year. (Each respective Catalog lists the per formance of the previous year.)
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For the Kokuyo Group, corporate social responsibility (CSR) means
being accountable to and trusted by society.
Kokuyo aims to embrace its responsibility to society and retain public
trust by contributing to the realization of a sustainable society
through its business activities and social contribution activities.
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Since its founding, the Kokuyo Group has aspired to support social and economic development through the provision of products that people use on a daily basis. In the years to come our aim will be the same: to provide products that delight millions of customers through the uncompromising pursuit of ease of use and ready availability of products that people use without a second thought.
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Our General Catalog indicates all Kokuyo- made offerings that are not sufficiently environmentally friendly at any stage of the
product cycle. We have been working to eliminate all products carrying this Eco-X Mark within three years. As of 2009, 76% of products in the stationery seg- ment and 15% of those in the furniture segment car- ried the Eco-X Mark. We were able to make the 2011 General Catalog completely free of any products with the Eco-X Mark, however, by carefully scrutinizing each item and leveraging the determination and sup- port of Kokuyo Group employees, materials suppliers and affiliated factories.
The Japan Environment Association awarded Kokuyo S&T Co., Ltd., a Silver Prize in the 2010 Eco Mark awards. This was in recognition of the Kokuyo Group’s independent Eco-X Mark initiatives and its extensive penetration of the market for Eco Mark products.
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Annual Report 2010
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Chemical substances Water consumption CO2 emissions Waste disposal Net sales (Consolidated)
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Environment)
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The Kokuyo Group formulated its Eco-Efficiency Index to comprehensively assess its financial performance and the impact of its environmental protection efforts. This benchmark shows the extent of certain environ- mental impacts from the products and services we supply to society. The index encompasses the follow- ing four components.
1. CO2 emissions
2. Final waste disposal quantity
3. Quantity of chemical substances covered under the PRTR law
4. Water consumption
Each component of this index uses fiscal 2000 as the base year to show annual progress.
In fiscal 2010, our plants worked on internalizing the production of parts and materials that we previ- ously procured externally. Plant consumption of all resource components therefore increased, causing figures to worsen.
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In fiscal 2010, the Kokuyo Group’s CO2 emissions increased by 4,227 tons, to 27,969 tons. We estimate that we lowered emissions by 816 tons from opera- tional enhancements and by 453 tons from facilities improvements. At the same time, emissions from production and merging and streamlining facilities increased by 3,546 tons. Net reductions of emissions in real terms from the operational and facilities improvements were 1,269 tons.
We cut emissions by 16.7% from fiscal 1990 levels, thereby exceeding the 10% reduction target under Green Initiative 2010.
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In order to remain a good corporate citizen that enjoys the trust of local communities, the Kokuyo Group conducts a wide range of social contribution activities based on its corporate philosophy of “Contributing to society through the provision of superior products.” The Group’s operating companies carry out their inde- pendent activities. In fiscal 2010, the Group was involved in environmental activities together with local communities and in utilizing product characteristics to conduct a total of 299 social contribution activities, including special classes featuring visiting lecturers, as well as plant and showroom tours.
Annual Report 2010
#
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Investors are growing increasingly interested in socially responsible investment (SRI), which involves investing in companies that are actively engaged in measures to protect the environment, offer expanded employment opportunities and otherwise contribute to society. In recognition of its engagement in these areas, the Kokuyo Group has been selected for inclu- sion in the prestigious Ethibel Sustainability Indexes run by Ethibel, one of the top SRI consultants in Europe and North America. The Kokuyo Group has
also earned inclusion in other highly respected SRI indices including FTSE4Good, managed and calcu- lated by UK-based FTSE International Ltd.
Ethibel Sustainability Indexes (Sweden)
FTSE4Good (UK)
Kokuyo’s employees paticipated in support activity. Kokuyo donated 97,000 notebooks and
other stationery items
We express our deepest condo- lences to the families of the many people who lost their lives in the Great East Japan Earthquake, and extend our great sympathy to sur- viving victims of the disaster.
The Kokuyo Group provided the following support in the after- math of the earthquake and tsu- nami, and will continue to offer recovery assistance.
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Kokuyo Co., Ltd., donated ¥30 million to the Japanese Red Cross Society, while Group directors and employees contrib- uted around ¥4 million to that
organization.
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We gave about 97,000 notebooks and other stationery items for the new school year to the local governments of devastated areas. We also donated around 91,000 furniture pieces, including meeting tables and chairs for evacuation centers and other shelters.
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We launched the Great East Japan Earth- quake Support Project following the disaster. We collaborated with local Group companies with good understand- ings of the extent of devastation to gather information on what stationery, school furniture, and office products might be needed during a possibly pro- tracted recovery. After consolidating that information and factoring in the
immense damage, we decided to keep supporting affected areas, as part of which we will supply ¥300 million worth of products and provide manpower.
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Annual Report 2010
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The Kokuyo Group places great emphasis on corpo- rate governance based on the core values of transpar- ency, speed, and fairness. Kokuyo Co., Ltd., the holding company, evaluates and overseas the imple- mentation of corporate governance among the Group companies from the perspective of shareholders. The Group‘s management framework, basic structure, and essential points on Group operations under the holding company system are stipulated in the Kokuyo Group Governance Principles.
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We built a corporate governance system that com- prises the Board of Directors, which makes impor- tant Group-wide decisions and supervises business execution at operating companies, and the Board of Auditors, which is independent of the Board of Directors and which audits that the directors execute their duties.
On March 30, 2011, we launched an executive officer system to further improve corporate gover- nance, accelerate decision-making, and execute busi- ness more efficiently. We transferred authority to
executive officers. We additionally appointed a number of outside directors with board experience at major corporations and with proven expertise in manage- ment and economics to strengthen the supervisory function of the Board of Directors. Moreover, we tasked the Board of Directors to focus on extensive deliberations for crucial decisions on Group-wide man- agement policies and business plans while providing supervision of business execution.
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The Kokuyo Group has an auditing system in place. This setup comprises six members of the Board of Directors (including two outside directors) and four statutory auditors (including two external auditors). Directors are appointed for one year to allow flexible response to changes in the business environment. We choose people with extensive knowledge and experi- ence and broad perspectives as outside directors or outside auditors. Such people have no particular con- flict of interest in Kokuyo, so they can fulfill their duties from objective and neutral standpoints. We voluntarily established a Personnel Committee, most of whose members are from outside the company, to ensure greater objectivity in the process of selecting prospec- tive directors.
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Internal auditing
Internal auditing Coordination
Control
Coordination Report
Coordination Report
Accounting audit Appointment and dismissal
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Environmental Committee Risk and Compliance Committee
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Annual Report 2010
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The chart on the previous page presents the frame- work of the Kokuyo Group’s internal control system. The basic policy determines the framework for the Group’s internal control systems, including for document-handling rules governing the storing and safekeeping of information related to the duties executed by directors and the establishment of ethical standards based on the Kokuyo Corporate Ethics Code. Furthermore, with the enforcement of the Financial Instruments and Exchange Act, Kokuyo established a cross-organizational J-SOX Committee with the goal of actively maintaining and strengthening internal controls with a focus on ensuring the reliability of financial reporting.
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All Kokuyo Group employees engage extensively in compliance activities to rebuild trust among stakeholders and completely transform the corporate culture.
We established the Risk and Compliance Com- mittee to lead compliance promotion efforts.
Kokuyo cooperates with the Risk and Compliance Committee and the equivalent committee at each operating company to prevent risks from materializ- ing and to respond quickly in such an event. Each risk and compliance committee visualizes the current risk situation in promoting business activities, identi- fies key risks to be managed on an annual basis, and works to reduce risk.
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We positioned Kokuyo Furniture Co., Ltd., as a pilot company for building business continuity plans. Since 2007, we have screened and assessed the risks of key operations within that company’s supply chain while producing recovery scenarios. In fiscal 2008, Kokuyo Furniture became the first company in Japan’s furniture industry to obtain certification under BS25999-2, an international business continu- ity management standard, for its business chain in office furniture from materials and manufacturing, to shipment and customer service.
We are reviewing business continuity planning at Kokuyo S&T, and will look into business continuity for the Group’s information technology and
other infrastructure.
Annual Report 2010
&
AKIHIRO KURODA
President and CEO, Representative Director
YASUHIRO KURODA
Representative Director
TOSHIFUMI OKUBO
Director
TAKEHARU NAGATA
Director (Outside Director)
MASA MATSUSHITA
Director
NOBUYUKI ONEDA
Director (Outside Director)
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(As of March 30, 2011)
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President and CEO, Representative Director AKIHIRO KURODA
Representative Director YASUHIRO KURODA
Director MASA MATSUSHITA
Director TOSHIFUMI OKUBO
Director (Outside Director) TAKEHARU NAGATA Director (Outside Director) NOBUYUKI ONEDA
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Standing Statutory Auditor AKIHIRO KONDO Standing Statutory Auditor YOICHI KOTANI
Outside Statutory Auditor YOSHIO TERADA
Outside Statutory Auditor NAOSHIGE NAKADA
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President and CEO AKIHIRO KURODA
Executive Vice-President YASUHIRO KURODA
Senior Corporate Officer MASA MATSUSHITA
Senior Corporate Officer TAKUYA MORIKAWA
Senior Corporate Officer HIDEKUNI KURODA
Corporate Officer MOTOHIRO HOJO
Annual Report 2010
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KOKUYO CO., LTD. AND CONSOLIDATED SUBSIDIARIES
The years ended March 31, 2006 and 2007; and the years ended December 31, 2007, 2008, 2009 and 2010
Millions of yen
Thousands of U.S. dollars
2010.12 2009.12 2008.12 2007.12 2007.3 2006.3 2010.12
For the year:
Net sales ¥261,874 ¥266,726 ¥326,120 ¥252,824 ¥339,559 ¥303,959 $3,212,390
Cost of sales 175,843 180,260 221,574 175,512 228,959 202,879 2,157,053
Selling, general and
administrative expenses 82,749 85,887 99,192 75,910 99,237 86,975 1,015,076
Operating income 3,282 579 5,354 1,402 11,363 14,105 40,260
Net income (loss) 815 595 (11,991) (5,326) 5,622 4,145 9,998
Capital expenditure 4,827 3,479 4,988 7,733 4,999 6,042 59,212
Depreciation and amortization 6,009 6,334 6,488 4,430 6,057 6,082 73,712
Net cash and cash equivalents provided
by operating activities 8,966 13,737 16,153 3,286 7,936 11,488 109,983
Net cash and cash equivalents used
in (provided by) investing activities (4,730) (1,930) (1,012) (11,333) 2,389 (17,217) (58,027) Net cash and cash equivalents provided
by (used in) financing activities (2,625) (4,746) (12,343) 7,349 (5,272) 2,059 (32,205)
At year-end:
Total assets 252,880 252,053 266,419 301,187 320,033 314,573 3,102,056
Working capital 50,601 49,483 50,755 44,584 56,120 50,733 620,718
Property, plant and equipment, net 77,134 78,050 79,534 81,195 79,349 89,733 946,201
Total liabilities 96,248 93,979 106,599 120,780 130,125 121,051 1,180,660
Interest-bearing debt 39,797 39,244 41,448 52,069 42,958 36,491 488,183
Total net assets 156,632 158,074 159,820 180,407 189,908 193,522 1,921,396
Minority interests 709 599 741 1,225 1,235 1,678 8,694
Net assets 155,923 157,475 159,079 179,182 188,673 191,844 1,912,702
Yen U.S. dollars
Per share data:
Basic net income (loss) ¥ 6.89 ¥ 5.03 ¥ (101.36) ¥ (45.02) ¥ 46.94 ¥ 33.82 $ 0.08
Diluted net income – – – – – 31.80 –
Cash dividends applicable to the year 15.00 15.00 15.00 11.25 15.00 15.00 0.18
Net assets 1,318.22 1,331.30 1,344.82 1,514.64 1,594.79 1,587.49 16.17
%
Ratios:
Ratio of operating income to net sales 1.3% 0.2% 1.6% 0.6% 3.3% 4.6%
Return on sales 0.3% 0.2% (3.7%) (2.1%) 1.7% 1.4%
Return on equity 0.5% 0.4% (7.1%) (2.9%) 3.0% 2.2%
Return on assets 0.3% 0.2% (4.2%) (1.7%) 1.8% 1.4%
Equity ratio 61.7% 62.5% 59.7% 59.5% 59.0% 61.0%
Debt-to-equity ratio 25.5% 24.9% 26.1% 29.1% 22.8% 19.0%
Thousands of shares
Common stock:
Number of shares issued 128,742 128,742 128,742 128,742 128,742 128,742
Note 1: The U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥81.52=U.S.$1.00, the approximate exchange rate prevailing on December 31, 2010. 2: Due to the change in Kokuyo’s fiscal year-end, the period ended December 31, 2007 was an irregular nine-month period.
Annual Report 2010
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In running its operations, the Kokuyo Group remains steadfast to its basic management principle of “con- tributing to society through the provision of superior products.” Under the management vision of
“Always Innovating For Your Knowledge,” the Group constantly works to innovate in response to changes in society to ensure that its activities play a useful social role. The Group’s brand message highlights
“Inspiration, Efficiency, and Amenity” as the types of added value that Kokuyo aims to continue delivering to assist users in their “knowledge work.”
As of December 31, 2010, the Kokuyo Group consisted of the holding company (Kokuyo Co., Ltd.), 47 subsidiaries, and 18 affiliates. Of these, 22 com- panies were consolidated subsidiaries and 2 were affiliates accounted for by the equity method.
During the period under review (from January 1, 2010 to December 31, 2010), the Japanese econ- omy showed signs of improvement in some sectors, but restraint in capital expenditure, sluggish personal consumption, and other factors meant that these trends stopped short of a full-fledged recovery, and overall conditions remained severe.
In this operating climate, the Kokuyo Group sought to develop products with outstanding value exceeding customers’ expectations, and stimulated demand by promoting solutions that help raise cor- porate value. The latter included solutions for enhancing the productivity of office workers.
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Consolidated net sales for the year under review fell to ¥261.9 billion, due in part to a decrease in demand resulting from the economic recession. The break- down by segment is as follows: stationery, 56.9%, furniture, 38.4%, and store fixtures, 4.7%. The pro- portions of this breakdown were about the same as the year before.
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Cost of sales amounted to ¥175.8 billion, with a cost of sales ratio of 67.1%. Gross profit was ¥86.0 billion, and the gross profit ratio was 32.9%. The Group took measures to boost the gross profit ratio by reducing costs and expanding offerings of high value-added products and services.
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Selling, general and administrative (SG&A) expenses amounted to ¥82.7 billion, down ¥3.1 billion year on year, with an SG&A expenses ratio of 31.6%.
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Research and development expenses for the fiscal year amounted to ¥1,601 million, comprising ¥1,021 million for the stationery segment, ¥557 million for the furniture segment, and ¥22 million for the store fixtures segment.
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Operating income totaled ¥3.3 billion. Gross profit ratio improved in tandem with a push to reduce costs, to outweigh a decline in sales. The operating income ratio was 1.3%.
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The Group posted net income of ¥0.8 billion for the fiscal year under review. The reasons for this include
¥1.2 billion in extraordinary gains offset by ¥1.7 billion in extraordinary loss.
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Capital expenditure amounted to ¥4.8 billion.
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Annual Report 2010
Due to the change in Kokuyo’s fiscal year-end, the period ended December 31, 2007 was an irregular nine-month period.
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The value of the Japanese stationery market is esti- mated at around ¥1 trillion*1. The stationery segment continues to face severe business conditions as com- petition intensifies in the office supply mail-order area and companies look to limit their purchase of con- sumables amid the economic recession. In this envi- ronment, the Kokuyo Group, as the only
comprehensive manufacturer of stationery goods in Japan, holds the leading market share of approxi- mately 11%.
In this operating climate, the Group launched numerous high value-added products as it sought to expand market share. These included the DOTLINER Knock, a new series of the DOTLINER roller-type adhesive dispenser, which has sold over 25 million units; dispensers in the new series are equipped with the industry’s first knock mechanism, like that of a retractable ballpoint pen. Another new product was a line in the Campus Notebook Dotted Ruled Lines Series, with the intervals of the lines widened to help younger pupils in elementary and junior high school.
Moreover, in our office supply mail order business, Kaunet achieved record profits, thanks to proactive promotional activities, including a sales campaign commemorating the 10th anniversary of the Internet office stationery and supplies shopping site.
Overseas, Kokuyo put in place a regional manufac- turing framework centered on Vietnam and China. At the same time, it concentrated on enhancing product lineups and cultivating sales channels, as it worked to expand its share of local markets for notebooks while building up a sales network.
The Easybuy office supplies mail order service Kokuyo is developing in the Shanghai and Beijing regions of China was transformed into a business model based on the Internet, rather than on mail order catalogs. The impetus for this transformation was the Chinese government lifting an embargo against for- eign capital in its indigenous Internet shopping market. Consequently, the service made even greater strides in gaining a wide range of new members.
As a result of the above, the stationery segment posted net sales of ¥149.0 billion, down 3% year on year, and operating income of ¥6.5 billion.
*1 Kokuyo’s own estimate based on commercial data, and Kokuyo Group research.
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Ratio of Operating Income to Net Sales (Right Scale)
Annual Report 2010
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The total Japanese office furniture market is believed to have contracted by approximately 30% to around
¥200 billion*2 as a result of the major economic downturn following the Lehman Shock. The slight recovery in FY2010 has seen the market grow to around ¥220 billion*2. Kokuyo is estimated to hold the leading market position, with a 25% share, which it has captured by leveraging its nationwide sales network.
Under these conditions, the Group strove to transform from a business model driven primarily by product sales, to one based on an entire range of value-added solutions in space creation involving design, consulting and operations to support custom- ers and their activities.
The Group exhibited a variety of model spaces for offices, hospitals and clinics, educational facilities and government bureaus at 2011 Kokuyo Fair, held in November 2010. These exhibits showcased solu- tions based on Kokuyo’s achievements and accumu- lated know how, and were aimed at stimulating demand. On exhibit in these model spaces were products Kokuyo developed as answers to issues
facing customers. These solutions included the Campus series of furniture for educational settings, which feature functions and designs to foster learn- ing. Another offering was the FB series of reception counters, featured and designed for the comfort of both visitors and receptionists in municipal and other government settings.
The Group also took the initiative in delivering value in space creation in new fields other than offices and public spaces. One example was the HOTEL KANRA KYOTO, where Kokuyo was involved in everything from design to the commencement of operations in October 2010.
Overseas, the Group developed products for local markets and bolstered sales activities to local com- panies, while working to cultivate new markets.
Net sales amounted to ¥100.4 billion, up 1.3% year on year and an operating loss of ¥2.8 billion.
*2 Estimate based on “Current Survey of Production: Metal furniture” by Ministry of Economy, Trade, and Industry. The ¥600-billion office furniture market breakdown comprises roughly ¥220 billion for office furniture, ¥150 billion for building materials and ¥230 billion for plan- ning and services.
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Annual Report 2010
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The ¥170-billion Japanese store fixtures market is strongly affected by the number of new retail store openings. Due to the economic slowdown during the fiscal year under review, there were few new open- ings of retail stores, and it is believed that the market contracted. The Kokuyo Group is estimated to have an 8% share of this market, placing it third in Japan.*3
In this operating environment, in order to rebuild the store fixtures business, the Kokuyo Group pro- moted measures to increase efficiency, including reducing inventory, and implemented sales initiatives focused on profitability. The Group also provided its main customers in the retail industry with various solutions, such as for operating stores and managing inventory, to help solve their issues and raise corpo- rate value.
Net sales amounted to ¥12.4 billion, down 10.4% year on year and an operating loss of ¥0.4 billion.
Going forward, while corporate profits have improved in some quarters, the Japanese economy is expected to see continued stagnation in capital expenditure and individual consumption as a whole. As a result, the Kokuyo Group’s business environ- ment is expected to remain severe.
*3 Kokuyo’s own estimate based on industrial and commercial data, and Kokuyo Group research
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Kokuyo’s capital structure policy centers on the use of retained earnings but calls for the flexible use of direct and indirect financing as necessary.
Kokuyo has been assigned a long-term credit rating of A- and a short-term credit rating of a-1 by Rating and Investment Information, Inc. of Japan. Kokuyo intends to fund future business expansion from internal resources.
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Total assets as of December 31, 2010 amounted to
¥252.9 billion, a decrease of ¥0.8 billion from December 31, 2009.
Of the total, current assets accounted for ¥109.6 billion, an increase of ¥2.9 billion. The main factor in this decline was a ¥1.5 billion increase in cash and cash equivalents. Fixed assets decreased ¥2.0 billion to ¥143.3 billion. This was primarily due to a decline of ¥0.9 billion in tangible fixed assets, a decline of
¥0.8 billion in intangible fixed assets, and a decline of
¥0.3 billion in investment and other assets.
Liabilities increased ¥2.2 billion from the previous fiscal year-end to ¥96.2 billion. Of the total, current liabilities amounted to ¥59.0 billion, an increase of
¥1.7 billion. Long-term liabilities increased by ¥0.5 billion to ¥37.3 billion.
Annual Report 2010
