Traded Stock Code
YUHO
REPORT
Fiscal Year Ended May 31, 2009
Traded TSE1
This report is based on the Company’s Japanese-language annual filing with the Financial Services Agency and supplemented with materials that facilitate comparison with the Company’s peers. The materials from the annual filing with the Financial Services Agency have been edited and reorganized in a format more familiar to the international investment community. All information contained in this report has been obtained from sources believed to be reliable, but the accuracy of the data and the translation and the completeness and timeliness of the information are not warranted by the Company, Pacific Associates, or PRONEXUS. None of the above parties shall be responsible for any error or omission or for results obtained from the use of this information.
Table of Contents
Profile ... 3
Financial highlights...3
Peer comparisons ...3
Business Overview ... 4
Contents of business...4
Group companies ...6
History ...7
Risk factors...9
Research and development ...11
Analysis of financial condition and results of operations ...13
Corporate governance ...17
Directors ...27
Employees...28
Union ...28
Acquisition of treasury stock ...28
Cash Flows... 30
Consolidated statement of cash flows ...30
Capital expenditures ...32
Dividend policy ...32
Consolidated Operations ... 33
Consolidated income statement...33
Consolidated statement of changes in net assets ...35
Results of operations ...37
Segment information ...47
Issues requiring action ...49
Sales and procurement ...50
Selling, general and administrative expenses...50
Leases...51
Capital Structure... 53
Consolidated balance sheet...53
Market value of securities ...56
Derivatives...57
Facilities ...58
Debt...59
Retirement benefits ...59
Deferred taxes...60
Nonconsolidated Financial Statements ... 61
Nonconsolidated income statement...61
Nonconsolidated statement of changes in net assets ...63
Nonconsolidated CapitalStructure ... 67
Nonconsolidated balance sheet ...67
Trade credits ...70
Securities...72
Fixed assets ...74
Accounting Policies... 75
Share-related Information ... 77
Performance in Graphs ... 79
Profile
Financial highlights
Years ended May 31; Millions of yen 2005 2006 2007 2008 2009
Changes 2005/2009 Consolidated
Net sales 46,357 46,042 46,671 46,781 45,355 102.2 Ordinary profit 2,309 1,951 1,378 1,404 675 342.1
Net income 1,581 534 194 294 (1,709) (92.5)
Net assets 84,926 87,470 88,189 84,169 72,399 117.3 Total assets 98,067 101,841 102,796 99,215 85,602 114.6 Net assets per share (Yen) 1,715.49 1,765.63 1,780.28 1,699.24 1,574.47 109.0 Net income per share (Yen) 31.66 10.80 3.92 5.96 (34.75) (91.1) Net income per share, fully diluted (Yen) - 10.80 - - -
Net cash provided by (used in) operating activities 4,369 2,560 689 3,410 680 642.5 Net cash provided by (used in) investing activities (3,031) (5,153) (1,296) (979) 2,622 (115.6) Net cash provided by (used in) financing activities (679) 29 (910) (624) (4,705) 14.4 Cash and cash equivalents at year-end 9,198 6,862 5,428 7,067 5,304 173.4
Employees 1,733 1,679 1,711 1,724 1,823 95.1
Peer comparisons
Percentage 2005 2006 2007 2008 2009
Net income / net sales 3.4 1.2 0.4 0.6 (3.8)
Peers 4.2 2.3 0.6 2.8 3.3
Ordinary profit / net sales 5.0 4.2 3.0 3.0 1.5
Peers 5.8 4.6 4.3 5.8 6.3
Net income / assets 1.6 0.5 0.2 0.3 (1.8)
Peers 4.0 2.1 0.2 2.5 2.9
Ordinary profit / assets 2.4 2.0 1.3 1.4 0.7
Peers 5.5 4.3 3.7 5.0 5.6
Equity / assets 86.6 85.8 85.7 84.8 84.5
Peers 39.7 40.4 36.8 37.0 37.5
Net income / equity 1.9 0.6 0.2 0.3 (2.2)
Peers 8.6 4.4 (1.2) 5.4 6.0
Business Overview
Contents of business
The Corporate Group, composed of Sakata Seed Corporation (“the Company”), 39 subsidiaries and two affiliated companies, is engaged in selling horticultural products and materials (vegetable seeds, flower seeds, bulbs, seedlings and agricultural and horticultural products).
The Group’s businesses and the relationship of the Company and its affiliates to these businesses are outlined below.
The three divisions described below coincide with the categories used for segment information by type of business listed on page 47.
(1) Wholesaling (the Company and 38 affiliated companies)
This division produces or procures vegetable seeds, flower seeds, bulbs, seedlings, and agricultural and horticultural products and wholesales these products to
nurseries, etc., in Japan and other countries around the world.
(2) Retailing (the Company and 1 affiliated company)
The retailing division procures products for horticultural hobbyists and sells them to home improvement retailers in Japan. It also operates a mail-order sales
business and conducts retailing through corporate-managed garden shops.
(3) Others (the Company and 2 affiliated companies)
The following table presents an outline of the Group’s business segments and the companies participating in them.
Principal operations Main companies involved Wholesaling
Wholesaling of seeds and agricultural and horticultural products to nurseries and other producers
(Products: vegetable seeds, flower seeds, bulbs and seedlings)
30 companies, including the Company
SAKATA SEED CORPORATION (Consolidated subsidiaries)
Kyoei Noji Co., Ltd., Brolead Co., Ltd., Sakata Seed America, Inc., Sakata Seed de Mexico, S.A., Sakata Centroamerica, S.A., Sakata Seed de Guatemala S.A., Alf Christianson Seed Co., Sakata Seed Sudamerica Ltda., Sakata Korea Co., Ltd., Sakata Vegetables Europe S.A.S., Sakata Ornamentals Europe A/S, Sakata Holland B.V., Sakata Seed Iberica S.L., Sakata UK Limited, Sakata
Ornamentals UK Ltd., Sakata Seed Southern Africa (Pty) Ltd., Sakata Seed India Private Limited and 10 other companies
(Affiliated companies)
Sakata Polska Sp. z.o.o. and 1 other company Wholesaling of agricultural and horticultural products to
nurseries and other producers
(Products: agricultural and horticultural materials) 2 companies, including the Company
SAKATA SEED CORPORATION (Consolidated subsidiary)
Jiffy Pot Products Co. of Japan, Ltd.
Production of seeds and agricultural and horticultural products for nurseries and other producers
(Products: vegetable seeds, flower seeds, bulbs and seedlings)
8 companies
(Consolidated subsidiaries)
Yamagata Celltop Co., Ltd., Nagano Celltop Co., Ltd., Hida Celltop Co., Ltd., Fukuoka Celltop Co., Ltd., Sakata Seed Chile S.A., Sakata Siam Seed Co., Ltd., Sakata Seed (Suzhou) Co., Ltd. and 1 other company
Retailing
Selling to horticultural hobbyists through home improvement retailers
2 companies, including the Company
SAKATA SEED CORPORATION (Consolidated subsidiary)
Nishio Shokubutsu Co., Ltd. Mail-order sales, corporate-managed garden shops
1 company, including the Company
SAKATA SEED CORPORATION
Others
Landscaping, insurance agency, temporary staffing agency
3 companies, including the Company
SAKATA SEED CORPORATION (Consolidated subsidiaries)
Group companies
Millions of yen or as indicated Capital stock Percent ownership
Kyoei Noji Co., Ltd. 30 100
Sakata Kosan Co., Ltd. 10 100
Brolead Co., Ltd. 50 100
Yamagata Celltop Co., Ltd. 50 100
Nagano Celltop Co., Ltd. 60 70
Hida Celltop Co., Ltd. 70 62
Fukuoka Celltop Co., Ltd. 200 100
Jiffy Pot Products Co. of Japan, Ltd. 18 100
Nishio Shokubutsu Co., Ltd. 21 52
Sakata Techno Service Ltd. 13 100
Sakata Seed America, Inc. US$ 1,500 thousand 100 Sakata Seed de Mexico, S.A. Mex$ 55,850 thousand 100 Semillas Sakata de Mexico, Aric Mex$ 46 thousand 100 Productora de Semillas Sakata, Spr de Rl Mex$ 58 thousand 100 Agricola Sakata, Spr de Rl Mex$ 58 thousand 100 Sakata Centroamerica, S.A. CCO 10 million 100 Sakata Seed de Guatemala S.A. GTQ 1,541 thousand 100 Sakata Seed Oceania Pty Ltd. Aus$ 240 thousand 100 Alf Christianson Seed Co. US$ 7 thousand 100
Alfco, Inc. US$ 0 thousand 100
Seaward Investments, Inc. US$ 0 thousand 100
Quincy Investments, LLC - 100
European Sakata Holding S.A.S. EUR 36,050 thousand 100
Sakata Holland B.V. EUR 420 thousand 100
Sakata Vegetables Europe S.A.S. EUR 5,630 thousand 100 Sakata Ornamentals Europe A/S DKK 119 million 100
Frisa Planter A/S DKK 10 million 100
Sakata Ornamentals Chile Ltda. US$ 500 thousand 100 Sakata Seed Iberica S.L. EUR 3 thousand 100
Sakata UK Limited STG£ 100 thousand 100
History
Year Month Event
1913 July Takeo Sakata (the Company's founder) establishes Sakata Noen in Shirosato-mura, Kanagawa (currently, Rokkakubashi, Yokohama).
1916 Company name changed to T. Sakata & Co.
1923 September Company building lost in fire following the Great Kanto Earthquake. 1930 May Chigasaki Breeding Station established.
1942 December Merger of T. Sakata & Co., Atariya Noen, Fujita Zenbei & Co., Enomoto Tokujiro & Co. and Yomoto Co. completed to form T. Sakata & Company, capitalized at 195,000 yen.
1951 December Retail store operations begun (currently, Garden Center Yokohama). 1959 April Misato Research Station established.
1960 April Chogo Research Station established. 1966 August Hazawa Office established.
1967 August Fukuoka Branch opened.
1970 June Chogo Distribution Center established. 1971 June Kimitsu Research Station established.
July Sendai Branch opened.
1974 August Shirakawa Branch opened.
1975 October Shares of Jiffy Pot Products Co. of Japan, Ltd. acquired. 1976 January Okayama Branch opened.
1977 July Sakata Seed America, Inc. established. 1979 June Kyoei Noji Co., Ltd. established. 1980 October Florist Sakata Co., Ltd. established.
Sapporo Branch opened. 1982 July Nakai Engei Ltd. established. 1985 October Nagoya Branch opened.
1986 January Corporate name changed to Sakata Seed Corporation.
1987 January Yamagata Vegetable Center, Co., Ltd. (currently, Yamagata Celltop Co., Ltd.) established. May Shares listed on the Second Section of the Tokyo Stock Exchange.
1988 January Sakata Kosan Co., Ltd. established.
June Higashimura Seed Co., Ltd. (currently, Brolead Co., Ltd.) established. December European Representative Office established.
1989 September Shares of Yamaki Kogyo Co., Ltd. acquired.
1990 March European Representative Office upgraded to local subsidiary through establishment of Sakata Seed Europe B.V. (currently, Sakata Holland B.V.).
April Kakegawa Research Center established. May Nagano Celltop Co., Ltd. established. June Kanto-Kita Branch opened.
November Hokkaido Research Station established.
Shares listed on the First Section of the Tokyo Stock Exchange. December Hida Celltop Co., Ltd. established.
Year Month Event
1993 March Sakata Seed de Mexico, S.A. established. 1994 March Yamagata Distribution Center established.
April Kazo Distribution Center established.
May Shiga Breeding Branch Station of Kakegawa Research Center established. June Shares of Naniwa Green Co., Ltd. acquired.
October Sakata Seed do Brasil Ltda. established.
November Shares of Agroflora S.A. (currently, Sakata Seed Sudamerica Ltda.) acquired by Sakata Seed do Brasil Ltda.
1995 February Corporate headquarters and head office moved to present site (Tsuzuki-ku, Yokohama). 1996 February Hokkaido Branch established (entailing move and change of name of Sapporo Branch).
Shares of Yurix Co., Ltd. acquired.
March Shares of Samuel Yates Ltd. (currently, Sakata UK Limited) acquired.
April Sakata Seed France S.A.R.L. (currently, Sakata Vegetables Europe S.A.R.L.) acquired. June Osaka Branch opened.
Sakata Siam Seed Co., Ltd. established. Sakata Seed Iberica S.L. established. August YCC Distribution Center established.
September Shares of Flora Feliz S.A. in Costa Rica (currently, Sakata Centroamerica, S.A.) acquired. October Number of shares comprising one trading unit of the Company's stock changed from 1,000 to
100.
1997 March Shares of Chung Won Seed Co., Ltd. (currently, Sakata Korea Co., Ltd.) acquired. April Shares of Nishio Shokubutsu, Co., Ltd. acquired.
1998 October Garden Center Shonan opened.
1999 February Sakata Seed (Suzhou) Co., Ltd. established.
May Procedures for liquidation of Florist Sakata Co., Ltd. completed.
October Additional shares in Wilgro Nurseries Ltd. (currently, Sakata Ornamentals UK Ltd.) acquired. Shiga Breeding Branch Station of Kakegawa Research Center closed.
December Shares of MayFord Holdings (Pty) Ltd. acquired. 2000 January Additional shares of Sakata Seed NZ Ltd. acquired.
December Additional shares of Piloncito Verde S.A. acquired. 2001 February Chiba Branch opened.
European Sakata Holding S.A.S. established. June Sakata Vegenetics RSA (Pty) Ltd. established.
Merger of Sakata Seed do Brasil Ltda. and Sakata Seed Sudamerica Ltda. completed. August Procedures for liquidation of Sakata Seed NZ Ltd. completed.
September Sakata Techno Service Ltd. established. 2002 March Chiba Branch closed.
April Narita Office opened.
Alf Christianson Seed Co. and Alfco, Inc. incorporated into Group as subsidiaries through share buyback and retirements.
Year Month Event
August System of regional branches (Hokkaido Branch, Higashi Nihon Branch, Nishi Nihon Branch, Kyushu Branch) established.
2003 May Procedures for liquidation of Yamaki Kogyo Co., Ltd. completed.
July Sakata Ornamentals Europe A/S established following acquisition of the flower division of L. Daehnfeldt A/S.
2004 May Okayama Office of the Nishi Nihon Branch closed. 2005 May Sakata Seed Oceania Pty Ltd. established.
October Shares of Qualiveg Seed Production, Inc. acquired. November Garden Center Shonan closed.
2006 February YCC Distribution Center closed. Yaita Distribution Center opened.
Procedures for liquidation of Yurix Co., Ltd. completed. May Kanto-Kita Office of the Higashi Nihon Branch closed.
Nagoya Office of the Nishi Nihon Branch closed. Chogo Distribution Center closed.
2007 May Qualiveg Seed Production, Inc. merged into Sakata Seed America, Inc. 2008 May Yamagata Distribution Center closed.
Sakata Seed India Private Limited established.
December Procedures for liquidation of Piloncito Verde S.A. completed. 2009 January Procedures for liquidation of Nakai Engei Ltd. completed.
Risk factors
The following is a discussion of factors that could negatively impact the Company’s financial performance and financial condition. The forward-looking statements in the discussion are based on judgments made by the Company as of the last day of the fiscal year under review.
1. Weather-related risks
• Climate changes around the world exert a significant impact on sales of
vegetable seeds, flower seeds, bulbs and seedlings; poor weather conditions could thus erode sales and adversely affect the Company’s financial
performance.
• The Company carries out seed production in 21 countries around the world. In
each region, the Company takes steps to disperse risk by consigning seed production to multiple outside producers. Despite these precautions, it may be unable to assure sufficient quality and quantity of production in the event of sudden changes in the local weather. Such circumstances may exert a significant negative impact on its financial results.
another 10 overseas (in eight countries). This extensive base of operations exposes the Company to the following kinds of risks, which could have a significant impact on the Group’s financial performance:
• Sudden and unexpected enactment of laws and regulations, or amendments to
existing laws and regulations
• Political and economic upheaval
• Social disorder caused by terrorism or other eruptions of violence • Earthquakes or other natural disasters
• Information age-related problems, including computer viruses and information
leakage
3. Development risks, including those related to human resources
• The long-term nature of cultivar development (over 10 years) exposes the
Company to the following kinds of risk:
1) Investment risk—that economic payoffs may fall short of expectations
2) Development risk—that efforts may fail to produce the desired cultivar
3) Market risk—that market needs may change during the course of
development
4) Competitive risk—that a product may receive a less favorable reception to a product developed by another company
• In addition to access to genetic resources, successful development hinges to a large extent on the abilities of individual breeders. There is a risk that a breeder may leave the Company midway through a project, thus raising obstacles to its successful completion. Failure to produce an intended high-quality variety could have a significant impact on the Company’s financial performance.
4. Risks related to safety
• The Company’s creed, articulated by its founder Takeo Sakata, is “Quality,
Reliability and Service.” With this as a basis, the Company seeks to gain customers’ confidence in the quality and safety of its products. Accordingly, it responds quickly and effectively when complaints arise, and works diligently to prevent problems from occurring.
• Because the Company’s products are examples of “living genetics,” however,
appropriate levels of quality or uniformity may not always be achieved. Safety-related problems could also arise from environmental factors or manufacturing technologies, rather than from the seeds themselves.
5. Risks related to currency fluctuations
• Financial statements prepared in local currencies are translated into yen during consolidation. Fluctuations in foreign exchange markets could thus reduce earnings, even if earnings in local currencies remain unchanged.
• Currency fluctuations may also impair the Company’s ability to procure raw
materials and merchandise and pose obstacles to exporting. To minimize such impacts, the Sakata Group maintains a close watch over trends in the foreign exchange markets. Sudden and unexpected market changes could, however, negatively affect the Company’s financial performance despite these efforts.
6. Changes in the value of assets held
Because the Sakata Group holds a wide variety of assets, any decline in the price of land, marketable securities or other assets could negatively impact the Group’s financial performance.
Research and development
Product development for the Company’s main vegetables and flowers is coordinated by the Company’s R&D Division, which develops new varieties for markets
worldwide. In Japan, research is carried out at five farms, led by the Company’s principal farm at Kakegawa, Shizuoka Prefecture. Overseas, the company operates 10 research farms in North America and other regions.
Throughout the Group, approximately 400 people are involved in research and development. Total R&D expenditures amounted to ¥3,658 million during the fiscal year under review.
Wholesaling
Vegetables
• In Japan, the Company announced the following new cultivars:
1) The FUYU SHIGURE green neck daikon radish for autumn sowing,
characterized by an extremely sweet flavor and excellent taste
2) Two new cabbage cultivars following in the wake of the Company’s successful SHINRAN variety, which earned a widespread reputation for superior taste: the RANTEN, for hot-season planting; and the TORAN featuring a high tolerance to cold
3) Two new Chinese cabbage cultivars with resistance to a wide variety of clubroot diseases and notable for their excellent taste: CHIYOBUKI 70 for
4) Following its immensely popular GOLD RUSH sweet corn, the Company has
developed the VANIRASSHU cultivar, an extremely sweet cream-colored
variety with delicious, soft pericarp kernels.
• Overseas, the Company operates farms for the cultivation of new varieties in a
number of countries:
1) These farms are in the United States, France, Spain, South Africa, Brazil, Korea and Thailand.
2) New cultivars are developed in the various locations to suit the cultural, climatic and soil conditions of the respective countries.
Flowers
• The cultivation of new varieties takes place at two farms in Japan and two farms
overseas.
1) Research aimed at developing varieties suitable for each region
2) During the year ended May 2009, the introduction of new varieties of
lisianthus and pansies underscored the Company’s status as one of the world’s leading seed companies and contributed to its ability to maintain market share.
• Notable developments
1) Lisianthus
The Company’s ROJINA LAVENDER hybrid is named Japan Flower
Selection’s Flower of the Year.
Development of the VOYAGE SERIES, a sumptuous and extremely large
fringed variety; with this new hybrid, the Company sought to expand the possibilities for the lisianthus, and its introduction helped to revitalize and upgrade the market.
2) Pansies
The YOKU SAKU SUMIRE SERIES has enhanced the Company’s visibility in the pansy market, where demand is falling as a result of the recession; the new variety blooms profusely under low-temperature, conditions with limited hours of sunlight.
The new TUXEDO hybrid for group planting has become a popular item due to
its chic coloring, which enables it to satisfy a wide variety of needs.
Three new compact-sized hybrids added to the SunPatiens line; named the
Five new pot carnation hybrids, including the Sortija (scarlet) and the Capeline (pink), which were intended to make a major impact on Mother’s Day
merchandising and which feature excellent extensibility in low temperatures and reduced energy requirements for cultivation
3) Sunflowers
Introduction of the VINCENT series, a brilliant orange, single-layer variety characterized by abundant, finely overlapping petals
Analysis of financial condition and results of operations
1. Significant accounting policies and estimates
• The Sakata Group’s consolidated financial statements are prepared in
accordance with accounting principles generally accepted in Japan.
• In preparing these statements, the Company makes all necessary estimates based
on rational standards.
2. Analysis of financial performance (year-on-year, percentage changes)
Net sales and operating income
• Net sales: international sales declined in yen terms under the influence of the soaring yen, contributing to a 3.0% reduction in sales to ¥45,355 million.
• Cost of goods sold
1) Declined by 0.7% to ¥23,859 million.
2) Gross profit on sales consequently declined by 5.5% to ¥21,496 million.
• SG&A expenses
1) Declined by 5.3% to ¥20,309 million, principally due to reductions in personnel expenses.
2) Operating income fell by 9.0% to ¥1,186 million as a result.
Nonoperating income and expenses
• In the nonoperating accounts, a loss of ¥511 million compared to a gain of ¥101
million in the previous year as a result of the following:
1) Currency losses of ¥849 million
2) Losses on portfolio trading of ¥333 million
• Ordinary profit consequently fell by 51.9% to ¥675 million.
1) Loss on valuation of investment securities of ¥938 million
2) Impairment losses of ¥469 million
• This resulted in a loss before taxes and other adjustments of ¥1,071 million compared to a profit of ¥898 million in the previous year (a decrease of ¥1,970 million).
Corporate taxes (including deferred taxes)
• Corporate taxes increased from ¥604 million in the previous year to ¥621
million.
• Although the Company recognized a loss before taxes and other adjustments,
this payment of taxes reflects the Company’s recognition of additional deferred tax assets (stemming from the recognition of an additional ¥573 million in valuation reserves) and its recognition of ¥201 million in deferred tax liabilities (on retained earnings of overseas subsidiaries).
Net loss
• The Company recognized a net loss for the year of ¥1,709 million compared to
net income of ¥294 million in the previous year, a decline of ¥2,004 million.
3. Financial condition
Assets
• Total assets: declined by ¥13,612 million to ¥85,602 million.
• Principal changes:
1) Decline of ¥3,653 million in cash and deposits
2) Decline of ¥1,123 million in inventories
3) Decline of ¥1,093 million in buildings and structures
4) Decline of ¥8,179 million in investment securities
Liabilities
• Total liabilities: declined by ¥1,842 million to ¥13,203 million.
• Principal changes:
1) Decline of ¥520 million in notes and accounts payable-trade
2) Increase of ¥411 million in short-term borrowings
Shareholders’ equity
• Total shareholders’ equity: declined by ¥11,770 million to ¥72,399 million.
• Breakdown:
1) Decline of ¥2,409 million in retained earnings
2) Increase in treasury stock of ¥4,588 million
3) Decline in unrealized gains (losses) on other securities of ¥2,262 million
4) Decline in foreign currency translation adjustments of ¥2,525 million
Equity ratio
• The equity ratio at the end of the year was consequently 84.5% compared to
84.8% at the end of the previous year.
4. Strategic situation and forecasts
At the halfway point in its 3rd medium-term management plan (for the fiscal years to May 2009 and May 2010), the Company is pursuing the following specific strategies to rebuild profitability as it approaches the 100th anniversary of its founding (in 2013).
• Improving profitability domestically and internationally based on a number of
core strategic products—with an emphasis on improving profitability in the domestic market
• Bolstering the profitability of the retailing division by encouraging greater collaboration between the domestic wholesaling and retailing businesses • Taking aggressive steps to cultivate a presence in the major markets of India
and China
• Centralizing management of seed production strategies and ensuring the supply
of high-quality seeds
• Creating a global R&D presence and developing competitive products efficiently
Partly because of the global economic downturn, the task of restoring the
Company’s profitability remains ongoing, but results are being achieved steadily; some promising developments include the following:
• Vegetables: the new RINKA 409 tomato, which has received an excellent
response from producers in the major tomato growing regions of Japan.
1) Sales thus increasing sharply
• Flowers: the new VINCENT series of sunflowers 1) Well received by both the market and producers
2) The Company is working to ensure its ability to supply high-quality seeds.
• Retailing division: witnessing signs of a turnaround, with major improvements
seen principally in business with home improvement retailers
1) This improvement is a result, in part, of thoroughgoing efforts to manage profitability and to control costs according to product line.
2) In the mail-order business, the installation of a new system has generated a dramatic improvement in order processing capabilities and is being counted on to contribute to greater profitability in the future.
• International operations: as the recession lingers in Europe and North America, the strategic importance of India and China increases.
1) Local subsidiary established on schedule in India in May 2008.
2) Work has begun on sales infrastructure development, production and R&D in India.
Planning
• In addition to carrying out the critical strategies outlined in the 3rd
medium-term management plan, the Company will develop a 4th medium-term management plan, which will provide a framework for its final steps toward the centennial of its founding.
• By enunciating more specific strategies, the Company intends to establish itself securely as “Global Sakata,” a global corporation.
5. Analysis of sources of capital and liquidity
Millions of yen 2005 2006 2007 2008 2009
Equity ratio (%) 86.6 85.8 85.7 84.8 84.5
Market capitalization ratio (%) 72.7 73.9 74.3 79.4 70.7 Interest-bearing debt ratio (years) 31.9 92.0 380.0 84.4 483.1 Interest coverage ratio (times) 58.7 27.2 5.0 21.6 7.3
(Notes)
Equity ratio: total equity/total assets
Market capitalization ratio: total market capitalization/total assets Interest-bearing debt ratio: interest-bearing debt/cash flows Interest coverage ratio: cash flows/interest paid
1. All indicators are calculated on a consolidated basis.
2. The total market value of the Company’s shares is calculated on the basis of the total number of shares outstanding, less treasury stock.
• Major funding requirements
1) In addition to procurement expenses for seeds and horticultural products, the Sakata Group’s funding requirements revolve principally around
production-related expenses and SG&A and other operating costs. Its major operating expenditure categories include salaries, bonuses and other
personnel costs, transportation expenses, packaging expenses and advertising expenses.
2) The Group also maintains a program of ongoing capital investment aimed at upgrading, expanding and rationalizing its manufacturing facilities and strengthening its R&D capabilities.
3) The Sakata Group’s interest payment burden from its interest-bearing debt as of the end of the fiscal year under review was sufficiently low as a
percentage of expenditures. At its current level of interest-bearing debt, the impact on the Group’s operations of an increase in interest rates would be limited.
• Possibilities for financing
With respect to liquidity, the Group’s approach is to deal with unforeseen future situations by ensuring that it has sufficient liquidity on hand. With respect to financing, Sakata Seed Corporation and its domestic and international
subsidiaries all maintain good relationships with their correspondent financial institutions, enabling the respective companies to respond appropriately to situations in their locale.
6. Management’s assessment of issues and its future policies: see discussion under “Issues requiring action.”
Corporate governance
Corporate governance
1. Basic views regarding corporate governance
The Sakata Group’s management policy is “to become the top seed company in the world” by “helping to improve the everyday life and culture of the world’s people through the provision of high-quality products and services.” Based on its
2. Governing entities and system of internal control
• Basic explanation of the Company’s governing bodies
1) At its General Meeting of Shareholders held on August 30, 2007, the Company elected one outside director.
2) The Company employs a system of corporate auditors; two of its three corporate auditors are appointed from outside the Company.
3) The Company establishedan internal Auditing Office in January 2007 to
support the operations of its corporate auditors and its Board of Corporate Auditors.
• Governing bodies and internal control system
1) The Company’s governing bodies and their meeting schedules are as follows. On June 1, 2007, the Company introduced a new system of
corporate executive officers to expedite decision-making, devolve authority for execution of operations and make the most of up-and-coming younger managers.
a) Monthly meetings of the Board of Directors, where decisions are made on basic management policy and other important issues; all corporate
auditors also in attendance
b) Monthly senior management meetings, attended by all directors above the rank of managing director and by the standing corporate auditors
c) Monthly general managers’ meetings, attended by general managers, branch managers and standing corporate auditors
d) Monthly corporate executive officers’ meetings, attended by directors, corporate auditors and corporate executive officers
2) Methods of internal auditing and oversight
a) To ensure the health of operations, the Auditing Office conducts audits of the Company and its domestic affiliates based on internal regulations.
b) Formerly reporting directly to the President, the Auditing Office now reports to the senior management meeting; because it is also responsible for evaluating internal controls, it is staffed by three persons.
c) When expert judgment becomes necessary, the office receives advice from consulting attorneys, consulting tax accountants and others. • Internal audits; audits by corporate auditors
month and in extraordinary sessions as the need arises; audits by individual auditors are carried out in accordance with the policies and division of responsibility determined by the Board of Corporate Auditors.
2) Addition of personnel: in June 2008, the Company created and filled the position of full-time director for the Corporate Auditors’ Office, which was established in January 2007; the above-mentioned Auditing Office carries out internal audits based on internal regulations.
3) Coordination
a) To coordinate the various audits—by the Auditing Office, corporate auditors and financial auditors—the corporate auditors and members of the Auditing Office meet on an as-needed basis to exchange information. b) The financial auditors and corporate auditors also meet on an as-needed
basis to discuss findings and exchange relevant information.
• Financial audits
1) Conducted by the following certified public accountants and 11 assistants (three CPAs and eight others)
2) The Company asks KPMG AZSA & Co. to conduct its audits in accordance with the Financial Instruments and Exchange Law.
Name Affiliation
No. of consecutive years of auditing the Company’s accounts Designated partner/engagement partner:
Hiroshi Kawai
KPMG AZSA & Co. 6 years
Designated partner/engagement partner: Shigemori Akiyama
KPMG AZSA & Co. 5 years
• Relationships between the Company and its external directors and corporate
auditors
1) Atsushi Hachiboshi, who was re-elected as an outside director, served as one of the Company’s external corporate auditors from August 2003 to August 2007. He is not a former employee of the Company or any of its affiliates; he does not have any ownership, transactional or other interests in the
Company.
2) Kunihiko Maeda, one of two external corporate auditors, was elected as Atsushi Hachiboshi’s replacement. He is not a former employee of the Company or any of its affiliates; he does not have any ownership, transactional or other interests in the Company.
3. Status of risk management system
• Development of a Risk Management Manual to ensure quick and effective
responses to risks facing the enterprise
1) When an event occurs and is reported, a Crisis Management Headquarters
shall be established.
2) Construction of an information-conveyance mechanism
3) Direct, hands-on control by the President
• Procedures for the protection and acquisition of rights related to the intellectual property of the Company and its affiliates are
1) Coordinated by the Legal Department and the Research and Development
Headquarters and
2) Conducted with the aim of responding in an appropriate and timely manner
to changes that occur in every country around the world.
• System to ensure ethical behavior and to foster the development of healthy
openness in the corporate culture
1) Preparation and distribution of a Compliance Manual
2) Adoption of measures to educate employees and to encourage ethical
behavior
• Customer Relations Office organized to improve customer satisfaction
1) Central collection point for complaints received by other departments or directly from customers
2) Reporting to the Board of Directors
3) Responsible for enhancing customer satisfaction and reducing response time
4. Basic policies regarding internal control and measures adopted to improve internal control
(1) Mechanisms to ensure that, in executing their duties, the directors and
employees act in accordance with all relevant laws and ordinances and with the Company’s Articles of Incorporation
1) Preparation of a Compliance Manual and other regulations to ensure the development of, and widespread adherence to, a system of compliance; the directors and employees closely follow the provisions of this manual and these regulations.
2) Establishment of a Compliance Committee headed by the President with the participation of outside attorneys
a) The committee decides on all important policies regarding training, education and other compliance-related programs.
b) It reports all required information to the Board of Directors.
3) Establishment of compliance consultation offices both within and outside the Company, where any employee of the Sakata Group can go to consult about and/or report on actions that appear questionable from the standpoint of legal or ethical compliance
a) The Company strictly protects the secrecy of such reports and/or consultations.
b) It does not treat whistleblowers in any way that violates the
Whistleblower Protection Act or other laws or ordinances, or in any way that violates the Company’s internal regulations.
(2) Mechanisms to ensure the preservation and control of information related to the directors’ execution of duties
1) Preservation of all documents and related materials that bear on the execution of duties by directors (including documents recorded on electronic media)
a) Preservation for periods prescribed under the Company’s Regulations on the Management of Documents, and preservation in the departments or sections indicated by such regulations
b) Ensuring that such documents are available for inspection on an as-needed basis
2) Management of documents is carried out in accordance with the following:
a) Standards for Establishing Information Security Measures
(3) Regulations and other structures to protect against the risk of losses
1) The Company recognizes and evaluates a number of specific risks, including the following:
a) Weather-related risks
b) Risks associated with geopolitical and societal changes in regions where it does business
c) R&D-related risks
d) Risks related to infringements of intellectual property rights
e) Risks related to safety
f) Foreign exchange risks
2) Each division (responsible for research, production and distribution, quality control, domestic sales, and international sales or management) identifies and manages the risks specific to its particular area of operations.
a) When necessary, manuals are created and operating regulations established.
b) Weather-related risks have a special bearing on agricultural enterprises; since weather cannot be predicted or controlled, the Company deals with these risks through diversification; i.e., by establishing production areas in different countries around the world.
c) In an emergency, the Company implements solutions by following procedures spelled out in its Risk Management Manual:
- Establishment of a Crisis Management Headquarters headed by the President
- Construction of an information-conveyance mechanism
(4) Mechanisms to ensure efficient execution of duties by the directors
1) The directors execute their duties in a manner stipulated under the
Company’s Regulations Concerning the Division of Duties and its Table of Standards Related to Personal Authority.
2) To enable the directors to carry out their duties efficiently, the Company permits collaboration with other directors and employees through
committees and project teams.
4) When the Company meets the conditions specified under Article 370 of the Companies Act, it permits resolutions of the Board of Directors to be
adopted through written communications.
(5) Mechanisms that ensure the appropriate conduct of operations of the Corporate Group (comprising the Company and its subsidiaries)
1) Operations of subsidiaries managed and overseen by the Office of Management and Planning
2) In accordance with its Regulations Concerning the Management of Subsidiaries, the Company takes steps such as the following to ensure sound, effective operation of the Corporate Group:
a) Promotion of information exchange
b) Establishment of a system of collaboration, including personnel exchanges
c) Provision of appropriate levels of management guidance for subsidiaries
(6) Matters with respect to the employees concerned when the corporate auditors request the assistance of employees in carrying out their auditing duties; matters related to ensuring the independence of such employees from the directors
1) When requested to do so by a corporate auditor, the Company shall establish a position to be filled by employees with responsibility for assisting the corporate auditors with their duties.
2) The directors shall consult with the Board of Corporate Auditors regarding each of the following matters:
a) The numbers and ranks of such employees
b) The lines of authority under which they operate
c) Compensation
d) Personnel transfers
(7) Mechanisms related to reporting by the directors and employees to the
corporate auditors and to other instances of reporting to the corporate auditors
1) When they discover facts that could cause significant harm to the Company, directors shall report such facts to the corporate auditors.
3) To enable the corporate auditors to execute their duties smoothly and effectively, directors and employees shall report important
management-related matters to the corporate auditors; they shall also provide the corporate auditors with status reports on operations.
4) The corporate auditors shall be allowed to participate in the following:
a) Senior management meetings and other important management meetings
b) Compliance Committee meetings, where they shall receive reports on the operations of the Compliance Consultation Offices; the kinds of issues under consultation at these offices; and the improvements being made as a result of such consultations
(8) Mechanisms related to ensuring the effectiveness of the corporate auditors in other areas
1) The directors and corporate auditors shall endeavor to meet regularly and to improve their mutual communication.
2) When the corporate auditors deem it necessary for reasons concerning operations, they shall receive reports on audits and the status of operations from the following and shall exchange information on such matters with them:
a) Persons responsible for the Internal Auditing Division
b) Corporate auditors of subsidiaries
c) Other persons in equivalent positions
3) When they deem it necessary, the corporate auditors shall have the authority to appoint attorneys, CPAs or other outside experts independently for the purpose of auditing operations.
The following is an update on the status of the primary measures the Company has adopted in accordance with the foregoing basic policies; it also lists any new
measures the Company has adopted during the fiscal year under review.
(1) When a new President was appointed in June 2007, the Company revised its compliance manuals and distributed them to all directors and employees; it has repeatedly taken action through such means as training sessions and other educational programs to ensure observance of laws and of Sakata Seed’s Code of Conduct.
(3) In the event of a crisis, the Company shall immediately establish a Central Emergency Response Headquarters chaired by the President to act quickly and efficiently in response to the situation; the Company is now revising and
improving related regulations to facilitate effective responses.
(4) The Company implemented a corporate executive officer system in June 2007 to expedite decision-making and to improve its operating efficiency.
(5) Based on the Company’s Rules on the Management of Affiliated Companies and through participation in senior management meetings of the affiliates in question, the departments and directors responsible for overseeing affiliated companies develop a firm grasp of the operating conditions of these affiliates and provide for their appropriate management.
(6) The Company established a Corporate Auditors’ Office in January 2007 to assist the corporate auditors in the execution of their duties.
(7) In addition to attending all important management meetings, including Board of Directors meetings and senior management meetings, the corporate auditors study all documents related to important corporate decisions.
(8) From time to time, directors and corporate auditors exchange information on the status of risk management activities within the Company and its affiliates as a means of establishing and maintaining good communications.
5. Directors’ compensation
Directors Corporate auditors
Millions of yen Number Amount Number Amount Compensation paid to directors and corporate auditors 7 80 3 27 Employee salaries and bonuses Employee compensation paid to directors who are also
employees
37
6. Professional fees paid to financial auditors
Millions of yen
Compensation for audit certification as stipulated under Article 2-1 of the Certified Public Accountants Law
55
7. Content of agreements limiting liability
• In accordance with Article 423-1 of the Companies Act, the Company has
entered into agreements with all of its outside corporate auditors limiting their liability.
• These agreements contain a maximum liability for the payment of damages by
8. Necessary number of directors
The Company has stipulated in its Articles of Incorporation that there shall be no more than 11 directors.
9. Resolutions for the election of directors
The Company has stipulated in its Articles of Incorporation that resolutions concerning the election of directors must be approved as follows: shareholders holding one-third or more of the voting rights of all shareholders eligible to vote must be in attendance, and a majority of these must vote in the affirmative. Cumulative voting is not permitted.
10. Acquisition of the Company’s own shares
The Company has stipulated in its Articles of Incorporation that, in accordance with Article 165-2 of the Companies Act, it is authorized to acquire its own shares through market transactions based on a resolution adopted by the Board of
Directors. The purpose of such acquisitions is to enable the Company to implement agile and efficient strategies with respect to shareholders and financing.
11. Interim dividends
The Company has stipulated in its Articles of Incorporation that, in accordance with Article 454-5 of the Companies Act, it is authorized to pay an interim dividend with a date of record of November 30 each year based on a resolution adopted by the Board of Directors. The purpose of such interim dividends is to enable the Company to execute a dividend policy that is at once stable, agile and proactive.
12. Requirements for special resolutions at the General Meeting of Shareholders
With respect to special resolutions by the General Meetings of Shareholders, as provided for under Article 309-2 of the Companies Act, the Company has stipulated in its Articles of Incorporation that approval of such resolutions shall require that shareholders holding one-third or more of the voting rights of all shareholders eligible to vote be in attendance, and that two-thirds of the
shareholders present vote in the affirmative. The aim of this rule is to promote smoother transaction of business at the General Meetings of Shareholders.
Financial auditors’ compensation
1. Compensation paid to financial auditors
2008 2009
Millions of yen
Financial audit services
Non-audit services
Financial audit services
Non-audit services
-2. Other important compensation
The Company paid auditing compensation of ¥43 million to KPMG, which audited certain of the Company’s subsidiaries and which is a member firm of the network of financial auditors that audited the Company.
3. Compensation policy for financial audit services
Although there is no policy to report under this section, the Company determines the compensation it pays to its financial auditor based on discussions with the auditor, taking comprehensively into account the auditor’s estimation of the number of days required for the audit and the number of auditors whose
participation is necessary in light of the Company’s size and the characteristics of its operations.
Directors
Name Title
Date joined company
Previous or current
employers/occupations Date of birth Term
Thousand shares Hiroshi Sakata President and
Representative Director
May-81 The Dai-Ichi Kangyo Bank Ltd.
14-Feb-52 2 years from the General Meeting of Shareholders (GMS) held in May 2009
65.3
Hiroshi Arakawa Senior Managing Director
Apr-69 20-Jan-46 2 years from GMS held in May 2009
10.4
Makoto Ohta Managing Director Jul-90 The Sanwa Bank Ltd. 21-Oct-48 2 years from GMS held in May 2009
7.6
Ryoichi Kojima Director Apr-69 30-Oct-46 2 years from GMS held in May 2009
7.0
Seiko Tasaki Director Sep-92 16-Dec-48 2 years from GMS held in May 2009
1.9
Seiji Miyazaki Director Apr-70 1-May-46 2 years from GMS held in May 2009
7.3
Atsushi Hachiboshi Director Aug-03 Mizuho Bank, Ltd., Mizuho Research Institute
4-Sep-49 2 years from GMS held in May 2009
1.0
Akishige Sekiya Standing Corporate Auditor
Apr-70 3-Sep-47 4 years from GMS held in May 2008
5.9
Yoshinobu Sato Corporate Auditor Aug-03 Nissho Iwai Corp., Shin Mitsui Sugar
30-Jun-41 4 years from GMS held in May 2007
3.0
Kunihiko Maeda Corporate Auditor Aug-07 Mizuho Bank, Ltd., AEON Mall Co., Ltd.
5-Jul-41 4 years from GMS held in May 2008
-109.4
Current assignments and previous positions in the Company have been omitted.
Under law, the Company is required to have a certain number of corporate auditors. To prepare for the possibility that it might not be able to fill the required number of seats, the Company has elected an alternate corporate auditor in accordance with Article 329-2 of the Companies Act.
Name Title
Date joined company
Previous or current
employers/occupations Date of birth
Thousand shares Tadashi Suzuki Alternate Corporate
Auditor
Employees
Consolidated 2009
Business segment Number
Wholesaling 1,479 Retailing 98 Others 10
Corporate staff 236
1,823
Parent Total or average
Number 595
Average age 37.0
Average years of service 13.7
Average annual salary (thousands of yen) 5,766 Average annual salary includes bonuses and overtime pay.
Union
Sakata Seed Corporation’s union is an intra-Company union independent of any outside umbrella organization. The Company enjoys amicable labor relations.
Acquisition of treasury stock
Types of shares
The acquisition of common stock as stipulated under Articles 155-3 and 155-7 of the Companies Act.
Acquisition in accordance with resolution of the Board of Directors
Acquisitions of shares under Article 156 of the Companies Act, as applied pursuant to Article 165-3 of the Companies Act
Yen No. of shares Total value
Details of resolution of the Board of Directors (April 30, 2009)
(Period of acquisition: May 1, 2009)
3,800,000 4,894,400,000
Treasury stock acquired before the year under review - - Treasury stock acquired during the year under review 3,560,000 4,585,280,000 Total number of shares remaining to be repurchased
under the resolution and total market value of such shares
240,000 309,120,000
Authorized shares remaining as of the end of year under review (%)
6.3 6.3
Treasury stock acquired during the period - - Authorized shares remaining as of the date of filing
(%)
Acquisitions which are not based on resolutions adopted by the General Meeting of Shareholders or the Board of Directors
Yen No. of shares Total value
Treasury stock acquired during the year under review 3,122 4,491,480 Treasury stock acquired during the period under review 275 362,162
Disposal and ownership of treasury stock
Fiscal year under review Period under review
Yen
Number of shares
Total value of disposed shares
Number of shares
Total value of disposed shares Acquired treasury stock sold to underwriters - - - -Acquired treasury stock subsequently cancelled - - - -Acquired treasury stock transferred through mergers,
share exchanges or corporate divisions
- - -
-Others
(Treasury stock acquired in response to shareholders’ requests to purchase shares of less than one unit)
580 856,409 -
-Cash Flows
Consolidated statement of cash flows
Years ended May 31; Millions of yen 2007 2008 2009 Net cash provided by (used in) operating activities
Net income before taxes and other adjustments 1,180 898 (1,071)
Depreciation expenses 2,343 2,064 1,990
Amortization of negative goodwill (97) (17) (17)
Allowance for doubtful accounts (173) (35) 293
Interest and dividend income (480) (516) (548)
Interest expenses 138 153 96
Foreign exchange losses (gains) (12) 18 272
Impairment losses 362 135 469
Loss on valuation of investment securities - 425 938 Loss (gain) on sales of investment securities (33) 37 -Loss (gain) from investment securities portfolio (150) 90 333 Decrease (increase) in trade receivables 89 (393) (611) Decrease (increase) in inventories (1,301) (524) (240) Increase (decrease) in notes and accounts payable (942) (482) 3 Increase (decrease) in accounts payable - other - - (1,411)
Others (228) 1,807 (97)
694 3,662 397
Interest and dividends received 491 512 545
Interest paid (151) (151) (92)
Income taxes refund - - 55
Income taxes and others paid (345) (612) (226)
Years ended May 31; Millions of yen 2007 2008 2009 Net cash provided by (used in) investing activities
Increase in time deposits (1,555) (3,274) (6,788)
Proceeds from decrease in time deposits 1,161 4,384 8,556 Payments for purchase of marketable securities (95) (239) -Proceeds from sales of marketable securities 355 239 -Payments for acquisition of tangible fixed assets (984) (1,060) (922) Proceeds from sales of tangible fixed assets 455 120 88 Payments for acquisition of intangible fixed assets (498) (180) (668) Proceeds from redemption of marketable securities 1,099 - -Payments for purchase of investment securities (1,308) (1,232) (368) Proceeds from sales of investment securities 66 157 -Proceeds from redemption of investment securities - 239 2,600 Payments for acquisition of subsidiaries' capital (0) (1)
-Payments for loans and advances (28) (3)
-Proceeds from collection of short-term loans 35 6
-Others 1 (136) 126
(1,296) (979) 2,622 Net cash provided by (used in) financing activities
Increase (decrease) in short-term borrowings 98 325 713 Payments for purchase of treasury stock (3) (4) (4,589)
Dividend payments (990) (989) (742)
Others (14) 45 (87)
(910) (624) (4,705) Effects of exchange rate changes on cash and cash equivalents 84 (167) (360) Increase (decrease) in cash and cash equivalents (1,433) 1,639 (1,763) Cash and cash equivalents at beginning of year 6,862 5,428 7,067 Cash and cash equivalents at end of year 5,428 7,067 5,304
Relationship between the balance of cash and cash equivalents as of term-end and balance sheet items
Years ended May 31; Millions of yen 2007 2008 2009
Cash and deposits 13,672 13,846 10,192
Time deposits, etc., of 3 months or longer (8,243) (6,778) (4,888)
Capital expenditures
The Sakata Group made capital investments in the amount of ¥1,591 million during the period under review. The principal expenditures were as follows: ¥268 million for the Group’s core computer system; ¥97 million for development of a system for its mail-order business; ¥74 million for the acquisition of genetic resources for research purposes; and ¥105 million for the building of a new seed warehouse for Alf
Christianson Seed Co., a subsidiary.
Dividend policy
The Company considers returning profits to shareholders to be a significant issue for management. From a medium-to-long-term perspective, its basic policy is to maintain a consistent and continuing distribution of profits that takes its consolidated financial performance each term into account and ensures maintenance of a sufficient level of retained earnings to strengthen its management culture and foundations.
In the year ended May 2009, however, the Company reported a net loss of ¥1,709 million, which it considers to be an extremely regrettable outcome. Thus, for the full year, it will pay a dividend of ¥10 per share, including the ¥5 per share it paid out as an interim-period dividend. For the year ending May 2010, despite the extremely difficult operating environment, the Company plans to pay a dividend of ¥20 per share.
The Company’s basic policy is to pay out dividends twice a year in the form of an interim-period dividend and a year-end dividend. Decisions regarding these dividends are made by the General Meeting of Shareholders in the case of the year-end dividend and by the Board of Directors in the case of the interim-period dividend. The
Company has stated in its Articles of Incorporation, moreover, that it may pay interim-period dividends in accordance with the provisions of Article 454-5 of the Companies Act.
The Company will endeavor to invest its shareholders’ capital efficiently and to continue to live up to the expectations of its shareholders.
The dividends paid for the year under review are as shown below.
Date of decision Dividend payout Dividend per share (Millions of yen) (Yen) January 13, 2009
Resolution of Board of Directors
247 5
August 28, 2009
Resolution of General Meeting of Shareholders
Consolidated Operations
Consolidated income statement
Years ended May 31; Millions of yen 2007 2008 2009
Net sales 46,671 46,781 45,355
Cost of goods sold 24,716 24,028 23,859
Gross profit on sales 21,955 22,753 21,496
Selling, general and administrative expenses 21,682 21,449 20,309
Operating income 273 1,303 1,186
Nonoperating income
Interest income 259 237 265
Dividend income 220 278 283
Rental income 190 233 229
Amortization of negative goodwill 97 17 17
Foreign exchange gains 346 -
-Gain from investment securities portfolio 150 -
-Others 137 158 152
1,403 925 948
Nonoperating expenses
Interest expenses 137 153 96
Sales discount 38 34 28
Foreign exchange losses - 391 849
Loss on investment securities portfolio - 90 333
Others 122 155 151
298 824 1,459
Ordinary profit 1,378 1,404 675
Extraordinary income
Gain on sales of fixed assets 76 83 56
Gain on sales of investment securities 33 -
-Gain on reversal of allowance for doubtful accounts 91 -
-Insurance claims received 44 22
-Gain on reversal of allowance for retirement benefits at overseas subsidiaries
64
-Subsidy income - 41
-Others 50 22 36
Years ended May 31; Millions of yen 2007 2008 2009 Extraordinary losses
Impairment losses 362 135 469
Loss on office relocation 77 -
-Special retirement allowances for directors and corporate auditors at overseas subsidiaries
72
-Special retirement expenses - 23
-Loss on valuation of investment securities - 425 938
Production indemnification expenses - 32 29
Loss on valuation of inventories - - 246
Others 46 59 156
558 675 1,840
Income before taxes and other adjustments 1,180 898 (1,071) Corporate, inhabitant and other taxes 532 422 399
Income tax refunds - (15)
-Adjustment of prior years’ corporate taxes - - 13
Deferred taxes 456 197 208
989 604 621
Minority interests in income of consolidated companies (2) (0) 16
Consolidated statement of changes in net assets
Years ended May 31; Millions of yen 2007 2008 2009 Shareholders' equity
Common stock
Balance at end of previous term 13,500 13,500 13,500 Changes of items during the term
Total changes of items during the term - -
-Balance at the end of current term 13,500 13,500 13,500 Capital surplus
Balance at end of previous term 10,823 10,823 10,823 Changes of items during the term
Disposal of treasury stock (0) 0 (0)
Total changes of items during the term (0) 0 (0) Balance at the end of current term 10,823 10,823 10,823 Retained earnings
Balance at end of previous term 62,178 61,382 60,687 Effect of changes in accounting policies applied to foreign
subsidiaries
- - 42
Changes of items during the term
Dividends (989) (989) (742)
Net income (loss) 194 294 (1,709)
Total changes of items during the term (795) (694) (2,451) Balance at the end of current term 61,382 60,687 58,278 Treasury stock
Balance at end of previous term (2,090) (2,094) (2,097) Changes of items during the term
Acquisition of treasury stock (4) (4) (4,589)
Disposal of treasury stock 0 2 0
Total changes of items during the term (3) (2) (4,588) Balance at the end of current term (2,094) (2,097) (6,685) Total shareholders' equity
Balance at end of previous term 84,410 83,611 82,913 Effect of changes in accounting policies applied to foreign
subsidiaries
- - 42
Changes of items during the term
Dividends (989) (989) (742)
Net income (loss) 194 294 (1,709)
Acquisition of treasury stock (4) (4) (4,589)
Years ended May 31; Millions of yen 2007 2008 2009 Valuation/translation gains (losses)
Unrealized gains (losses) on other securities
Balance at end of previous term 2,808 3,759 2,429 Changes of items during the term
Other changes in non-shareholders' equity items during the term (net)
950 (1,329) (2,262)
Total changes of items during the term 950 (1,329) (2,262) Balance at the end of current term 3,759 2,429 167 Foreign currency translation adjustments
Balance at end of previous term 170 739 (1,244) Changes of items during the term
Other changes in non-shareholders' equity items during the term (net)
569 (1,984) (2,525)
Total changes of items during the term 569 (1,984) (2,525) Balance at the end of current term 739 (1,244) (3,770) Total valuation/translation gains (losses)
Balance at end of previous term 2,979 4,499 1,184 Changes of items during the term
Other changes in non-shareholders' equity items during the term (net)
1,519 (3,314) (4,788)
Total changes of items during the term 1,519 (3,314) (4,788) Balance at the end of current term 4,499 1,184 (3,603) Minority shareholders' equity in consolidated companies
Balance at end of previous term 80 79 71
Changes of items during the term
Other changes in non-shareholders' equity items during the term (net)
(1) (8) 15
Total changes of items during the term (1) (8) 15
Balance at the end of current term 79 71 87
Total net assets
Balance at end of previous term 87,470 88,189 84,169 Effect of changes in accounting policies applied to foreign
subsidiaries
- - 42
Changes of items during the term
Dividends (989) (989) (742)
Net income (loss) 194 294 (1,709)
Acquisition of treasury stock (4) (4) (4,589)
Disposal of treasury stock 0 2 0
Other changes in non-shareholders' equity items during the term (net)
1,518 (3,322) (4,772)
Results of operations
Fiscal year ended May 31, 2009 (year on year, percentage changes)
Net sales down 3.0% to ¥45,355 million; operating income down 9.0% to ¥1,186 million; ordinary profit, down 51.9% to ¥675 million; and net loss of ¥1,709 million compared to net income of ¥294 million in the previous year
Economic and other factors affecting operations
1. Price pressures and financial system shocks
• In Japan, economy impacted in first half by rising prices linked to sharply higher prices of oil and skyrocketing commodity markets; in second half, these economic difficulties compounded by a precipitous downturn in the global economy touched off by the Lehman Brothers bankruptcy in the autumn of 2008, referred to as the “Lehman Shock”
• Overseas, plunging growth rates in the previously rapidly expanding
economies of Asia; and financial market disarray and deteriorating real
economies driving economic decline to crisis proportions in the United States and Europe
2. Industry and market trends
• Globally, a continuation of the slump in flower purchasing
• For vegetables, signs of an “agricultural boom,” which many open up
significant business opportunities based on the following:
1) A growing appreciation among consumers of safe, worry-free food
2) A return of consumers to locally grown produce
3) Greater efforts by governments and others to increase the ratio of food self-sufficiency
• Amid growing concerns about environmental problems, plants that function to
the advantage of the environment begin attracting increased interest.
3. In light of the above, efforts by the Company to increase market share and improve profitability
• In the area of flowers, vigorous demonstrations to buyers of SunPatiens’ superior environmental cleansing capabilities
• In the area of vegetables, introduction of major new varieties of tomatoes, carrots, broccoli and spinach
Segment information by business
1. Wholesaling: net sales down 5.8% to ¥31,616 million; operating income down 7.6% to ¥6,271 million
• Vegetable seeds: domestic operations continue to drive this business; but partly
because overseas sales figures are reduced when expressed in yen due to the ongoing appreciation of the yen, overall sales are lower.
• Flowers: continued weak performance by all major product lines
• Seedlings: lower sales in Europe due to the impact of the yen’s appreciation; in
Japan, flat year on year sales
2. Retailing: net sales up 7.4% to ¥13,182 million; operating loss of ¥253 million (representing a narrowing of the loss of ¥665 million in the previous year)
• Home gardening department: strong sales of vegetable seeds, seedlings and
horticultural products, contributing to year-on-year growth in sales
• Mail-order: higher sales of vegetable seeds offset by weakness in seedlings and
horticultural products, resulting in lower revenues.
• Garden center: generally strong progress of business
3. Other businesses: net sales down 41.1% to ¥556 million; operating loss of ¥82 million (compared to operating income of ¥42 million in the previous year), a result primarily reflecting the impact on landscaping operations of a sharp decline in orders from the private sector and reductions in public works spending.
Segment information by region
1. Japan: net sales up 1.2% to ¥30,744 million; operating income down 2.9% to ¥5,453 million
• Growth in retail sales centered on vegetable seeds and horticultural products
• Wholesaling business: mixed results
1) Brisk sales of vegetable seeds
2) Sluggish sales of flower seeds, bulbs and horticultural products; disappointing performance in seedlings
• Wholesaling: performance according to product
1) Vegetable seeds: weakness in daikon radishes; growth in tomatoes and carrots
