Our Growth
SAPPORO HOLDINGS LIMITED
Annual Report 2010
* All figures in this annual report are rounded to the nearest applicable unit.
Sapporo Group Management Plan 2011–2012 Group Portfolio at a Glance
Overseas Deployment
02
Financial Highlights04
To Our Stakeholders06
Interview With the President12
Feature 1: Vietnam Brewery Operation14
Feature 2: Management Integration With POKKA CORPORATION16
Performance Review and Plan 16 Alcoholic Beverages (Japan) 18 Alcoholic Beverages (International) 20 Soft Drinks21 Restaurants 22 Real Estate
23
Corporate Governance26
Board of Directors and Auditors28
Five-Year Summary29
Management’s Discussion and Analysis32
Consolidated Balance Sheets34
Consolidated Statements of Income35
Consolidated Statements of Shareholders’ Equity36
Consolidated Statements of Cash Flows37
Notes to Consolidated Financial Statements57
Corporate DataContents
Gains Traction
Sapporo Group Management Plan 2011–2012
GROUP PORTFOLIO AT A GLANCE
■ International Alcoholic Beverages ■ POKKA ■ Japanese Alcoholic Beverages ■ Real Estate ■ Soft Drinks ■ Restaurants
Note: All figures in this annual report are rounded to the nearest applicable unit.
All Management Plan figures are derived from a simplified segment classification method based on the management approach.
* Results of –¥0.7 billion → –¥0.3 billion for Other and –¥3.0 billion → –¥3.3 billion for general corporate and intercompany eliminations have been omitted from the pie charts.
* The result of ¥0.6 billion → ¥2.0 billion for Other has been omitted from the pie charts.
¥389.2
72% 7% 9%
7%
6%
¥519.5
Target
56% 8% 6%
20% 5%
Net Sales
(¥ billion) 5%■ ¥25.4 ➔ ¥32.2
■ – ➔¥103.9
■ ¥279.3 ➔¥290.6
■ ¥23.5 ➔ ¥24.7
■ ¥33.9 ➔ ¥39.8
■ ¥26.4 ➔ ¥26.3
¥15.4
48% 1%3%7%
42%
¥20.0
Target
45% 3%3% 10%
38%
Operating Income
(¥ billion)■ ¥0.5 ➔ ¥0.3
■ – ➔ ¥2.4
■ ¥9.2 ➔¥10.6
■ ¥8.0 ➔ ¥9.0
■ ¥1.3 ➔ ¥0.7
■ ¥0.2 ➔ ¥0.6
2010 2012 Target
Growth Drivers
Earnings Stabilities Group Synergies
1%
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•
•
•
•
•
•
•
•
•
•
•
•
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■ ■ ■ ■ ■ ■
→ →
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0 10,000 20,000 30,000 40,000
32,200
29,200
25,386
12 11 10 (Target)
0 100,000 200,000 300,000
290,600
286,700
279,312
12 11 10 (Target)
0 10,000 20,000 30,000
24,700
23,000
23,537
12 11 10
(Target)
0 10,000 20,000 30,000 40,000
39,800
37,400
33,946
12 11 10 (Target) 0
40,000 80,000 120,000
103,900
78,900
12 11 10
(Target)
0 10,000 20,000 30,000
26,300
25,500
26,429
12 11 10
(Target)
0 200 400 600
300
100
502
12 11 10 (Target)
0 4,000 8,000 12,000
10,600
9,800
9,234
12 11 10
(Target)
0 2,500 5,000 7,500 10,000
9,000
8,300
8,003
12 11 10
(Target)
0 500 1,000 1,500
700
700
1,287
12 11 10 (Target) 0
1,000 2,000 3,000
2,400
2,300
12 11 10
(Target)
0 200 400 600
600
400
150
12 11 10
(Target)
Other Businesses (Foods)
• SAPPORO FOODS NET CO., LTD.
• SAPPORO FINE FOODS CO., LTD.
• SAPPORO GROUP MANAGEMENT CO., LTD.
Japanese Alcoholic Beverages
• SAPPORO BREWERIES LTD.
• SAPPORO WINES LIMITED
• YEBISU WINEMART CO., LTD.
• SAPPORO LOGISTICS SYSTEMS CO., LTD.
• TANOSHIMARU SHUZO CO., LTD.
• SAPPORO ENGINEERING LIMITED
• STARNET CO.,LTD.
• NEW SANKO INC.
International Alcoholic Beverages
• SAPPORO INTERNATIONAL INC.
• SAPPORO U.S.A., INC.
• SAPPORO CANADA INC.
• SLEEMAN BREWERIES LTD.
• SAPPORO ASIA PRIVATE LIMITED
• SAPPORO VIETNAM LIMITED
Soft Drinks
• SAPPORO BEVERAGE CO., LTD.
• STELLA BEVERAGE SERVICE CO., LTD.
• STAR BEVERAGE SERVICE CO., LTD.
POKKA GROUP
• POKKA CORPORATION
• SUN POKKA CO., LTD.
• POKKA CREATE CO., LTD.
And another 22 companies
Restaurants
• SAPPORO LION LIMITED
Real Estate
• YEBISU GARDEN PLACE CO., LTD.
• YGP REAL ESTATE CO., LTD.
• SAPPORO URBAN DEVELOPMENT CO., LTD.
• TOKYO ENERGY SERVICE CO., LTD.
• SAPPORO SPORTS PLAZA CO., LTD.
• YOKOHAMA KEIWA BUILDING CO., LTD.
Key Theme
We will seek to offer a line of distinctive products and expand profits in the Foods business through maximization of intra-group synergies, streamlining, and greater efficiency.
➔ P. 20 To achieve sustained growth, we will aim to provide the greatest excitement and joy to customers in the beer, shochu, wine, and RTD (ready-to-drink) sectors while implementing structural reforms and working vigorously to achieve our sales and profit targets.
➔ P. 16–17
We will work to maintain and reinforce our stable profit structure and enhance the value of the SAPPORO Group’s properties. We will carefully screen new pros- pects and acquire only prime properties.
➔ P. 22
The Soft Drinks business will pursue a growth strategy based on brand-building and undertake measures designed to boost its operating margin.
➔ P. 20 Drive growth by harnessing Group synergies with each segment.
➔ P. 14–15
We will work to invigorate existing restaurants and develop formats differentiated from the competition. We will also undertake cost structure reforms from a medium-term perspective to enable the business to weather economic change.
➔ P. 21 We will strengthen and expand our brand in North America and Asia as our top priorities while also expand- ing beyond our traditional alcoholic beverages operations to transform the International Alcoholic Beverages business into broader International Operations.
➔ P. 12 ➔ P. 18–19
Business Segments from 2011 Net Sales Key Themes
(Incl. alcohol taxes) (¥ Million)
Operating Income (Loss)
(¥ Million)
Growth DriversEarnings StabilitiesGroup Synergies
Hong Kong
26 restaurants in Hong Kong operated by POKKA Corporation (HK) Ltd.
➔ P. 14 Feature
Singapore
Expanding sales channels and entering the household market in cooperation with POKKA CORPORATION.
➔ P. 14 Feature
Vietnam
SAPPORO VIETNAM LIMITED to produce beer and whole- sale alcoholic beverages
from fall of 2011.
➔ P. 12 Feature
Japan
Canada
SLEEMAN BREWERIES LTD.
South Korea
Entered into an alliance with South Korean company Maeil Dairies Co., Ltd. in November 2010 for selling
beer in South Korea.
USA
SAPPORO U.S.A., INC.
OVERSEAS DEPLOYMENT
01
SAPPORO HOLDINGS LIMITED Annual Report 2010 SAPPORO HOLDINGS LIMITED
Annual Report 2010
01
Financial Highlights
(Years ended December 31)Millions of yen
Thousands of U.S. dollars
2010 2009 2008 2007 2006 2010
For the Year Net sales
Including tax . . . ¥389,245 ¥387,534 ¥414,558 ¥449,011 ¥435,090 $4,779,528 Excluding tax . . . 269,874 264,604 284,412 309,794 294,066 3,313,778 Operating income . . . 15,403 12,896 14,685 12,363 8,613 189,134 EBITDA . . . 39,080 36,475 37,158 37,759 30,543 479,865 Net income . . . 10,773 4,535 7,640 5,509 2,338 132,277 Capital expenditures . . . 22,571 23,485 29,378 19,548 30,790 277,155
Depreciation and amortization . . . 22,504 22,547 21,605 24,527 21,930 276,328
Cash flows from operating activities . . . 27,431 12,454 22,292 30,691 28,589 336,825
Cash flows from investing activities . . . (2,595) (32,227) 16,856 (13,495) (54,415) (31,863)
Free cash flows . . . 24,836 (19,773) 39,148 17,196 (25,826) 304,962
Cash flows from financing activities. . . (18,120) 3,746 (22,207) (19,569) 9,352 (222,489)
At Year End
Net assets . . . 126,645 118,591 116,862 125,189 113,496 1,555,077 Total assets . . . 494,798 506,875 527,287 561,859 589,597 6,075,619 Financial liabilities . . . 181,335 196,794 189,252 212,464 236,033 2,226,609
Other Indicators
Overseas sales ratio . . . 9.4% 8.5% 8.8% 9.0% 1.8%
Operating income to net sales (Incl. tax) . . 4.0% 3.3% 3.5% 2.8% 2.0%
(Excl. tax) . . 5.7% 4.9% 5.2% 4.0% 2.9%
Debt-to-equity ratio (times) . . . 1.4 1.7 1.6 1.7 2.1
Equity ratio . . . 25.3% 23.4% 22.1% 22.3% 19.2% ROE . . . 8.9% 3.9% 6.3% 4.6% 2.1%
Yen U.S. dollars
Per share Net income
Primary . . . ¥27.50 ¥11.57 ¥19.49 ¥14.10 ¥6.38 $0.34
Diluted . . . 26.44 11.05 18.89 13.76 5.88 0.32
Cash dividends . . . 7.00 7.00 7.00 5.00 5.00 0.09
Note: U.S. dollar amounts translated from Japanese yen, for convenience only, at the rate of ¥81.44=US$1, the exchange rate prevailing on December 31, 2010. Free cash flows are Cash flows from operating activities and Cash flows from investing activities.
EBITDA = Operating income + Depreciation and amortization + Amortization of goodwill Financial liabilities include commercial paper but excludes the balance of lease obligations.
0 100,000 200,000 300,000 400,000 500,000
10 09 08 07
06 06 07 08 09 10
0 6,000 12,000 18,000
10 09 08 07 06 0 4,000 8,000 12,000
10 09 08 07 06 –30,000 –20,000 –10,000 0 10,000 20,000 30,000 40,000
10 09 08 07 06 0 50,000 100,000 150,000 200,000 250,000
0 0.5 1.0 1.5 2.0 2.5
0 10,000 20,000 30,000
10 09 08 07 06
10 09 08 07 06 0 10,000 20,000 30,000 40,000
10 09 08 07 06 0 50,000 100,000 150,000
0 3 6 9
10 09 08 07 06
0 1 2 3
0 200,000 400,000 600,000
■ Depreciation and Amortization
■ Capital Expenditures
■ Net Assets (left scale)
■ ROE (right scale)
■ Financial Liabilities (left scale)
■ Debt-to-Equity Ratio (right scale)
■ Total Assets (left scale)
■ ROA (right scale)
Net Income
(¥ Million)
Net Sales
(¥ Million)
Operating Income
(¥ Million)
EBITDA
(¥ Million)
Net Assets and ROE
(¥ Million, %)
Total Assets and ROA
(¥ Million, %)
Financial Liabilities and Debt Equity Ratio
(¥ Million, Times)
Free Cash Flows
(¥ Million)
Depreciation and Amortization and Capital Expenditures
(¥ Million)
03
SAPPORO HOLDINGS LIMITED Annual Report 2010
To Our Stakeholders
On March 11, 2011, the Tohoku Pacific Earthquake and the ensuing tsunami wrought a disaster of unprecedented scale centered on the Tohoku region, and affecting the Kanto region as well. We offer our condolences to all those affected, and we report on the status of the Sapporo Group.
The Sendai Brewery and Chiba Brewery of Sapporo Breweries Ltd. suffered partial damage to buildings and equip- ment. At other plants also, operation of some equipment was put on hold and even now that they have restarted, operations continue to be affected by rolling power cuts in Tokyo and other factors. Sapporo Lion Ltd. had to stop operations at some res- taurants, particularly in disaster-hit areas, while damage to infrastructure in various areas forced other restaurants to oper- ate on shorter hours, or take other measures. Yebisu Garden Place Co., Ltd. was obliged to limit usage of some of its proper- ties and facilities, but the buildings did not suffer any major damage, and continued to operate.
At this time it is difficult to estimate the impact of the earth- quake on our forecast for the year ending December 2011. We will disclose the information as soon as it can be estimated.
Moreover, the Sapporo Group immediately contributed dona- tions of money, drinking water, and other gifts to areas stricken by the disaster, and employees at our group companies fol- lowed up with further fundraising activities.
TAKAO MURAKAMI
Chairman and Representative Director I’d like to take this opportunity to report this year’s increase
in sales and income, and to report that we have shifted to a new management framework to ensure the progress of our management plan.
Business Climate and Strategies in Fiscal 2010
During 2010 the soft drinks market saw a surge in demand spurred by one of the hottest summers on record. Alcohol and restaurant markets, however, were heavily affected by a slump in consumer spending and demand growth in these sectors was below expectations. In the real estate industry, the occupancy rates in the Tokyo office rental market bottomed out in the latter half of the year, but rents continued to fall throughout the year.
Under these conditions the Sapporo Group tackled the key themes of its Sapporo Group Management Plan 2010–2011: We launched growth strategies to pave the way to future growth, and we strengthened our existing businesses by concentrating management resources on our core brands in each business. Specifically, we started construction work on a new plant in Vietnam, where we have entered the beer business, formed a capital and business alliance with Kyodo Milk Industry Co., Ltd., and made a business alliance with South Korean Maeil Dairies Co., Ltd. for a beer business in the South Korea. These steps will be followed by a management integration with POKKA CORPORATION scheduled for April 2011.
Increased Sales and Income from All
Revenue Sources
The Alcoholic Beverages (Japan) business saw year-on-year sales volumes increase for the first time in six years. The Alcoholic Beverages (International) business and the Soft Drinks business both recorded significant year-on-year increases in sales, with the Alcoholic Beverages (International) business supported by continued brisk sales in North America. There was good news from the Real Estate business too, where sales were also up. As a result, consolidated net sales were ¥389.2 billion, up ¥1.7 billion, or 0% from the previous year. Operating income was ¥15.4 billion, an increase of ¥2.5 billion, or 19% from the previous year. Operating income increased in all busi- ness segments when investment costs of expanding into
Vietnam were excluded from Alcoholic Beverages (International). Moreover, with the contribution from gain on the sale of our Osaka Plant site, net income was ¥10.8 billion, up by a hefty
¥6.2 billion, or 138% from the previous year, boosting ROE considerably to 8.9% from 3.9% in the previous year.
Policy on Dividends
Returning an appropriate level of earnings to our shareholders in view of our operating results and financial position is an important management policy for Sapporo Holdings, and our basic policy is to maintain a stable dividend. We plan to use retained earnings to maximize our corporate value by strategi- cally investing it in growth areas and using it to strengthen our financial base, in line with our management plan.
Enhancing Corporate Governance
Strengthening and enhancing corporate governance is a key management priority for the Sapporo Group. To improve transpar- ency and strengthen oversight functions for management, we have three outside directors. Outside board members serve as chairpersons for various committees. For more information about these committees, please see the Corporate Governance section of this report starting on page 23.
05
SAPPORO HOLDINGS LIMITED Annual Report 2010
Interview With the President
TSUTOMU KAMIJO
President and Representative Director, Group CEO Business performance in 2010 ended with top- and bottom-line growth for the Sapporo Group. Building on these results, the Group formulated Management Plan 2011–2012 as a new two- year rolling plan. With sights on realizing its New Management Framework aimed at dramatic growth, the Sapporo Group is determined to firmly establish its growth trajectory.
Solidifying Our Growth
Trajectory and Aiming
for Dramatic Growth
Answer 1
Strengthening Existing Businesses
I
n each business we sought to build competitive advantages by concentrating our management resources on our strong brands and enhancing our ability to adapt to environmental changes.In our core businesses, Alcoholic Beverages (Japan), we conducted marketing activities focused on our main beer products. As a result, sales volume outstripped that of the previous year despite a contraction in the domestic market, meaning that we boosted our market share. In Alcoholic Beverages (International), we reported earnings growth across all operations, with the exception of losses in Vietnam due to upfront investment to support expansion in this market. SLEEMAN BREWERIES LTD., for example, posted year-on-year growth in sales volume for a fourth consecutive year, while Sapporo U.S.A., Inc. recorded double-digit growth. Our D/E ratio also improved through efforts to minimize financial liabilities; in addi- tion, our capital strength was bolstered by earnings growth. All told, these out- comes have given the Sapporo Group greater earnings power and a more robust financial base for promoting future growth strategies.
Initiating Growth Strategies
T
o make the prospects of medium- and long-term improvement in value for the Group more certain, we enacted initiatives to pave the way for future growth.Turning to business in Vietnam, where we announced our plans for expanding in December 2009, we began construction of a brewery in July and conducted test- marketing ahead of our full-scale market entry. Along with these steps, we are developing strategies and building a distribution network in the country. In South Korea, we made a business alliance with Maeil Dairies Co., Ltd. in November and began beer sales there. Also in November, we entered a capital and business alli- ance with Kyodo Milk Industry Co., Ltd. for a project that will see both companies cooperate around production technology, R&D, raw material procurement and logis- tics. These measures will support both sales expansion and cost reductions going forward.
Another accomplishment this term was the sale of Sapporo Breweries’ former Osaka Plant site and the Keiyo Physical Distribution Center, which generated ¥23.4 billion in new investment resources. In parallel, we invested ¥10.0 billion in the acquisi- tion and development of new properties in the Real Estate segment to secure future resources to support growth.
SUMMARY OF MANAGEMENT PLAN 2010–2011
Question 1
In 2010, the aim of the Management Plan was to help the Sapporo Group to transition from a phase for strengthening the earnings base to one of growth. Initiating growth strategies and strengthening existing businesses were two core strategies of this plan, were your measures for these strategies this year ultimately successful?
12.9 36.5 15.4 39.1 18.0 47.2
09 10 11
(Forecast) 0
10 20 30 40 50
■ Operating Income
■ EBITDA
Operating Income and EBITDA
(¥ Billion)
07
SAPPORO HOLDINGS LIMITED Annual Report 2010
Answer 2
Position of 2011–2012 Management Plans
G
uided by our management philosophy “To make people’s lives richer and more enjoyable,” we formulated the Sapporo Group New Management Framework (the New Management Framework) in October 2007. Under this long-term management policy, we have set ¥600.0 billion (including alcohol taxes) in net sales and ¥40.0 billion in operating income as management targets to reach by our 140th anniversary in 2016.In 2010, we achieved a level of success in new measures for growth through Management Plan 2010–2011, which was designed to help the Group transition to a growth phase. Building on this, in 2011 we drafted Management Plan 2011– 2012 as a rolling plan that positions the two-year period as a time for solidifying our growth trajectory. By steadily implementing the plan, we will strive for further improvement in corporate value as we seek to achieve the goals of our New Management Framework.
Answer 3
Solidify the Group’s Growth Trajectory
T
here are two essentials to solidifying the Group’s growth trajectory. The first is to support top-line expansion through measures targeting growth drivers. The second is to ensure we secure the stable earnings we need for making ongoing strategic investment. Management Plan 2011–2012 sets the following three basic strategies for the Group:• Growth in new areas
SAPPORO GROUP MANAGEMENT PLAN 2011–2012
Question 2
How does the 2011–2012 Management Plan position this time period, and what target figures does it set out?
Question 3
What is your approach to this plan to solidify the Group’s growth trajectory, and what are some of the specific measures the Group will take?
2010 Results
2011 Plan
2012 Plan
2016 Target Net Sales
(incl. alcohol taxes) 389.2 482.0 519.5 600.0 Net Sales
(excl. alcohol taxes) 269.9 363.0 400.5 450.0
Operating Income 15.4 18.0 20.0 40.0
Net Income 10.8 6.0 8.0 –
Management Targets
(¥ Billion)
Position of SAPPORO Group Management Plan 2011–2012
Solidify the growth trajectory to enable the SAPPORO Group’s dynamic future growth. Strengthening Group’s
Business Foundations
Groundwork for future growth strategies
Enhance existence value in new areas through growth strategies Bolster earnings base and
financial base Build unique competitive advantages in each business
Strategic Targets 140th anniversary of Group’s founding (2016)
2007 2007
2011–2012
2009 2011 2013 2015
2008 2010 2012 2014 2016
Solidifying the Growth Trajectory Dynamic Growth
Business Expansion in Soft Drinks and Food
F
or the first strategy, “growth in new areas,” we will strive to achieve defini- tive results that increase our presence and value in new areas identified in our growth strategy. This means ensuring we get definitive results from the strategic alliances and investment projects we have conducted in paving the way for growth over the years. A specific example is our business expansion in soft drinks and food. In Japan, our decisive steps to attain sustainable growth have included forming an alliance with Marudai Food Co., Ltd. to invest in Azumino Food Co., Ltd. for the launch of a joint venture in yogurt, desserts and chilled soft drinks, and our entry into Japan’s potato chip market. We also announced a capital and business alliance with Kyodo Milk Industry Co., Ltd. in November 2010.With Kyodo Milk Industry, we are exploring future partnership opportunities in production technology, R&D, procurement and logistics, and in the soft drinks busi- ness. Examples here include the use of our Ribbon Brand for Kyodo Milk Industry products, and leveraging Kyodo Milk Industry’s milk delivery routes to expand sales channels for Sapporo soft drinks. Going forward, we will continue to use acquisitions and alliances to advance into new product areas in soft drinks and food as a way to enter markets where we can leverage Sapporo Group capabilities and expertise.
Aggressive Development in Asia
O
utside of Japan, we are paving the way for sustainable growth by entering the South Korean beer market through a capital alliance with local com- pany Maeil Dairies Co., Ltd. We also entered the Vietnamese beer market and plan to advance into other Asian countries with the construction of a new brewery and other efforts.In South Korea, while the domestic beer market is maturing, the imported beer category has grown rapidly, expanding about two-fold since 2005. Another key feature is that the commercial-use sector is large relative to that of Japan, account- ing for roughly 50% of the South Korean beer market. To commence with full-scale beer sales in South Korea, we entered an alliance with Maeil Dairies, a major dairy industry manufacturer boasting top shares for cheese and chilled cup coffee in South Korea. Utilizing the company’s robust sales network will raise the profile of the Sapporo brand as we move to consolidate our Asia strategy. Exports of Sapporo brand products to South Korea have been underway since December 2010, and sales to convenience stores, supermarkets and restaurant chains through Maeil Dairies’ sales network have been expanding ever since. Sales of Sapporo products have also begun at restaurants directly operated by Maeil Dairies.
In 2011, which marks the full-scale start of sales in South Korea, we are pro- jecting sales of 300,000 cases*, with growth to 1.5 million cases by 2015, as we strive to become South Korea’s No. 1 imported beer brand.
*One case is equivalent to 24 bottles (350ml each).
09
SAPPORO HOLDINGS LIMITED Annual Report 2010
Answer 4
Growth in All Businesses
W
e want to realize additional growth in all businesses to create a more robust Group base. Specifically, we intend to further promote previous strategies, for example, strengthening our brands by channeling man- agement resources into core products in the Alcoholic Beverages (Japan) business. In this business, we will find sustainable growth by looking beyond customer satisfac- tion to evoke an active emotional response in customers. In the Restaurants busi- ness, we will move more aggressively to develop Yebisu Bar, a strong-performing new restaurant format that draws on synergies with Sapporo Breweries Ltd. In the Real Estate business, our task is to maintain and enhance our stable earnings structure by improving the value of prime properties in our portfolio. Please see page 16, Review of Operations for a more in-depth look at measures in each business.Answer 5
Bolster Management Capabilities that Underpin Growth
A
s we promote growth strategies, the Group’s business domains are expanding. Given this trend, we decided that our management structure must have the functions and organizations in place to respond to the Group’s growth. Against this backdrop, we are reviewing our group headquarters organization. Our purpose here is to develop a functional structure capable of enhancing our capabilities for planning, proposing and promoting growth strategies.One specific measure we will take is to divide up the group headquarters func- tions of the holding company Sapporo Holdings Ltd. We will transfer highly special- ized functions and professional operations common to all operating companies to Sapporo Group Management Co., Ltd. (formerly Sapporo Pro Assist Co., Ltd.). After the transfer, the new Sapporo Holdings will specialize in the planning and promo- tion of Group growth strategies, as well as financing and auditing functions. This change will enhance organizational flexibility and strengthen our ability to promote growth strategies across the entire Sapporo Group. Sapporo Group Management will serve together with Sapporo Holdings as an organization responsible for group headquarters functions. It will chart the best course from the perspective of the entire group with respect to proper business execution, specialized human capital development, operating company support, and improvements in cost efficiency that leverage economies of scale.
Question 4
Can you elaborate on the second point, concerning growth in all businesses?
Question 5
Please talk a bit more about your third basic strategy, bolstering management capabilities that underpin growth.
Answer 6
Basic Approach to Strategic Investment
I
n addition to contributions from increased earnings from all business segments, in 2010, we generated ¥23.4 billion for new investment resources from the sale of Sapporo Breweries’ former Osaka Plant site and the Keiyo PhysicalDistribution Center. Going forward, our policy is to encourage effective asset utiliza- tion and earnings expansion from existing businesses. For 2011, we envisage making strategic investments totaling ¥63.5 billion, including ordinary capital invest- ment, mainly from the acquisition of shares in POKKA CORPORATION and plant con- struction in Vietnam. Moreover, our aggressive investment in growth strategies will continue beyond 2012. Between 2012 and 2016 we are estimating strategic invest- ment of around ¥150 billion to ¥200 billion, including ordinary capital investment.
Answer 7
Management Integration with POKKA CORPORATION
W
e concluded a capital and business alliance with POKKACORPORATION in September 2009. This move proved successful in numerous ways. Among other benefits, it strengthened our hand in the vending machine business, reduced costs through joint procurement, spurred pro- duction system optimization, and enabled joint business development in overseas markets. At the same time, this cooperation fostered mutual bonds of trust. Eventually, we determined that developing a corporate group that merges both companies would be the best option for taking this capital and business alliance relationship to its next logical stage and ramping up the pace of cooperation. After integrating their management the two companies will work together to promote busi- ness. I believe this unified stance will allow the new group to overcome the recent severity of the market environment and establish a more powerful presence. We are currently discussing options for making this the start of a new structure for building a food value creation group with rich competitive strengths across the alcoholic beverages, soft drinks, food, and restaurant fields here in Japan and overseas.
Question 6
Please describe some of the investments the Group has made to support these growth strategies you have mentioned.
Question 7
How did the Group’s management integration with former capital and business alliance partner POKKA Corporation unfold and what is the post-integration outlook?
2010 Results
2011 Plan
2012 Plan Net Sales (incl. alcohol taxes) 389.2 482.0 519.5
Alcoholic Beverages (Japan) 279.3 286.7 290.6 Alcoholic Beverages (International) 25.4 29.2 32.2
Soft Drinks 33.9 37.4 39.8
POKKA Group – 78.9 103.9
Restaurants 26.4 25.5 26.3
Real Estate 23.5 23.0 24.7
Other 0.6 1.3 2.0
Operating Income (Loss) 15.4 18.0 20.0
Alcoholic Beverages (Japan) 9.2 9.8 10.6
Alcoholic Beverages (International) 0.5 0.1 0.3
Soft Drinks 1.3 0.7 0.7
POKKA Group – 2.3 2.4
Restaurants 0.2 0.4 0.6
Real Estate 8.0 8.3 9.0
Other (0.7) (0.4) (0.3)
Corporate (3.0) (3.2) (3.3)
Net Income 10.8 6.0 8.0
2011–2012 Management Targets
(¥ Billion)
11
SAPPORO HOLDINGS LIMITED Annual Report 2010
Feature 1: Vietnam Brewery Operation
780,000
6,800,000kl
00 05 06 07 25
(forecast)
2025 forecast by the Ministry of Industry and Trade of Vietnum.
Consumption of
Beer in Vietnam
Vietnam Plant Comes Onstream
Poised for Growth
in Vietnam...Asia
1,460,000 1,650,000
1,850,000
Outline of
SAPPORO VIETNAM LIMITED Location:
Viet Hoa—Duc Hoa III Industrial Zone, Duc Lap Ha Ward, Duc Hoa District, Long An Province, Vietnam
Representative: President Hirofumi Kishi Business activities:
Manufacture of beer, wholesaling of alcoholic beverages
Capital:
708,595 million Vietnamese dong Establishment:
February 1, 2007 Shareholder ratios:
Sapporo Holdings 71%, VINATABA 29%
Background to the Joint Venture
The Vietnamese beer market is currently Asia’s third largest, after China and Japan. Annual beer consumption is about one third of Japan’s, standing at around 2 million kiloliters, but demand is growing each year. The Ministry of Industry and Trade of Vietnam forecasts that by 2025 beer consumption will reach 6.8 million kiloliters per year, making Vietnam one of the chief beer consuming nations in the world.
The Sapporo Group had been pursu- ing the beer business in Vietnam in a strategic alliance with the Vietnamese state-owned tobacco company, Vietnam National Tobacco Corporation (VINATABA), since 2009. To this end, we acquired an interest in a joint venture to establish it as a consolidated subsidiary, SAPPORO VIETNAM LIMITED. The company has been importing and selling beer under its new management framework in the
Vietnamese market since 2010. VINATABA is a large state-run enterprise under direct supervision of the office of the prime minister with operations including produc- tion and sale of tobacco, food, and bever- ages. It has a solid track record in Vietnam and enjoys a high level of public trust.
Future Plans
The brewery we are building is located in the province of Long An, a suburb of Ho Chi Minh City. Operations are scheduled to commence in fall of 2011, along with the first shipments to the Vietnamese market. The Sapporo Group views this full scale entry into the Vietnamese market as a launching pad for further expansion into other Asian markets in the future. The Group is targeting annual sales volume of 150,000 kiloliters and sales of US$128 million by 2019.
W
ith growth continuing at around 10% per year, the Vietnam beer market is full of promise. The Sapporo Group is the first Japanese beer maker to start construction of a brewery in Vietnam, and is currently test marketing in preparation for a full scale entry into the market in 2012. Through this early-bird approach, we plan to establish the Sapporo brand in Vietnam and quickly capture market share, before expanding our business further afield in the wider Asian markets.Image of the completed brewery
SAPPORO HOLDINGS LIMITED Annual Report 2010
13
Feature 2: Management Integration With POKKA CORPORATION
Net Sales
(¥ Billion)
¥290.6
¥32.2
¥39.8
¥26.3
¥2.0 ¥24.7
2012
Total ¥519.5
(Target)
POKKA
¥103.9
2010
Total ¥389.2
¥279.3¥25.4
¥0.6 ¥23.5
¥26.4
¥33.9
■ Japanese Alcoholic Beverages ■ International Alcoholic Beverages ■ Soft Drinks ■ POKKA ■Restaurants ■ Real Estate ■ Other Business ■ Corporate Information in the graph for 2010 has been restated here following a change in the structure of segments. (See page 57).
Operating Income
(¥ Billion)
POKKA ¥2.4
2010 2012
(Target)
¥15.4
¥20.0
¥9.0
¥8.0 ¥0.6
¥0.7
¥0.2 ¥0.3
¥0.5¥1.3
¥10.6
¥9.2
¥(0.3)
¥(0.7)
¥(3.3)
¥(3.0)
POKKA Joins
the SAPPORO Group
Outline of
POKKA CORPORATION Head office:
4-2-29 Sakae, Naka-ku, Nagoya, Aichi, Japan
Representative:
President & CEO Masatoshi Hori Established:
April 11, 1968
(Founded: February 22, 1957) Main businesses:
Manufacture and sale of foods and beverages
Number of employees
(consolidated, as of March 31, 2010): 2,473
Capital:
¥2,376 million
Number of issued shares (as of March 31, 2010): 9,487,000
Net sales
¥97,121 million (FY 2010/3) Total assets
¥58,527 million (FY 2010/3)
I
n March 2011 Sapporo Holdings acquired 85% of the shares of POKKA CORPORATION, making it a member of the Sapporo Group. This move has allowed the Sapporo Group to reinforce its Soft Drinks and Food business to balance its earnings sources from its Alcoholic Beverages and Real Estatebusinesses. At the same time, consolidated net sales rose in excess of ¥500 billion. A capital and operational alliance made with POKKA CORPORATION in 2009 produced synergies worth ¥500 million through optimized production systems, joint purchasing operations, shared use of vending machines and other strategies in Japan, as well as international expansion for the Sapporo Group using POKKA CORPORATION (Singapore) Pte Ltd.’s sales channels. We expect the recent management integration to produce even greater synergy benefits. (The targets in the graph do not include our forecast figures for synergy benefits).
Focus Themes
1. Accelerate International Expansion
• Accelerate expansion in Asia where both companies are strong
• Boost the proportion of overseas sales to total revenue
2. Strengthening Complementary Businesses Domestically
• Enhance complementary aspects of soft drink operations
• Expand the food business
• Expand the restaurants business
3. Combine R&D and Technological Innovations to Create New Value
From left: Lemon-based product, Coffee, Soup CAFÉ de CRIÉ
POKKA CORPORATION
Strengths
1. Strengths in the Beverages and Food businesses
• Strong market share in beverages con- taining lemon juice and soups Lemon-based products: No. 1 in home- use market
Soup: No. 2 market share in Japan 2. Expansion Capability in Asia
• Among POKKA CORPORATION’s flagship tea-based beverages, its green tea products have around 70% of the market in Singapore, demonstrating the company’s unrivaled brand recognition in Asia.
• POKKA CORPORATION operates various restaurants in Hong Kong and Singapore. 3. Number of Vending Machines
• Vending machines are a key sales chan- nel covering about 30% of the soft drinks market in Japan
• POKKA CORPORATION has about 90,000 vending machines, which added to those of Sapporo make a total of about 120,000 available vending machines
SAPPORO HOLDINGS LIMITED Annual Report 2010
15
SAPPORO BREWERIES LTD.
T
he Japanese beer and beer-type beverages market saw total demand decrease by an estimated 2% year on year. By genre, while demand for beer and happo-shu (low-malt beer) declined, demand for new product genres grew by 10% as the shift in consumption to lower-priced products continues. Against this backdrop, net sales in our Alcoholic Beverages (Japan) business declined by ¥4.1 billion, or 1.4%, to ¥278.8 billion. In contrast, operating income rose ¥1.8 billion, or 24.3%, to ¥9.3 billion. Income growth reflected increased earnings atop higher sales volume in beer, coupled with reductions in manufacturing costs. These factors outweighed increased depreciation expenses from the transition to a new sales and logistics system.Beer Business
In the beer business, we conducted marketing activities centered around our core brands Yebisu Beer, Sapporo Draft Beer Black Label, and Mugi to Hop. Our overall sales volume for beer rose 0.8% over the previous fiscal year.
In beer, Sapporo Draft Beer Black Label made particularly firm gains in the home-use market. The Yebisu brand, which recently celebrated its 120th anniversary, saw overall sales volume rise 3.0% year on year, as Yebisu Silk attracted women and other new customers during its first full-year of sales. As a result, our beer sales volume declined just 2.8%, compared to a contraction of around 4% in overall beer demand.
In new product genres, a jump of 11.5% in sales volume out- paced growth in overall new product genre demand. Notably, Mugi to Hop, now in its third year of sales, grew by 23.5% year on year, for a second consecutive year of growth above 20%. Contributions also came from Sapporo Creamy White, which was launched in September.
In ready-to-drink (RTD) beverages, Nectar Sour Sparkling Peach won strong support particularly from young women for its originality and flavor, resulting in higher-than-expected sales volume.
Wine Business
In imported wine, sales were firm for the Yellow Tail series of wines, which introduced Moscato as a new product. Turning to domestic wines, while a strong reputation for quality translated into growth for our Grande Polaire series of premium wines made from 100% domestic grapes, contraction in the domestic wine market and other factors led overall sales in wine business to decline. Wine business earnings, however, grew for a fourth con- secutive year.
Alcoholic Beverages (Japan)
Shochu Business
Shochu (Japanese distilled spirits) sales volume grew despite a struggling market for wheat-based shochu. The growth reflected the strong reputation of our singly distilled shochu offerings. Among them Waramugi was declared a grand prize winner in the “Singly Distilled Shochu” category by the Alcohol Appreciation and Evalua- tion Committee of the Fukuoka Regional Taxation Bureau. As price competition heats up in the multiply distilled, large-volume product market, we have been able to maintain operating income despite lower sales overall in shochu year on year. This is largely thanks to our efforts launched two years ago to reform the earnings structure in this business, mainly by eliminating unprofitable products.
Performance Review and Plan
0 2,500 5,000 7,500 10,000
9,303
7,483
7,709
6,189
Operating Income
(¥ Million)
0 100,000 200,000 300,000 400,000
278,832
282,914
299,699
315,893
Net Sales
(¥ Million)
From left: Sapporo Draft Beer Black Label, Yebisu, Mugi to Hop (Performance review figures are based on the segment structure prior to reorganization in 2010. Plan figures relate to the new post-reorganization structure)
1. Bolster alcoholic-beverage marketing
We will endeavor to maintain the previous year’s momentum and increase sales by winning additional customer support using a select-and-focus approach (selectively focusing resources on key areas).
(1) Enhancing brand power by focusing resources on core products
• We will enhance our presence in the beer and new prod- uct genre markets by strategically focusing resources on Yebisu, Sapporo Draft Beer Black Label, and Mugi to Hop, which account for three-quarters of case sales. (2) Laying the groundwork for growth in expanding areas
• To lay the groundwork for growth we will offer products that embody Sapporo’s strengths in the non-alcoholic beer market, which we expect to expand in line with market changes, and in the market for RTD beverages, which are highly substitutable for home-use beers. (3) Expansion of the wine and shochu sectors
• Over the medium term, we intend to expand our non-beer alcoholic beverages operations, which include RTD bever- ages, to a scale capable of generating annual operating income of ¥2.0 billion. We will do this by boosting brand power and offering innovative value propositions.
2. Strengthening the operating base
• To achieve our financial targets, we will implement management-driven projects to resolve issues, especially with respect to critically important cross-organizational priori- ties such as cost structure reforms and organizational strengthening.
• In cost structure reforms in particular, our activities will be directed at achieving ¥3.0 billion in cost reductions from 2011 to 2013.
MANAGEMENT PLAN 2011–2012
Management Targets
2010 RESULTS 2011 TARGETS 2012 TARGETS
Net Sales
279.3 286.7 290.6
Operating Income
9.2 9.8 10.6
To achieve sustained growth, we will aim to provide the greatest excitement and joy to customers in the beer, wine, shochu, and RTD (ready-to-drink) sectors while implementing structural reforms and working vigorously to achieve our sales and profit targets.
Note: All Management Plan figures are derived from a simplified segment classification method based on the management approach.
Key Points
(¥ Billion)
17
SAPPORO HOLDINGS LIMITED Annual Report 2010
SAPPORO INTERNATIONAL INC.
I
n the North American beer market, total demand was estimated to have contracted by some 1–2% as consumer spending remained weak despite emerging signs of recovery. Meanwhile, the beer market in rapidly growing Asia continued to expand steadily. Given this context, in the Alcoholic Beverages (International) business we focused on sales activities targeting the premium-price range market, where Sapporo has a strong presence. Consequently, net sales rose ¥2.8 billion, or 12.4%, year on year to ¥25.4 billion. However, due to upfront invest- ment in Vietnam, among other factors, operating income declined ¥0.2 billion, or 27.7%, to ¥0.5 billion.Alcoholic Beverages (International)
North American Market
Sales volume at Canadian subsidiary SLEEMAN BREWERIES LTD. (excluding outsourced production of Sapporo brand products) rose by 5%—a fourth consecutive term of year-on-year sales volume growth. Similarly, growth in Sapporo brand sales volume was up 13% year on year at Sapporo U.S.A., Inc.
Performance Review and Plan
0 500 1,000 1,500 2,000
502
693
901
1,665
Operating Income
(¥ Million)
0 10,000 20,000 30,000
25,386
22,582
25,021
27,777
Net Sales
(¥ Million)
Asian Market
Sales volume outside of North America, most notably in Asia, rose 24% over the previous year.
In Vietnam, where we commenced full-scale business develop- ment in December 2009, we began construction on a brewery in July ahead of our joint venture in local beer production and sales with state-owned company VINATABA. In conjunction, we made progress with establishing a marketing strategy, building a distri- bution network, and other preparations. In the Singapore market, we sought to expand our sales channels in the home-use market this term through cooperation with POKKA CORPORATION. We also announced our full-scale reentry into beer sales directed at the home and commercial-use sectors in the South Korean market.
Sapporo brand and SLEEMAN brand
1. Growing our North American business (1) Marketing strategies
• SLEEMAN BREWERIES LTD. will continue to strive for growth above the market average through further invest- ment in marketing of premium brands.
• Sapporo U.S.A. will continue to position itself for addi- tional growth by expanding its focus beyond the Japanese-American community to encompass the wider American and Asian-American markets.
• We will also consider mergers, acquisitions, and alli- ances for further business expansion in the U.S. (2) Bolstering production capabilities
• To accommodate future sales growth, we intend to estab- lish an optimal production structure across North Amer- ica by conducting a review of production systems at SLEEMAN BREWERIES LTD. and considering production facilities expansion, consignment production, and M&A activities.
(3) Cost structure reforms
• At SLEEMAN BREWERIES LTD., we will strive for further improvements in product quality and cost efficiency by implementing quality control, process stabilization, and SKU (stock-keeping unit) reduction.
2. Expanding into the Asian market (1) Operations in Vietnam
• In 2011, we will continue brewery construction with com- pletion scheduled for fall while also strengthening our marketing operations through ongoing test- marketing and development of a distribution network.
• In 2012, we will launch a marketing program that includes media advertising and go into full-swing with sales as we attempt to quickly capture market share and establish the Sapporo brand in Vietnam.
• We will also endeavor to expand Sapporo brand sales in countries surrounding Vietnam.
(2) Other business development in Asia
• In Singapore, we will continue to expand our sales chan- nels and enter the home-use market in cooperation with POKKA CORPORATION.
• In South Korea, a market that we reentered late last year, we will begin full-scale beer sales through the sales network of alliance partner Maeil Dairies Co., Ltd., a major South Korean dairy goods manufacturer. 3. Activities to expand the scope of business
• While making the alcoholic beverage business our core busi- ness, we will continue to pursue activities in new businesses in which we can demonstrate group synergies, including mergers, acquisitions, and alliances.
Management Targets
2010 RESULTS 2011 TARGETS 2012 TARGETS
Net Sales
25.4 29.2 32.2
Operating Income
0.5 0.1 0.3
Note: All Management Plan figures are derived from a simplified segment classification method based on the management approach.
To build our corporate brand and expand the scope of our busi- ness activities overseas, we will step up activities and expand into business categories other than alcoholic beverages, making North America and Asia our top- priority areas. Thus, we aim to shift from the Alcoholic Beverages (International) business to a broader international business.
MANAGEMENT PLAN 2011–2012
Key Points
(¥ Billion)
19
SAPPORO HOLDINGS LIMITED Annual Report 2010
MANAGEMENT PLAN 2011–2012
SAPPORO BEVERAGE CO., LTD.
O
verall demand in the Japanese soft drinks market was estimated to have grown by around 3% year on year, despite the impact of the economic downturn in the first half. Growth is thought to have come primarily from increased demand stemming from record- high summer temperatures in Japan from July toSeptember. In our Soft Drinks business, we embarked on a brand building growth strategy and took action to improve the operating margin. These efforts lifted both sales and income, with net sales climbing ¥3.7 billion, or 12.0%, year on year to ¥34.4 billion, while operating income increased
¥0.2 billion, or 74.8%, to ¥0.5 billion.
Soft Drinks
In terms of sales and marketing, we focused mainly on cultivating and strengthening our brands by concentrating our sales capabili- ties on core brand products and investing in marketing. For Ribbon and Gabunomi series products, we worked to develop consumer campaigns and in-store sales promotion measures. For Gerolsteiner naturally carbonated water from Germany, our initia- tives included large-scale test sampling, TV commercials and consumer campaigns in major cities. Contributions to sales also came from new products, including So No Mama Zukuri fruit juices, which capture real fruit flavor ‘just as it is’ for consumers to enjoy. Together, these factors lifted sales volume 2% higher than the previous year.
Soft Drinks
Performance Review and Plan
Soft Drinks
1. Marketing strategies Enhancing our brand power
• We intend to strengthen our brand power by concentrating marketing invest- ment and sales efforts on core brand products.
• We will also work to improve our product development infrastructure with an eye to the creation of new high-value-added products.
2. Cost structure reforms
Implementing our cost structure reform program
• We will implement cost structure reforms throughout the entire value chain using a select-and-focus approach (selectively focusing resources on key areas).
Other Businesses
1. Expanding our confectionery business (Sapporo Fine Foods Co., Ltd.)
• With regard to the Potekaru range, we intend to expand sales by such means as developing and introducing new products based on new ingredi- ents and new concepts. As we develop the product line, we will control costs by using an efficient production system.
2. Developing our yogurt, dessert, and chilled beverages business (Azumino Food Co., Ltd, *Equity-method affiliate)
• In addition to increasing sales of existing products, we will aim to develop and launch functional yogurt made using Sapporo Breweries’ lactobacillus, establish the product in the market, and increase sales.
Management Targets
Soft Drinks Business Other Businesses (Foods)
2010 RESULTS 2011 TARGETS 2012 TARGETS
Net Sales
33.9 37.4 39.8
Operating Income
1.3 0.7 0.7
2010 RESULTS 2011 TARGETS 2012 TARGETS
Net Sales
0.6 1.3 2.0
Operating Income (Loss)
(0.7) (0.4) (0.3)
10 09 08 07 –1,000–500 0 500 1,000
526
301
221
–839
Operating Income (Loss)
(¥ Million)
10 09 08 07 0 20,000 40,000 60,000
34,439
30,746
36,849
52,239
Net Sales
(¥ Million)
Turning to costs, in addition to creating syner- gies with alliance partner POKKA CORPORATION, we promoted cost-structure reforms across the entire value chain and sought to maximize profits in a bid to
build a stable earnings base. Specific efforts included production system optimization, procurement cost reductions, and fewer inventory disposal losses.
Foods Business
In the Foods business, we extended the sales area for our Sap- poro Potekaru non-oil-fried potato chips nationwide (excluding Okinawa), and increased our product lineup to seven varieties as part of sales expansion efforts.
Key Points
From left: Ribbon Citron, Gerolsteiner
(¥ Billion) (¥ Billion)
