SAPPORO HOLDINGS LIMITED
Annual Report 2009
The Worldwide Name in Quality
*All figures in this annual report are rounded to the nearest applicable unit. Page
For Sapporo Group Management Plan 2010–2011
Sapporo Group Management Plan 2010–2011 At a Glance
2
Profile120th Anniversary of YEBISU BEER
3
Financial Highlights4
Interview With the President12
Review of Operations 12 Alcoholic Beverages (Japan) 14 Alcoholic Beverages (International) 15 Soft Drinks16 Restaurants 17 Real Estate
18
Corporate Governance20
Management21
Five-Year Summary22
Management’s Discussion and Analysis26
Consolidated Balance Sheets28
Consolidated Statements of Income29
Consolidated Statements of Shareholders’ Equity30
Consolidated Statements of Cash Flows31
Notes to Consolidated Financial Statements47
Corporate DataShift into a growth trajectory by initiating growth strategies and strengthening existing businesses
We will use the plan’s two-year term to transition from a phase of earnings-base strengthening that prioritized structural reform to a growth phase aimed at real- izing our medium-term growth scenarios.
Initiating Growth Strategies
In order to further ensure that we increase our value in the medium- to long-term, we will take steps based on the medium- term growth scenarios and strategic chal- lenges for each of our businesses.
Strengthening Existing Businesses In each business we will build competi- tive advantages by concentrating our management resources on our strong brands and enhancing our ability to adapt to environmental changes.
¥406
billion¥17
billion¥6
billion6.0
%5.0
%1.7
Performance Results and Targets Basic Policies
2009 Results 2011 Targets
Sapporo Group Management Plan 2010–2011
Road Map
Sapporo Group’s New Management Framework
Growth Scenario
strengths, and reinforcement of
Boosted production system at Canada-based
SLEEMAN BREWERIES LTD.
Began full-scale development of beer business in Vietnam through alliance with Vinataba Established a joint
venture in Vietnam
140th Anniversary Year
Sales Target:
¥600
billionAcquired Canada-based SLEEMAN BREWERIES LTD.
Announced New Management Framework
Formed business alliance with Marudai Food Co., Ltd.
Formed capital and business alliance with Pokka Corporation
Business expansion in North America
Business expansion in Asia
Establish pre-eminence in expanded areas
2006–2009 Management Plan 2010–2011 2012–2016
NET SALES (Incl. alcohol taxes)
¥387.5
billionOPERATING INCOME
¥12.9
billionNET INCOME
¥4.5
billionOPERATING MARGIN (Excl. alcohol taxes)
4.9
%ROE
3.9
%D/E RATIO
1.7
At a Glance
(Japan)
(International)
Soft Drinks
Restaurants
Real Estate
market by building a distinctive presence
of resources
market by increasing investment in brands and areas of strength
developing Asian market.
perspective and develop economically robust restaurant formats and operational structure
given the harsh market outlook
any declines
power, and shift into a growth trajectory
reforms by utilizing group synergies and strate- gic alliances
Products and Services
Beer Happo-shu (low-malt beer)
New product genres Wine and spirits Shochu (Japanese distilled spirits)
Products and Services Beer
Products and Services Soft drinks Mineral water products
Products and Services
Ginza Lion and other general restaurant chains
Products and Services Yebisu Garden Place Sapporo Factory STRATA GINZA
products
Cost structure reforms
See P. 12
Growth measures
See P. 17
Bolster marketing
Accomplish cost structure reforms
See P. 15
Business restructuring
Growth measures
See P. 16
Business growth in North America
in marketing for strong premium brands
ethnic Asian market
Expansion into the Asian Market
See P. 14
299,699 282,914 285,000 290,000
08 09 10 11
(Forecast) 0
100,000 200,000 300,000
7,709 7,483 7,500 8,500
08 09 10 11
(Forecast) 0
3,000 6,000 9,000
4.5% 4.7% 4.6% 5.1%
0 2 4 6
08 09 10 11
(Forecast)
Net Sales (Incl. alcohol taxes)
Operating Income (Loss)
Operating Margin
(Excl. alcohol taxes)
Strengths
SLEEMAN BREWERIES LTD.
Unibroue
Sapporo U.S.A., Inc.
Yebisu
Grande Polaire
25,021 22,582 26,000 27,500
08 09 10 11
0 10,000 20,000 30,000
(Forecast)
901 693 1,000 1,500
08 09 10 11
0 500 1,000 1,500
(Forecast)
3.6% 3.1%
3.8% 5.5%
08 09 10 11
(Forecast) 0
2 4 6
36,849 30,746 32,000 34,000
08 09 10 11
0 10,000 20,000 30,000 40,000
(Forecast)
221 301 700 1,500
08 09 10 11
0 500 1,000 1,500
(Forecast)
0.6% 1.0% 2.2%
4.4%
08 09 10 11
(Forecast) 0
1 2 3 4 5
29,538 28,026 27,000 28,000
08 09 10 11
0 10,000 20,000 30,000
(Forecast)
551 –172 200 500
08 09 10 11
(Forecast) –200
0 200 400 600
1.9%
–0.6% 0.7%
1.8%
–1 0 1 2 3
08 09 10 11
(Forecast)
23,452 23,267 24,500 26,500
08 09 10 11
0 10,000 20,000 30,000
(Forecast)
7,612 7,524 8,000 10,000
08 09 10 11
0 2,500 5,000 7,500 10,000
(Forecast)
32.5% 32.3% 32.7% 37.7%
0 10 20 30 40
08 09 10 11
(Forecast)
1890
Yebisu Beer is launched 1901
The Yebisu freight station was built for handling Yebisu Beer
1928
Yebisu becomes the name for a district of Tokyo (Ebisu)
1971
Yebisu Beer is revived as a premium brand after a 28 year hiatus.
Present
453,671 435,090 449,011 414,558 387,534
05 06 07 08 09
0 100,000 200,000 300,000 400,000 500,000
2009 2009
¥387,534 $4,209,127
12,896 140,067
4,535 49,260
¥11.57 $0.13
11.05 0.12
7.00 0.08
¥118,591 $1,288,048
506,875 5,505,319
23,485 255,075
22,547 244,889
196,794 2,137,443
Operating Income
Net Income
Financial Liabilities and Capital Expenditures
Net Sales
10,300 8,613 12,363 14,685 12,896
05 06 07 08 09
0 3,000 6,000 9,000 12,000 15,000
3,630 2,338 5,509 7,640 4,535
05 06 07 08 09
0 2,000 4,000 6,000 8,000
16,218 30,790 19,548 29,378 23,485
05 06 07 08 09
220,723 236,033
212,464 189,252
196,794
0 10,000 20,000 30,000 40,000 50,000
0 50,000 100,000 150,000 200,000 250,000
How did the Sapporo Group perform in
2009, and what is your evaluation of its
performance?
Growth Scenarios
10,300 8,613 12,363 14,685 12,896
05 06 07 08 09
0 3,000 6,000 9,000 12,000 15,000
Operating Income
What is your policy on shareholder
returns in this period?
Building on our Competitive Strength and
Strengthening our Earnings Base
Around two years have passed since
you announced the New Management
Framework. How is it progressing?
Cash Dividends per Share
5 5 5 7 7
05 06 07 08 09
0 2 4 6 8
Mugi to Hop
shochu
Measures to Ensure Sustainable Growth
SLEEMAN BREWERIES’ Sales
Y-o-Y sales volume 2009
SLEEMAN brands 110%
Overall Canadian demand
(Sapporo Holdings estimate) 98%
09 08 07 06* 05
–1,000 –500 0 500 1,000
Liquor, and Japanese Liquor (Shochu) Business
shochu
What are the goals of the new manage-
ment plan that you have announced?
Could you please clarify the relation-
ship of the new plan to the New
Management Framework?
Beer Production Volume in Vietnam
∼∼
78 146 165 185 680
00 05 06 07 25
0 50 100 150 200 700
∼∼
∼
Please tell us about the numerical
targets and the strategy of the
Management Plan 2010–2011.
One of the key strategies in the
Management Plan 2010–2011 is to take
action based on medium-term growth
scenarios for each business. What kind
of scenarios are these?
Management Targets
shochu
Mugi to Hop
Sapporo Potekaru
We should consider the strategies in
the Management Plan 2010–2011 as the
first steps towards achieving the
growth scenarios for each business.
Could you then explain the two key
strategies of launching growth strate-
gies and strengthening existing busi-
ness in more detail?
Yebisu Bar
Yebisu Bar
3,798 6,189 7,709 7,483
06 07 08 09
0 2,000 4,000 6,000 8,000
321,128 315,893 299,699 282,914
0 100,000 200,000 300,000 400,000
06 07 08 09
Beer Business
Yebisu Beer
Yebisu Silk Kohaku Yebisu
Yebisu
Mugi to Hop
Off no Zeitaku
happo-shu
Net Sales
Mugi to Hop Yebisu
Operating Income
Yebisu Silk Yebisu the Black Yebisu the Hop
Yebisu Stout Creamy Top
The Japanese Beer Industry and Sapporo Beer
Demand TrendsIn 2009, Japan’s beer market—made up of beer, happo-shu and new prod- uct genres—saw demand for new product genres increase by a sharp 21% year on year, reflecting unseasonable summer weather and intensifying deflationary forces due to the protracted economic downturn. With consum- ers increasingly tightening their belts, demand for beer and happo-shu fell 7% and 16% year on year, respectively. Consequently, total demand in Japan’s beer market decreased just over 2% year on year.
Sapporo’s Basic Approach
In 2010, total demand in Japan’s beer market should continue to contract based on concerns over the deepening recession and the possible onset of a deflationary spiral. Accordingly, total demand in Japan’s beer market in 2010 is projected to decrease by nearly 2% from 2009.
Amid such a market environment, we aim to boost earnings by offering uniquely Sapporo value propositions. Toward this end, our first priority is to conduct marketing that induces consumers to experience our beer products’ refreshing taste, using a communication message of Bringing more cheer to your “Cheers!” (translated from the Japanese).
More specifically, we will primarily focus on further increasing the market presence of three brands in particular: our long-standing Yebisu Beer and Sapporo Draft Beer Black Label brands, and Mugi to Hop, a new product genre brand with favorable prospects for continued sales growth in 2010.
We also aim to win more fans for Sapporo products—by targeting acquisition of new growth brands, and actively proposing new taste sensa- tions again.
Wine Business
Mythique
Beringer
Shochu Business
Shochu
Waramugi Karariimo
shochu
La Cuvée Mythique Waramugi
385 1,665 901 693 0
600 1,200 1,800
06 07 08 09
5,292 27,777 25,021 22,582
0 10,000 20,000 30,000
06 07 08 09
SLEEMAN BREWERIES LTD.
Sapporo U.S.A., Inc.
Net Sales
Operating Income
–426 –839 221 301
06 07 08 09
–1,000 –500 0 500
58,731 52,239 36,849 30,746
06 07 08 09
0 20,000 40,000 60,000
Soft Drinks
Ribbon Citron
Gabunomi
One
Piece. Gerolsteiner
Foods Business
Sapporo Potekaru
Net Sales
Operating Income (Loss)
Ribbon Citron Gerolsteiner Gabunomi Milk Coffee
457 656 551 –172 –200
0 200 400 600 800
06 07 08 09
26,995 28,954 29,538 28,026
0 10,000 20,000 30,000
06 07 08 09
Sapporo Lion Beer Hall
Kakoiya Tomoru
Yebisu
Bar
izakaya
Net Sales
Operating Income (Loss)
Tomoru
6,414 7,073 7,612 7,524
06 07 08 09
0 2,000 4,000 6,000 8,000
22,828 24,148 23,452 23,267
0 10,000 20,000 30,000
06 07 08 09
Existing Properties
Real Estate Development
New Income-Generating
Property Acquisitions
Net Sales
Operating Income
Renga-kan
Corporate Governance Framework
Corporate Functions and Internal Control Relationships
Annual Meeting of Shareholders
Accounting Auditor (Independent
Auditor)
Appointment/Dismissal Appointment/Dismissal
Audit
Board of Directors Directors Outside Directors
Supervision
Board of Corporate Auditors Corporate Auditors
Outside Auditors
Report Election/ Supervision President and Representative
Director, Group CEO
Nominating Committee Compensation Committee
Advice
Monitoring
Management Council Group Management Council
Group Risk Management Committee
Group Environment Protection Committee
Group CSR Promotion Committee
Group Personal Information Protection Committee
Legal Advisor (Law Firm)
Group Companies
Group Audit Department Internal
Control/Risk Management
Upgrading the Internal Control System
Internal Audits and Corporate Audits
Risk Management
Compliance
Management
Board of Corporate Auditors
KenichiShishidoIsaoTakehara** NorioHenmi** KeizoAe
Board of Directors
AscenefromtheMuseumofYebisuBeer,whichopenedonFebruary25,2010tocommemorate120yearsofYebisuBeer
1 TakaoMurakami
PresidentandRepresentative
Director,GroupCeo
2 YoshiyukiMochida
ManagingDirector
3 TsutomuKamijo
ManagingDirector
4 FumiakiTerasaka
ManagingDirector
5 Hiroakieto
Director*
6 HiroshiTanaka
Director*
7 NobuoKatsumata
Director*
8 Kazuoushio
Director
9 HidenoriTanaka
Director
10YoichiKato
Director
* outsideDirector
**outsideAuditor
1
2 4 3
5 6
7
8
9 10
Five-Year Summary
(Years ended December 31)Millions of yen
2009 2008 2007 2006 2005
Net sales . . . ¥387,534 ¥414,558 ¥449,011 ¥435,090 ¥453,671 Alcoholic Beverages . . . 305,496 324,720 343,670 326,420 341,077 Soft Drinks . . . 30,746 36,849 52,239 58,731 63,897 Restaurants . . . 28,026 29,538 28,954 26,995 26,331 Real Estate . . . 23,267 23,452 24,148 22,828 21,696 Other . . . – – – 116 670
Operating cost and expenses . . . 374,638 399,873 436,649 426,477 443,371 Operating income . . . 12,896 14,685 12,363 8,613 10,300
Income before income taxes and minority interests . . . 8,874 17,970 221 3,978 6,573
Net income . . . 4,535 7,640 5,509 2,338 3,630
Yen Per share:
Net income:
Primary . . . ¥ 11.57 ¥ 19.49 ¥ 14.10 ¥ 6.38 ¥ 10.20 Diluted . . . 11.05 18.89 13.76 5.88 9.18 Net assets . . . 302.16 297.60 319.07 300.13 305.00 Cash dividends . . . 7.00 7.00 5.00 5.00 5.00
Millions of yen Year-end data:
Net assets . . . ¥118,591 ¥116,862 ¥125,189 ¥113,496 ¥111,411 Total assets . . . 506,875 527,287 561,859 589,597 563,845 Financial liabilities . . . 196,794 189,252 212,464 236,033 220,723 ROE (%) . . . 3.9 6.3 4.6 2.1 3.6 Capital expenditures . . . 23,485 29,378 19,548 30,790 16,218 Depreciation and amortization . . . 22,547 21,605 24,527 21,930 22,075
Sapporo Holdings Limited and the Sapporo Group
The Sapporo Group endeavored to strengthen its earnings base and expand operations that capitalize on its strengths in pursuit of sus- tained growth in accordance with the key priorities of its rolling two- year Management Plan based on the Sapporo Group’s New Management Framework unveiled in 2007.
To realize sustained growth into the future, the Group laid the groundwork for attaining the Management Plan’s targets through such means as deciding to expand the beer business into Vietnam, forming a capital and operational alliance with Pokka Corporation, and initiating a joint venture with the Marudai Food Group in the yoghurt, dessert, and chilled beverage markets. In terms of strength- ening its earnings base, the Group made progress toward achieving the Management Plan’s earnings targets by continuously tightening cost controls and reforming its cost structure with the aim of achiev- ing earnings stability amid a changing economic environment.
In terms of the scope of consolidation, the Company had 35 consolidated subsidiaries and 7 equity-method affiliates in the year ended December 31, 2009.
Operational Overview
In 2009, the perennially export-dependent Japanese economy was hard hit by a major contraction in global demand amid a synchronous global recession ensuing from the financial crisis that began the previ- ous autumn.
Against such a backdrop, the Japanese economy was beset by deepening deflation as companies were forced to downsize their workforces and curtail investment, resulting in large declines in domestic consumer spending and capital investment.
In the alcoholic beverage, soft drink, and restaurant industries in which the Group operates, weak consumer spending and unseason- able summer weather weighed heavily on corporate earnings.
In the real estate industry, Tokyo-area office building rents and vacancy rates continued to worsen from January. Although the deteriora- tion trend has gradually slowed since mid-2009, it has yet to reverse.
Consolidated Operating Results
Net Sales
Net sales decreased ¥27,024 million, or 6.5%, year on year to ¥387,534 million.
By business segment, Alcoholic Beverages saw a 5.9% year-on- year decline in net sales to ¥305,496 million. This decrease partly reflected lower sales volume and a higher share of low-priced new product genres in total sales in the Alcoholic Beverages (Japan) busi- ness, as well as the impact of a stronger yen on the Alcoholic Beverages (International) business.
The Soft Drinks segment recorded a 16.6% year-on-year drop in net sales to ¥30,746 million, partly due to the discontinuation of unprofitable sales and changes in accounting standards.
The Restaurants segment recorded a 5.1% year-on-year decrease in net sales to ¥28,026 million, largely due to weak consumer spending.
The Real Estate segment recorded a 0.8% year-on-year decrease in net sales to ¥23,267 million, partly the result of the sale of a 15% co-ownership stake in Yebisu Garden Place.
Cost of Sales
Cost of sales decreased ¥20,456 million, or 7.1%, year on year to
¥267,690 million in line with the lower net sales. The cost of sales ratio decreased 0.4 percentage points to 69.1%.
This decrease mainly reflected overall cost reductions and a better product mix, despite factors pushing up the cost of sales, including the application of the “Accounting Standard for Measurement of Inventories” and a change in the useful lives for depreciation of machinery assets.
132.2 126.4 131.6 111.7 106.9
05 06 07 08 09
29.1 29.0 29.3 27.0 27.6
0 10 20 30 40
0 40 80 120 160
10.3 8.6 12.4 14.7 12.9
05 06 07 08 09
0 3 6 9 12 15
3.6 2.3 5.5 7.6 4.5
05 06 07 08 09
10.2
6.4 14.1
19.5
11.6
0 5 10 15 20
0 3 6 9 12
SG&A Expenses and Percentage of Net Sales
(¥ Billion, %)
Net Sales and Cost of Sales Ratio
(¥ Billion, %)
Net Sales Cost of Sales Ratio
SG&A Expenses Percentage of Net Sales
Net Income and Net Income per Share (Primary)
(¥ Billion, ¥)
Operating Income
(¥ Billion)
Net Income
Net Income per Share (Primary)
453.7 435.1 449.0 414.6 387.5
05 06 07 08 09
68.6 69.0 67.9 69.5 69.1
0 20 40 60 80
0 150 300 450 600
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses decreased
¥4,779 million, or 4.3%, year on year to ¥106,948 million.
The main reasons were a decrease in sales incentives and com- missions due to reduced unprofitable sales in the Soft Drinks busi- ness, and a decrease in sales promotion and advertising expenses in the Alcoholic Beverages business, as the Company used sales promo- tion and advertising spending more efficiently by focusing spending on core brands.
Operating Income
Operating income decreased ¥1,789 million, or 12.2%, year on year to
¥12,896 million, partly due to accounting standard and tax code changes. The impact from accounting standard and tax code changes mainly consisted of higher operating expenses, specifically an ¥829 million yen increase due to the application of the “Accounting Standard for the Measurement of Inventories” and a ¥1,569 million increase due to a change in the useful lives for depreciation of machinery assets.
Other Income (Expenses)
Other expenses were ¥4,022 million, compared with other income of
¥3,285 million in the previous year.
With regard to net financial income (expenses), calculated as the sum of interest and dividend income minus interest expense, the Company recorded expenses of ¥2,688 million in fiscal 2009, a slight improvement on the previous year, despite increased finan- cial liabilities. This mainly reflected reduced interest expenses at foreign subsidiaries.
The Company recorded equity in income of affiliates of ¥276 million compared with equity in loss of affiliates of ¥1 million in the previous year. This change partly reflected the addition of two affili- ates accounted for by the equity-method: Pokka Corporation and Azumino Food Co., Ltd.
The Company also recorded a ¥948 million gain on sales of property, plant and equipment, mainly due to the sale of part of the former Osaka plant site.
There was a large improvement in other expenses due to the transfer of the loss on disposal of inventories to cost of sales in line with a change in accounting standards. Previously, the loss on dis- posal of inventories was recorded under other expenses.
The Company recorded a loss on disposal of property, plant and equipment of ¥1,524 million, mainly due to upgrading beer- production facilities and other assets.
The Company booked a loss on impairment of property, plant and equipment of ¥926 million on properties for which investment recovery is expected to be difficult due to declining profitability.
Income Before Income Taxes and Minority Interests
As a result of the above and other factors, income before income taxes and minority interests decreased ¥9,096 million to ¥8,874 million.
Income Taxes and Net Income
Income taxes applicable to the Company, calculated as the sum of corporation, inhabitants’ and enterprise taxes, were ¥4,350 million. Income taxes accounted for 49.0% of income before income taxes and minority interests. The difference between this percentage and the statutory effective tax rate of 40.7% mainly reflected the recording of a valuation allowance.
As a result, net income was ¥4,535 million, down 40.6% year on year.
Segment Information
Millions of yen
Net Sales
Operating Income/ Loss
Depreciation and
Amortization ExpendituresCapital
Alcoholic Beverages 305,496 8,176 15,220 10,054
(Japan) 282,914 7,483 – –
(International) 22,582 693 – –
Soft Drinks 30,746 301 385 1,466
Restaurants 28,026 (172) 776 875
Real Estate 23,267 7,524 6,161 11,073
Assets, Liabilities and Shareholders’ Equity
The Sapporo Group has a cash management system (CMS), which enables Sapporo Holdings to centrally manage fund allocation within the Group in Japan.
The concentration at the Company of cash flows generated by individual Group companies helps preserve fund liquidity, while flexible and efficient fund allocation within the Group serves to mini- mize financial liabilities.
The Company strives to secure fund procurement channels and liquidity to make certain that ample funds are on hand to cover pres- ent and future operating activities, as well as the repayment of debts and other funding needs. Necessary funds are procured mainly from cash flows from operating activities, loans primarily from financial institutions, and the issuance of corporate bonds.
Assets
Total assets at December 31, 2009 stood at ¥506,875 million, down
¥20,412 million, or 3.9%, from a year ago.
This was mainly the result of a decrease in current assets due to lower cash and cash equivalents. However, this decrease was partly offset by an increase in investment securities due to the acquisition of Pokka Corporation shares, and new property.
Liabilities
Financial liabilities increased ¥7,542 million to ¥196,794 million. Total liabilities decreased ¥22,140 million, or 5.4%, from a year earlier to ¥388,284 million. This mainly reflected decreases in corpo- rate bonds and short-term bank loans as well as lower deposits accompanying the termination of gift voucher certificates. However, these decreases were partly offset by increased long-term loans.
