SAPPORO HOLDINGS LIMITED Annual Report 2004
In July 2003, the Sapporo Group adopted a new struc-
ture centered on Sapporo Holdings Limited as the
Group’s holding company. Sapporo Holdings has four
business segments: Alcoholic Beverages, based around
Sapporo Breweries Ltd.; Soft Drinks, the core company
of which is Sapporo Beverage Co., Ltd.; Restaurants,
spearheaded by Sapporo Lion Ltd.; and Real Estate,
where Yebisu Garden Place Co., Ltd. is the fulcrum.
As the publicly owned representative of the
Sapporo Group, Sapporo Holdings is determined to
meet the expectations of shareholders and other stake-
holders. In this vein, the company is committed to
maximizing enterprise value by achieving continuous
growth and increasing the earnings of the Group.
Contents
Financial Highlights ★ 1
Message From the President ★ 2
Consolidated Balance Sheets ★ 26 Consolidated Statements of Income ★ 28
Financial Highlights
Years ended December 31
Thousands of
Millions of yen U.S. dollars
2004 2003 2004
Net sales ¥494,930 ¥479,520 $4,749,804
Net income 4,643 2,413 44,562
Yen U.S. dollars
Per share: Net income
Primary ¥13.07 ¥6.95 $0.13
Diluted 12.01 – 0.12
Cash dividends 5.00 5.00 0.05
Thousands of
Millions of yen U.S. dollars
Shareholders’ equity ¥ 92,263 ¥ 87,364 $ 885,444
Total assets 602,112 630,637 5,778,423
Capital expenditures 10,269 10,081 98,548
Depreciation and amortization 25,330 28,435 243,086
Note: U.S. dollar amounts are translated from Japanese yen, for convenience only, at the rate of ¥104.20=US$1, the exchange rate prevailing on December 31, 2004.
Net Income (¥ Million)
00 01 02 03 04
564,065 557,233 511,752 479,520 494,930
00 01 02 03 04
16,296 19,786 10,978 13,331 23,648
00 01 02 03 04
1,304 4,390 1,168 2,413 4,643
Operating Income (¥ Million)
Net Sales (¥ Million)
Message From the President
I assumed the post of president and representative director of Sapporo Holdings Limited on
March 30, 2005. I was also made CEO of the Sapporo Group. Under my predecessor Tatsushi
Iwama, I did my utmost as managing director to develop the Sapporo Group. Likewise, I intend in
this new capacity to fully dedicate myself to the task of developing our operations. Your support
in this endeavor will be much appreciated.
About the Sapporo Group
In July 2003, the Sapporo Group adopted a holding company framework. Under it, our four main
operating companies (Alcoholic Beverages, Soft Drinks, Restaurants and Real Estate) are
implementing management reforms and building new business models, with the aim of being
powerful companies in their respective industries.
The Sapporo Group’s management philosophy is to make people’s lives richer and more
enjoyable. To this end, our fundamental management policy is to strive to satisfy all stakeholders,
including our shareholders, customers and employees. And, as the representative, publicly owned
company of the Sapporo Group, Sapporo Holdings is fully committed to maximizing corporate
value by achieving both continuous growth for the entire Group and greater profitability.
Review of Operations
In the fiscal year ended December 31, 2004, Japan showed signs of having shaken free of defla-
tion. Consumer spending also improved, hinting that the Japanese economy might indeed be on
the road to recovery.
In Alcoholic Beverages, Soft Drinks, Restaurants and other industries where Sapporo Group
companies are developing their businesses, the bipolarization of consumption trends, increas-
Takao Murakami
President and Representative Director, Group CEO
became more pronounced. This fueled an economic climate that tested the collective strengths of
enterprises to accurately identify and offer the products and services desired by customers.
In this environment, consolidated net sales improved 3.2% year on year to ¥494,930 million.
Operating income rose 77.4% to ¥23,648 million, while net income, at
¥4,643 million, was 92.4% higher than the previous year. We also de-
clared a full-year dividend of ¥5.0 per share. ROE was 5.2%.
Recognizing a Need
The Sapporo Group adopted the holding company framework so as
to be able to enact speedy, flexible management through the inde-
pendence and autonomy of Group companies. We recognized the need
to recast ourselves as a fast and agile corporate group to raise
corporate value.
2004 provided our first glimpse of the benefits of
this new framework over a full fiscal year. All in all, the
benefits were as we envisaged. We saw significantly
improved performance from the Alcoholic Beverages
business. Both Soft Drinks and Restaurants businesses
moved into the black, reversing year-earlier operat-
ing losses. And the Real Estate business continued to
remain firm. At this stage, no stone is unturned as we
make steady progress on completing target changes.
My Mission
As the new president and CEO, this success puts me in a position to move us forward to the next
stage of management reforms. Now that a solid Group management base is in place, the biggest
task will be to realize expansive growth in each of our business segments. Doing so will require
that we work faster to capture synergies within the Group, in addition to achieving growth in
existing businesses. Other imperatives include identifying new investment opportunities, bol-
stering our overseas operations and continuing to propose new, innovative forms of value.
By delivering growth through sound business execution and communicating our successes,
we will lift the corporate value of the entire Sapporo Group.
In Partnership With Stakeholders
At least one other major challenge awaits—promoting Group-wide management that enables us
to fulfill our responsibilities as a good corporate citizen. Reinforcing and enhancing corporate
governance, as well as ensuring strict compliance anchored by the Sapporo Group Code of Busi-
ness Conduct, are priority management issues for the Group as we aim to continuously boost
Group corporate value.
As the representative, publicly owned company of the Sapporo Group, Sapporo Holdings is
keenly aware that returning profits to shareholders is its most important management policy.
Accordingly, our fundamental stance is to maintain a stable dividend, but to determine dividends
with reference to our operating results and financial position.
April 2005
Focused primarily on operations re- lated to beer, Happo-shu (low-malt beer), wine and spirits, this segment is also developing an agribusiness, brewing equipment and brewing yeast-related businesses.
Led by mainstay green tea prod- ucts, this segment is creating a diverse lineup that includes fruit juice-based soft drinks and mineral water products.
Driven by Ginza Lion, the paragon of Japan’s beer hall chains, this segment is also developing the Agura chain of Japanese-style beer halls, as well as the Brasserie chain of French-style beer halls.
This segment owns, manages, op- erates and develops the real estate business assets of the Sapporo Group. Yebisu Garden Place and Sapporo Factory are the segment’s two main operations.
Sapporo
Lion Ltd.
Sapporo
Breweries Ltd.
Sapporo
Beverage
Co., Ltd.
Yebisu
Garden Place
Co., Ltd.
At a Glance
Share of Net Sales
July 2003 marked the transition to a holding company structure under Sapporo Holdings. In
2004, each operating company responsible for the Group’s four business domains —Alcoholic
Beverages, Soft Drinks, Restaurants and Real Estate — delivered better-than-expected perfor-
mances. This was the result of executing operations with the speed and autonomy afforded by
the new operating framework.
Operating Revenues (¥ Million)/ Operating Income (Loss) (¥ Million)
Overview of Products and Services
Decisive Choices,
Solid Results
03 04 03 04
26,591 26,611
(1,089) 229 03
04 03 04
341,924 364,585
4,542 18,810
03 04 03 04
65,169 69,324
(835) 466
03 04 03 04
33,430 22,506
13,511 5,973 Alcoholic Beverages
Soft Drinks
Restaurants
Real Estate
Sapporo Breweries
Total domestic demand in 2004 in the market for beer, Happo-shu and other new types of
alcoholic beverage was only slightly up on the previous year. However, Sapporo Breweries achieved
growth that significantly bettered the market’s lackluster showing. In fact, we achieved the
highest rate of growth in the industry and were the only company to increase our market share.
Obviously, this means that we won considerable support from consumers. I put this down to the
success we had implementing our unique strategy of concentrating resources on four price bands.
Another key contributor is the ongoing emphasis we put on the quality
of the ingredients used in our products.
The Alcoholic Beverages segment is one of the core businesses
of the Sapporo Group. Its performance is thus directly linked to the
market standing and value of the Group as a whole. As Sapporo Brew-
eries’ new president, I’m naturally delighted with this year’s success,
but I aim to achieve more growth. Key themes in this endeavor
are maximizing profits and capturing market share. We are
determined to do our best to make an even greater contri-
bution to increasing the value of the Sapporo Group.
Question “Overall demand for beer was sluggish in Japan in 2004. Yet, Sapporo
Breweries posted the highest growth in the country’s beer industry. What
were the factors behind this accomplishment?”
Alcoholic Beverages
Masaru Fukunaga
President and Representative Director, Sapporo Breweries Ltd.
(From March 25, 2005)
Sapporo Breweries Ltd. is engaged mainly in the production, import and sale of beer, Happo-shu (low-malt beer), wine and spirits in Japan. It is also develop- ing its overseas operations, agribusiness, brewing equipment and brewing yeast-related businesses.
The Japanese market for beer, Sapporo Breweries’ mainstay business, continues to face a headwind. Total demand remains lackluster due to the effects of an ageing society and a falling population over the drinking age. But these difficult conditions are also presenting opportunities. Changing consumer values are spawning new needs. Consumers, for example, are showing a greater preference for lighter, more refreshing beverages, and are increasingly interested in health, safety and reliability. Furthermore, polarization in consumption tendencies is seeing some consumers favor low-priced products while others choose value-added products that put a premium on quality.
Total demand in the Japanese beer and Happo-shu market in 2004 fell short of the level in 2003, slipping 4.2%, despite a hot summer and an improving economy that spurred consumption. However, new types of alcoholic beverage that fill a gap in the market not met by existing beer and Happo-shu products won strong support. The result was a 0.8% year-on-year rise in total demand for beer, Happo-shu and these new beverages combined.
Indeed, new types of alcoholic beverages took the Japanese beer industry by storm in 2004. Importantly for us, we led the market in this field. Spearheading our push was Draft One. Launched nationwide in February 2004, Draft One uses a pea protein instead of malt and barley to deliver an unparalleled sense of refreshment that has drawn consumer applause. In addition to the breakthrough represented by Draft One, our wine and spirits business turned in a strong performance, leading to results that eclipsed the previous year’s.
The Alcoholic Beverages segment at Sapporo Holdings, which includes Sapporo Breweries Ltd., posted a 6.6% increase in operating revenues to ¥364,585 million, and operating income was 314.1 % higher than the previous year’s level at ¥18,810 million.
The Successes of the New Framework
Following the adoption of a new Group structure, operating companies were prompted to execute management reforms and build new business models, with the aim of being companies that could be competitive in their respective industries. In a Japanese alcoholic beverage market that has continued to contract, Sapporo Breweries has worked to expedite operations by transferring authority to the front line, spurred by a sense of urgency that continuing with existing business models would not drive growth.
★Draft One
This hit product is just one of the new types of alcoholic beverage that Sapporo has produced.
Draft One Sales Volume
03 04 05
21 1,815 2,200
*1 case = 20 large 633ml bottles
(Unit: 10,000 cases*)
(est.)
I. The Path to Achieving Our Mission
The Alcoholic Beverages segment was entrusted with the mission of generating operating income of ¥10,000 million in 2006 and reducing financial liabilities to
¥115,000 million by December 31, 2006. We are pleased to report that these tar- gets were achieved in 2004, ahead of schedule. Here’s how we went about achieving our mission.
To bolster our top line, we improved the products on offer to customers, creat- ing new value that draws on the strengths of Sapporo Breweries, to stimulate new demand in the Japanese alcoholic beverages market. Draft One, developed using our well-reputed fermentation technology, exemplifies this. A unique and unrivaled product strategy built around four price ranges—premium, standard, popular and economy—was another contributor. Channeling resources to enhance our brand in each of these price bands led to a dramatic rise in sales in 2004 for beer, Happo-shu and new categories combined. Moreover, in pursuit of “the Sapporo difference,” we have made a pledge to consumers that 100% of our malt and hops will be pro- duced under a collaborative contract system by 2006, demonstrating our hallmark commitment to the quality of raw materials. This, we believe, will enhance not only the equity of product brands but the Sapporo corporate brand as well. On a differ- ent front, we are developing various sales channels in the home-use and restaurant markets, as well as enhancing our product lineups with newly developed and imported products.
Strategies have targeted the bottom line, too. We have accelerated cost-cutting and asset reductions. In terms of cost-cutting, actions include efficiently using sales promotion expenses, improving productivity by creating a nationwide production system with only six breweries, and reducing the cost of purchases. With respect to the reduc- tion of assets, we have made progress reducing inventories of materials, products and ingredients by reviewing supply chain management. This has translated into reductions in inventories and accounts receivable. These initiatives have enabled us to lower the breakeven point and generate cash flows, with which we have reduced financial liabilities.
★Sapporo Black Label
This long-selling product is backed by a loyal following.
★Yebisu Beer
Select ingredients and a special production process are the trade- marks of this premium beer brand.
Domestic Liquor Tax
(per 350ml can)★Sapporo Black Label
This long-selling product is backed by a loyal following.
Behind the adoption of a holding company system was the desire to deliver results in all the industries where the Group operates by giving each segment the authority and responsibility of autonomous businesses to operate faster. Another aim was to create synergies among segments. As a core company of the Sapporo Group, we are contributing to this end.
One example concerns collaboration with the Soft Drinks segment. We share our SCM framework with this segment and develop new products that blend juice- related technologies with our own beer and wine fermentation technologies. With the Restaurants segment, we are developing sales channels for alcoholic beverages used as ingredients by customers of that segment. From the Real Estate segment we receive sophisticated know-how concerning real estate management that we put to good use in the management of the property, plant and equipment that we own.
For More Growth
Having achieved our goals much earlier than planned, we are in the process of formulating a new medium-term management plan. Avoiding complacency to maintain the same sense of urgency that gave rise to the holding company structure, we are determined to accelerate our growth strategy. Bringing to the fore qualities that have come to define Sapporo—handpicked natural raw materials and a focus on taste—we will expedite measures designed to transform us into a comprehensive supplier of alcoholic beverages to make the maximum contribution to raising the value of the Sapporo Group.
★Yellow Tail
The top-selling imported wine in the U.S., Sapporo is now developing this casual wine from Australia in the Japanese market.
★Grand Polaire
This premium domestic wine is made from 100% domestically produced grapes, gathered from select vine- yards across Japan and from Sapporo Breweries’ own vineyards.
Collaborative Contract Farming System
By 2006, Sapporo Breweries aims to source 100% of its malt and hops from contract growers to deliver to customers beer and Happo-shu that is safe, reliable and of high quality. This collaborative con- tract farming system involves cooperation among growers, processors and Sapporo Breweries to make the finest ingredients right from the time the first seed is sown. This will give us a stable supply of reliable, fine-quality raw materials. Key to this system is the so-called “field man,” of which there are presently 15. Responsible
for communicating with growers in Japan and overseas, these people are engaged in a concerted effort to make raw materials of an even higher quality.
Sapporo Beverage
Toshiaki Oka
President and Representative Director, Sapporo Beverage Co., Ltd.
The Soft Drinks segment was handed the initial mission of achieving a growth rate above that of
total domestic demand.
We took up this challenge. We stepped up marketing of sugar-free teas, mineral water and
other products in the juice and carbonated soft drinks field, where we are particularly at home.
We also pushed through various operational reforms and were given a helping hand by record-high
summer temperatures in Japan in 2004. Together, these and other factors lifted our sales volume
by over 8%, more than the 5% growth in demand for the industry as a
whole in Japan. This was a record sales volume for Sapporo Beverage.
Sapporo Beverage has set a future goal of operating revenues
of ¥100.0 billion. 2004 was a year in which we completed preparing
the foundation for pushing toward this target. In 2005, we aim to
rewrite our own sales volume record and, at the same time,
contribute to the Group’s results as a core operation and as a
segment that creates real value.
Question “You recorded an all-time high sales volume in the past year,
but what does the future have in store?”
Soft Drinks
In 2004, the Japanese soft drinks market recorded 5% year-on-year growth on the back of record-high summer temperatures. Sapporo Beverage outstripped this performance, posting high growth of over 8%; sales volume was an all-time high. The main factors behind this record-setting performance were growth in sugar-free teas and mineral water and major contributions from new and existing products in the juice and carbonated beverages fields.
Paced by these strong sales, the Soft Drinks segment at Sapporo Holdings, which includes Sapporo Beverage, posted a 6.4% increase in operating revenues to ¥69,324 million and operating income of ¥466 million, reversing the loss of the previous year by ¥1,301 million. Also highlighting the segment’s performance was achievement of its 2006 operating revenue goal of ¥68,000 million ahead of plan.
The Successes of the New Framework
Our stellar performance in 2004 is the product of a virtuous cycle established by the shift to a holding company structure. The quicker decisions we can make to fulfill our responsibilities under this new structure produced results. Furthermore, the Janu- ary 2004 change of name from Sapporo Beer’s Beverage Co., Ltd. to Sapporo Beverage Co., Ltd. gave us impetus to work as one on an autonomous footing to fulfill our responsibilities.
In terms of operational reforms, we are improving capital efficiency by striving to innovate without clinging to conventional wisdom. In 2004, we simultaneously cut expenses but improved the effectiveness of the money we did spend by efficiently allocating sales promotion expenses to fields close to the consumer. And we did this without relying on the mass media. Moreover, amid a record heat wave in Japan, we more actively marketed sugar-free teas and mineral water as well as juice and carbonated beverages, where we are particularly at home. These actions led to the above-market rate of growth in sales.
Progress made with a reexamination of SCM, realignment of bases, reduction of inventory levels and other initiatives allowed us to absorb the effects of a rapid rise in raw materials expenses and accelerated our transformation into a profitable structure.
For More Growth
In 2004, we laid the foundation for achieving our goal of ¥100.0 billion in operating revenues in the future. However, we still rank only in the middle of the pack in terms of size in the Japanese soft drinks industry. As a core business of the Sapporo Group, our goals are to contribute more to the results of the Group and to widen the scope of business choices by using economies of scale to enhance our purchasing power. We will explore all possibilities to expand the scale of our business and resolutely execute management reforms.
★Gyokuro-Iri O-Cha
Made with no artificial flavors or colors, this long-selling tea brand has embodied natu- rally good taste for more than 10 years.
★Ocean Spray Cranberry
Sapporo has secured exclusive sales rights to launch this product from America’s preeminent fruit juice brand, Ocean Spray, in Japan.
Sapporo Lion
Norio Yamazaki
President and Representative Director, Sapporo Lion Ltd.
In recent years, the Japanese restaurant industry has been buffeted by the effects of unseason-
able weather and consumer distrust toward food. There is no question that when the new Sapporo
Group framework was adopted in July 2003 we embarked on our journey in the face of a storm.
But one mustn’t lose sight of the fact that we opened Japan’s first beer hall in 1899. And we
have remained a pioneer in the country’s restaurant industry ever since. We thus have a wealth of
industry knowledge and a well-established brand. Management and staff have also pulled together
to execute reforms that have yielded an improved performance. I be-
lieve that we have already put the post-bubble malaise behind us.
Looking ahead, we plan to increase earnings at existing stores,
where a recovery is evident, while working to capture new cus-
tomers by accelerating store openings of strongly performing new
format outlets.
Question “You are facing a business environment in which it continues to be
difficult to operate. How do you plan to overcome these conditions and
drive growth?”
Restaurants
Lion Ginza 7-chome, a famed Japanese beer hall that opened in 1934.
Located in the Plaza Building in front of Akihabara Station, J’s Table is a new format store. It opened in March 2005.
The Japanese restaurant industry contracted in 2004 for a variety of reasons. These included concerns about food caused by BSE (Bovine Spongiform Encephalopathy) and bird flu outbreaks, sharp rises in the prices of raw materials, a string of large typhoons that made landfall and expansion in the ready-made foods market.
Despite having to contend with these circumstances, Sapporo Lion Ltd.’s oper- ating revenues rose 1.8%, the first year-on-year increase since 1997. And, amid a shrinking market, existing store sales edged up 0.3%, marking the first increase since 1992. As a result, Restaurants operations, which include Sapporo Lion, posted operat- ing revenues of ¥26,611 million, up 0.1% year on year. The segment recorded operating income of ¥229 million, an improvement of ¥1,318 million from last year’s loss.
The Successes of the New Framework
When Sapporo Lion was placed under the holding company structure operating con- ditions were difficult, characterized by a sluggish economy in the grips of deflation, a shrinking restaurant market and abnormal weather patterns. Having been entrusted with clear responsibilities and a Group mission at this time, Sapporo Lion launched management reforms with a real sense of urgency.
In terms of the operation of outlets, Sapporo Lion moved from a regionally based approach to managing outlets by format, rebuilding and strengthening its business portfolio along these lines. Non-performing outlets were resolutely recast and shuttered as part of this process. A series of management reforms were also quickly executed at the corporate level. Sapporo Lion adopted a new personnel system, shifted from a qualified pension plan to a defined contribution pension plan and applied impairment accounting earlier than required in line with Group policy. As a result of these and other actions, Sapporo Lion has enhanced its reputation with developers, which has enabled it to secure prime sites and thereby establish an unrivaled advantage over other companies.
While a painful exercise at times, these reforms were behind the improved re- sults in 2004. And, importantly, they have allowed Sapporo Lion to put the post-bubble
“hangover” behind it.
For More Growth
Moving forward, Sapporo Lion will devote its energies to reforming existing outlets and expanding new formats. The focus of both approaches will be to give Sapporo Lion outlets a slightly more upmarket appeal. Under the theme of reinvigorating beer halls, Sapporo Lion will promote the strengths of existing outlets that have been operating for more than a century by enhancing its ability to offer more to older customers with ample time and money to spend. At fast-growing new format outlets, Sapporo Lion will conduct marketing targeted at young adults and businesspeople and strengthen the development of sites suited to such formats, making full use of input from our younger employees. The goal is for these outlets to make a greater contribution to overall results.
Yebisu Garden Place
Question “Real Estate operations are now on an autonomous footing after
previously being under the wing of a beer company. How will you contribute
to the Group moving forward?”
Yukio Ashibu
President and Representative Director, Yebisu Garden Place Co., Ltd. (From March 29, 2005)
The Sapporo Group’s real estate business, which is run by Yebisu Garden Place, operates in a
domain distinct from the Group’s Alcoholic Beverages, Soft Drinks and other businesses. Since the
July 2003 transition to a new holding company structure, we have contributed to the Group in our
own unique way as an autonomous company specializing in real estate.
The real estate business in Japan is showing signs of an upswing after a period of malaise. As
this recovery continues, we intend to do more than merely maximize earnings from existing
property holdings. We will accelerate measures that are designed to transform Yebisu Garden
Place into a comprehensive real estate management service company. We
have reinforced our foundation, too. This has involved a mindset change
among employees and the creation of a new organization and strategy
for achieving our goals.
We are embarking on a new stage of growth as a company specializing
in real estate. As the new president of Yebisu Garden Place, my mis-
sion goes beyond generating stable earnings. I believe that we must
also take the lead in supplying our real estate know-how to Group
companies, expand new services and take other actions that will
contribute to the performance of the Sapporo Group as a whole.
Real Estate
Yebisu Garden Place recently celebrated its 10th anniversary.
Sapporo Factory
One of the Company’s core operations, Sapporo Factory is a commercial complex built on the site in Sapporo, Hokkaido, where Sapporo Beer was first founded.
Generally speaking, the real estate industry in Japan enjoyed a change of fortunes in 2004. This was partly due to the oversupply of office buildings in central Tokyo, the so-called “2003 Problem,” becoming less acute.
Core business Yebisu Garden Place celebrated its 10th anniversary with improve- ments in the occupancy rates of leased offices and condominiums. Another core business of the company, Sapporo Factory, performed better than planned due to the introduction of new stores, cost-cutting and other measures.
Nevertheless, the Real Estate segment at Sapporo Holdings, which includes Yebisu Garden Place, posted a 32.7% decrease in operating revenues to ¥22,506 million and a 55.8% decrease in operating income to ¥5,973 million. This was due to a substantial drop in gains on the sale of real estate for sale that were recorded in the previous fiscal year.
The Successes of the New Framework
Various actions have been taken to improve the structure of the company’s finances in the nearly two years since the shift to the holding company structure. This has entailed the sale of assets, principally assets with low operating rates. In 2004, the company sold The Westin Tokyo. As a result, we reduced financial liabilities faster than planned to approximately ¥140,000 million at December 31, 2004. Originally, we had planned to bring these liabilities down to ¥165,000 million in 2006.
We have also succeeded in raising the value of two key assets: Yebisu Garden Place and Sapporo Factory. Standing on sites of former breweries, both are multi- faceted commercial complexes that have been open for more than a decade. Our focus in recent times has been on the next stage of evolution of these assets— building brand power by emphasizing customers. This has involved refurbishing these complexes, enhancing our proposal ability, achieving greater efficiency in manage- ment and other initiatives, which have translated into higher occupancy rates and leasing revenue as well as lower operating costs. We are also offering the know-how gained from managing our own real estate assets to Group companies in a drive to capture synergies.
For More Growth
Our growth strategy is clear. We will renovate existing businesses and strengthen marketing and operations to differentiate our properties from those of other compa- nies. With respect to new investment projects, we will develop and operate appealing facilities that showcase our know-how. One example is the Ginza 7-chome Multifac- eted Building Development, which is due to open in 2006. Expanding comprehensive real estate management services using our expertise is part of our growth strategy, too. In terms of our finances, we intend to continue paying down financial liabilities using cash generated by our leasing business to bolster our financial condition.
A Responsible Corporate Citizen
Working With Stakeholders to Make People’s Lives Richer
and More Enjoyable
The Sapporo Group’s management philosophy is to make people’s lives richer and more enjoyable. We are committed both to realizing this corporate philosophy and to maintaining the best possible relations with our various stakeholders. We regard the fulfillment of corporate social responsibilities as an important management theme, one which has committed us to the observance of laws and regulations and adher- ence to corporate ethical standards. At the same time, we are determined to work with stakeholders to reduce our environmental impact and thereby contribute to the establishment of a sustainable society.
Raising Enterprise Value by Adhering to Corporate Ethical
Standards
The Sapporo Group has adopted the Sapporo Group Code of Business Conduct as a basic policy statement for incorporating its management philosophy into daily activities. And by introducing a Whistle-Blower’s Hotline and Helpline system, the Group is actively working to ensure prevention, as well as early detection and containment, of any impropriety. The establishment of these systems and the Code of Business Conduct are aimed at ensuring the Group develops its business activities in a sound manner.
Customers and the Sapporo Group
The Sapporo Group endeavors to supply customers with safe, high-quality prod- ucts. So that customers get the most out of these products, it also actively disseminates information concerning responsible drinking. Furthermore, structures have been put in place to reflect customer feedback in products and services as well as to properly safeguard and manage customers’ personal information. Through these measures, the Group works to earn a high level of trust.
The Environment and the Sapporo Group
The Sapporo Group formulated a basic environmental philosophy when the Group was restructured. Guided by this philosophy, each operating company set environ- mental action plans and goals. Working toward their respective goals, each company is engaged in environmental protection activities appropriate to their operations. Measures include resource and energy conservation, actions to help prevent global warming, the reduction of industrial waste and product recycling.
Management believes that cooperation with stakeholders is extremely impor- tant for reducing the environmental impact of business activities. The Sapporo Group
★Enjoy Alcohol in a Healthy Way Sapporo has published a booklet to educate and enlighten customers on alcohol and its proper use.
★Social and Environmental Report 2004
Corporate Governance and Compliance
Sapporo Holdings regards strengthening and enhancing corporate governance as one of its top management priorities. It is also determined to bolster compliance to ensure continuous growth in the Sapporo Group’s enterprise value and the fulfill- ment of its corporate social responsibilities.
The Corporate Governance Framework
Sapporo Holdings became the holding company of the Sapporo Group on July 1, 2003, but continues to use the previous corporate auditor system. As of March 30, 2005, the Board of Directors had five members, one of whom is an outside director, and the Board of Corporate Auditors had four members, two of whom come from outside the company. While Sapporo Holdings has not fully adopted the Committee System, it has established a Nominating Committee and a Compensation Commit- tee with the goals of increasing transparency in respect of the nomination and remuneration of directors and preserving a sound management structure.
Supervision of Operating Companies by Sapporo Holdings
The adoption of a holding company system means that supervisory functions (hold- ing company) and the execution of day-to-day operations (operating companies) are completely separate at the Sapporo Group. To improve supervision of operating companies by Sapporo Holdings and encourage collaboration among Group com- panies, the presidents of the main operating companies also serve as Group Executive Officers. As such, they attend the Group Management Council and give regular re- ports on the status of their companies. Each president makes commitments to the president of the holding company, clarifying his company’s share of responsibilities for the Group’s management goals.
Strengthening Compliance
To strengthen the Group’s compliance system, the Sapporo Group has established the Group Risk Management Committee and Group Environment Protection Committee.
Corporate Governance Framework
Annual Meeting of Shareholders
Appointment/Dismissal Appointment/Dismissal
Board of Corporate Auditors Corporate Auditors/Outside Auditors Nominating Committee
Compensation Committee
Reports Appointment/Supervision Representative Director
Operating Compan y Audits Internal Auditing Section
Management Council Group Management Council
Group Risk Management Committee Group Environment Protection Committee Monitoring
Operating Compan y Operating Compan y Operating Compan y Board of Directors
Directors / Outside Directors
Management
(As of March 30, 2005)
Board of Directors
Satoshi Noguchi Kunie Okamoto ** Norio Henmi ** Kazunori Kai
Board of Corporate Auditors
Takao Murakami
President and Representative Director, Group CEO
Shinji Saito
Representative Director and Executive Managing Director
Yoshiyuki Mochida
Director
Hiroaki Eto
Director *
Tatsushi Iwama
Director and Adviser
Five-year Summary
Years ended December 31
Millions of yen
2004 2003 2002 2001 2000
Net sales ¥494,930 ¥479,520 ¥511,752 ¥557,233 ¥564,065
Alcoholic Beverages 364,585 341,924 374,524 417,906
Soft Drinks 69,324 65,169 70,512 68,608
Restaurants 26,611 26,591 28,050 29,041
Real Estate 22,506 33,430 24,999 27,968
Other 11,904 12,406 13,667 13,710
Alcoholic Beverages & Soft Drinks 491,017
Restaurant & Hotel 43,092
Real Estate 27,889
Other 2,067
Operating cost and expenses 471,282 466,189 500,774 537,447 547,769
Operating income 23,648 13,331 10,978 19,786 16,296
Income (loss) before income taxes
and minority interests 7,762 2,270 (3,349) 3,102 2,217
Net income 4,643 2,413 1,168 4,390 1,304
Yen Per share:
Net income:
Primary ¥ 13.07 ¥ 6.95 ¥ 3.45 ¥ 12.96 ¥ 3.85
Diluted 12.01 – – 12.90 –
Shareholders’ equity 259.81 245.80 314.69 312.71 304.98
Cash dividends 5.00 5.00 5.00 5.00 5.00
Millions of yen Year-end data:
Shareholders’ equity ¥ 92,263 ¥ 87,364 ¥106,527 ¥105,945 ¥103,337
Total assets 602,112 630,637 717,486 729,601 764,682
Financial liabilities 289,854 323,369 384,303 372,864 399,995
ROE (%) 5.2 2.5 1.1 4.2 1.3
Capital expenditures 10,269 10,081 13,640 12,256 26,504
Depreciation and amortization 25,330 28,435 31,463 32,322 33,251
00 01 02
Sapporo Holdings Limited and the Sapporo Group
The Sapporo Group adopted a holding company framework on July 1, 2003. Under this new framework, Sapporo Holdings Limited (the Company) as the holding company oversees four main operating companies in the Alcoholic Beverages, Soft Drinks, Restaurants and Real Estate businesses. Aiming to be powerful companies in their respective industries, the four main operating companies are implementing management reforms and building new business models.
In terms of the scope of consolidation, the Company has 15 consolidated subsidiaries and 4 equity-method affiliates.
Operational Overview
The Japanese economy in 2004 failed to achieve a recovery despite an improvement in what had been lackluster consumer spending and other positive signs. The economy was held back by such factors as slowdowns in overseas economies in the second half of 2004, a correction in IT-related investment and the effects of a series of typhoons and earthquakes in Japan.
As the bipolarization of consumption, the increasingly borderless nature of some sectors, diversifying consumer preferences and other dynamics became more pronounced, this economic climate tested the collective strengths of enterprises to accurately identify and offer the products and services desired by customers. The same was true for firms operating in Alcoholic Beverages, Soft Drinks, Restaurants and other industries where Sapporo Group companies are developing their businesses.
Consolidated Operating Results
Net Sales
Net sales rose ¥15,410 million, or 3.2%, to ¥494,930 million. Although there was a large year-on-year decrease in the sale of real estate for sale in Real Estate operations, this was absorbed by sales increases on higher volumes in Alcoholic Beverages and Soft Drinks operations.
Gross Profit
Gross profit increased ¥14,557 million, or 10.3%, to ¥155,504 million. The gross profit ratio improved by 2.0 percentage points to 31.4% due to a lower rate of increase in cost of sales than growth in sales volumes, the result of successful company-wide efforts to curb the cost of sales.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses rose ¥4,240 million, or 3.3%, to ¥131,856 million. This increase mainly reflected increases in sales incentives and commissions and advertising and promotion expenses due to aggressive promotional activities, especially for Draft One. As a percentage of net sales, SG&A expenses were the same as 2003 at 26.6%.
Management’s Discussion and Analysis
Gross Profit and Gross Profit Ratio
(¥ Billion, %)
Selling, General and Administrative Expenses and Percentage of Net Sales
(¥ Billion, %)
Net Sales and Cost of Sales Ratio
(¥ Billion, %)
00 01 02
564.1 557.2 511.8
00 01 02
159.7 166.7 150.1
143.4 147.0 139.1 71.7
70.1
28.3 29.9
25.4 26.4
00 01 02 03 04
Net Income and
Net Income Per Share (Primary)
(¥ Billion, ¥)
Operating Income (¥ Billion)
00 01 02 03 04
16.3 19.8 11.0 13.3 23.6
Shareholders’ Equity and ROE
(¥ Billion, %)
1.3 4.4 1.2 2.4 4.6 3.9
13.0 3.5
7.0 13.1
00 01 02 03 04
103.3 105.9 106.5 87.4 92.3 1.3
4.2 1.1
2.5 5.2
Net Income (¥ Billion)
Net Income Per Share (Primary) (¥)
Shareholders’ Equity (¥ Billion) ROE (%)
Operating income climbed ¥10,317 million, or 77.4%, to ¥23,648 million. While there was a ¥7,538 million decrease in operating income in Real Estate operations in the absence of gains on the sale of real estate for sale, there was a sharp ¥14,268 million increase in operating income in Alcoholic Beverages operations on the back of Draft One’s strong performance. Other factors that contributed to the large overall increase in operating income included profits in Soft Drinks and Restaurants operations, which had both recorded losses in 2003. These turnarounds were attributable to a hot summer in respect to the former, while the latter benefited from progress made with rationalizing operations. The operating income ratio was 4.8%, a 2.0 percentage point improvement on 2003.
Other Income (Expenses)
Other expenses increased ¥4,825 million to ¥15,886 million. Main contributors to other income included an improvement in non-operating financial income due to a decrease in interest expense; a ¥6,820 million gain from the sale of a hotel business including land and buildings and 100% of shares in Sapporo Hotel Enterprises Ltd., a company that managed The Westin Tokyo, and a sharp decrease in losses on the disposal and sale of property, plant and equipment.
The main causes for the increase in other expenses included a significant decrease in gains on sales of real estate for sale. In addition, a ¥6,032 million loss on impairment was booked following the earlier-than-required application of impairment accounting for property, plant and equipment, and a loss on sale of property, plant and equipment of ¥7,589 million was recorded due to the sales of assets with unrealized losses.
Please refer to Note 9 of the Notes to Consolidated Financial Statements for a breakdown of other expenses.
Income Before Income Taxes and Minority Interests
As a result of the above and other factors, income before income taxes and minority interests climbed ¥5,492 million, or 241.9%, to ¥7,762 million.
Net Income
Net income increased ¥2,230 million, or 92.4%, to ¥4,643 million. Net income per share was ¥13.07, representing a ¥6.12 increase over the previous year. ROE rose from 2.5% to 5.2%. Cash dividends were ¥5.0 per share, the same as in 2003, and the payout ratio was 38.3%.
The Company set a target of achieving return on invested capital (ROIC)* of 5.0% as of December 31, 2006 in its medium-term management plan. In 2004, the Company achieved this target earlier than planned, raising ROIC from 3.1% in 2003 to 6.0% as of December 31, 2004.
*[(Ordinary income + Interest expenses)/(Shareholders’ equity + Financial liabilities)]
Segment Information
Alcoholic Beverages
Total domestic demand in 2004 for beer and Happo-shu, including new types of alcoholic beverages such as Draft One, edged up over the previous year. Demand was boosted by hot temperatures in July but affected by typhoons, earthquakes and other natural disasters. In this operating environment, Sapporo Breweries’ Draft One, launched nationwide in February 2004, proved a major hit, selling more than 18 million cases (227,800 kl). Also demonstrating the popularity of this beverage was that Sapporo Breweries twice revised upward its initial target of 10 million cases. Total sales volume of beer, Happo-shu and Draft One was 76.11 million cases (963,533 kl), 13.1% up on 2003. This increase was substantially above the growth rate for total demand in Japan. Further highlighting 2004 were decreases in fixed manufacturing costs, the result of the concentration of production in fewer breweries, and reductions in energy and other costs. These initiatives to improve operations also contributed to an increase in operating income.
Segment operating revenues rose ¥22,661 million, or 6.6%, to ¥364,585 million. Operating income increased ¥14,268 million, or 314.1%, to ¥18,810 million.
Depreciation and amortization expenses were ¥15,205 million and capital expenditures were ¥8,494 million.
Soft Drinks
Total demand in the Japanese soft drinks market in 2004 grew around 5% year on year, with sales growing particularly for sugar-free drinks. Spurring this growth were the increasing health consciousness of consumers and record-setting temperatures during the summer months. Capitalizing on these trends, Sapporo Beverage, the main operating company in this segment, successfully expanded sales of mainstay products, namely green teas, carbonated drinks and juices. With efforts to push new products also successful, the segment delivered year-on-year growth of 8%, above the growth in total domestic demand.
Operating revenues rose ¥4,155 million, or 6.4%, to ¥69,324 million, and the segment posted operating income of ¥466 million, reversing 2003’s loss of ¥835 million.
Depreciation and amortization expenses were ¥289 million and capital expenditures were ¥382 million.
Restaurants
In 2004, the Japanese restaurant industry benefited from a comparatively dry rainy season and hot summer weather. However, these positive external forces were offset by a drop in customer footfall during the Summer Olympic Games, as well as the effects of typhoons and torrential rain. The result was a continuation of falling existing store sales, which did little to suggest that a recovery was at hand.
Under these conditions, Sapporo Lion, the core Group operating company in this segment, worked to turn around earnings at existing outlets and to increase sales by opening new outlets, particularly new format stores. Success at improving the quality of menus and effective sales promotion activities led Sapporo Lion to its first year-on-year increase in earnings at existing outlets since 1997. Sapporo Lion also met with success as operating revenues and earnings increased at new outlets, the result of closing unprofitable stores at the same time as it actively opened new outlets.
Segment operating revenues were ¥26,611 million, edging up ¥20 million higher year on year. The segment recorded a substantial improvement in earnings, reversing a loss of ¥1,089 million in 2003 to post operating income of ¥229 million.
Depreciation and amortization expenses were ¥765 million and capital expenditures were ¥769 million.
Real Estate
Although there was an improvement in the supply-demand balance of offices in the Tokyo metropolitan area, leading to an overall
10th anniversary. Various events were staged to attract more customers, while new amenities were added to increase convenience for the local community, including a hybrid convenience store/copy and office supply center and a daycare center. Attracting more custom- ers was also the theme at Sapporo Factory, a commercial facility in Sapporo, Hokkaido. Actions included changing the tenant mix in the fashion area and refurbishing restaurant areas.
However, segment operating revenues fell ¥10,924 million, or 32.7%, to ¥22,506 million, and operating income dropped ¥7,538 million, or 55.8%, to ¥5,973 million. This was principally the result of a substantial drop in sales and gains from the sale of real estate for sale from 2003.
Depreciation and amortization expenses were ¥8,734 million and capital expenditures were ¥303 million.
Other
The mainstay business in this segment is the hotel business. In 2004, amid intensifying competition, efforts were made to increase the amount spent per guest and to improve the occupancy rate, such as by opening an executive lounge. On December 1, 2004, Sapporo Hotel Enterprises, which operates The Westin Tokyo, was sold to the Morgan Stanley Group. The move was taken to improve the Sapporo Group’s finances and operations. The Westin Tokyo was highly rated and has been regarded as one of Tokyo’s top three new hotels since its opening.
Segment operating revenues declined ¥502 million, or 4.0%, to ¥11,904 million, while the operating loss narrowed by ¥34 million to ¥265 million.
Depreciation and amortization expenses were ¥337 million and capital expenditures were ¥321 million. Detailed segment information can be found in Note 15 of the Notes to Consolidated Financial Statements.
Assets, Liabilities and Shareholders’ Equity
The Company’s financial policy is to maintain an appropriate level of liquidity, secure funds for business activities and maintain a sound balance sheet. The Company procures funds from different sources with the aim of enhancing the stability of fund procurement and reducing funding costs. In addition, the Company reviews its funding structure on a flexible basis to take into account changes in the financing environment. The Company procures funds indirectly from diverse sources, including city banks, trust banks, regional banks, the upper-level central bank for cooperative financial institutions, government-affiliated financial institutions, and life and non-life insurance companies. The Company also procures funds directly through the issuance of corporate bonds and commercial paper, for example.
Assets
As of December 31, 2004, total assets stood at ¥602,112 million, ¥28,525 million, or 4.5%, down from a year ago. Current assets rose
¥49,574 million, or 36.8%, to ¥184,109 million. This was mainly due to an increase in cash and cash equivalents and time deposits from
¥8,541 million to ¥58,712 million along with an increase in free cash flow, and an increase in notes and accounts receivable—trade from
¥73,282 million to ¥79,826 million due to increased orders.
Investments and long-term loans, property, plant and equipment, and intangibles decreased ¥78,099 million, or 15.7% to ¥418,003 million.
Liabilities and Shareholders’ Equity
Total liabilities decreased ¥33,401 million, or 6.1%, to ¥509,849 million. Current liabilities increased ¥38,425 million, or 19.7%, to ¥233,614 million, whereas long-term liabilities declined ¥71,826 million, or 20.6%, to ¥276,235 million. The increase in current liabilities was mainly the result of an increase in current portion of long-term debt. With respect to long-term liabilities, corporate bonds decreased ¥40,000 million to ¥59,720 million and long-term bank loans declined ¥29,974 million to ¥149,526 million.
Financial liabilities declined ¥33,515 million, or 10.4%, to ¥289,854 million, reflecting mainly the repayment of bank loans and redemption of corporate bonds. The Company’s medium-term management plan called for financial liabilities to be reduced to ¥290,000 million at December 31, 2006. The Company has thus achieved this goal ahead of schedule.
Shareholders’ equity rose ¥4,899 million, or 5.6%, to ¥92,263 million. There was a ¥3,155 million increase in retained earnings, mainly due to the increase in net income, and unrealized holding gain on securities increased ¥1,909 million. The equity ratio increased from 13.9% to 15.3%, and the ratio of financial liabilities to shareholders’ equity improved from 3.7 times to 3.1 times. Detailed informa- tion concerning the Company’s liabilities can be found in Note 7 of the Notes to Consolidated Financial Statements.
Cash Flows
Cash Flows From Operating Activities
Net cash provided by operating activities was ¥32,242 million, ¥1,766 million higher than in 2003. This reflected an increase in income before income taxes and minority interests from ¥2,270 million to ¥7,762 million, depreciation and amortization of ¥25,330 million and the add back of losses on the sale and disposal of property, plant and equipment of ¥11,480 million.
Cash Flows From Investing Activities
Investing activities provided net cash of ¥53,314 million, ¥42,358 million more than in 2003. The main contributor was ¥49,660 million in proceeds from the sale of the hotel business. There were also proceeds of ¥9,423 million from the sale of a logistics center and other property, plant and equipment. These inflows far outweighed outflows such as ¥7,757 million for the acquisition of property, plant and equipment.
Cash Flows From Financing Activities
Financing activities used net cash of ¥35,418 million, ¥7,340 million less than in 2003. While the issuance of bonds provided cash of ¥20,100 million, the redemption of bonds used cash of ¥20,000 million and the repayment of long-term debt used cash of ¥33,990 million.
As a result of the above changes, cash and cash equivalents on a consolidated basis at December 31, 2004 were ¥58,706 million,
¥50,251 million, or 594.3%, more than the ¥8,455 million at December 31, 2003.
The Company believes that it is possible to procure the necessary working capital and funds for capital expenditures in the future to support its growth in the form of operating cash flows, loans from financial institutions, and the issuance of shares and bonds in capital markets.
Outlook for 2005
The Company is forecasting net sales of ¥482,000 million, down 2.6% from 2004, and a 72.3% increase in net income to ¥8,000 million. Sales in the Other segment are projected to fall 94.1% due to the effect of selling the hotel business. With regard to net income, the absence of ¥13,620 million in losses related to property, plant and equipment that were booked as other expenses in 2004 should result in a jump in earnings.
00 01 02
Capital Expenditures (¥ Billion) Long-term Debt (¥ Billion)
Total Assets and ROA (¥ Billion, %)
00 01 02
764.7 729.6 717.5
00 01 02
26.5 12.3 13.6
279.4 268.4 254.1 0.2
0.6
Company’s basic policy, which is to maintain a stable dividend while taking into consideration factors such as operating results and financial condition, as it emphasizes an appropriate return of profits to shareholders.
These forecasts are calculated and premised on information currently available to management and are subject to uncertainties that could affect future performance. Actual operating results may therefore differ from these forecasts due to various factors.
Risk Factors
Major risks that could potentially impact the operating results and financial position of the Sapporo Group, including stock price, are found below. Forward-looking statements in the following text reflect the judgment of management as of December 31, 2004.
High Dependency on Specific Business Areas
The Sapporo Group is highly dependent on its beer operations in Japan. The Group could thus be significantly affected by the perfor- mance of this business.
Food Product Safety
Quality problems relating to products and/or raw materials in the alcoholic beverages and soft drinks businesses, as well as food poisoning and other incidents in the restaurants business, could adversely affect operating results.
Unauthorized Disclosure of Customer Information
Problems such as the unauthorized disclosure of personal information could lead to damage claims, loss of trust in the Sapporo Group and other consequences that may adversely affect operating results.
Impact of Laws and Regulations
The unanticipated application of laws and regulations to Sapporo Group businesses in the future could adversely affect operating results.
Substantial Financial Liabilities
The Sapporo Group has a high level of financial liabilities relative to total assets. Operating results could therefore be adversely affected by a rise in market interest rates, the downgrade of the Group’s credit rating and other factors.
Application of Impairment Accounting
In the fiscal year under review, the Company applied impairment accounting with respect to operating assets where there is expected to be difficulty recovering the amount invested due to declining profitability and other factors, as well as with respect to land where property prices have fallen. The possibility of recouping the investment in property, plant and equipment other than that previously mentioned is determined based on future earnings plans. Impairment losses will result in the event that there are no longer prospects for generating earnings in the future with respect to any of these assets. Such impairment losses could have an adverse effect on the Group’s operating results. A decline in real estate prices, changes in the business environment or other factors could result in the booking of impairment losses or losses on the sale of property, plant and equipment.
Holding Company Risk
Sapporo Holdings derives income from brand licensing fees and commissions for management guidance, as well as interest and divi- dends paid by Group operating companies. Any deterioration in the financial position of Group operating companies could result in nonpayment, which may adversely affect Sapporo Holdings’ business performance.
Dilution of Share Value
Requests by owners to redeem convertible bonds due 2009 and convertible bonds with stock acquisition rights due 2007 issued by Sapporo Holdings, and the exercise of related new share subscription rights, could potentially dilute the per-share share value of Sapporo Holdings.
Consolidated Balance Sheets
December 31, 2004 and 2003
Thousands of Millions of yen U.S. dollars (Note 1)
ASSETS 2004 2003 2004
Current assets:
Cash and cash equivalents . . . ¥ 58,706 ¥ 8,455 $ 563,398 Time deposits . . . 6 86 58 Marketable securities (Note 4) . . . 36 18 345 Notes and accounts receivable—trade . . . 79,826 73,282 766,088 Less: Allowance for doubtful receivables . . . (286) (293) (2,746) Inventories (Note 5) . . . 23,054 24,857 221,249 Deferred tax assets (Note 11) . . . 4,109 3,960 39,436 Refundable income taxes . . . 553 218 5,302 Other current assets . . . 18,105 23,952 173,752 Total current assets . . . 184,109 134,535 1,766,882
Investments and long-term loans: Investment securities (Notes 4 and 7):
Unconsolidated subsidiaries and affiliates . . . 1,521 1,395 14,595 Other . . . 30,335 28,062 291,122 Long-term loans receivable . . . 11,151 11,242 107,020 Less: Allowance for doubtful receivables . . . (2,856) (2,602) (27,412) Deferred tax assets (Note 11) . . . 2,334 2,856 22,400 Other investments . . . 21,310 22,466 204,511
63,795 63,419 612,236
Property, plant and equipment (Notes 6 and 7):
Land . . . 70,354 91,711 675,180 Buildings and structures . . . 389,852 448,962 3,741,379 Accumulated depreciation . . . (166,340) (174,574) (1,596,356) Machinery and automobiles . . . 206,028 205,060 1,977,239 Accumulated depreciation . . . (154,320) (147,841) (1,480,999) Construction in progress . . . 2,147 1,522 20,607 Other . . . 21,273 23,701 204,159 Accumulated depreciation . . . (17,261) (18,729) (165,655)
Property, plant and equipment, net . . . 351,733 429,812 3,375,554
Intangibles. . . 2,475 2,871 23,751
Millions of yen U.S. dollars (Note 1)
LIABILITIES AND SHAREHOLDERS’ EQUITY 2004 2003 2004
Current liabilities:
Short-term bank loans (Note 7) . . . ¥ 4,650 ¥ 10,281 $ 44,626 Current portion of long-term debt (Note 7) . . . 75,958 33,868 728,966 Notes and accounts payable:
Trade . . . 34,790 31,215 333,880 Construction . . . 7,945 5,324 76,248 Liquor taxes payable . . . 43,380 43,693 416,314 Income taxes payable (Note 11) . . . 2,548 1,617 24,451 Accrued bonuses (Note 2 (j)) . . . 3,001 752 28,802 Deposits received . . . 4,253 4,192 40,815 Other current liabilities . . . 57,089 64,247 547,877 Total current liabilities . . . 233,614 195,189 2,241,979
Long-term debt (Note 7) . . . 209,246 279,220 2,008,117
Dealers’ deposits for guarantees. . . 34,455 37,180 330,660
Employees’ retirement benefits (Note 10) . . . 16,658 16,628 159,865
Directors’ and corporate auditors’ severance benefits. . . 215 471 2,064
Other long-term liabilities . . . 15,661 14,562 150,294
Minority interests in consolidated subsidiaries . . . – 23 –
Contingent liabilities (Note 13)
Shareholders’ equity:
Common stock (Notes 8 and 16) . . . Authorized — 1,000,000,000 shares
Issued — at December 31, 2004 356,179,485 shares . . . 43,832 – 420,649
— at December 31, 2003 356,179,485 shares . . . – 43,832 –
Capital surplus . . . 36,242 36,232 347,810 Retained earnings (Note 8) . . . 8,108 4,953 77,815 Unrealized holding gain on securities . . . 4,804 2,895 46,103 Foreign currency translation adjustments . . . (386) (349) (3,700) Treasury stock, at cost . . . (337) (199) (3,233) Total shareholders’ equity . . . 92,263 87,364 885,444
¥602,112 ¥630,637 $5,778,423
Thousands of
Millions of yen U.S. dollars (Note 1)
2004 2003 2002 2004
Net sales . . . ¥494,930 ¥479,520 ¥511,752 $4,749,804 Operating cost and expenses:
Cost of sales . . . 339,426 338,573 361,668 3,257,449 Selling, general and administrative expenses . . . 131,856 127,616 139,106 1,265,410
Operating income. . . 23,648 13,331 10,978 226,945
Other income (expenses):
Interest and dividend income . . . 742 706 949 7,121 Interest expense . . . (4,864) (5,784) (7,597) (46,676) Other, net (Note 9) . . . (11,764) (5,983) (7,679) (112,900)
Income (loss) before income taxes
and minority interests. . . 7,762 2,270 (3,349) 74,490
Income taxes (Note 11):
Current . . . 3,672 1,836 784 35,236 Deferred . . . (615) (1,409) (5,137) (5,899)
3,057 427 (4,353) 29,337
Minority interests . . . (62) 570 164 (591)
Net income (Note 14) . . . ¥ 4,643 ¥ 2,413 ¥ 1,168 $ 44,562
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Consolidated Statements of Income
Three years ended December 31
Thousands of
Millions of yen U.S. dollars (Note 1)
2004 2003 2002 2004
Common stock:
Balance at beginning of year . . . ¥43,832 ¥ 43,832 ¥43,832 $420,649 Balance at end of year . . . ¥43,832 ¥ 43,832 ¥43,832 $420,649
Capital surplus:
Balance at beginning of year . . . ¥36,232 ¥ 32,242 ¥32,242 $347,714
Shares issued in share exchange . . . – 3,990 – –
Gain on decrease in treasury stock . . . 10 – – 96
Balance at end of year . . . ¥36,242 ¥ 36,232 ¥32,242 $347,810
Retained earnings (Note 8):
Balance at beginning of year . . . ¥ 4,953 ¥ 30,281 ¥29,960 $ 47,538 Net income . . . 4,643 2,413 1,168 44,562 Increase resulting from inclusion of
newly consolidated subsidiary . . . 126 28 – 1,205 Increase resulting from initial application of
equity method . . . 190 – – 1,823 Cash dividends . . . (1,778) (1,693) (847) (17,059) Decrease resulting from change in fiscal year end of
consolidated subsidiary . . . (26) – – (254) Decrease resulting from merger of
consolidated subsidiaries . . . – (26,076) – – Balance at end of year . . . ¥ 8,108 ¥ 4,953 ¥30,281 $ 77,815
Unrealized holding gain on securities:
Balance at beginning of year . . . ¥ 2,895 ¥ 460 ¥ – $ 27,784 Net change during the year . . . 1,909 2,435 460 18,319 Balance at end of year . . . ¥ 4,804 ¥ 2,895 ¥ 460 $ 46,103
Foreign currency translation adjustments (Note 2 (m)):
Balance at beginning of year . . . ¥ (349) ¥ (204) ¥ (75) $ (3,351) Net change during the year . . . (37) (145) (129) (349) Balance at end of year . . . ¥ (386) ¥ (349) ¥ (204) $ (3,700)
Treasury stock, at cost:
Balance at beginning of year . . . ¥ (199) ¥ (84) ¥ (14) $ (1,908) Net increase . . . (138) (115) (70) (1,325) Balance at end of year . . . ¥ (337) ¥ (199) ¥ (84) $ (3,233)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Consolidated Statements of Shareholders’ Equity
Three years ended December 31
