yuho report annual - corporate.sakataseed.co.jp · yuho report annual fiscal year ended may 31,...
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YUHO REPORTAnnual
Fiscal Year Ended May 31, 2016
Traded TSE1
Stock Code 1377
YUHOREPORT
Fiscal Year Ended May 31, 2016
Traded TSE1
Stock Code 1377
S A K A T A S E E D
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This report is based on the Company’s Japanese-language annual filing with the Financial Services Agency and supplemented with materials that facilitate comparison with the Company’s peers. The materials from the annual filing with the Financial Services Agency have been edited and reorganized in a format more familiar to the international investment community. All information contained in this report has been obtained from sources believed to be reliable, but the accuracy of the data and the translation and the completeness and timeliness of the information are not warranted by the Company, Pacific Associates, or PRONEXUS. None of the above parties shall be responsible for any error or omission or for results obtained from the use of this information.
Table of Contents Profile .............................................................................................................................................. 3
Financial highlights ............................................................................................................................................ 3 Peer comparisons ............................................................................................................................................. 3
Business Overview ......................................................................................................................... 4 Contents of business ......................................................................................................................................... 4 Group companies .............................................................................................................................................. 6 History ............................................................................................................................................................... 7 Risk factors........................................................................................................................................................ 8 Research and development ............................................................................................................................ 11 Analysis of financial condition and results of operations ................................................................................ 12 Corporate governance .................................................................................................................................... 17 Directors .......................................................................................................................................................... 31 Employees....................................................................................................................................................... 32 Union ............................................................................................................................................................... 32 Acquisition of treasury shares ......................................................................................................................... 32
Cash Flows .................................................................................................................................... 34 Consolidated statement of cash flows ............................................................................................................ 34 Capital expenditures ....................................................................................................................................... 35 Dividend policy ................................................................................................................................................ 36
Operations ..................................................................................................................................... 38 Consolidated statement of income .................................................................................................................. 38 Consolidated statement of comprehensive income ........................................................................................ 39 Consolidated statement of changes in equity ................................................................................................. 40 Results of operations ...................................................................................................................................... 42 Segment information ....................................................................................................................................... 47 Issues requiring action .................................................................................................................................... 49 Sales and procurement ................................................................................................................................... 50 Selling, general and administrative expenses................................................................................................. 51
Capital Structure ........................................................................................................................... 52 Consolidated balance sheet ............................................................................................................................ 52 Financial instruments ...................................................................................................................................... 55 Market value of securities ............................................................................................................................... 58 Derivatives....................................................................................................................................................... 59 Retirement benefits ......................................................................................................................................... 60 Deferred taxes ................................................................................................................................................. 63
Accounting Policies ...................................................................................................................... 65 Share-related Information ............................................................................................................ 68 YUHOREPORT is a trademark of Pacific Associates and PRONEXUS. The translation is copyrighted by Pacific Associates.
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Profile Financial highlights Years ended May 31; Millions of yen 2012 2013 2014 2015 2016
Changes (%)2016/2012
Consolidated
Net sales 46,988 50,274 53,922 56,707 58,773 125.1
Ordinary income 2,899 3,564 3,909 5,808 7,555 260.6
Profit attributable to owners of parent 1,902 3,098 2,681 3,820 5,215 274.2
Comprehensive income 1,075 7,082 4,871 7,440 2,543 236.6
Net assets 71,494 77,686 81,399 87,410 88,886 124.3
Total assets 83,496 89,787 96,414 105,313 108,859 130.4
Net assets per share (Yen) 1,586.47 1,723.66 1,805.74 1,939.37 1,972.00 124.3
Basic earnings per share (Yen) 42.28 68.86 59.58 84.90 115.90 274.1
Diluted earnings per share (Yen) - - - - -
Net cash provided by (used in) operating activities 3,020 715 3,552 4,136 4,384 145.2
Net cash provided by (used in) investing activities (2,592) 555 (2,018) (1,844) (3,430)
Net cash provided by (used in) financing activities (978) (1,082) 41 (945) 335
Cash and cash equivalents at year-end 6,617 7,233 9,162 10,639 11,497 173.7
Employees 1,923 1,998 2,038 2,105 2,186 113.7
Peer comparisons Percentage 2012 2013 2014 2015 2016
Profit attributable to owners of parent / net sales
4.0 6.2 5.0 6.7 8.9
Peers 2.9 1.3 2.5 2.8 1.3
Ordinary income / net sales 6.2 7.1 7.2 10.2 12.9
Peers 5.3 3.2 4.6 4.4 2.6
Profit attributable to owners of parent / assets 2.3 3.6 2.9 3.8 4.9
Peers 3.0 0.9 3.7 3.4 0.1
Ordinary income / assets 3.5 4.1 4.2 5.8 7.1
Peers 5.5 3.6 7.1 5.4 2.1
Equity / assets 85.5 86.4 84.3 82.9 81.5
Peers 49.9 50.5 48.3 49.3 48.1
Profit attributable to owners of parent / equity 2.7 4.2 3.4 4.5 5.9
Peers 8.0 3.6 7.6 7.6 2.1
Peers include Kaneko Seeds (1376), Hokuto (1379), Akikawa Foods & Farms (1380), HOB (1382) and Berg Earth (1383).
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Business Overview Contents of business The Corporate Group, composed of Sakata Seed Corporation (“the Company”), 32 subsidiaries and 2 affiliated companies, is engaged in selling horticultural products and materials (vegetable seeds, flower seeds, bulbs, seedlings and agricultural and horticultural products).
The Group’s businesses and the relationship of the Company and its subsidiaries and affiliated companies to these businesses are outlined below.
1. Domestic wholesaling (the Company and 7 subsidiaries)
This division produces or procures vegetable seeds, flower seeds, bulbs, seedlings, and agricultural and horticultural products and wholesales these products to distributors, etc., in Japan.
2. Overseas wholesaling (the Company and 25 subsidiaries)
This division produces or procures vegetable seeds, flower seeds, bulbs, seedlings, and agricultural and horticultural products and wholesales these products to distributors, etc., overseas.
3. Retailing (the Company)
The retailing division procures products for gardening hobbyists and sells them to home improvement retailers in Japan. It also operates a mail-order sales business and a garden shop.
4. Others (the Company and 2 subsidiaries)
This division provides landscaping construction services for clients in the public and private sectors, and operates a temporary staffing agency. It also grows, processes and sells agricultural products.
The following table presents an outline of the Group’s business segments and the companies participating in them.
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Principal operations Main companies involved
Domestic wholesaling
Wholesaling of seeds and agricultural and horticultural products to distributors and other producers (Products: vegetable seeds, flower seeds, bulbs and seedlings) 3 companies, including the Company
SAKATA SEED CORPORATION (Consolidated subsidiaries) Sakata Logistics Co., Ltd., Brolead Co., Ltd.
Wholesaling of agricultural and horticultural products to distributors and other producers (Products: agricultural and horticultural materials) 2 companies, including the Company
SAKATA SEED CORPORATION (Consolidated subsidiary) Jiffy Pot Products Co. of Japan, Ltd.
Production of seeds and agricultural and horticultural products for distributors and other producers (Products: vegetable seeds, flower seeds, bulbs and seedlings) 4 companies
(Consolidated subsidiaries) Yamagata Celltop Co., Ltd., Nagano Celltop Co., Ltd., Hida Celltop Co., Ltd., Fukuoka Celltop Co., Ltd.
Overseas wholesaling
Wholesaling of seeds and agricultural and horticultural products to distributors and other producers (Products: vegetable seeds, flower seeds, bulbs and seedlings) 23 companies, including the Company
SAKATA SEED CORPORATION (Consolidated subsidiaries) Sakata Seed America, Inc., Sakata Seed de Mexico, S.A., Sakata Centroamerica, S.A., Sakata Seed de Guatemala S.A., Sakata Seed Sudamerica Ltda., Sakata Korea Co., Ltd., Sakata Vegetables Europe S.A.S., Sakata Ornamentals Europe A/S, Sakata Holland B.V., Sakata Seed Iberica S.L., Sakata UK Limited, Sakata Seed Southern Africa (Pty) Ltd., Sakata Seed India Private Limited and 7 other companies (Affiliated companies) Sakata Polska Sp.z o.o. and 1 other company
Production of seeds for distributors and other producers (Products: vegetable seeds, flower seeds, bulbs and seedlings) 3 companies
(Consolidated subsidiaries) Sakata Seed Chile S.A., Sakata Siam Seed Co., Ltd., Sakata Seed (Suzhou) Co., Ltd.
Retailing
Selling to gardening hobbyists through home improvement retailers The Company
SAKATA SEED CORPORATION
Mail-order sales, garden shop The Company
SAKATA SEED CORPORATION
Others
Landscaping, temporary staffing agency, cultivation of agricultural products 3 companies, including the Company
SAKATA SEED CORPORATION (Consolidated subsidiaries) Sakata Techno Service Ltd. and Taneto Farm Co., Ltd.
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Group companies Millions of yen or as indicated Capital stock Percent ownership
Sakata Logistics Co., Ltd. 30 100
Brolead Co., Ltd. 50 100
Yamagata Celltop Co., Ltd. 50 100
Nagano Celltop Co., Ltd. 60 100
Hida Celltop Co., Ltd. 70 62
Fukuoka Celltop Co., Ltd. 100 100
Jiffy Pot Products Co. of Japan, Ltd. 18 100
Sakata Techno Service Ltd. 13 100
Taneto Farm Co., Ltd. 50 100
Sakata America Holding Company Inc. US$ 4,907 thousand 100
Sakata Seed America, Inc. US$ 1,500 thousand 100
Sakata Seed de Mexico, S.A. Mex$ 26,013 thousand 100
Sakata Mexico, S.A. Mex$ 50 thousand 100
Grupo Sakata Seed de Mexico, S.A. de C.V. Mex$ 23,833 thousand 100
Sakata Centroamerica, S.A. CRC 10 million 100
Sakata Seed de Guatemala S.A. GTQ 1,541 thousand 100
Alfco, LLC US$ 0 thousand 100
European Sakata Holding S.A.S. EUR 46,671 thousand 100
Sakata Holland B.V. EUR 420 thousand 100
Sakata Vegetables Europe S.A.S. EUR 5,630 thousand 100
Sakata Ornamentals Europe A/S DKK 133 million 100
Sakata Seed Iberica S.L. EUR 3 thousand 100
Sakata UK Limited GBP 100 thousand 100
Sakata Tarim Urunleri ve Tohumculuk Sanayi ve Ticaret Limited Sirketi
TRY 5,000 thousand 100
Sakata Seed Southern Africa (Pty) Ltd. ZAR 598 thousand 100
Sakata Vegenetics RSA (Pty) Ltd. ZAR 0 thousand 100
Sakata Seed Chile S.A. CLP 5,089 million 100
Sakata Seed Sudamerica Ltda. BRL 13,776 thousand 100
Sakata Siam Seed Co., Ltd. THB 162 million 100
Sakata Seed India Private Limited INR 530 million 100
Sakata Korea Co., Ltd. KRW 15,540 million 100
Sakata Seed (Suzhou) Co., Ltd. CNY 13,831 thousand 94
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History Year Month Event
1913 July Takeo Sakata (the Company's founder) established Sakata Noen in Shirosato-mura, Kanagawa (currently, Rokkakubashi, Yokohama).
1916 Company name changed to T. Sakata & Co.
1923 September Company building lost in fire following the Great Kanto Earthquake.
1930 May Chigasaki Breeding Station established.
1942 December Merger of T. Sakata & Co., Atariya Noen, Fujita Zenbei & Co., Enomoto Tokujiro & Co. and Yomoto Co. completed to form T. Sakata & Company, capitalized at 195,000 yen.
1951 December Retail store operations begun (currently, Garden Center Yokohama).
1959 April Misato Research Station established.
1960 April Chogo Research Station established.
1966 August Hazawa Office established.
1967 August Fukuoka Sales Branch (currently, Kyushu Branch) opened.
1971 June Kimitsu Research Station established.
July Sendai Sales Branch (currently, Sendai Sales Office) opened.
1974 August Shirakawa Sales Branch opened (closed in May 2002).
1975 October Shares of Jiffy Pot Products Co. of Japan, Ltd. acquired.
1976 January Okayama Sales Branch opened (closed in May 2004).
1977 July Sakata Seed America, Inc. established.
1979 June Kyoei Noji Co., Ltd. (currently, Sakata Logistics Co., Ltd.) established.
1980 October Sapporo Sales Branch (currently, Hokkaido Branch) opened.
1985 October Nagoya Sales Branch opened (closed in May 2006).
1986 January Corporate name changed to Sakata Seed Corporation.
1987 January Yamagata Vegetable Center, Co., Ltd. (currently, Yamagata Celltop Co., Ltd.) established.
May Shares listed on the Second Section of the Tokyo Stock Exchange.
1988 June Higashimura Seed Co., Ltd. (currently, Brolead Co., Ltd.) established.
December European Representative Office established.
1990 March European Representative Office upgraded to local subsidiary through establishment of Sakata Seed Europe B.V. (currently, Sakata Holland B.V.).
April Kakegawa Research Center established.
May Nagano Celltop Co., Ltd. established.
June Kanto-Kita Sales Branch opened (closed in May 2006).
November Hokkaido Research Station established.
Shares listed on the First Section of the Tokyo Stock Exchange.
December Hida Celltop Co., Ltd. established.
1991 July Yokohama Sales Branch (currently, East Japan Branch) opened.
August Sakata Seed Chile S.A. established.
1992 May Fukuoka Celltop Co., Ltd. established.
1993 March Sakata Seed de Mexico, S.A. established.
1994 October Sakata Seed do Brasil Ltda. (currently, Sakata Seed Sudamerica Ltda.) established.
1995 February Corporate headquarters and head office moved to present site (Tsuzuki-ku, Yokohama).
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Year Month Event
1996 February Hokkaido Sales Branch (currently, Hokkaido Branch) established (through move and change of name of Sapporo Sales Branch).
March Shares of Samuel Yates Ltd. (currently, Sakata UK Limited) acquired.
April Sakata Seed France S.A.R.L. (currently, Sakata Vegetables Europe S.A.S.) established.
June Osaka Sales Branch (currently, West Japan Branch) opened.
Sakata Siam Seed Co., Ltd. established.
Sakata Seed Iberica S.L. established.
September Shares of Flora Feliz S.A. in Costa Rica (currently, Sakata Centroamerica, S.A.) acquired.
1997 March Shares of Chung Won Seed Co., Ltd. (currently, Sakata Korea Co., Ltd.) acquired.
1998 October Garden Center Shonan opened (closed in November 2005).
1999 February Sakata Seed (Suzhou) Co., Ltd. established.
December Shares of MayFord Holdings (Pty) Ltd. (currently, Sakata Seed Southern Africa (Pty) Ltd.)
acquired.
2001 February European Sakata Holding S.A.S. established.
June Sakata Vegenetics RSA (Pty) Ltd. established.
September Sakata Techno Service Ltd. established.
2002 April Narita Office opened.
Alf Christianson Seed Co. and Alfco, Inc. incorporated into Group as subsidiaries through share buyback and retirements.
August System of regional branches (Hokkaido Branch, East Japan Branch, West Japan Branch, Kyushu Branch) established.
2003 July Sakata Ornamentals Europe A/S established following acquisition of the flower division of L. Daehnfeldt A/S.
2006 February Yaita Logistics Center opened.
2008 May Sakata Seed India Private Limited established.
2010 February Sakata America Holding Company Inc. established.
2011 September Sakata Tarim Urunleri ve Tohumculuk Sanayi ve Ticaret Limited Sirketi established.
2012 December Nagoya Sales Office established by West Japan Branch.
2013 March Taneto Farm Co., Ltd. established.
April Seaward Investments, Inc., Quincy Investments, LLC and Bayview Ridge Properties, LLC
merged into Alfco, LLC.
2014 April Alf Christianson Seed Co. merged into Sakata Seed America, Inc.
August Nishio Shokubutsu, Co., Ltd. liquidated.
October Sakata Kosan Co., Ltd. liquidated.
Risk factors The following is a discussion of factors that could negatively impact the Company’s financial performance and financial condition. The forward-looking statements in the discussion are based on judgments made by the Company as of the last day of the fiscal year under review. In this connection, the Company is making every effort to prepare for risks to which the Great East Japan Earthquake recalled its attention, and to apply the lessons learned from that event.
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1. Weather-related risks
Climate changes around the world exert a significant impact on sales of vegetable seeds, flower seeds, bulbs and seedlings; poor weather conditions could thus erode sales and adversely affect the Company’s financial performance.
The Company carries out seed production in 19 countries around the world. In each region, the Company takes steps to disperse risk by consigning seed production to multiple outside producers. Despite these precautions, it may be unable to assure sufficient quality and quantity of production in the event of sudden changes in the local weather. Such circumstances may exert a significant negative impact on its financial results.
2. Impact of geopolitical and social systems
The Company is engaged in production, R&D and sales operations in 20 countries around the world. It operates 5 breeding and research stations in Japan and another 10 overseas (in 8 countries). This extensive base of operations exposes the Company to the following kinds of risks, which could have a significant impact on the Group’s financial performance:
Sudden and unexpected enactment of laws and regulations, or amendments to existing laws and regulations
Political and economic upheaval
Social disorder caused by terrorism or other eruptions of violence
Earthquakes or other natural disasters
Information age-related problems, including computer viruses and information leakage
3. Development risks, including those related to human resources
The long-term nature of breeding (over 10 years) exposes the Company to the following kinds of risk:
1) Investment risk—that economic payoffs may fall short of expectations
2) Development risk—that efforts may fail to produce the desired variety
3) Market risk—that market needs may change during the course of development
4) Competitive risk—that a product may receive a less favorable reception than a product developed by another company
In addition to access to genetic resources, successful development hinges to a large extent on the abilities of individual breeders. There is a risk that a breeder may leave the Company midway through a project, thus raising obstacles to its
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successful completion. Failure to produce an intended high-quality variety could have a significant impact on the Company’s financial performance.
4. Risks related to safety
The Company’s creed, articulated by its founder Takeo Sakata, is “Quality, Reliability and Service.” With this as a basis, the Company seeks to gain customers’ confidence in the quality and safety of its products. Accordingly, it responds quickly and effectively when complaints arise, and works diligently to prevent problems from occurring.
Because the Company’s products are examples of “living genetics,” however, appropriate levels of quality or uniformity may not always be achieved. Safety-related problems could also arise from environmental factors or manufacturing technologies, rather than from the seeds themselves. Safety-related problems could have a significant impact on the Company’s financial performance.
5. Risks related to currency fluctuations
Financial statements prepared in local currencies are translated into yen during consolidation. Fluctuations in foreign exchange markets could thus reduce earnings, even if earnings in local currencies remain unchanged.
Currency fluctuations may also impair the Company’s ability to procure raw materials and merchandise and pose obstacles to exporting. To minimize such impacts, the Sakata Group maintains a close watch over trends in the foreign exchange markets. Sudden and unexpected market changes could, however, negatively affect the Company’s financial performance despite these efforts.
6. Changes in the value of assets held
Because the Sakata Group holds a wide variety of assets, any decline in the price of land, marketable securities or other assets could negatively impact the Group’s financial performance.
7. Risks from natural disasters and accidents
The occurrence of natural disasters or other unforeseen events could exact major impacts on the financial performance and/or business activities of the Sakata Group.
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Research and development The R&D Division oversees breeding for vegetables and flowers, and develops new varieties for the world’s markets.
The Company has 5 research facilities in Japan, including its principal research station in Kakegawa, Shizuoka Prefecture. It also conducts research at 10 facilities in overseas locations, including sites in North America, South America, Europe and Asia.
Throughout the Group, 400 people are involved in research and development. Total R&D expenditures amounted to ¥4,989 million during the fiscal year under review.
Domestic and overseas wholesaling
Vegetables
1. The Company’s K3-110 variety of broccoli won top prize in the 66th annual vegetable variety contest organized by the Japan Seed Trade Association, resulting in Sakata receiving a prize for broccoli for 4 consecutive years. This also validated the R&D work that has helped the Group to secure high market shares in Japan and overseas.
2. The Company introduced several original new varieties, including:
Flea Flicker, Twinset, Intercept: easy-to-cultivate, disease-resistant varieties of lettuce that have been gaining market share
Winter Dome: a hardy strain of broccoli that produces good-quality florets even in harsh winter conditions
House Palt: a large tomato for winter/spring cultivation requiring significantly less pollination than conventional commercial varieties
Crispy White: a crispy variety of sweet corn with exceptional taste
3. Besides targeting the Japanese market, the Group also continued to use its local facilities to develop new vegetable seed varieties tailored to the needs and preferences of overseas markets.
Flowers
1. The Company won top prizes in the 61st and 62nd flower variety contests organized by the Japan Seed Trade Association for Azumi Blue (aster) and SK1-229 (petunia). In addition, the begonia semperflorens Senator iQ Rose Bicolour developed by Sakata Ornamentals Europe was awarded a Gold Medal by Fleuroselect, the European-based international organization for the ornamental plants industry.
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2. In the market for lisianthus, which has become popular internationally, the Company introduced the early-maturing and double flower variety Amber Double (Type 2) Mint and the early-maturing variety Voyage Rose (Type 1) Pink as new blooms offering unique shape and distinctive colors.
3. In sunflowers, the Company extended the Vincent series with Vincent’s (Type 2) Navel, a new deep orange variety that is expected to contribute to further growth in sales.
4. The Company celebrated the 10th anniversary of the development of the Sun Patiens series based on interspecific hybridization of varieties of impatiens (touch-me-not). This line of flower seeds has successfully raised the profile of Sakata among the general public for its innovative development.
Analysis of financial condition and results of operations Effective the fiscal year ended May 31, 2016, the adoption of the accounting standard related to business consolidation as published by the Accounting Standards Board of Japan on September 13, 2013 (ASBJ Statement No. 21) had the effect of replacing “net income” with “profit attributable to owners of parent.”
1. Significant accounting policies and estimates
The Sakata Group’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in Japan.
In preparing these statements, the Company makes all necessary estimates based on rational standards.
2. Analysis of financial performance (percentage changes are year-on-year.)
Net sales and operating income
Net sales: reflecting growth in sales to Asia and North America, net sales increased 3.6% to ¥58,773 million.
Cost of sales
1) Decreased by 1.5% to ¥27,539 million.
2) Gross profit increased by 8.7% to ¥31,234 million.
SG&A expenses
1) Decreased by 0.2% to ¥23,916 million.
2) Operating income thus increased by 53.1% to ¥7,317 million.
Non-operating income and expenses
The positive balance in the non-operating accounts contracted from ¥1,029 million in the previous year to ¥237 million, reflecting recognition of ¥250
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million in foreign exchange losses in the year to May 2016 (cf. ¥479 million in foreign exchange gains in the previous year).
Ordinary income increased by 30.1% to ¥7,555 million.
Extraordinary items and profit before income taxes
No gains on sales of non-current assets were booked (gains of ¥316 million were recorded in the previous year).
Impairment losses declined by ¥627 million, down 90.6% from the previous year.
Net extraordinary income recorded a loss of ¥51 million, as compared with a loss of ¥304 million in the previous year.
Profit before income taxes increased by ¥1,999 million, up 36.3% from the previous year, to ¥7,503 million.
Income taxes
Income taxes increased from ¥1,677 million in the previous year to ¥2,260 million.
Profit attributable to owners of parent
The Company recognized profit attributable to owners of parent for the year of ¥5,215 million, an increase of ¥1,395 million compared to the previous year.
3. Financial condition
Assets
Total assets: increased by ¥3,546 million to ¥108,859 million.
1) Increase of ¥1,108 million in cash and deposits
2) Increase of ¥1,287 million in inventories
3) Increase of ¥866 million in property, plant and equipment
4) Increase of ¥497 million in long-term deferred tax assets
5) Decrease of ¥1,164 million in notes and accounts receivable - trade
Liabilities
Total liabilities: increased by ¥2,069 million to ¥19,972 million.
1) Increase of ¥1,015 million in short-term loans payable
2) Increase of ¥737 million in net defined benefit liability
3) Increase of ¥559 million in long-term deferred tax liabilities
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Net assets
Total net assets: increased by ¥1,476 million to ¥88,886 million.
1) Increase in retained earnings of ¥4,180 million
2) Decrease in foreign currency translation adjustment of ¥2,348 million
3) Decrease in remeasurements of defined benefit plans of ¥501 million
Equity ratio
The equity ratio at year-end was consequently 81.5% compared to 82.9% at the previous year-end.
4. Strategic situation and forecasts
The Sakata Group focused on pursuing 4 critical strategies to remain a leader in the seed industry based on high profitability and a strong balance sheet: (1) establishment of a profitable business model; (2) restructuring of operations experiencing losses; (3) global supply chain development; and (4) Internal structural development to foster global enterprise growth.
(1) Establishment of a profitable business model
Development of research capabilities to generate an ongoing stream of original, high-quality products for reliable and profitable land cultivation
Focusing resources on development of market-leading strategic products to expand sales, while also developing earnings structures to take advantage of the growth opportunities in developing countries, most notably in Asia
(2) Restructuring of operations experiencing losses
Restructuring of retail operations targeting amateur gardening enthusiasts
Measures to improve the profitability of landscaping services and to establish a greater presence in this market
(3) Global supply chain development
Development of an efficient global supply chain management (SCM) system to reinforce the production and technical structures and achieve cost/inventory reductions
(4) Internal structural development to foster global enterprise growth
Moves to upgrade training and related HR management structures to support the Sakata Group’s global business development
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Outlook
1) Economic conditions
Global economic prospects remain uncertain, reflecting the British vote to leave the EU and other factors.
While the economic recovery in Japan is expected to continue, consumer spending and consumer confidence are forecast to remain weak.
2) Domestic wholesaling: positive sales growth expected
Vegetable seeds: growth led by broccoli, tomatoes, sweet corn and lettuce
Flower seeds: growth led by lisianthus, sunflowers, pansies and viola
Seedlings: further growth in sales of commercial seedlings
Materials: year-on-year growth expected from higher sales of high-grade liquid fertilizers and specialist culture soils, despite lack of support for demand due to rebuilding after heavy snowfalls
3) Domestic retailing: sales to home improvement retailers expected to fall year-on-year amid ongoing measures to curtail unprofitable sales, but operating income seen improving further due to reductions in operating costs
4) Mail order: sales expected to decline despite growth in the subscriber base due to a reduction in the catalog issuance frequency and revamping the product range, but operating income expected to improve due to reductions in transportation, advertising and other costs
The annual subscriber fee was lowered in January 2016, with publication of a redesigned quarterly seasonal catalog supplementing the special online edition for gardening enthusiasts, and with a new system of subscriber benefits added.
New subscriber-only online content was introduced in June 2016.
5) Garden centers: better performance expected
Use of more frequent gardening seminars and seasonal promotional events expected to boost store sales
Collaboration with online shopping site to improve customer satisfaction
6) Landscaping and garden construction: higher service revenue projected
Growth due to new large-scale private-sector projects and government orders in the garden construction sector
7) Overseas wholesaling: further improvement in performance expected
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Vegetable seeds: a focus on expanding sales of new varieties while seeking to exploit the strengths of the current product range by making the most of localized product development functions and the existing sales network
Flower seeds: further recovery expected, driven by growth in Asia, despite tough market conditions
5. Analysis of sources of capital and liquidity
2012 2013 2014 2015 2016
Equity ratio (%) 85.5 86.4 84.3 82.9 81.5
Market capitalization ratio (%) 57.1 66.1 63.8 93.5 108.9
Interest-bearing debt ratio (%) 60.5 297.9 100.7 91.4 114.8
Interest coverage ratio (times) 49.4 12.7 45.0 61.5 56.4
(Notes)
Equity ratio: total equity/total assets
Market capitalization ratio: total market capitalization/total assets
Interest-bearing debt ratio: interest-bearing debt/cash flows
Interest coverage ratio: cash flows/interest paid 1. All indicators are calculated on a consolidated basis.
2. The total market value of the Company’s shares is calculated on the basis of the total number of shares outstanding, less treasury shares.
3. Cash flows refer to cash flows from operations from the Company’s consolidated statement of cash flows.
4. Interest-bearing debt includes all debt on the consolidated balance sheet on which the Company pays interest.
Major funding requirements
1) In addition to procurement expenses for seeds and horticultural products, the Sakata Group’s funding requirements revolve principally around production-related expenses and SG&A and other operating costs. Its major operating expenditure categories include salaries, bonuses and other personnel costs, transportation expenses, packaging expenses and advertising expenses.
2) The Group also maintains a program of ongoing capital investment aimed at upgrading, expanding and rationalizing its production facilities and strengthening its R&D capabilities.
3) The Sakata Group’s interest payment burden from its interest-bearing debt as of the end of the fiscal year under review was sufficiently low as a percentage of expenditures. At its current level of interest-bearing debt, the impact on the Group’s operations of an increase in interest rates would be limited.
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Possibilities for financing
With respect to liquidity, the Group’s approach is to deal with unforeseen future situations by ensuring that it has sufficient liquidity on hand. With respect to financing, Sakata Seed Corporation and its domestic and overseas subsidiaries all maintain good relationships with their correspondent financial institutions, enabling the respective companies to respond appropriately to situations in their locale.
6. Management’s assessment of issues and its future policies: see discussion under “Issues requiring action.”
Corporate governance Corporate governance
Basic views regarding corporate governance
Company creed: Quality, Reliability and Service
The Company’s governing ideal is to contribute to the development of agriculture, horticulture and related businesses while acting ethically in accordance with the spirit of its company creed.
In accordance with this ideal, the Company will aim to achieve the following by providing high-quality products and services:
1) Contribute to improving the lives and cultural conditions of people around the world
2) Become the world’s leading seed company
1. Structure of corporate governance
(1) Outline of the structure of corporate governance
A company with an Audit & Supervisory Board
1) Fundamentally, corporate governance is effected through monitoring of the Board of Directors by the Audit & Supervisory Board.
2) To increase the transparency and effectiveness of the Board of Directors, the Company has elected 2 outside directors; based on their abundant experience, the directors
a. Participate in important decisions made by the Board
b. Seek to improve the quality of the Board’s decision-making
Composition of Audit & Supervisory Board
1) 3 board members, 2 of whom are appointed from outside the Company
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2) The Company established an Audit & Supervisory Board Members Office to support the operations of its audit & supervisory board members and its Audit & Supervisory Board.
Internal Auditing Office, responsible for internal control
1) The Internal Auditing Office audits the Company and its domestic subsidiaries to ensure the health and soundness of their operations.
2) An “internal control evaluator,” appointed by the Board of Directors, reviews the setup and operations of the Internal Auditing Office.
(2) Rationale for adoption of this system
Based on a judgment that this system will contribute to management transparency, clarification of management responsibilities and strengthening of management oversight
In addition to the Audit & Supervisory Board’s oversight of the Board of Directors, the appointment of a fair and independent outside director strengthens the system of internal control, ensuring that operations are executed in an appropriate and highly transparent manner.
Through its introduction of a new system of corporate executive officers on June 1, 2007, moreover, the Company has devolved authority for the execution of operations, allowing it to expedite management decision-making and to tap the talents of younger personnel.
(3) System of internal controls
At its meeting held on May 19, 2006, the Board of Directors voted to create the necessary internal controls as stipulated in the Ordinance of the Ministry of Justice to ensure compliance with relevant laws and regulations and the Company’s Articles of Incorporation in the execution of duties by Board members and other internal processes. Following a number of revisions, the Board formally amended the internal controls at its meeting held on April 17, 2015. The amended basic policy is presented below;
April 17, 2015: Resolution adopted by the Board of Directors regarding revision of the Company’s basic policy on internal control:
I. System of controls to ensure compliance with laws and regulations and the Company’s Articles of Incorporation in the execution of duties by members of the Board of Directors and employees of the Company and its subsidiaries
Governing ideal (see “Basic views regarding corporate governance” above): the Company’s major stakeholders are:
1) Persons employed in agriculture and horticulture and related enterprises
2) Shareholders and employees
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Establishment and fostering of a system of compliance
The Company has instituted a compliance manual and other related internal rules prescribing the ways in which Sakata Group directors and employees should act in compliance with laws and regulations and in observance of business ethics.
Chaired by the CEO, the Compliance Committee is responsible for instituting important policies governing the implementation of compliance training and education programs across the Group. It also reports to the Board of Directors on compliance-related matters.
The Company has also established formal internal and external channels via which employees of the Company and its domestic subsidiaries can report or seek counsel regarding any internal matters related to compliance with laws, regulations or standards of business ethics. These channels are designed to protect the confidentiality of anyone seeking counsel or providing information. In accordance with internal regulations, the provisions of the Whistleblower Protection Act and other laws and regulations, employees shall not face any adverse consequences as a result of making use of such channels.
Elimination of antisocial elements
1) The Sakata Group shall stand firm against extortionists and other elements and groups that threaten the Group organization or its ability to function in a sound and healthy manner.
2) The Sakata Group shall respond to antisocial elements by abiding by the 3 principles of “making no payments,” “refusal to employ,” and “avoidance of fear.”
3) The Sakata Group shall endeavor to gather information from related government agencies; and it shall build a system that enables it to reach these government agencies and/or legal experts on an emergency basis should problems of this nature arise, and thus to deal promptly with such problems.
Improving systems and procedures to ensure the reliability of financial reporting
1) Establishing regulations for internal control, and developing and adopting basic guidelines for internal control related to financial reporting
2) Based on the foregoing, establishing operating procedures and other regulations to ensure that internal controls for financial reporting are put in place and carried out
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3) Establishing a process for review of the effectiveness of internal controls related to financial reporting to be carried out by the internal control evaluator
4) With a senior executive (representative director) assuming responsibility, preparing a report on internal control as required under the Financial Instruments and Exchange Act
II. System to preserve and manage information on the execution of duties by directors
As prescribed by the Company’s regulations concerning document management, all documents (including electronic records) related to the execution of duties by directors, along with related materials, shall be preserved and managed by the departments and sections concerned. Such documents, etc., shall be made accessible for viewing on an as-needed basis.
As regards the management of documents, the Company’s basic policy on information security, its regulations related to the management of personal information, and its regulations on the management of trade secrets shall govern the actions taken.
III. Risk management controls for the Company and its subsidiaries
The Company has compiled an internal manual to minimize potential losses and other negative impacts on the Company and its subsidiaries. The Group has established risk management systems to manage a wide range of risks, including weather events, geopolitical and social changes in regions where the Group has operations, R&D, intellectual property right infringements, safety, finance, crimes or misconduct by employees, and natural disasters or other emergency situations.
In accordance with the risk management manual, the Company seeks to ensure a rapid response to any serious risk that emerges affecting the Group based on close cooperation between the divisions that are directly involved and any related divisions.
IV. Organizational structures to ensure the efficient execution of duties by directors of the Company and its subsidiaries
Board of Directors
The Company’s Board of Directors operates appropriately in accordance with internal regulations. The Board meets on a monthly basis, as a rule, to discuss and decide all important matters related to the operations of the Sakata Group as prescribed by laws and regulations, the Company’s Articles of Incorporation, and other relevant rules. The Board of Directors is also responsible for determining the division of duties assigned to directors and
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corporate executive officers, and to different parts of the Group’s organization.
Senior management meeting
1) In accordance with the Company’s regulations on senior management meetings, a senior management meeting comprising the president & CEO and all directors above the rank of managing director shall be established. The objective of the senior management meeting shall be to discuss matters pertaining to the management of the Company and the Sakata Group to enable the Board of Directors to discuss and act on such matters in a smooth and expeditious manner.
2) As a rule, the senior management meeting shall be held once every month, as well as at other times as needed.
Corporate executive officer system
The Company has instituted a corporate executive officer system to support faster decision-making and more efficient execution of operations across the Group, as well as to ensure a clear separation of managerial responsibilities with respect to oversight and execution.
Decision-making by “ringi” (circulation of documents for approval)
In accordance with internal regulations and procedures, the Company has instituted a management approval system based on circulation of documents (“ringi”) to enhance the efficiency of everyday operations by directors and corporate executive officers. Operational efficiency is promoted further through detailed delegation of tasks.
Systems for subsidiaries
The Company institutes standards related to management of the Group’s organizational structures, including assignment of positions, command and control hierarchies, delegation of authority, and decision-making processes. The Company also ensures that subsidiaries establish internal systems based on these standards.
Management of policies governing Group operations
The Company’s directors, division general managers and general managers of major subsidiaries hold meetings twice a year, as a rule, to review the Group’s overall management policies and business objectives.
To ensure that operations are appropriate and efficient from a global standpoint, the Company establishes cross-divisional groups (covering domestic and international operations) to manage policies related to R&D,
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production and logistics, IT, quality control or sales. The relevant central corporate division acts as the secretariat for each cross-divisional group.
V. Organizational structures that ensure appropriate execution of operations by the Group
Subsidiary management and oversight
1) The Corporate Planning Office shall have jurisdiction in this area.
2) In addition, the Company shall assign directors or corporate executive officers as “directors in charge” of individual subsidiaries.
3) Based on regulations governing the management of subsidiaries and affiliated companies, the Corporate Planning Office and directors in charge shall establish a system of coordination under which they shall exchange information and interact individually through subsidiaries’ board of directors’ meetings and other venues to provide proper guidance to subsidiaries, thus building a stronger internal control system for the Group.
Reporting on execution of duties by directors of subsidiaries
1) Subsidiaries are required to submit monthly reports to the Company on sales performance, financial matters, personnel matters, and other important information.
2) Full-year performance forecasts and business plans for the following fiscal year must be submitted to the Company’s Board of Directors for approval on an annual basis.
VI. Internal controls related to assignment of employees to duties stipulated by members of the Audit & Supervisory Board, independence of such employees from directors, and ensuring the effectiveness of orders given to such employees
At the request of members of the Audit & Supervisory Board, the Company shall establish an Audit & Supervisory Board Members Office and appoint employees to assist members of the Audit & Supervisory Board in their duties.
Prior to the employees’ assignment, the Board of Directors shall hold discussions with the members of the Audit & Supervisory Board regarding the number, rank, lines of reporting and compensation of such employees, as well as related personnel transfer issues.
VII. Internal controls related to information reported to members of the Audit & Supervisory Board by directors and employees of the Company and its subsidiaries, including safeguards to prevent unfair treatment of informants
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Company directors and employees shall report to the members of the Audit & Supervisory Board any illegal conduct by directors or other actions in violation of relevant laws and regulations or the Company’s Articles of Incorporation that could have a serious material impact on the Group, including instances in which there is reason for suspicion of such conduct.
The Company shall ensure that informants are not treated unfairly for having reported such information.
To ensure the ability members of the Audit & Supervisory Board to execute their duties smoothly and effectively, Company directors and employees are required to submit reports concerning important Company-related business matters, or the operational execution status of such matters, upon request to members of the Audit & Supervisory Board in a prompt and appropriate manner.
VIII. Internal controls related to procedures for payment of expenses arising in relation to the execution of duties by members of the Audit & Supervisory Board, and handling of any related financial liabilities
The Company compiles an annual budget covering any expenses that are expected to arise in relation to the execution of duties by members of the Audit & Supervisory Board.
The Company shall respond promptly to any request for the advance payment of expenses arising from the execution of duties by members of the Audit & Supervisory Board in accordance with Article 388 of the Companies Act, unless it is determined by the responsible department that the expense or financial liability related to said request is not necessary to the execution of duties by members of the Audit & Supervisory Board.
IX. Other organizational structures to ensure that audits by the Audit & Supervisory Board members shall be implemented effectively
The representative director(s) and Audit & Supervisory board members shall endeavor, through regularly held meetings, to enhance mutual communication.
When deemed necessary for operational reasons, the Audit & Supervisory Board members shall receive reports from and exchange information with the person(s) in charge of internal auditing offices, audit & supervisory board members at subsidiaries, or others of equivalent status on the progress of ongoing audits or the situation with respect to any operation as a means of increasing the effectiveness of their audits.
When deemed necessary, the Audit & Supervisory Board members may appoint attorneys, CPAs or other external experts to assist in their auditing.
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The Audit & Supervisory Board members shall have the right to attend senior management meetings, meetings of executive officers, meetings of the Compliance Committee and any other important meetings.
The Audit & Supervisory Board members shall have unrestricted access to any documents related to management approval and financial accounting.
Status of structure of risk management
- Establishment of a risk management structure (see item III under “Corporate governance” above)
- Risk management under normal circumstances (see item III under “Corporate governance” above)
- At the operational level
1) The BCP Committee oversees the implementation of training and education programs aimed at preventing the emergence of risks, as well as organizing the appropriate response to such risks.
2) Response to specific threats (see item III under “Corporate governance” above)
(4) Content of agreements limiting liability
In accordance with Article 423-1 of the Companies Act, the Company has entered into agreements with all of its outside directors and outside Audit & Supervisory Board members limiting their liability.
These agreements contain a maximum liability for the payment of damages by outside directors and outside Audit & Supervisory Board members, which is the minimum amount prescribed under Article 425-1 of the Companies Act.
2. Status of internal audits and audits by Audit & Supervisory Board members
(1) Audit & Supervisory Board
Monthly meetings at which
1) Each Audit & Supervisory Board member reports on important matters related to audits.
2) Necessary discussions and decision-making are conducted in response.
Special meetings held on an as-needed basis
Audits by individual Audit & Supervisory Board members: carried out in accordance with the Audit & Supervisory Board’s policies and regulations regarding division of duties
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(2) Audit & Supervisory Board Members Office
Established in January 2007 to assist the Audit & Supervisory Board members in the performance of their duties
In June 2008, assignment of a full-time head of the Audit & Supervisory Board Members Office
Internal audits are carried out by the Internal Auditing Office in accordance with Company regulations.
(3) Coordination among internal audits, audits by Audit & Supervisory Board members and financial audits
Mutual exchange of information at all times between Audit & Supervisory Board members and the Internal Auditing Office to maintain effective coordination
Exchange of opinions and relevant information at all times between the financial auditors and Audit & Supervisory Board members
Regarding the selection of Audit & Supervisory Board members
1) Primary consideration given to the person’s knowledge of finance and accounting
2) For outside Audit & Supervisory Board members, primary consideration given to their independence
3. Financial audits
Conducted by the following certified public accountants and 23 assistants (4 CPAs and 19 others)
The Company asks KPMG AZSA LLC to conduct its audits in accordance with the Financial Instruments and Exchange Act and the Companies Act.
Name Affiliation
No. of consecutive years of auditing the Company’s accounts
Designated limited liability partner/engagement partner: Kazunori Furuyama
KPMG AZSA LLC 2 years
Designated limited liability partner/engagement partner: Fukumichi Uchino
KPMG AZSA LLC 4 years
4. Relationships between the Company and its outside directors and Audit & Supervisory Board members
The Company has 2 outside directors and 2 outside Audit & Supervisory Board members.
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1) Selection of candidates is based on standards for independence established by the Tokyo Stock Exchange.
2) Although the Company has not established its own standards and policies regarding independence, the TSE’s standards allow it to make selections that avoid risk involving conflicts of interest with shareholders.
Based on wide-ranging knowledge and experience, outside members of the Board play the vital roles of providing objective oversight over management and enhancing management transparency.
Outside Audit & Supervisory Board member Noboru Hasegawa possesses an extensive knowledge of financial and accounting matters acquired through many years of experience in the financial services industry.
There is no personal, financial, commercial or other conflict of interest between the Company and any of outside directors Kunihiko Sugahara or Yoshitaka Ihara or outside Audit & Supervisory Board members Noboru Hasegawa or Yasunori Numata, except as concerns ownership of the Company’s shares as detailed elsewhere in this report.
The Company has registered Kunihiko Sugahara, Yoshitaka Ihara, Noboru Hasegawa and Yasunori Numata as independent directors/auditors with the Tokyo Stock Exchange.
5. Directors’ compensation
Compensation by Board member category; breakdown by type of compensation; and number of Board members in each category
Millions of yen Amount paid
Total amounts paid out to board members by type of compensation Number of board
members in each categoryCompensation Bonuses
Retirement benefits
Directors (excluding Outside Directors)
210 154 23 32 11
Audit & Supervisory Board Members (excluding Outside Audit & Supervisory Board Members)
19 17 - 1 1
Outside Directors and Audit & Supervisory Board Members
25 23 - 1 3
(Note) In millions of yen, with fractional amounts discarded
Total compensation for each director/ Audit & Supervisory Board member of the Company: this information is omitted because no individual’s compensation exceeds ¥100 million.
Significant compensation paid to directors who are also employees: not applicable
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Policy regarding amounts paid to Board members and method of calculating such amounts
1) Basic thinking regarding compensation paid to directors: the system of compensation must
a) Enable the Company to secure the services of management personnel capable of driving the growth of the Company as a global enterprise
b) Allow the Company to enhance long-term shareholder value
c) Contribute to a continuous and stable increase in financial performance
d) Be highly objective and transparent in terms of the way the amounts of compensation are determined
2) Amounts paid out as compensation take into consideration
a) Comparisons with other companies, ascertained through surveys by outside consultants
b) A comprehensive range of other factors, including the rank of the director, his/her operational responsibilities, and his/her contributions to the financial performance of the Company
3) Components of director compensation
a) Fixed monthly salary and bonus linked to financial performance
b) Bonus evaluations take into account the following for the period under consideration: consolidated sales, consolidated operating income and consolidated profit attributable to owners of parent; bonuses fluctuate according to the degree to which targets under each of these categories are achieved.
c) To encourage directors to understand that fostering medium-to-long-term growth in enterprise value and shareholder returns is also in their interest, each director contributes a portion of his/her fixed monthly salary to a directors’ share-purchasing plan.
4) Components for Audit & Supervisory Board members and outside directors: in view of their independent oversight function, no bonuses linked to financial performance are paid.
5) Compensation Committee
a) This committee is organized under the Board of Directors and deliberates on directors’ compensation.
b) By including the outside director as a member of the committee, the Company seeks to ensure the objectivity and transparency of decisions by the committee.
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6. Shareholdings in other companies
Shares held by the Company for purposes other than pure investment
Number of issues: 20
Total value on balance sheet: ¥12,152 million
Number, book value and investment purpose of shares held by the Company for purposes other than pure investment
May 2016 term
Millions of yen Number of
shares Book value Investment purpose
Kikkoman Corporation (2801) 649,000 2,583 To strengthen business relationships
Maruichi Steel Tube Ltd. (5463) 560,000 2,072 To strengthen business relationships
Mitsubishi Pencil Co., Ltd. (7976) 187,200 1,078 To strengthen business relationships
Yokohama Reito Co., Ltd. (2874) 1,022,000 1,078 To strengthen business relationships
MAX Co., Ltd. (6454) 537,000 689 To strengthen business relationships
Ono Pharmaceutical Co., Ltd. (4528) 131,500 647 To strengthen business relationships
Amano Corp. (6436) 335,000 626 To strengthen business relationships
Sotetsu Holdings, Inc. (9003) 736,000 485 To strengthen business relationships
T&D Holdings, Inc. (8795) 411,600 455 To strengthen business relationships
Concordia Financial Group, Ltd. (7186) 866,000 447 To strengthen relationships with financial institutions
Maruzen Showa Unyu Co., Ltd. (9068) 766,000 311 To strengthen business relationships
Fuji Nihon Seito Corporation (2114) 563,000 257 To strengthen business relationships
The Gunma Bank, Ltd. (8334) 578,000 256 To strengthen relationships with financial institutions
Sumitomo Mitsui Financial Group, Inc. (8316) 68,300 247 To strengthen relationships with financial institutions
Bull-Dog Sauce Co., Ltd. (2804) 1,152,000 236 To strengthen business relationships
Hakuyosha Company, Ltd. (9731) 850,000 216 To strengthen business relationships
Okamura Corp. (7994) 175,000 196 To strengthen business relationships
Sodick Co., Ltd. (6143) 158,600 153 To strengthen business relationships
Mizuho Financial Group, Inc. (8411) 530,210 92 To strengthen relationships with financial institutions
Mitsubishi UFJ Financial Group, Inc. (8306) 38,900 21 To strengthen relationships with financial institutions
Concordia Financial Group, Ltd. (7186) is the former Bank of Yokohama, Ltd. (8332).
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May 2015 term
Millions of yen Number of
shares Book value Investment purpose
Kikkoman Corporation (2801) 649,000 2,258 To strengthen business relationships
Maruichi Steel Tube Ltd. (5463) 560,000 1,842 To strengthen business relationships
Mitsubishi Pencil Co., Ltd. (7976) 187,200 1,016 To strengthen business relationships
Yokohama Reito Co., Ltd. (2874) 1,022,000 873 To strengthen business relationships
T&D Holdings, Inc. (8795) 411,600 765 To strengthen business relationships
MAX Co., Ltd. (6454) 537,000 699 To strengthen business relationships
The Bank of Yokohama, Ltd. (8332) 866,000 669 To strengthen relationships with financial institutions
Amano Corp. (6436) 335,000 568 To strengthen business relationships
The Gunma Bank, Ltd. (8334) 578,000 504 To strengthen relationships with financial institutions
Sotetsu Holdings, Inc. (9003) 736,000 421 To strengthen business relationships
Sumitomo Mitsui Financial Group, Inc. (8316) 68,300 387 To strengthen relationships with financial institutions
Ono Pharmaceutical Co., Ltd. (4528) 26,300 357 To strengthen business relationships
Maruzen Showa Unyu Co., Ltd. (9068) 766,000 342 To strengthen business relationships
Bull-Dog Sauce Co., Ltd. (2804) 1,152,000 263 To strengthen business relationships
Hakuyosha Company, Ltd. (9731) 850,000 231 To strengthen business relationships
Fuji Nihon Seito Corporation (2114) 563,000 209 To strengthen business relationships
Okamura Corp. (7994) 175,000 189 To strengthen business relationships
Sodick Co., Ltd. (6143) 158,600 171 To strengthen business relationships
Mizuho Financial Group, Inc. (8411) 530,210 145 To strengthen relationships with financial institutions
Mitsubishi UFJ Financial Group, Inc. (8306) 38,900 35 To strengthen relationships with financial institutions
Mitsumura Printing Co., Ltd. (7916) 10,000 2 To strengthen business relationships
Shares held by the Company for purely investment purposes
2015
2016
Millions of yen Total amount on
balance sheet Total amount on
balance sheet
Total amount of dividends
received
Total amount of gains or losses from
sales Total amount of valuation gains
Unlisted shares 988 965 13 13
Shares other than unlisted shares
195 175 3 - 27
Shares reclassified as held for investment purposes Millions of yen Number of shares Book value
Mitsumura Printing Co., Ltd. (7916) 10,000 2
7. Required number of directors
The Company has stipulated in its Articles of Incorporation that there shall be no more than 11 directors.
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8. Resolutions for the election of directors
The Company has stipulated in its Articles of Incorporation that resolutions concerning the election of directors must be approved as follows: shareholders holding one-third or more of the voting rights of all shareholders eligible to vote must be in attendance, and a majority of these must vote in the affirmative. Cumulative voting is not permitted.
9. Acquisition of the Company’s own shares
The Company has stipulated in its Articles of Incorporation that, in accordance with Article 165-2 of the Companies Act, it is authorized to acquire its own shares through market transactions based on a resolution adopted by the Board of Directors. The purpose of such acquisitions is to enable the Company to implement agile and efficient strategies with respect to shareholders and financing.
10. Interim dividends
The Company has stipulated in its Articles of Incorporation that, in accordance with Article 454-5 of the Companies Act, it is authorized to pay an interim dividend with a date of record of November 30 each year based on a resolution adopted by the Board of Directors. The purpose of such interim dividends is to enable the Company to execute a dividend policy that is at once stable, agile and proactive.
11. Requirements for special resolutions by the General Meeting of Shareholders
With respect to special resolutions by the General Meeting of Shareholders, as provided for under Article 309-2 of the Companies Act, the Company has stipulated in its Articles of Incorporation that approval of such resolutions shall require that shareholders holding one-third or more of the voting rights of all shareholders eligible to vote be in attendance, and that two-thirds of the shareholders present vote in the affirmative. The aim of this rule is to promote smoother transaction of business at the General Meeting of Shareholders.
Financial auditors’ compensation
1. Compensation paid to financial auditors
2015 2016
Millions of yen Financial audit
servicesNon-audit
servicesFinancial audit
services Non-audit
services
Parent Company 49 - 49 -
Subsidiaries - - - -
49 - 49 -
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2. Other important compensation
In the fiscal years ended May 2015 and May 2016, the Company paid auditing compensation of ¥93 million and ¥110 million to KPMG, which audited certain of the Company’s subsidiaries and which is a member firm of the network of financial auditors that audited the Company.
3. Compensation policy for financial audit services
Remuneration is determined via discussions with the independent auditors based on the appropriateness of the audit plan and related service charges for the year under review and with reference to the charges levied in previous years for financial auditing services provided, based on the billed hours per audit item for different members of the financial audit team based on seniority.
Directors Name Title
Date joined company Concurrent occupations Date of birth Term
Thousandshares
Hiroshi Sakata President and Representative Director
May-81 14-Feb-52 2 years from the General Meeting of Shareholders (GMS) held in August 2015
154.5
Risho Uchiyama Managing Director Apr-84 29-Jan-62 2 years from GMS held in August 2015
8.7
Tsutomu Kagami Managing Director Apr-87 17-Jan-62 2 years from GMS held in August 2015
5.8
Hideto Kaneko Director Apr-90 18-Jun-62 2 years from GMS held in August 2015
205.0
Shuitsu Honda Director Apr-87 25-Nov-62 2 years from GMS held in August 2015
4.7
Akifumi Ujita Director May-09 5-Aug-57 2 years from GMS held in August 2015
5.3
Kazuo Kuroiwa Director Apr-85 21-Jan-59 2 years from GMS held in August 2015
2.4
Toshihiko Furuki Director Apr-88 15-Feb-66 2 years from GMS held in August 2015
2.7
Kunihiko Sugahara Director Aug-13 Certified public accountant
8-Mar-52 2 years from GMS held in August 2015
10.0
Yoshitaka Ihara Director Aug-16 18-Oct-45 1 year from GMS held in August 2016
-
Mitsuo Enda Standing Audit & Supervisory Board Member
Apr-71 27-Jan-49 4 years from GMS held in August 2016
13.2
Noboru Hasegawa Audit & Supervisory Board Member
Aug-12 9-Oct-48 4 years from GMS held in August 2016
1.9
Yasunori Numata Audit & Supervisory Board Member
Aug-16 16-Jun-48 4 years from GMS held in August 2016
-
414.7
Current assignments and previous positions in the Company have been omitted.
Under law, the Company is required to have a certain number of Audit & Supervisory Board members. To prepare for the possibility that it might not be able to fill the required number of seats, the Company has elected an alternate Audit & Supervisory Board member in accordance with Article 329-3 of the Companies Act.
Name Title Concurrent occupations Date of birth Thousand
shares
Tamio Nagashima Alternate Audit & Supervisory Board Member
Certified public accountant Registered tax accountant
17-Feb-49 -
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Employees Consolidated 2016
Business segment Number
Domestic wholesaling 230
Overseas wholesaling 1,456
Retailing 68
Others 12
Corporate staff 420
2,186
Parent Total or average
Number 657
Average age 37.1
Average years of service 13.5
Average annual salary (thousands of yen) 6,112
Average annual salary includes bonuses and overtime pay.
Union Sakata Seed Corporation’s union is an intra-Company union independent of any outside umbrella organization. The Company enjoys amicable labor relations.
Acquisition of treasury shares Types of shares
The acquisition of common shares as stipulated under Article 155-7 of the Companies Act.
Acquisitions which are not based on resolutions adopted by the General Meeting of Shareholders or the Board of Directors Yen No. of shares Total value
Treasury shares acquired during the year under review 1,639 3,949,128
Treasury shares acquired during the period of June 1 to July 31 189 434,826
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Disposal and ownership of treasury shares Fiscal year under review Period of June 1 to July 31
Yen Number of
sharesTotal value of
disposed sharesNumber of
shares Total value of
disposed shares
Acquired treasury shares sold to underwriters - - - -
Acquired treasury shares subsequently cancelled - - - -
Acquired treasury shares transferred through mergers, share exchanges or corporate divisions
- - - -
Others
(Treasury shares acquired in response to shareholders’ requests to purchase shares of less than one unit)
- - - -
No. of treasury shares held 3,407,881 - 3,408,070 -
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Cash Flows Consolidated statement of cash flows Years ended May 31; Millions of yen 2014 2015 2016
Cash flows from operating activities
Profit before income taxes 3,996 5,504 7,503
Depreciation 1,832 1,872 1,826
Amortization of negative goodwill (0) (0) -
Increase (decrease) in allowance for doubtful accounts 54 (49) (218)
Interest and dividend income (312) (349) (358)
Interest expenses 81 66 75
Foreign exchange losses (gains) 55 (160) 201
Impairment loss 134 692 64
Loss (gain) on sales of investment securities (136) (71) (13)
Decrease (increase) in notes and accounts receivable - trade 410 (1,404) 669
Decrease (increase) in inventories (1,106) (2,134) (2,372)
Increase (decrease) in notes and accounts payable - trade 136 331 (248)
Increase (decrease) in accounts payable - other (227) (218) 255
Others (635) 1,040 (1,043)
4,280 5,117 6,342
Interest and dividend income received 314 353 350
Interest expenses paid (79) (67) (77)
Income taxes refunded 7 56 20
Income taxes paid (971) (1,324) (2,250)
3,552 4,136 4,384
Cash flows from investing activities
Payments into time deposits (3,556) (1,940) (3,502)
Proceeds from withdrawal of time deposits 3,823 1,546 3,194
Purchase of property, plant and equipment (1,899) (1,861) (3,069)
Proceeds from sales of property, plant and equipment 21 466 128
Purchase of intangible assets (182) (153) (192)
Proceeds from redemption of securities 50 - 100
Purchase of investment securities (378) (94) (50)
Proceeds from sales of investment securities 136 239 21
Others (32) (46) (58)
(2,018) (1,844) (3,430)
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Years ended May 31; Millions of yen 2014 2015 2016
Cash flows from financing activities
Net increase (decrease) in short-term loans payable 1,318 (850) 973
Proceeds from long-term loans payable - 941 537
Purchase of treasury shares (1) (3) (3)
Cash dividends paid (1,128) (901) (1,035)
Payments from changes in ownership interests in subsidiaries that do not result in change in scope of consolidation
- - (36)
Others (146) (131) (100)
41 (945) 335
Effect of exchange rate change on cash and cash equivalents 353 129 (431)
Net increase (decrease) in cash and cash equivalents 1,929 1,476 858
Cash and cash equivalents at beginning of period 7,233 9,162 10,639
Cash and cash equivalents at end of period 9,162 10,639 11,497
Relationship between the balance of cash and cash equivalents as of term-end and balance sheet items
Years ended May 31; Millions of yen 2014 2015 2016
Cash and deposits 15,324 17,212 18,321
Time deposits, etc., of 3 months or longer (6,161) (6,573) (6,823)
Cash and cash equivalents 9,162 10,639 11,497
Capital expenditures 1. Group-wide capital investment: ¥3,504 million
Purchase of assets to establish a farm at site in Chiba: ¥289 million
Investments in IT systems and related infrastructure: ¥145 million
Acquisition of land for Sakata Seed America, Inc.: ¥508 million
Construction of a research facility for Sakata Vegetables Europe S.A.S.: ¥234 million
2. Capital investment by business segment
Domestic wholesaling: ¥510 million
Overseas wholesaling: ¥2,519 million
Retailing: ¥62 million
Corporate assets: ¥411 million
3. No significant retirements or sales of facilities occurred during the year under review.
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Capital expenditures and disposal plans Expenditures
Millions of yen Items Budgeted
amountExpenditures to
dateDate
commenced Completion date
Chiba Farm (tentative name)
Research facilities 1,251 294 2015/9 2017/5
Sakata Seed America, Inc.
Research facilities 1,069 508 2016/3 2017/6
Sakata Seed India Private Limited
Warehousing/research facilities
1,057 125 2016/4 2018/3
Dividend policy Basic stance on dividends
1. The Company considers returning profits to shareholders to be a significant issue for management.
2. Over the medium-to-long term, its basic policy on dividends will be determined by:
The financial results for each term
Management’s need to ensure sufficient retained earnings to enhance its operational capabilities and to strengthen the foundations of the Company’s business
The need to maintain stability and continuity of payouts
Payouts
1. Frequency of dividend payouts: twice annually
Interim dividend, as approved by the Board of Directors
Year-end dividend, as approved by the General Meeting of Shareholders
2. Dividends for fiscal year ended May 31, 2016:
Interim dividend of ¥10 per share (in accordance with above policy)
Year-end dividend of ¥15 per share (including a special dividend of ¥2 per share to reflect record profit performance)
Allocation of retained earnings
To respond to the changes it foresees in the business environment and to enhance its ability to compete on cost, the Company shall:
1. Strengthen its R&D and production capabilities to respond effectively to market needs
2. Invest in resources that further its global strategies
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Articles of Incorporation
With regard to interim dividends, under Article 454-5 of the Companies Act, the Company has provided for the following in its Articles of Incorporation.
“The Company may pay out interim dividends with a date of record of November 30 each year, based on a resolution by its Board of Directors.”
Dividends paid for the year under review are as shown below. Date of decision Dividend payout Dividend per share
(Millions of yen) (Yen)
January 12, 2016 Resolution of Board of Directors
450 10
August 23, 2016 Resolution of General Meeting of Shareholders
675 15
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Operations Consolidated statement of income Years ended May 31; Millions of yen 2014 2015 2016
Net sales 53,922 56,707 58,773
Cost of sales 26,661 27,969 27,539
Gross profit 27,260 28,738 31,234
Selling, general and administrative expenses 23,573 23,959 23,916
Operating income 3,687 4,779 7,317
Non-operating income
Interest income 115 142 141
Dividend income 196 207 217
Rent income 198 209 211
Amortization of negative goodwill 0 0 -
Foreign exchange gains - 479 -
Others 110 154 161
621 1,193 731
Non-operating expenses
Interest expenses 81 66 75
Sales discounts 13 23 23
Foreign exchange losses 269 - 250
Others 35 74 144
399 164 493
Ordinary income 3,909 5,808 7,555
Extraordinary income
Gain on sales of non-current assets 15 316 -
Gain on sales of investment securities 136 71 13
Gain on transfer of business 80 - -
232 388 13
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Years ended May 31; Millions of yen 2014 2015 2016
Extraordinary losses
Impairment loss 134 692 64
Others 11 - -
146 692 64
Profit before income taxes 3,996 5,504 7,503
Income taxes - current 1,250 1,993 2,283
Income taxes - deferred 64 (315) (23)
1,315 1,677 2,260
Profit 2,680 3,826 5,243
Profit attributable to non-controlling interests (0) 5 27
Profit attributable to owners of parent 2,681 3,820 5,215
Consolidated statement of comprehensive income Years ended May 31; Millions of yen 2014 2015 2016
Profit 2,680 3,826 5,243
Other comprehensive income
Valuation difference on available-for-sale securities 324 2,624 168
Foreign currency translation adjustment 1,866 878 (2,365)
Remeasurements of defined benefit plans, net of tax - 111 (501)
2,190 3,613 (2,699)
Comprehensive income 4,871 7,440 2,543
Comprehensive income attributable to
Comprehensive income attributable to owners of parent 4,871 7,430 2,534
Comprehensive income attributable to non-controlling interests 0 10 9
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Consolidated statement of changes in equity May 2016 term
Shareholders' equity
Year ended May 31, 2016; Millions of yen Capital stock Capital surplus Retained earnings Treasury shares
Total shareholders'
equity
Balance at beginning of current period
13,500 10,823 62,799 (4,473) 82,649
Changes of items during period
Dividends of surplus (1,035) (1,035)
Profit attributable to owners of parent
5,215 5,215
Purchase of treasury shares
(3) (3)
Change in ownership interest of parent arising from transactions with non-controlling shareholders
(29) (29)
Net changes of items other than shareholders' equity
Total changes of items during period
- (29) 4,180 (3) 4,147
Balance at end of current period
13,500 10,793 66,980 (4,477) 86,796
Accumulated other comprehensive income
Year ended May 31, 2016; Millions of yen
Valuation difference on available-for-
sale securities
Foreign currency
translation adjustment
Remeasurements of defined benefit
plans
Total accumulated
other comprehensive
incomeNon-controlling
interests Total net assets
Balance at beginning of current period
5,066 (493) 58 4,630 129 87,410
Changes of items during period
Dividends of surplus (1,035)
Profit attributable to owners of parent
5,215
Purchase of treasury shares
(3)
Change in ownership interest of parent arising from transactions with non-controlling shareholders
(29)
Net changes of items other than shareholders' equity
168 (2,348) (501) (2,681) 11 (2,670)
Total changes of items during period
168 (2,348) (501) (2,681) 11 1,476
Balance at end of current period
5,234 (2,842) (443) 1,949 141 88,886
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May 2015 term Shareholders' equity
Year ended May 31, 2015; Millions of yen Capital stock Capital surplus Retained earnings Treasury shares
Total shareholders'
equity
Balance at beginning of current period
13,500 10,823 60,395 (4,470) 80,247
Cumulative effect of changes in accounting policies
(516) (516)
Restated balance 13,500 10,823 59,879 (4,470) 79,731
Changes of items during period
Dividends of surplus (900) (900)
Profit attributable to owners of parent
3,820 3,820
Purchase of treasury shares
(3) (3)
Disposal of treasury shares 0 0 0
Net changes of items other than shareholders' equity
Total changes of items during period
- 0 2,920 (3) 2,917
Balance at end of current period
13,500 10,823 62,799 (4,473) 82,649
Accumulated other comprehensive income
Year ended May 31, 2015; Millions of yen
Valuation difference on available-for-
sale securities
Foreign currency
translation adjustment
Remeasurements of defined benefit
plans
Total accumulated
other comprehensive
incomeNon-controlling
interests Total net assets
Balance at beginning of current period
2,441 (1,367) (52) 1,021 130 81,399
Cumulative effect of changes in accounting policies
(516)
Restated balance 2,441 (1,367) (52) 1,021 130 80,883
Changes of items during period
Dividends of surplus (900)
Profit attributable to owners of parent 3,820
Purchase of treasury shares
(3)
Disposal of treasury shares 0
Net changes of items other than shareholders' equity
2,624 873 111 3,609 (0) 3,608
Total changes of items during period
2,624 873 111 3,609 (0) 6,526
Balance at end of current period
5,066 (493) 58 4,630 129 87,410
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Results of operations Fiscal year ended May 31, 2016 (year on year, percentage changes)
Consolidated net sales up 3.6% to ¥58,773 million; operating income up 53.1% to ¥7,317 million; ordinary income up 30.1% to ¥7,555 million; and profit attributable to owners of parent up 36.5% to ¥5,215 million (a new record for the Sakata Group).
Economic and other factors affecting operations
1. Global economy
Economic recovery continued in the United States, supported by robust consumer spending and investment in housing.
Stronger consumer spending supported a moderate pace of economic recovery in Europe.
Among developing countries, the Indian economy expanded strongly, but the slowdown continued in China amid slumping commodity prices, and Brazil experienced a protracted severe recession.
2. Domestic economy
Improvements in corporate earnings and employment helped to maintain the Japanese recovery in overall terms, but consumer spending remained weak. Exports to China and other Asian markets declined amid continued uncertainty over regional economic prospects.
3. Industry trends and impact on the Sakata Group
Overall domestic demand for seeds was still sluggish but remained buoyant in overseas markets due to rising demand for vegetable seeds and flower seeds in developing countries.
In domestic wholesaling operations, sales revenue declined from the year before due to significantly lower sales of materials, which offset steady growth in sales of vegetable seeds and seedlings.
In overseas wholesaling operations, sales of vegetable seeds and flower seeds continued to increase.
After an earlier review of unprofitable operations and subsequent measures, the Group’s retailing business generated lower sales than in the previous year.
Strong sales of vegetable seeds contributed to an increase in gross profit.
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4. Financial factors
Foreign exchange losses of ¥250 million were recorded, compared with foreign exchange gains of ¥479 million in the previous year.
Business segment review
1. Domestic wholesaling: net sales down 0.2% to ¥16,365 million; operating income down 8.6% to ¥5,327 million
Sales of vegetable seeds and seedlings increased, but the gains were offset by lower sales of materials.
Vegetable seeds: top sellers included broccoli, sweet corn and tomatoes.
Flower seeds: sales of lisianthus and sunflower seeds increased, but sales of pansy varieties declined as a stagnant market led to reduced cultivation.
Materials: sales declined from the year before despite higher demand for high-grade liquid fertilizers and specialist culture soils; this mainly reflected the fact that demand in the previous year was boosted by reconstruction demand for greenhouse materials following particularly heavy snowfalls in February 2014.
Seedlings: growth in sales was generated by tomato seedlings sold in cell trays or pots.
The cost of sales increased due to higher production and input costs.
2. Overseas wholesaling: the segment posted a good performance, with net sales up 7.6% to ¥32,074 million and operating income up 44.7% to ¥10,174 million.
Performance by region:
1) Asia: strong export performers included carrots, broccoli, lisianthus and sunflower.
2) North America: broccoli, squash and other vegetable seeds posted higher sales.
3) Europe and South America: broccoli, tomato and other vegetable seeds posted higher sales.
Performance by product:
1) Vegetable seeds: strong year-on-year sales growth was driven by top performers such as broccoli, tomato, carrots and squash.
2) Flower seeds: lisianthus and sunflower seeds were the top performers, driving positive year-on-year sales growth.
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3. Retailing: net sales declined 3.6% to ¥9,306 million; the operating loss of ¥290 million was an improvement from the previous year’s loss of ¥351 million, reflecting successful efforts to constrain operating expenses.
Home improvement stores: sales fell due to limited sales of unprofitable product lines, but operations became more profitable due to significant reductions in administrative costs.
Mail order: revenues generated by the subscriber base were lackluster after the transition to a new system for mail-order subscribers.
Garden centers: sales were higher than in the previous year, in part due to favorable weather in autumn, a popular season for gardening in Japan. Online and in-store sales both showed encouraging signs of growth.
4. Other businesses: net sales up 20.6% to ¥1,026 million; operating income of ¥9 million, an improvement of ¥79 million compared with an operating loss of ¥69 million in the previous year
Sales revenue generated by landscaping and garden construction services increased with the completion of large-scale projects.
The turnaround in profitability reflected higher gross profit combined with a reduction in operating expenses.
Fiscal year ended May 31, 2015 (year on year, percentage changes)
Consolidated net sales up 5.2% to ¥56,707 million; operating income up 29.6% to ¥4,779 million; ordinary income up 48.6% to ¥5,808 million; and profit attributable to owners of parent up 42.5% to ¥3,820 million.
Economic and other factors affecting operations
1. Global economy
The U.S. economy maintained a steady recovery.
Europe experienced a mild economic recovery on the back of lower oil prices, despite prevailing uncertainty due to the turmoil arising from the Greek debt crisis and political tensions between Russia and Ukraine.
Among developing countries, the Indian economy expanded strongly, but the slowdown in China continued, and the Brazilian economy contracted.
2. Domestic economy
Growth accelerated in Japan, supported by higher consumer spending and business investment.
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3. Industry trends and impact on the Sakata Group
Despite the economic expansion, the Japanese market for seedlings and materials showed stagnant.
Wholesaling operations of the Company, however, posted higher sales of seedlings and materials in Japan.
In overseas wholesaling operations, demand continued to increase for vegetable seeds and flower seeds, especially in developing countries. Sales of vegetable seeds increased from the year before.
The Group’s retailing operations struggled due to restricted sales of unprofitable merchandise and weak demand early in the fiscal year under review due to the impact of the April 2014 consumption tax hike.
Strong sales of vegetable seeds contributed to higher gross profit.
4. Financial factors
Foreign exchange gains of ¥479 million were recorded, compared with foreign exchange losses of ¥269 million in the previous year.
The Group booked an impairment loss of ¥692 million.
Business segment review
1. Domestic wholesaling: net sales up 0.3% to ¥16,390 million; operating income up 0.3% to ¥5,831 million
Sales of seedlings and materials increased, but sales of vegetable seeds and flower seeds stagnated.
Vegetable seeds: strong sellers included tomatoes, broccoli and cabbage, but overall sales declined due to the pull-forward effect on demand from the consumption tax hike in April 2014.
Flower seeds: sales declined due to the pull-forward effect on demand of the April 2014 consumption tax hike and overall market contraction.
Materials: sales increased due to reconstruction demand for greenhouse materials following heavy snowfalls in February 2014, along with increased sales of horticultural chemicals.
Seedlings: sales growth was generated by tomato and begonia seedlings.
2. Overseas wholesaling: net sales up 12.9% to ¥29,813 million; operating income up 17.0% to ¥7,030 million
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Performance by region:
1) Asia: strong sellers included carrots and lisianthus in China, cauliflowers in India, and Chinese cabbage in South Korea.
2) North America: broccoli and other vegetable seeds posted higher sales.
3) Europe: sales of vegetable seeds and flower seeds increased in local currency terms, but fell in yen terms due to currency movements.
4) South America: sales of vegetable seeds increased in local currency terms, but fell in yen terms due to currency movements.
Performance by product:
1) Vegetable seeds: strong year-on-year sales growth was driven by top performers such as broccoli, carrots, beets and watermelons.
2) Flower seeds: sales fell in Europe and South America due to currency movements, but this was offset by the growth in sales in China (notably of lisianthus) and in North America (notably of sunflowers and lisianthus).
3. Retailing: net sales down 6.6% to ¥9,652 million; operating loss of ¥351 million was improvement of ¥24 million on previous year’s loss of ¥375 million
Sales to home improvement retailers:
1) Sales fell due to restricted sales of unprofitable merchandise, despite higher sales of vegetable seeds, flower seeds and bulb sets.
2) Sustained downward pressure on operating costs led to a significant improvement in profitability compared with the previous year.
Mail order: orders for flower seeds, seedlings and horticultural products for the spring planting season were relatively sluggish, reflecting the impact of the April 2014 consumption tax hike in terms of pulling demand forward.
Garden centers: operations generally struggled in the first half of the year amid unseasonable weather, but seasonal sales promotions helped ensure that total visitor numbers were on a par with the previous year. However, overall sales were down due to the poor performance in the first half.
4. Other businesses: net sales up 1.7% to ¥851 million; operating loss of ¥69 million, up ¥51 million relative to the loss of ¥18 million in the previous year
Sales rose due to the completion of landscaping and garden construction projects for major private-sector clients, but profits declined from the year before due to increased costs of construction materials.
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Segment information 1. Segment reporting
The Company’s segment reporting is based on organizational units for which clearly separable financial information can be obtained. These units are also subject to regular reviews by the Board of Directors to determine resource allocation and evaluate financial performance.
Segments are basically determined by type of operation; the Company provides segment information for 3 operations: domestic and overseas wholesaling and retailing.
In domestic wholesaling, the Company produces or procures vegetable seeds, flower seeds, bulbs, seedlings and agricultural and horticultural products, and wholesales these items to seed companies, etc., in the Japanese market.
In overseas wholesaling, the Company and/or its overseas subsidiaries produce or procure vegetable seeds, flower seeds, bulbs, seedlings and agricultural and horticultural products, and wholesale these items to seed companies, etc., in overseas markets.
In retailing, the Company procures merchandise for gardening enthusiasts and sells this merchandise to home improvement retailers, through mail order and through its corporate-owned and managed stores.
2. Method of calculating amounts
Segment profits are reported in terms of operating income.
Internal sales and transfers between segments are based on market prices.
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3. Information regarding segment-related sales, profits or losses; and regarding segment-related assets, liabilities and other categories
Segment reporting
Millions of yen Domestic
wholesaling Overseas
wholesaling Retailing Subtotal(Note 1)Others Total
(Note 2)Adjustments
(Note 3)Book value
2016
Net sales
External customers 16,365 32,074 9,306 57,746 1,026 58,773 - 58,773
Inter-segment 813 3,212 0 4,027 37 4,064 (4,064) -
17,179 35,287 9,306 61,773 1,064 62,838 (4,064) 58,773
Segment profits (losses) 5,327 10,174 (290) 15,211 9 15,221 (7,904) 7,317
Segment assets 20,213 46,547 3,757 70,518 370 70,888 37,971 108,859
Other items Depreciation Increase in property, plant and equipment and intangible assets
175
510
1,044
2,519
30
62
1,250
3,093
2
-
1,252
3,093
573
411
1,826
3,504
2015
Net sales
External customers 16,390 29,813 9,652 55,856 851 56,707 - 56,707
Inter-segment 694 2,821 0 3,516 59 3,575 (3,575) -
17,085 32,634 9,652 59,372 910 60,283 (3,575) 56,707
Segment profits (losses) 5,831 7,030 (351) 12,510 (69) 12,440 (7,661) 4,779
Segment assets 19,248 43,139 4,193 66,580 271 66,852 38,461 105,313
Other items Depreciation Increase in property, plant and equipment and intangible assets
195
271
1,052
1,359
24
64
1,271
1,695
3
7
1,275
1,703
596
294
1,872
1,998
(Notes)
1. The “Others” classification encompasses businesses not included in the reported segments, specifically landscaping for government agencies and private businesses and the temporary staffing agency.
2. “Adjusted amounts” break down as follows:
(1) “Segment profits/losses adjustments” of ¥(7,904) million (2016) and ¥(7,661) million (2015), which comprise:
a. Inter-segment eliminations: ¥85 million (2016) and ¥65 million (2015)
b. Inventory adjustments: ¥(524) million (2016) and ¥(398) million (2015)
c. Corporate expenses (primarily parent company R&D and headquarters administration costs) not allocated to the segments: ¥(7,465) million (2016) and ¥(7,328) million (2015)
(2) The “segment asset adjustments” of ¥37,971 million (2016) and ¥38,461 million (2015) represent assets allocated to the Company as a whole.
(3) The “depreciation adjustments” of ¥573 million (2016) and ¥596 million (2015) represent depreciation expenses on assets allocated to the Company as a whole.
(4) The increases in the amounts of property, plant and equipment and intangible assets of ¥411 million (2016) and ¥294 million (2015) represent the amounts of such assets acquired for use by the Company as a whole.
3. Segment profits/losses adjustments are made to adjust segment profits to operating income on the consolidated statement of income.
Related information
Information on products and services
Millions of yen Seeds and Seedlings Materials Others Total
2016
External customers 47,208 9,212 2,351 58,773
2015
External customers 45,010 9,616 2,080 56,707
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Information by region
Millions of yen Japan North and
Central AmericaEurope, Middle and Near East Asia
South America Others Total
2016
Sales 26,698 10,123 8,869 7,702 3,230 2,151 58,773
Property, plant and equipment
18,595 5,012 2,038 1,191 934 533 28,305
2015
Sales 26,890 9,653 8,496 6,563 3,077 2,026 56,707
Property, plant and equipment
18,432 4,681 1,798 1,115 1,060 351 27,439
Segment information on impairment losses on non-current assets
Millions of yen Domestic
wholesaling Overseas
wholesaling Retailing Others Subtotal Eliminations Total
2016
Impairment loss 8 - 56 - 64 - 64
2015
Impairment loss 652 0 25 8 687 4 692
Issues requiring action Contribution to domestic and international agriculture
The Sakata Group aims to remain a leader in the seed industry based on sustained R&D activities and global business development, and by seeking to combine high profitability with a strong balance sheet.
Japanese agriculture:
Amid ongoing declines in the farming and general population due to demographic aging and in cultivated acreage, the Japanese government is striving to increase food exports and double farming family incomes as part of its economic growth strategy. To support these initiatives, the Company is committed to supplying high-quality seeds to enable farmers to grow high-value-added agricultural produce.
International agriculture:
Amid growing interest in health in advanced nations and rising food consumption in developing countries, the Company acknowledges its vital role in the global society in supplying seeds to contribute to better human health through vegetables, along with the psychologically soothing effects of flowers.
1. Establishment of a profitable business model
The Company has developed research capabilities to generate an ongoing stream of original, high-quality seeds and seedlings to support the reliable and profitable cultivation of land by producers.
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To promote development of market-leading strategic products and related growth in sales, the Company is focusing resources on such products and developing earnings structures to take advantage of the growth opportunities in developing countries, notably in Asia.
2. Restructuring of loss-making operations
The Company plans to undertake further restructuring of its retail operations that cater to amateur gardening enthusiasts.
The Company also aims to improve the profitability of its landscaping services and establish a greater presence in this market.
3. Development of a global supply chain to boost supply reliability and efficiency
With the aim of reducing costs and inventories, the Company is focusing on development of an efficient global SCM system to help establish production and technical structures to support reliable supplies of high-quality seeds.
4. Internal structural development to foster global enterprise growth
The Company aims to upgrade its human resources development and related managerial structures to support the development of the Sakata Group as a global enterprise of Japanese origin.
Sales and procurement Procurement
Millions of yen 2016
Amount Year on year (%)
Domestic wholesaling 7,962 (0.6)
Overseas wholesaling 15,045 (1.6)
Retailing 6,237 (5.6)
Total segment reporting 29,246 (2.2)
Others 834 8.0
30,080 (1.9)
Sales by business
Millions of yen 2016
Amount Year on year (%)
Domestic wholesaling 16,365 (0.2)
Overseas wholesaling 32,074 7.6
Retailing 9,306 (3.6)
Total segment reporting 57,746 3.4
Others 1,026 20.6
58,773 3.6
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Selling, general and administrative expenses Years ended May 31; Millions of yen 2014 2015 2016
Packing expenses 551 481 466
Haulage expenses 1,202 1,087 1,090
Advertising expenses 938 958 983
Provision of allowance for doubtful accounts 68 (40) (69)
Employees' salaries and allowances 9,233 9,419 9,518
Retirement benefit expenses 470 598 442
Provision for directors' retirement benefits 62 62 54
Depreciation 1,356 1,315 1,298
Research and development expenses 4,440 4,840 4,989
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Capital Structure Consolidated balance sheet Assets As of May 31; Millions of yen 2014 2015 2016
Current assets
Cash and deposits 15,324 17,212 18,321
Notes and accounts receivable - trade 14,092 15,653 14,488
Securities - 100 150
Merchandise and finished goods 19,922 21,934 23,237
Work in process 1,499 2,080 2,020
Raw materials and supplies 2,443 2,173 2,142
Costs on uncompleted construction contracts 35 59 135
Deferred tax assets 1,659 2,062 2,412
Others 2,646 1,924 2,233
Allowance for doubtful accounts (476) (476) (276)
57,146 62,724 64,864
Non-current assets
Property, plant and equipment
Buildings and structures 27,229 28,645 28,638
Accumulated depreciation (17,496) (18,390) (18,677)
Buildings and structures, net 9,733 10,254 9,961
Machinery, equipment and vehicles 10,824 11,517 11,710
Accumulated depreciation (8,434) (9,091) (9,221)
Machinery, equipment and vehicles, net 2,390 2,426 2,489
Land 14,122 13,788 14,456
Construction in progress 695 383 670
Others 3,015 3,079 3,223
Accumulated depreciation (2,429) (2,492) (2,496)
Others, net 585 586 727
27,528 27,439 28,305
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As of May 31; Millions of yen 2014 2015 2016
Intangible assets 933 819 638
Investments and other assets
Investment securities 10,094 13,589 13,633
Long-term loans receivable 158 111 50
Deferred tax assets 167 116 614
Others 598 658 859
Allowance for doubtful accounts (212) (145) (106)
10,806 14,329 15,052
Total non-current assets 39,268 42,589 43,995
Total assets 96,414 105,313 108,859
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Liabilities and equity
As of May 31; Millions of yen 2014 2015 2016
Current liabilities
Notes and accounts payable - trade 3,071 3,763 3,305
Short-term loans payable 2,595 1,661 2,676
Income taxes payable 581 995 985
Deferred tax liabilities 44 - -
Others 4,033 3,842 4,002
10,326 10,262 10,970
Non-current liabilities
Long-term loans payable 981 2,117 2,356
Deferred tax liabilities 846 1,824 2,383
Net defined benefit liability 1,574 2,317 3,055
Provision for directors' retirement benefits 508 588 345
Negative goodwill 0 - -
Others 775 793 862
4,687 7,641 9,002
Total liabilities 15,014 17,903 19,972
Net assets
Shareholders' equity
Capital stock 13,500 13,500 13,500
Capital surplus 10,823 10,823 10,793
Retained earnings 60,395 62,799 66,980
Treasury shares (4,470) (4,473) (4,477)
80,247 82,649 86,796
Accumulated other comprehensive income
Valuation difference on available-for-sale securities 2,441 5,066 5,234
Foreign currency translation adjustment (1,367) (493) (2,842)
Remeasurements of defined benefit plans (52) 58 (443)
1,021 4,630 1,949
Non-controlling interests 130 129 141
Total net assets 81,399 87,410 88,886
Total liabilities and net assets 96,414 105,313 108,859
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Financial instruments Policy with respect to financial instruments
Depending on the requirements of its capital investment plans, the Company may turn to outside financing (primarily bank loans) for the capital necessary to implement its plans.
Surplus cash is invested primarily in highly liquid financial assets; the Company may use bank loans for some of its short-term capital needs.
The Company uses derivatives to hedge against certain risks, which are discussed below; it does not employ derivatives for speculative purposes.
Types of financial instruments and their attendant risks; risk management policies
Trade receivables: The Company is exposed to the credit risks of its customers; in its overseas businesses, non-yen-denominated receivables expose it to currency risks, which it offsets partially through payables denominated in the same currencies and through hedging with forward exchange contracts; it manages credit risks through periodic monitoring and controls that it institutes based on maturity dates and outstanding balances.
Securities and investment securities: Primarily shares in companies with which the Company has business relationships, these investments are exposed to the risk of market fluctuations.
Trade payables (promissory notes and accounts payable): In most instances, these have maturity dates of 3 months or less; payables denominated in foreign currencies expose the Company to currency risks, which are offset by receivables denominated in the same currencies and by hedging with forward exchange contracts.
Loans payable primarily constitute loans obtained to finance capital investment and working capital; due dates fall within 10 years after the date of closing. A portion of this debt is exposed to risks of interest rate fluctuations, which the Company hedges through derivative transactions (interest rate swaps).
Derivative transactions: These are forward exchange contracts and currency option contracts adopted to hedge against currency risks associated with foreign currency-denominated trade payables and receivables; they also include interest rate swaps employed to hedge against interest rate fluctuations on loans payable; derivative transactions are governed by internal regulations, which establish systems of control, methods of risk management and departments that execute transactions; there are personnel responsible for signing off on all transactions. Derivative transactions by subsidiaries require prior approval by corporate headquarters.
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Liquidity risks: The assumption of trade payables and loans exposes the Company to liquidity risks (risks that payments cannot be made on time), which it deals with through the timely preparation and renewal of cash flow plans and through maintenance of sufficient cash on hand.
Supplemental statement regarding the current prices of financial instruments
In addition to values for instruments with market prices, current prices include values calculated by the Company for instruments that do not have market prices; it applies reasonable methods in calculating these values. When investing excess funds, the Company purchases only highly rated securities, a practice resulting in minimal exposure to credit risks.
In these calculations, the Company incorporates variables that can cause outcomes to change depending on the assumptions it makes; this means that the values in question may change.
The reference to “contract value” in the note on derivative transactions should not be considered as an indication of market risk related to the transactions in question.
Items related to current value 2015 2016
As of May 31; Millions of yen Book value Current valueUnrealized gain (loss) Book value Current value
Unrealized gain (loss)
Cash and deposits 17,212 17,212 - 18,321 18,321 -
Notes and accounts receivable - trade 15,653 14,488
Allowance for doubtful accounts (467) (276)
15,185 15,185 - 14,211 14,211 -
Securities and investment securities
Available-for-sale securities 12,691 12,691 - 12,811 12,811 -
Long-term loans receivable (Note 1) 173 89 94 5
Allowance for doubtful accounts (Note 2) (80)
93 107 14
Total assets 45,182 45,196 14 45,434 45,439 5
Notes and accounts payable - trade 3,763 3,763 - 3,305 3,305 -
Short-term loans payable (Note 3) 1,642 1,642 - 2,559 2,559 -
Income taxes payable 995 995 - 985 985 -
Long-term loans payable (Note 3) 2,136 2,188 52 2,473 2,555 82
Total liabilities 8,537 8,589 52 9,323 9,406 82
Notes: 1) This figure includes the current portion of long-term loans receivable, which appears on the balance sheet under others in the current
assets (39 million for 2016 and ¥61 million for 2015). 2) The deductions are allowances for doubtful accounts that have been recognized on specific long-term loans receivable (2015).
3) The current portion of long-term loans payable (¥117 million for 2016 and ¥18 million for 2015), which is included under short-term loans payable on the balance sheet, is shown here as long-term loans payable.
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Methods of calculating current value Cash and deposits, notes and accounts receivable - trade: book value
Marketable and investment securities: market value
Long-term loans receivable: discounting at the interest rate that would apply if the Company were to newly lend the same amount of principal and interest
Notes and accounts payable - trade; short-term loans payable; Income taxes payable: book value Long-term loans payable: discounting at the interest rate that would apply if the Company were to newly borrow the same amount of principal and interest
Interest rate swaps subject to special treatment are accounted for as an inseparable part of the long-term loans payable that are being hedged; hence, their market value is included as a part of the market value of said long-term loans payable.
Financial instruments whose current value is extremely difficult to determine
Millions of yen 2015 2016
Unlisted shares 998 972
Value of financial receivables and securities with maturity dates that will be redeemable after the balance sheet date
Millions of yen Up to 1 yearLonger than 1 and
up to 5 yearsLonger than 5 and
up to 10 years Longer than
10 years
2016
Cash and deposits 18,321 - - -
Notes and accounts receivable - trade 14,488 - - -
Securities and investment securities
Available-for-sale securities 150 99 200 -
Long-term loans receivable 39 50 - -
32,999 149 200 -
2015
Cash and deposits 17,212 - - -
Notes and accounts receivable - trade 15,653 - - -
Securities and investment securities
Available-for-sale securities 100 199 200 -
Long-term loans receivable 61 96 15 -
33,027 295 215 -
Amount of loans payable scheduled for repayment after the balance sheet date
Millions of yen Up to 1 year
Longer than 1 and
up to 2 years
Longer than 2and
up to 3 years
Longer than 3and
up to 4 years
Longer than 4 and
up to 5 years Longer than
5 years
2016
Short-term loans payable 2,559 - - - - -
Long-term loans payable 117 1,191 152 265 544 202
2,676 1,191 152 265 544 202
2015
Short-term loans payable 1,642 - - - - -
Long-term loans payable 18 138 1,379 191 141 266
1,661 138 1,379 191 141 266
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Market value of securities Available-for-sale securities 2015 2016
Millions of yen Book valueCost of
acquisitionUnrealized gain (loss) Book value
Cost of acquisition
Unrealized gain (loss)
Securities valued on the consolidated balance sheet at amounts greater than the acquisition cost
Shares 12,144 5,492 6,651 12,331 5,507 6,824
Bonds
JGB, local government bonds, etc. 150 149 0 100 99 0
Corporate bonds 130 114 16 200 200 0
Others - - - 22 9 13
12,425 5,757 6,667 12,654 5,816 6,837
Securities valued on the consolidated balance sheet at amounts not greater than the acquisition cost
Shares 16 16 (0) 2 2 (0)
Bonds
JGB, local government bonds, etc. 149 150 (0) 149 150 (0)
Corporate bonds 99 100 (0) - - -
Others - - - 4 5 (0)
265 266 (1) 156 157 (1)
12,691 6,024 6,666 12,811 5,974 6,836
Available-for-sale securities sold during the years ended May 31, 2015 and May 31, 2016
2015 2016
Millions of yen Amount
soldTotal gain
on salesTotal loss
on salesAmount
sold Total gain
on sales Total loss
on sales
Shares 239 71 - 21 13 -
Bonds
JGB, local government bonds, etc. - - - 100 - -
Corporate bonds - - - - - -
Others - - - - - -
239 71 - 121 13 -
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Derivatives 1. Derivative transactions not subject to hedge accounting
Currency related
Millions of yen 2015 2016
Contract
value Over
1 yearMarket
valueUnrealized gain (loss)
Contract value
Over 1 year
Market value
Unrealized gain (loss)
Forward exchange contracts
Sell side
Sale of Japanese yen, purchase of US dollars
31 - 1 1 26 - (0) (0)
Sale of Japanese yen, purchase of Euro
36 - 0 0 31 - (0) (0)
Buy side
Purchase of Japanese yen, sale of US dollars
616 - (1) (1) 1,102 - (2) (2)
Purchase of Japanese yen, sale of Euro
406 - (0) (0) 247 - 0 0
Currency option contract
Put option to sell
Purchase of Japanese yen, sale of US dollars
866
- (0) (0) 443 - (0) (0)
(Option fee) (25) (14)
- - (0) (0) - - (4) (4)
2. Derivative transactions subject to hedge accounting
Interest rate-related
2016
Hedge accounting method Type of transaction Principal object of hedge Contract
value Over
1 yearMarket
value
(Millions of yen)
Interest rate swap subject to special treatment
Interest rate swap: receive variable rate; pay fixed rate
Long-term loans payable
693 693 (Note)
2015
Hedge accounting method Type of transaction Principal object of hedge Contract
value Over
1 yearMarket
value
(Millions of yen)
Interest rate swap subject to special treatment
Interest rate swap: receive variable rate; pay fixed rate
Long-term loans payable
773 773 (Note)
(Note)
Interest rate swaps subject to special treatment are accounted for as an inseparable part of the long-term loans payable that are being hedged; hence, their market value is included as a part of the market value of said long-term loans payable.
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Retirement benefits Overview of retirement benefit system
The Company and its consolidated subsidiaries have established defined benefit retirement systems that provide employees with either a defined benefit pension plan or a lump-sum retirement payment. Some consolidated subsidiaries apply a simplified valuation method to calculate net defined benefit liability and retirement benefit expenses, and some have established a defined contribution retirement system in addition to their defined benefit plans.
Defined benefit pensions
(1) Reconciliation of retirement benefit obligations (excluding pension plans using simplified valuation method) Millions of yen 2015 2016
Beginning balance of retirement benefit obligations 4,819 6,133
Cumulative effect of changes in accounting policies 801 -
Restated balance 5,620 6,133
Service cost 326 333
Interest cost 93 75
Actuarial gains or losses 314 500
Retirement benefits paid (256) (227)
Others 36 (142)
Ending balance of retirement benefit obligations 6,133 6,673
(2) Reconciliation between the beginning and ending balances of plan assets (excluding pension plans using a simplified valuation method) Millions of yen 2015 2016
Beginning balance of plan assets 3,324 3,917
Expected return on plan assets 102 84
Actuarial gains or losses 312 (229)
Employer contributions 385 411
Retirement benefits paid (253) (293)
Others 45 (139)
Ending balance of plan assets 3,917 3,750
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(3) Reconciliation between the beginning and ending balances of net defined benefit liability for plans using a simplified valuation method Millions of yen 2015 2016
Beginning balance of net defined benefit liability 80 101
Retirement benefit expenses 32 46
Retirement benefits paid (13) (8)
Others 1 (5)
Ending balance of net defined benefit liability 101 133
(4) Reconciliation of retirement benefit obligations and plan assets with net defined benefit liability and net defined benefit asset as stated on the consolidated balance sheet Millions of yen 2015 2016
Funded retirement benefit obligations 6,043 6,568
Plan assets (3,917) (3,750)
2,126 2,818
Unfunded retirement benefit obligations 191 237
Net consolidated balance-sheet value of pension liability
2,317 3,055
Net defined benefit liability 2,317 3,055
Net consolidated balance-sheet value of pension liability
2,317 3,055
(5) Breakdown of retirement benefit expenses Millions of yen 2015 2016
Service cost 326 333
Interest cost 93 75
Expected return on plan assets (102) (84)
Amortization of actuarial gains or losses 171 7
Amortization of past service cost (1) (1)
Retirement benefit expenses (simplified valuation method)
32 46
Retirement benefit expenses for defined benefit plans 519 377
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(6) Remeasurements of defined benefit plans in the statement of comprehensive income
The breakdown of remeasurements of defined benefit plans (before tax-effect) is as follows: Millions of yen 2015 2016
Past service cost (1) (1)
Actuarial gains or losses 169 (723)
Others - -
168 (724)
(7) Remeasurements of defined benefit plans in the balance sheet
The breakdown of remeasurements of defined benefit plans (before tax-effect) is as follows: Millions of yen 2015 2016
Unrecognized past service cost 2 1
Unrecognized actuarial gains or losses 83 (640)
86 (638)
(8) Matters regarding plan assets
1) Main breakdown of plan assets
Plan assets are categorized as follows: 2015 2016
Bonds 38.8% 42.6%
Stocks 27.7% 24.3%
Life insurance (general account) 9.5% 10.1%
Cash and deposits 12.4% 11.5%
Others 11.6% 11.5%
100.0% 100.0%
2) Method of setting the long-term expected rate of return on plan assets
The long-term expected rate of return on investment for plan assets is determined based on the current and projected composition of plan assets and the projected long-term rates of return on various asset types.
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(9) Actuarial assumptions
Principal actuarial assumptions as of the end of May 2015 and 2016 are shown below (weighted averages shown). 2015 2016
Discount rate Mainly 0.9% Mainly 0.03%
Long-term expected rate of return Mainly 2.0% Mainly 2.0%
Projected wage increase Mainly 1.0% Mainly 1.0%
Defined contribution pensions
The required amount of the defined contribution retirement plans for the Company and its consolidated subsidiaries amounted to ¥185 million for 2016 and ¥195 million for 2015.
Deferred taxes Millions of yen 2015 2016
Deferred tax assets 3,145 3,632
Deferred tax liabilities (2,790) (2,988)
Deferred tax assets - net 355 643
Percentage
Statutory tax rate 35.6%
(Adjustment)
Expenses not deductible for tax purposes (such as entertainment expenses)
2.8%
Dividends receivable and other income permanently excluded from taxable income
(1.2)%
Per capita rate of inhabitant tax 1.0%
Decrease in valuation allowance 2.3%
Special corporate tax credit (11.3)%
Deferred tax asset adjustment due to change in tax rate 1.5%
Others (0.2)%
Income tax and others accompanying adoption of tax effect accounting
30.5%
May 2016 term
The difference between the effective tax rate as stipulated by law and the corporate tax rate after application of an interperiod tax allocation is less than 5 percent; no breakdown is shown in this section.
Adjustment in deferred tax assets and liabilities due to a change in the income tax rate
According to a partial amendment of Japan’s income tax laws (Act No. 15, 2016) and the partial amendment of Japan’s local tax laws (Act No. 13, 2016) promulgated on March 29, 2016, the corporate income tax rate was lowered for consolidated accounting periods beginning on or after April 1, 2016.
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As a result of this change, the statutory tax rate used in the calculation of deferred tax assets and liabilities will be lowered from 32.2% to 30.8% for any deductible temporary differences expected to be eliminated in the fiscal years beginning June 1, 2016 or June 1, 2017, and to 30.5% for any deductible temporary differences expected to be eliminated in the fiscal years beginning June 1, 2018 and beyond.
The effect of this change in the fiscal year ended May 31, 2016 was to reduce net deferred tax assets (after the deduction of deferred tax liabilities) and remeasurements of defined benefit plans by ¥45 million and ¥10 million, respectively, while also increasing the valuation difference on available-for-sale securities and income taxes - deferred by ¥86 million and ¥30 million, respectively.
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Accounting Policies Summary of accounting policies: Consolidated
Basis for presentation Japanese GAAP; consolidated
Securities and investment securities
Available-for-sale securities
Quoted securities: market value method, based on market prices as of the fiscal year-end
All differences in valuations are credited directly to net assets, with the costs of assets sold calculated primarily based on the moving-average method.
Nonquoted securities: valued at cost using the moving-average method
Derivatives Market value method
Inventories Valued at cost, computed on a periodic-average basis (where amounts shown on the balance sheet take into account declines in book values based on reduced outlooks for profitability).
Depreciation Property, plant and equipment (except leased assets): declining-balance method
Provided that buildings acquired after April 1, 1998 (excluding appurtenances) are depreciated on a straight-line basis. Appurtenances and structures acquired on or after April 1, 2016 are also depreciated on a straight-line basis.
The useful life of buildings and structures is 2-50 years, that of machinery, equipment and vehicles is 2-15 years and that of others is 2-20 years.
Intangible assets (except leased assets): straight-line method
Software for internal use is amortized on a straight-line basis (assuming 5 years of internal useful life).
Leased assets: leased assets related to finance leases that do not transfer ownership The Company employs lease terms as years of useful life and assumes residual values to be zero; depreciation is assumed to be on a straight-line basis. All lease transactions entered into before March 31, 2008 related to finance leases that do not transfer ownership continue to be treated as ordinary rental transactions.
Allowance for doubtful accounts The Company recognizes an amount calculated on the basis of a historical bad loss ratio for general accounts receivable, plus an amount for specific accounts for which collection appears doubtful.
Provision for directors' retirement benefits
Recognition of the full amount of liabilities at term-end based on internal regulations
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Accounting treatment of retirement benefits
1. Attribution methodology for projected retirement benefits
Projected retirement benefits in the current accounting period are calculated on a benefit formula basis.
2. Expensing methodology for actuarial gains or losses and past service cost
Past service cost recognized as expenses are amortized on a straight-line basis over a prescribed number of years (usually 10 years) within the average remaining service period of employees at the time the liability arises. Actuarial gains or losses are amortized on a straight-line basis over a prescribed number of years (usually 10 years) from the year after accrual over the average remaining service period of employees as of the end of the fiscal period in which they are recognized.
3. Application of simplified valuation methods by small businesses
Some consolidated subsidiaries use a simplified valuation method of calculating net defined benefit liability and retirement benefit expenses that assumes the amounts required for voluntary resignations at the fiscal year-end to be retirement benefit obligations.
Important standards for the recognition of revenues and expenses
Recognition of revenues and expenses for construction projects Construction for which progress under construction contracts can be estimated with a high degree of certainty: percentage of completion method (in which the estimate of the percentage of completion is based on the cost-to-cost method)
Other construction: completed contract method
Significant hedge accounting methods
Method of accounting for hedges: For interest rate swaps, the Company applies exceptions when the swap in question meets the conditions for application of such exceptions.
Hedging instruments and risks hedged: Hedging methods: interest rate swaps Items hedged: loans payable
Hedging policies: Hedging policy: The Company hedges against interest rate fluctuations as prescribed in a set of internal regulations entitled “Regulations for the Management of Derivative Transactions.”
Method of evaluating the effectiveness of hedging: As interest rate swaps are treated as a special case, there is no evaluation of their effectiveness.
Opinion of independent auditors Auditors: KPMG AZSA LLC
Opinion: unqualified
Changes in accounting policies
May 2016 term
(Adoption of accounting standard related to business consolidation)
Effective the fiscal year ended May 31, 2016, the Company adopted the accounting standards published by the Accounting Standards Board of Japan on September 13, 2013 related to business consolidation (ASBJ Statement No. 21), consolidated financial statements (ASBJ Statement No. 22), and business divestitures (ASBJ Statement No. 7). Accordingly, the Company booked changes in shareholders’ equity due to continuing majority interests in subsidiaries as capital surplus, and began expensing acquisition-related costs in the consolidated fiscal year in which they arose. With respect to business consolidations taking effect on or around the start of the fiscal year, moreover, this resulted in reflecting changes in the allocation of acquisition costs based on a provisional accounting method in the consolidated financial statements for
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the fiscal year that included the day on which the business consolidation took legal effect. In addition, the changes resulted in different presentations of net earnings (change from “net income” to “profit attributable to owners of parent”) and minority interests (change from “minority interests” to “non-controlling interests”). The consolidated financial statements for the previous fiscal year have been restated to reflect these differences.
The Company applied progressive treatment as stipulated in Paragraph 58–2(4) of ASBJ Statement No. 21, Paragraph 44–5(4) of ASBJ Statement No. 22, and Paragraph 57–4(4) of ASBJ Statement No. 7 on a provisional basis from the start of the fiscal year under review.
As a result of these changes, there was a decline of ¥29 million in the capital surplus in the fiscal year ended May 31, 2016 compared with the previous year.
In the consolidated cash flow statement, the changes resulted in cash flows associated with the acquisition or disposal of shares in a subsidiary unrelated to any change in the scope of consolidation being listed as a separate line item under cash flows from financing activities, and in any cash flows associated with either (a) costs for acquisition of shares in a subsidiary related to a change in the scope of consolidation, or (b) costs arising from the acquisition or disposal of shares in a subsidiary unrelated to any change in the scope of consolidation, being listed as a separate line item under cash flows from operating activities.
The net effect of these changes in accounting policy on operating income, ordinary income, profit before income taxes and per-share indicators in the fiscal year ended May 31, 2016 was immaterial.
(Practical effect of change in depreciation method due to revisions of the tax system in fiscal 2016)
Effective the fiscal year under review, the Company applied the accounting treatment related to the change in depreciation methods associated with the revisions of the corporate tax system in fiscal 2016 as recommended in the relevant report published by the Practical Issues Task Force on June 17, 2016 (PITF Report No. 32). Accordingly, the method of depreciation for appurtenances and structures acquired on or after April 1, 2016 was changed from the declining-balance method to the straight-line method. The effect of this change on consolidated profits and losses was immaterial.
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Share-related Information Shares issued
Class of shares Common
Registered or bearer Registered
Number of shares authorized 104,000,000
Issued
As of May 31, 2016 48,410,750
As of August 23, 2016 48,410,750
Stock exchange listings Tokyo Stock Exchange, First Section
Comments The standard stock of the Company, with no limitations on rights
100 share min. trading unit
Changes in common stock
Millions of yen Shares outstanding Capital stock Legal capital surplus
Date Increase or
decrease BalanceIncrease or
decrease BalanceIncrease or
decrease Balance
(Shares) May 6, 2010 (2,500,000) 48,410,750 - 13,500 - 10,823
Shareholders by type of investor
Type of investor Number of
shareholdersShares held
(100 shares) % of total units
National and local government agencies - - -
Financial institutions 39 134,944 27.92
Financial instrument firms 34 2,665 0.55
Business and other corporations 236 129,643 26.82
Non-residents: other than individuals 143 32,459 6.72
Non-residents: individuals 10 541 0.11
Individuals and others 26,743 183,197 37.88
27,205 483,449 100.00
Shares less than one unit 65,850
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Largest shareholders
Name Thousands of shares owned
Thousands of shares held in
trust accounts % of shares outstanding
TM Kosan Co., Ltd. 7,607.9 15.71
Mizuho Bank, Ltd. 2,245.5 4.63
Japan Trustee Services Bank, Ltd. 2,132.9 2,126.6 4.40
Sumitomo Mitsui Banking Corp. 1,990.7 4.11
The Master Trust Bank of Japan, Ltd (Trust Account) 1,288.1 1,283.5 2.66
Yoshiki Sasaki 910.0 1.87
Japan Trustee Services Bank (Trust Account 9) 763.2 763.2 1.57
The Bank of Yokohama, Ltd. 744.0 1.53
Kikkoman Corporation 678.0 1.40
Maruichi Steel Tube Ltd. 600.2 1.23
18,960.7 39.16
Share information
Business year June 1 to May 31
Ex-rights date May 31
Dates of record for dividends November 30 and May 31
Annual General Meeting of Shareholders August
Trading unit 100 shares
Transfer agent Mitsubishi UFJ Trust and Banking Corporation, 1-4-5 Marunouchi, Chiyoda-ku, Tokyo
Publication of record The Nihon Keizai Shimbun
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Contact
Akifumi Ujita Director, Executive Officer, General Manager of General Administration Division and General Manager of Finance Department SAKATA SEED CORPORATION 2-7-1 Nakamachidai, Tsuzuki-ku, Yokohama, Kanagawa Prefecture Telephone: 81-45-945-8800 Facsimile: 81-45-945-8841
Printed in Japan
7-1, Nakamachidai, 2-Chome, Tsuzuki-ku, Yokohama, Kanagawa, 224-0041 Japan TEL : 81-45-945-8800FAX : 81-45-945-8841http : //www.sakataseed.co.jp/