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Home > Investor Relations > Online Graph > Financial Data Q&A (Earnings Information)

Financial Data Q&A

Earnings Information

Financial Data Q&A Earnings Information Why did earnings increase so much between 2002 and 2004? Why did earnings drop so quickly in 2005 after the big increase in 2004? Was the recovery in earnings in 2007 and 2008 due to any particular initiatives? Changes in accounting and tax systems were responsible for the 2009 decrease in operating income. But why did net income decrease? Operating income and ordinary income have increased steadily between 2009 and 2011. Only net income was down sharply in 2011. What are the causes of these changes in earnings? Operating income and ordinary income have increased steadily between 2009 and 2011. Only net income was down sharply in 2011. What are the causes of these changes in earnings?

1. Why did earnings increase so much between 2002 and 2004?

  • The Sapporo Group switched to a pure holding company framework in 2003 with four operating companies. Each of the operating companies had a new start with two goals. First was to increase earnings by managing operations with autonomy and speed. Second was to capture synergies with other group companies.
  • In 2004, Sapporo’s Draft One was very successful. This pioneering product created a new beverage category that is not beer or happoshu (low-malt beer). Sales totaled more than 18 million cases. This was the largest contributor to the upturn in earnings. In addition, there were big increases in operating income from beverages and restaurants. Earnings also benefited from measures to streamline operations, including the realignment of production facilities for alcoholic beverages. The result was substantial growth in operating income in 2004.
  • Sapporo sold its hotel business, which operates the Westin Hotel Tokyo, in 2004. Proceeds from the sale were used to repay debt, which produced an improvement in net interest expenses that raised ordinary income to an all-time high.
  • Furthermore, Sapporo began using the accounting standard for asset impairment earlier than the requirement for the purpose of improving its financial soundness. Although this resulted in asset impairment charges and losses on sales of property and equipment, Sapporo was able to offset these losses with its strong earnings, including the gain on the sale of the hotel business.

2. Why did earnings drop so quickly in 2005 after the big increase in 2004?

  • The new market created by Draft One became even larger in 2005 due to the emergence of several competitors. But sales of beer and happoshu continued to decline. As a result, total demand in this product sector in 2005 was less than in 2004. Furthermore, the polarization of consumption, diversifying preferences and other trends created new challenges. In this environment, only companies with comprehensive strengths could succeed. To compete, companies required the expertise to develop products and services like Draft One that accurately target customers’ needs, to use these products to establish new brands, to be cost competitive, and succeed in other ways.
  • In this difficult environment, the Sapporo Group’s operating income decreased mainly because of a decline in the alcoholic beverage profit margin caused by up-front investments in sales promotion activities to respond to new products of competitors.
  • Although debt was reduced to improve net interest expenses, the decline in operating income caused ordinary income and net income to decrease, too.

3. Was the recovery in earnings in 2007 and 2008 due to any particular initiatives?

  • In 2005, the Sapporo Group started its new medium-term management plan one year ahead of schedule. The plan was started prior to the end of the preceding management plan, which was centered on management reforms and building a new business model. The goals of the new plan, with 2006 as the starting point, were to speed up profit structure reforms and establish a base capable of sustaining growth. In October 2007, a long-term management plan called the Sapporo Group’s New Management Framework was announced. The primary objective is “the creation of High-value-Added Products and Services” by making even greater use of the Sapporo Group’s brands, assets and other strengths.
  • Measures by the entire group to achieve the goals of this plan resulted in many accomplishments. In 2007, earnings improved for the high-end Yebisu brand of beer in Japan; in the international alcoholic beverages business, as the overseas strategy was strengthened mainly in North America, including the addition of SLEEMAN BREWERIES Ltd. to the group; and in the restaurant and real estate businesses. In 2008, earnings improved in the Japanese alcoholic beverages business and real estate business. The efficient use of sales promotion expenses, cost-cutting measures and price revisions for beer products in April 2008 further contributed to the increase in operating income in 2008.
  • Along with the growth in operating income, ordinary income increased steadily as net interest expenses improved. Furthermore, there was a large increase in net income, which reflected growth in operating income as well as the gain on the sale of the 15% co-ownership stake in Yebisu Garden Place.

4. Changes in accounting and tax systems were responsible for the 2009 decrease in operating income. But why did net income decrease?

  • Operating income was lower in 2009 because of higher operating expenses caused by changes in accounting and tax systems. After excluding the effects of these changes, operating income increased.
  • Net income decreased in 2009 because net income in 2008 included the gain on the sale of the 15% co-ownership stake in Yebisu Garden Place.

5. Operating income and ordinary income have increased steadily between 2009 and 2011.
Only net income was down sharply in 2011. What are the causes of these changes in earnings?

  • The Sapporo Group has been posting solid earnings growth since 2006, after excluding the effect of one-time items in 2009.
  • In addition, the soundness of the profit structure has improved because of measures taken up to 2009 reform the cost structure. As a result, the group shifted its management stance to a new growth phase in 2010. For the alcoholic beverages business in Japan, the group adopted an aggressive posture based on a tight focus on carefully selected activities by concentrating on three core products: Sapporo Draft Beer Black Label, YEBISU and Mugi to Hop. All businesses contributed to growth in operating income, including a return to profitability in the restaurant business and higher earnings in the real estate business.
  • Ordinary income also continued to increase in 2010. Higher operating income was one reason. Growth in ordinary income was also attributable to an improvement in net interest expenses, higher equity-method income due to the strategic alliance with POKKA CORPORATION, and other items.
  • There was a big increase in net income in 2010 because of higher extraordinary income resulting from the sale of the site of the Osaka Brewery, which is part of measures to generate cash.
  • There was a big decrease in net income in 2011 because of a loss resulting from the application of an accounting standard for asset retirement obligations, an extraordinary loss for disaster losses resulting from the Great East Japan Earthquake, and a decline in extraordinary income following the big increase in 2010.

6. In 2012, operating income and ordinary income decreased but net income was higher. What are the causes of these changes?

  • We have positioned 2012 and 2013 as a period for starting to build a new group management framework for achieving rapid growth. There are three priorities: Challenge toward growth in all businesses; Carrying out growth measures; Creating new opportunities for growth. In 2012, there was growth in sales in the Japanese Alcoholic Beverage business and Restaurant business, the International Business segment, and the Food & Soft Drinks business.
  • Operating income benefited from higher restaurant earnings as sales increased and, the inclusion of earnings from Yebisu Garden Place starting in March due to the purchase from the joint owners of 15% of the trust beneficiary rights for Yebisu Garden Place in the real estate business, and from other items. However, operating income was lower because of higher expenses for a number of reasons: expenses resulting from aggressive sales activities in the Japanese Alcoholic Beverage business and Food & Soft Drinks business; higher goodwill amortization in the Food & Soft Drinks business; the first quarter operating loss at the POKKA Group; and higher expenses for establishing a presence in Vietnam in the International Business segment.
  • The decline in operating income caused ordinary income to decrease, too.
  • Although ordinary income decreased, net income increased in part because of the loss in the previous year for the application of a new accounting standard and the decline in disaster losses.