Investor Relations
In the year ended April 30, 2008, companies in Japan became more cautious amid sluggish growth in corporate earnings, although such earnings remained at high levels, on the back of soaring energy and raw material prices.
Conditions in the beverage industry remained challenging due to a number of factors. In the distribution sector, for example, stepped-up mergers and business alliances led to changes in distribution patterns, increased additional costs, and declines in sales prices. Facing these challenges, the ITO EN Group adhered to its principle of "Always Putting the Customer First." Based on this principle, we pursued active product development and sales initiatives and strove to reinforce our business foundation, while constantly seeking to identify and address areas of customer dissatisfaction.
Beverage Market
In calendar year 2007, the beverage market remained mostly unchanged overall, with demand affected by inconsistent weather, including low temperatures in July and a prolonged rainy season, followed by a long hot summer. Meanwhile, the composition of the beverage market has been changing. For example, the mineral water market has grown significantly, but demand for green tea has been sluggish over the past two years following a period of rapid growth since 2000. As a result, the value of domestic beverage shipments in calendar year 2007 declined 1.4%, to ¥415 billion. Amid challenging conditions for all concerned, ITO EN sought to enhance the appeal of its offerings, including the containers used for the Oi Ocha line, and pursued a proactive marketing campaign. Accordingly, we achieved 4.3% year-on-year sales growth on a volume basis. A survey conducted by ITO EN revealed that the Group's share of the market increased from 32% to 34% during the year under review.
The vegetable beverage market recorded a decline in sales due to problems surrounding the safety of vegetables.We responded to this situation by becoming the first in the industry to identify the country of origin of all ingredients used in our beverages, thereby allaying the safety concerns of consumers. Meanwhile, our efforts to reinforce the Vitamin Fruit brand contributed to substantial growth of the fruit beverages segment. In the mineral water segment, we will step up activities to expand sales following the acquisition of exclusive marketing rights in Japan for Evian mineral water. Going forward, we will continue strengthening the ITO EN brand by focusing on the five concepts of "natural," "healthy," "safe," "well-designed," and "delicious."
Performance
Consolidated net sales for the year amounted to ¥328,071 million, up 5.8% from the previous period. Despite this increase in revenue, earnings declined on the back of soaring raw material prices, higher sales promotion costs accompanying intense sales competition, and increased expenses stemming from sharp rises in energy costs. As a result, operating income fell 15.6%, to ¥19,236 million, and ordinary income declined 18.2%, to ¥18,215 million. Net income dropped 17.7% year-on-year, to ¥10,096 million.
Committed to meeting the expectations of shareholders, the Company declared a year-end cash dividend of ¥19.00 per ordinary share, which combined with the ¥19.00 interim dividend already paid brought annual cash dividends to ¥38.00 per share. As for preferred shares, the Company paid a yearend dividend of ¥24.00 per share, which combined with the ¥24.00 interim dividend brought total dividends for the year to¥48.00 per share. On September 3, 2007, ITO EN made a gratis allocation of preferred stock at a rate of 0.3 preferred share to one ordinary share, effectively increasing the total dividend by ¥5.40 compared with the previous year. As a result, the consolidated payout ratio was 48.3%.
Subsidiaries
Since acquiring an equity stake in Food X Globe Co., Ltd., operator of Tully's Coffee chain in Japan, we have reorganized unprofitable segments of that company and enhanced its operations. As a result of these efforts, Food X Globe returned to profitability in the year under review. In the current fiscal period, we will further expand Food X Globe's business while continuing to cut costs and strengthening operational control.
Overseas, our U.S. subsidiary ITO EN (North America) INC. has entered a period of full-scale business expansion amid growing awareness of green tea in the United States. In addition to existing sales channels, it is broadening its nationwide sales network to include mainstream markets and club stores. Meanwhile, we will seek to maximize synergies with Mason Distributors, Inc., a manufacturer and seller of nutritional supplements that we acquired in June 2006, with the aim of turning that company around within a year.
Medium-Term Plan
Under our medium-term business plan, we are pursuing the following targets for the year ending April 2012: consolidated net sales of ¥500 billion, five brands selling 10 million cases or more each, ROA of at least 10%, earnings per share of ¥220.00 or higher, and a dividend payout ratio of 40%. To achieve these targets, we will implement effective product and market strategies, reinforce our operational foundation, cut overall costs, and aggressively advance our overseas businesses.
Preferred Shares
With the aim of offering investors an additional investment opportunity, on September 3, 2007, we made a gratis allocation of Class-A Preferred Stock at a ratio of 0.3 shares to one common stock, and listed the preferred shares on the First Section of the Tokyo Stock Exchange. This is the first time in Japan that a company has issued Class-A Preferred Stock that will not be converted to common stock. In November and December 2007, our Class-A Preferred Stock was publicly offered and sold in order to shore up our capital base and expand the market. By issuing these preferred shares, we hope to reach consolidated net sales of ¥500 billion under our medium-term business plan, while broadening options for fund procurement and seizing opportunities for future growth.
Looking Ahead
Following the principle of "Always Putting the Customer First," we will improve our understanding of customers in order to deepen our relationships with them. In the process, we will build a framework ensuring that the voices of all customers are reflected in our management policies. In addition, by maintaining a sound financial position and consistently supplying natural and healthy products, we will create new levels of value going forward.
We look forward to the ongoing support and guidance of all shareholders as we embrace the challenges of the future.
July 29, 2008
Hachiro Honjo, President