It’s a Good Time for Investing in Growth
Annual Report 2014 For the year ended March 31, 2014

Contents

OUR COMPASS STRATEGYPERFORMANCE HIGHLIGHTSNITTA GELATIN WORKS

12
3

4 Feature
Message From a Newly Appointed Director

4

Message From a Newly Appointed
Executive Officer

6

Message From the General Manager of theSales & Marketing Division
Message From the President

810

Nitta Gelatin Group History

14
16

Board of Directors, Executive Officers andAudit & Supervisory Board Members

18

Business Activities/Overview of Operation

Investor Information
Corporate Information

20
21

22 Financial Section
Management’s Discussion and Analysis
Business Risks
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Net Assets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

22
25
28
30
31
32
34
36

The earnings forecasts in this Annual Report are
forward-looking statements
The earnings forecasts in this Annual Report are forward-looking
statements made on the basis of information available at thetime they were made and other certain assumptions deemed
reasonable. Therefore, actual earnings may differ from forecast
figures as a result of changes in business performance andother factors.

Annual report 2014

Nitta Gelatin

OUR compass strategy
Net Sales and Operating Income
Results and Targets(Billions of yen)
45

Domestic and Overseas Sales
Results and Targets
9(Billions of yen)
45

41.0

41.0
36.5

36.5
32.8
30

32.8
6

28.7

30

28.7

18.4

15.8

13.1

9.6
4.2
15

3

15

0

0

19.0

19.6

20.7

13/3

14/3

15/3

22.5

1.8
1.5
0.9
0
13/3

14/3

15/3

16/3

Target■ ■ Net Sales (left axis)■ ■ Overseas Sales■ ■ Domestic Sales

Operating Income (right axis)

Sales by Segment
Results and Targets

Segment Profit
Results and Targets(Billions of yen)
45

(Billions of yen)
6

4.2*

41.0
36.5
32.8
30

28.7

1.9

11.9

10.5

10.3

4
29.0

10.0

26.0

1.8*

1.5*

22.4
15

16/3

Target

1.1

18.6

2

0

0.9*
0.9

1.7

3.7

0.9
2.2

1.4

0
13/3

14/3

15/3

16/3

13/3

14/3

Target■ ■ Formula Solution Business■ ■ Collagen Material Business

15/3

16/3

Target■ ■ Formula Solution Business■ ■ Collagen Material Business* Consolidated operating income after adjustment forsegment profit

Given the upcoming 100th anniversary of its founding in 2018, Nitta Gelatin decided to formulate a
new long-term management vision, 100th Year Vision, and a medium-term management plan basedon it covering the 3-year period from the year ending March 2014 to the year ending March 2016.
The slogan for Nitta Gelatin’s 100th Year Vision is to “Amaze the World!” Under this slogan, theCompany’s basic strategy is to “Win out!! in growing Asian market.” The Company will supply­products and services that are one step ahead of customer expectations, develop new products andcultivate new markets in order to expand earnings. By doing so, we aim to increase our corporate
value and continue contributing to society for many more years to come. This medium-term management plan sets ¥41 billion in net sales and ¥4.2 billion in operating income as consolidated targets
for the year ending March 2016, the plan’s final year.

1Nitta Gelatin

Annual report 2014

Performance Highlights

Thousands of
U.S. dollars

Millions of yen
73rd term
From April 1,
2011 to March
31, 2012

74th term
From April 1,2012 to March
31, 2013

75th term
From April 1,2013 to March
31, 2014

75th term
From April 1,2013 to March
31, 2014

For the year:¥27,763¥28,772¥32,814$318,954

Operating income

2,015

1,595

955

9,282

Net income

Net sales

1,375

1,525

665

6,463

Comprehensive income

986

1,913

1,227

11,926

Research and development expenses

895

1,026

1,004

9,758

Capital expenditure

769

1,426

3,102

30,151

Depreciation and amortization

841

825

914

8,884

Net cash provided by operating activities

568

2,050

(692)

(6,726)

Net cash used in investing activities(733)(1,557)(3,105)(30,180)

Net cash provided by (used in)financing activities

713

(376)

3,875

37,665

2,078

2,258

2,406

23,386¥ 5,387¥ 6,287¥ 8,804$ 85,575

Net assets

8,108

9,724

13,781

133,952

Noncurrent liabilities

6,087

5,828

7,528

73,172

Total assets

23,371

25,19031,389305,103

Net assets per share (BPS)¥509.41¥607.31¥742.20$   7.21

Net income per share (EPS)

99.87

96.72

37.90

0.36

Cash and cash equivalents
at end of period
At year-end:
Property, plant and equipment

Per share information (yen, U.S. dollar):Other:
Equity ratio (%)

34.4

38.0

43.4

Return on equity [ROE] (%)

19.4

17.3

5.7

Return on assets [ROA] (%)

5.9

6.1

2.1

Payout ratio (%)

10.0

14.5

31.7

Note 1: The U.S. dollar amounts are translated from Japanese yen at the rate of ¥102.88 = U.S. $1, the prevailing exchange rate at March 31, 2014.
Note 2: Net income per share for the year ended March 31, 2012 was calculated based on net income after deducting the difference between theredemption amount and the issued amount of preferred stock.
Note 3: Effective April 1, 2011, the Group has applied the “Accounting Standard for Earnings Per Share” (ASBJ Statement No. 2, issued on June 30,2010), the “Guidance on Accounting Standard for Earnings Per Share” (ASBJ Guidance No. 4, issued on June 30, 2010) and the “Practical
Solution on Accounting for Earnings Per Share” (Practical Issue Task Force No. 9, issued on June 30, 2010).
Note 4: Certain overseas affiliate companies started applying IAS 19 Employee Benefits from the year ended March 31, 2014. This change inaccounting policy was also applied retroactively to restate results for the fiscal year ended March 31, 2013.
	  The cumulative impact on the fiscal year ended March 31, 2012 was reflected in adjustments made to the opening balance of net assets
for the fiscal year ended March 31, 2013.

2

Annual report 2014

Nitta Gelatin

Nitta Gelatin Works

Amaze the World!
Acquisition of FSSC 22000
In March 2014, Nitta Gelatin’s Osaka
Plant acquired the FSSC 22000 Food
Safety Management System certification. With this certification, food safety
and reliability at the Osaka Plant will beverified by a third-party institution.
Having also acquired this certification
at four plants in the U.S., Canada,
China and India, Nitta Gelatin has
enhanced its competitiveness in the
global market.

Collagenaid®
Receives the Monde Selection’sGrand Gold Quality Award for theThird Straight YearIn April 2014, Collagenaid® received
the Monde Selection’s Grand Gold
Quality Award in the Diet & Health
Products categor y for the third
straight year.

Participation in the 43rd INTERNEPCON JAPAN Exhibition
Nitta Gelatin exhibited its G-zain™ sealant material at the 43rd INTERNEPCON
JAPAN exhibition held in January 2014. We displayed an ultraviolet curing gasket
system that can be used as a sealant in smartphones and tablet PCs for waterproofing and dust-proofing purposes.

Healthy Long Life and Anti-Aging Seminar
In March 2014, Nitta Gelatin held a Healthy Long Life and Anti-Aging seminar at the
Tennoji Miyako Hotel in Osaka to inform general consumers about the health benefits of collagen peptide. Professor Yoshikazu Yonei of the Doshisha University
Graduate School of Life and Medical Sciences gave a lecture on ways of leading
youthful lives well into old age. The TV personality Yoko Haruka also shared someof her secrets on being yourself and leading an enjoyable, vibrant life.

Participation in 18th Food Ingredients China Exhibition
In March 2014, Nitta Gelatin exhibited the Wellnex™ collagen peptide brand at the18th Food Ingredients China Exhibition held in Shanghai, China. In conjunction withthis event, Nitta Gelatin also hosted a seminar on the functional properties of collagen peptide by Kenji Sato, currently a professor at Kyoto University.

Completion of New Collagen Peptide Plant
In May 2014, Nitta Gelatin completed a new collagen peptide plant at Nitta Gelatin
USA, Inc. With this move, Nitta Gelatin has put in place a production system consisting of four bases in Japan, China, India and the U.S., paving the way for accelerated global business expansion.

3

Nitta Gelatin

Annual report 2014

Message From a Newly Appointed Director
Raymond Merz
Director and Executive Officer
General Manager, Gelatin Division
1995

Joined Nitta Gelatin Canada, Inc.

2005

Executive Officer of the Company(to present)

2006

CEO of Nitta Gelatin Canada, Inc.,
CEO of Nitta Gelatin USA, Inc.

2014

General Manager, Gelatin Division of
the Company (to present)
Director of the Company (to present)

It’s a Good Time—OUR MARKET
When I joined Nitta Gelatin 19 years ago, the vast
majority of production and sales were in Japan.
Today, things are much different. In the fiscal year
ended March 31, 2014, our overall sales ratio outside of Japan was 40% and two-thirds of our property, plant and equipment were based outside thecountry. By the fiscal year ending March 2016, thefinal year of our current medium-term management
plan, most of our production and sales will be overseas. Nitta Gelatin’s primary markets are indeed
outside of Japan.
The World Bank is projecting continuous growth in
Asia, with East Asia projected to grow by 7.1%, China
by 7.6% and the rest of Asia by 5.1%. Given thestrong correlation between GDP growth and the consumption of meat, Asia is gathering a lot of attention
in the gelatin industry as the region continues toundergo sustained economic growth. Nitta Gelatin
has a geographical advantage because it is based inJapan, and in the heart of Asia. Since gelatin isderived from many different sources such as pigs,
cattle, and fish, it allows us to serve many andvaried customer needs, while mitigating the risks inour business. These factors will also work in ourfavor as we develop new markets in Asia.
The global gelatin market is growing at an annual
rate of around 1–2%. The raw materials for gelatin
are bone and skin which are by-products of the meatindustry which means that gelatin manufacturers
cannot influence the quantity of raw materials they4

need. In developed countries, the production ofmeat is stable or may even be declining, so developing new sources of raw materials is now a key challenge for us.

Pig Skin Gelatin: Growth Accompanied
by Supply-Demand Imbalances
Pig skin, a perishable raw material for gelatin, ispurchased and delivered refrigerated which necessitates our plants being close to the source of procurement. Pig skins are also used for snack foods inNorth America and are also exported. This meansthat we need to compete with not only other gelatinmanufacturers but also other industries in order toprocure pig skin. If viruses or natural disasters suchas droughts come into play, the number of hogs candecrease sharply. In fact, a virus is currently responsible for a significant decline in the number of pigs inNorth America. Since demand for gelatin continues
to grow, the imbalance in supply and demand has led
directly to the recent surge in raw material prices.
The gelatin market is generally considered asteadily growing market. In reality, however, as has
been mentioned earlier, market growth is accompanied by imbalances in supply and demand. In North
America, negotiations for pig skin raw materials are
conducted every three months. The resulting changes
in raw material costs form the basis for our pricenegotiations with our own North American customers.
In Japan, it is difficult to pass on any changes in raw
material prices to customers. However as with ourAnnual report 2014

Per Capita GDP and Gelatin Consumption in theJapanese Market(Thousands of US dollars)

Muslim Population Data

(Gram per person)

50

150

40

120

30

90

20

60

10

30

0

1970

Nitta Gelatin

1980

Per capita GDP (left scale)

1990

2000

2010 (Year)

23%
World
population

6.8 billion

Asia-Pacific

Muslims

0.97 billion

1.57 billion

Other
regions

Muslimpopulation

1.57 billion

62%

Other regions

0

Per capita gelatin consumption (right scale)

Source: IMF-World Economic Outlook
	Estimated based on reports prepared by the Gelatin Manufacturers
Association of Japanoverseas customers, we will work to encourage ourclient companies in Japan to accept price revisions
that are linked to raw material contracts.
In Nitta Gelatin’s case, the pig skin gelatin business in Japan relies mostly on imports from our
North American plants. With a weaker yen, high raw
material prices and delays in price increases, we areseeing a lot of pressure on margins in the pig skingelatin business in Japan. In fact it has started to
become more profitable in some instances to sell pig
skin gelatin in the North American market than toexport it to Japan.
Nitta Gelatin’s investments outside of Japan areconcentrated in North America. At first glance, it
might seem as if these investments in North America
are unrelated to our drive to increase our market
share in Asian markets. However, one-third of the pig
skin gelatin produced in our North American plants isexported to Japan, with exports to Asia to be addedin the future. Currently, North America is the only
place where Nitta Gelatin makes pig skin gelatin. And
therefore, investments there are crucial in ensuring
we retain a competitive edge in supporting our strategy in Asia and also to ensure we continue to supply
high-quality products around the world.
The quality of porcine collagen peptide producedin our new North Carolina plant is unequaled. Up
until now, we have used a third party to produce
collagen peptide. Producing this product in our own
facility allows for a more efficient process and asignificant increase in quality, both of which enhance

Source: Pew Research Religion & Public Life Project, Mapping the Global Muslim
Population, 2009

our competitiveness, which paves the way and allows
us to develop collagen peptide into a strategic product for the Japanese and the Asian markets.

The Potential of Bovine Bone Gelatin in
Asian Markets
In addition to pig skin, bovine bones are also usedas raw materials for gelatin. We have and continue tofocus on Asia as a source for procuring bovinebones. We entered the Indian market for bone many
years ago and continue to be active there—it now
has the world’s largest cattle population. As with pig
skin, manufacturers of bovine bone gelatin are notthe only players we must compete with for the raw
material. Our main competitors are businesses thatblend meat-and-bone meal into poultry and animal
feeds. Entering into business and equity-based alliances with suppliers is an effective means to ensurea stable procurement of bovine bones for our gelatin
operations. Nitta Gelatin India Ltd. was set up aspart of such an alliance. Looking ahead, bovine bonegelatin is bound to become more popular in Asia as
an edible gelatin, as it already has done in Japan.
Indeed, people living in Islamic countries in Asia
have begun to embrace bovine bone gelatin as a
new Halal certified food ingredient.
Nitta Gelatin is well positioned to meet the­growing demands for high quality porcine and bovine
gelatins in the Asian market and we will strive to do
everything possible to ensure our customer expectations are fully met.

5

Nitta Gelatin

Annual report 2014

Message From a Newly Appointed Executive Officer
Juergen Gallert
Executive Officer

1991

Joined Nitta Gelatin NA Inc.

2006

CEO of Nitta Gelatin NA Inc. (to present)

2014

CEO of Nitta Gelatin Canada, Inc.
(to present)
CEO of Nitta Gelatin USA, Inc.
(to present)
Executive Officer of the Company(to present)

It’s a Good Time—OUR STRENGTH

determined that this virtually odorless gelatin would

In essence, Nitta Gelatin’s core strength lies in its

be well suited to the Japanese palate, so we inten-

ability to convert challenges into opportunities. This

sively developed new food product applications forstrength is borne out by the Company’s long history

bovine bone gelatin. We also worked to popularizeof nearly 100 years. In recent years, the emergencebovine bone gelatin in Islamic countries in Asia,of the digital camera caused the market for bovine

where products derived from bovine raw materials arebone gelatin for photographic use to contract sharply.

easier to be accepted. In practice, these options wereThis type of gelatin was previously a major source of

our only avenues of growth. Today, edible gelatin and

the Company’s sales and earnings. To develop alter-

capsule-use gelatin have become Nitta Gelatin’s core

native markets, Nitta Gelatin focused on promoting

products. We have also established a solid position inwider use of bovine bone gelatin in the food andthe market as a Halal-certified gelatin manufacturer.

pharmaceutical sectors. However, BSE became a

In these and other ways, we have converted the

major public health concern just as the Company waschallenges we faced unexpectedly and in rapid suc-pursuing these efforts. The BSE issue hurt the repu-

cession into prime opportunities to reinvent and repo-

tation of bovine bone gelatin, leading to a major

sition Nitta Gelatin for our next century in business.

crisis: operations at Nitta Gelatin’s Osaka Plant weresuspended for around 100 days in just one year. To

Well Positioned for Leadership in Asia

survive in the market, we fundamentally overhauled

The world’s top three gelatin firms are from Europe,

our strategy for procuring raw materials. We diversi-

where gelatin was invented. The three European

fied our raw materials to include pig skin, fish scales

gelatin majors moved quickly to acquire local Northand other sources, shifting away from gelatin manu-

American gelatin companies to increase their produc-

facturing centered on bovine bones. In the process,tion output. They also entered the Chinese market at

we made business investments in North America toan early stage. Nitta Gelatin’s strength lies in its

ensure an adequate supply of pig skin gelatin. These

dominant share of the Japanese market for gelatin.

investments served as a catalyst for significant

And by capturing a greater share of the Asian market,

growth in our overseas business.

Nitta Gelatin is well positioned to aim for leadership

Nitta Gelatin’s mainstay bovine bone gelatin has
the property of being almost completely odorless. We

6

in Asia.

Annual report 2014

Nitta Gelatin

Nitta Gelatin’s Global Network
Nitta Casings (Canada) Inc.
Overseas Sites: 13
Employees: 288 in Japan(45%)

Nitta Gelatin Inc.
Hikone Gelatin Inc.
Alma Corporation
Nitta Biolab Inc.
Bostik-Nitta Co., Ltd.

Beijing Nitta Collagen
Casing Co., Ltd.

347 Overseas
	
(55%)


Nitta Gelatin Canada, Inc.
Nitta Casings Inc.
Nitta Gelatin NA Inc.

(As of March 31, 2014)

Shanghai Nitta Gelatin Co., Ltd.
Nitta Gelatin India Ltd.

Nitta Gelatin USA, Inc.

Guangdong Baiwei Bio Material Co., Ltd.

Nitta Gelatin Vietnam Co., Ltd.

Indian markets more than 30 years ago, and has

Prospects for Sustainable Growth Make
Nitta Gelatin Attractive

production, sales and R&D bases in each market.

Under the current medium-term management plan,

The Company has built strong relationships with

Nitta Gelatin aims to grow consolidated net sales bycustomers through sales channels leveraging its

around 1.5-fold and to roughly double operating

local operating bases. Considering that Asia is home

income, compared with the fiscal year ended Marchto many different countries, we have taken our first

2012. These figures alone may suggest that we are

step to enter the region in Vietnam. Here, we estab-a fast-growing company, but that would not be thelished Nitta Gelatin Vietnam Co., Ltd. as a foothold

whole story. More precisely, Nitta Gelatin is a com-

for future business expansion in the region.

pany that is well positioned to achieve steady, sus-

Nitta Gelatin entered the North American and

The Asian market has significant growth potential,
but it is also a very competitive market and there aremany companies who want to enter this market.

tainable growth by capturing demand from the rapidly
growing Asian market.
Nitta Gelatin has found a unique niche within the

Therefore, we must be truly cost competitive to suc-gelatin industry. In addition to its mainstay gelatinceed. Nitta Gelatin is strong in terms of quality, butbusiness, Nitta Gelatin conducts a collagen peptide

capsule-use gelatin is still the only market where webusiness and a collagen casing business, along withstand to generate a premium that would justify ouran adhesives business and a food ingredient busi-

quality. The food market is fiercely competitive. In

ness. Looking at the group as a whole, we have busi-

this market too, Nitta Gelatin is confident of prevail-nesses that are complement each other, and thising against the competition, as we are starting tobusiness portfolio helps us to manage risks. As I

see trends from Japan make inroads into Asian coun-

have discussed so far, Nitta Gelatin is a comprehen-tries. The popularity of Japanese convenience storessive enterprise centered on gelatin that can convert

in Asia is a case in point. Going forward, we will also

challenges into opportunities and seize on global

strive to export trends from Japan to the North Amer-

opportunities for growth.

ican market in order to expand our business.

7

Nitta Gelatin

Annual report 2014

Message from the General Manager of the Sales & Marketing Division
Koichi Ogata
Director and Executive Officer
General Manager, Sales & Marketing
Division
Joined the Company

2010

Executive Officer of the Company(to present)

2012

Director of the Company (to present)

2013

General Manager, Sales & Marketing
Division of the Company

It’s a Good Time—OUR STRATEGY

global quality excellence to grow sales in JapaneseIn the fiscal year ended March 31, 2014, the firstand Asian collagen peptide markets where demand

year of our current medium-term management plan,is robust.

we targeted consolidated net sales of ¥32.7 billion

Regarding casing, we upgraded the North Ameri-and consolidated operating income of ¥1.7 billion.

can plant’s manufacturing equipment to raise its

Net sales were ¥32.8 billion, largely in line withproduction capacity. We had expected this to con-plan. This result reflected the growth from pricetribute to the earnings in the fiscal year ended

revisions and higher sales volume overseas along

March 31, 2014, but we encountered quality issues

with a boost from foreign exchange effects. On thein the early days of operations. Plans are now onother hand, operating income was substantiallytrack with stable production and quality, and we

below the plan at ¥0.9 billion. This was due to sev-

anticipate a contribution in the fiscal year ending

eral negative factors, including a rise in purchasing

March 31, 2015.

costs in Japan due to the yen’s depreciation, delays

In the summer of 2014, we started operations ofin price increases and the quality issues of casings.

Nitta Gelatin Vietnam Co., Ltd. in order to manufac-

We thus got off to a bumpy start in our current

ture and sell gelling agents and other food agents inplan’s initial year.

Southeast Asia. We also implemented the introduc-On the strategy front, capital investments sup-

8

2005

tion of adhesive manufacturing facilities and estab-

por ting the global expansion of collagen peptide

lishment of a sealants application center proceededbusiness and reinforcement of global competitive-on schedule.

ness and supply capacities in the gelatin businessIn the fiscal year ended March 31, 2014, we

generally progressed as initially planned. In May

executed capital investments of ¥3.1 billion against

2014, we built a new collagen peptide plant on thethe planned capital investments of ¥3.4 billion.

premises of our pig skin gelatin production facility­Capital investments were up sharply from the previ-

in Nor th America. With this, we aim to leverageous fiscal year’s ¥1.5 billion.

Annual report 2014

Nitta Gelatin

Nitta Gelatin’s Global Business Expansion

Canada

Japan

China

Vietnam

U.S.

India

Business

Main Products

GelatinGelatin

PeptideCollagen peptide

CasingCollagen casing

Life Science

Collagen, gelatin

Food Material

Edible gelling agents, stabilizers
and consumer products

Adhesive

Sealant materials, hot-meltadhesives

Winning in Asia, a Growth Market

Strategic Fields: Food and Capsules

Considering that Asia encompasses numerous coun-

Our core markets are food and capsules. For cap-

tries, a “one size fits all” policy is not enough to takesules, we have adopted a consistent operationon the market. This is where we have an edge oversystem for manufacturing sites no matter where they

the competition. Looking at Japanese products using

are located in the world. This ensures consistentgelatin in Japan, for example, there are variety ofquality and traceability.

taste, color and texture of gummy candy in Japan,

Our main customers—companies in Europe, theand they are ever changing. Product lifecycles are

United States, and Japan—emphasize traceability.

short and are continuously changing, so we must

Even in developing nations in Asia and China,

keep developing new formulations and new products

increasing market sophistication is generating

for our customers. Our ability to meet individual

demand from people to know where their food cameneeds will work to our advantage in the Asia market.

from. Our strength is that we can trace back the

There is a mix of cultures, politics, and religions inorigin of all raw materials used in our gelatin. To

Asia, so being in tune with those respective markets’

garner acceptance from the numerous people living

needs will be key. Thanks to our experience tailoringin Islamic countries in Asia, we manufacture Halal

products to the market in Japan, we can respond in a

certified gelatin in Japan and India. This is also

proper way.

backed by the reliability of our traceability.

Also in Asia, openings continue for convenience

Our regional focus will be on Asia, with food andstores, which have become a fixture in Japan. We

capsules as our priority fields. We will also work to

can supply gelatin matching the local preferencesdevelop gelatin and collagen for medical care, with anfor development of ready-to-eat delicatessen items

eye to expanding business and enhancing added

and meals which are the key commodities of conve-

value. With gelatin as our core competence, we aim tonience store.

be the leader in Asia and a globally unique enterprise.

9

Nitta Gelatin

Annual report 2014

Message from the President
To lead Asia and be globally unique, we will bolster
global management, develop global brands, andcreate new business to enhance corporate value.

Norimichi Soga
Representative ­Director and President

10Annual report 2014

Nitta Gelatin“Amaze the World!”—H eading for Sustainable
Medium-Term Growth—robust customer base through many years of busi-

We seek to strengthen global management, develop

market’s vast scale compared with Japan means

global brands, and create new business in order tothat a seemingly small percentage of growth is quiteenhance our corporate value. To that end, we formu-

large in terms of volumes and earnings. North Amer-

lated a medium-term management plan ending Marchican operations will remain a growth area for us.

ness development, and our operations are growing
as our client companies grow. The United States

31, 2016. Marking the plan’s start, the fiscal year

The Asian market’s dynamism will also be added

ended March 31, 2014 was an important year. We

to the mix moving ahead. Gelatin consumption has

achieved record-high consolidated net sales. Never-shown correlation with GDP per capita in Japan, andtheless, income declined as a result of higher import

we believe the same phenomenon will arise through-purchase prices in Japan due to the yen’s sharp

out Asia in the future. While the westernization ofdepreciation, and lower profitability as globally soar-

diets has been instrumental to increased gelatin

ing raw material costs were not sufficiently passed on

consumption in Japan, a shift towards Japanese foodto product prices. From the fiscal year ending Marchis boosting gelatin consumption in Asia. Japan’s

31, 2015, we will return to a growth trajectory by

convenience stores have entered markets acrossimproving profitability in Japan and continuing to growAsia. They offer many products that are essentiallybusiness overseas, and advance to become thethe same as those in Japan, and Japanese food’s

leader in Asia and a globally unique enterprise.

great taste has made it very popular. Also, preparedfood sold at the convenience stores uses gelatin as

Our Growth Story

in Japan. While frozen food is the major player in

The gelatin industry is often said to be maturing, butplaces like Europe and the United States, chilled

we beg to differ. We have lots of growth potential

food (delicatessen items) is primary in Japan. This

left from an overseas perspective. In fact, our growth

backdrop translates to business opportunities for us

over the past two decades has been driven by ourwith our track record in Japan. If Japan’s conve-

North ­American business. The region’s contribution

nience stores increase in Asia, the need for gelatin

to sales and profit has been especially large overwill be that much greater.

the past five years. We have built an extremely
Key Performance Indicators for Overseas Growth Strategy

Performance(Millions of yen)

(Millions of yen)

45,000Overseas Sales Ratio

41,00036,50037,50030,000Fiscal year

Japan ended March Overseas

Japan

40%

55%

60%

2014

ActualFiscal year
ending March Overseas
2016

Plan

45%

6,250

32,814
27,7637,500

28,772

5,000
4,200

3,750

22,50015,000

2,500

2,015

1,595

7,500
0

1,800

1,250

955

12/3

13/3

Net Sales (left scale)

14/3

15/3
Plan

16/3

0

Plan

Operating Income (right scale)11

Nitta Gelatin

Annual report 2014

Ability to Adapt toBusiness Climate Changeon the previous page, have both been appointed as

We have faced sales and income declines numer-

Executive Officers at Nitta Gelatin. Mr. Merz has

ous times due to damage from misinformation

engaged in gelatin manufacturing operations over-including about BSE and changes in applications forseas during his 19 years at the Company. Mr. Gallert

mainstay products. We have overcome many hur-has worked on gelatin sales overseas during his 23

dles to adapt to such business climate change. We

years with the Company. We see our corporate cul-believe this is a result of our devotion to providing

ture embracing such diversity in human resources asrevolutionar y products and ser vices that are a stepan achievement made possible by our adaptation toahead of customers’ expectations not only in Japanchanges in the business environment to date. We

but worldwide.

look for both Mr. Merz and Mr. Gallert to leverage

Raymond Merz and Juergen Gallert, introduced

their extensive gelatin business experience overseas
In addition to an advance in global demand for gelatin,

gained over many years at the Company and insightraw material prices are also climbing internationally,

into market trends to create innovative products andwith procurement competition from other applications

grow sales of those products globally.

such as snacks for pig skin, and feed like meat-andbeing made passing on this rise in raw material

Transformation to a High
Added-Value Company

costs to product prices in Japan. In this tough busi-

We will drive forward with our current business strat-

ness environment, we are advancing global manage-

egy and become a world-class, high value-added

ment. Specifically, this means to produce locally atenterprise upon the 100th anniversary of our estab-

an appropriate cost and sell products at prices thatlishment in 2018. This will include creating new

allow for adequate profit. We believe we will needhigh-per formance products and global brand devel-

experts on overseas markets to pursue global man-

opment to popularize such products not only inagement. Against this backdrop, we are promoting

Japan but also in markets abroad. We are currently

human resource diversity.

advancing the global brands Wellnex®, G-zain™, andbone meal for beef bones. Moreover, headway is not

beMatrix®.

Growing Markets
India

Business
Opportunities
in Asia

China

Vietnam

12

Nitta Gelatin Products

Global Pharmaceutical
Manufacturing Sites

CapsulesGelatinWesternization of Diets

Processed Food
(Sausage)

Collagen Casing

Strong Consumer Interest
in Health and Beauty

Health Food

Collagen Peptide

Popularization ofRefrigerators

Western
Confectionery

Gelatin, Food Materials

Annual report 2014

Nitta Gelatindeveloping practical applications for medical devices.
Wellnex is a highly functional collagen peptide that

Further, research and development towards practical

helps to regulate body processes—the so-called third

applications for iPS cells and so on in regenerative

function of food. Our independent research on col-medicine is advancing worldwide. In addition to artifi-

lagen peptide’s functional properties has shown itcial bone and artificial skin materials that havehelps keep skin, bones, joints, and muscles healthy.

already been commercialized, we will work to com-

Collagen peptide’s beauty benefits are widely recog-

mercialize medical-use gelatin and collagen ensuring

nized in Japan, but are not that well known overseas.

the high level of safety required in medicine and to

This is especially true in the United States wherestep up global development.

®

nutritional supplements abound, but the collagen
peptide market has yet to come to the fore, with its

In closing

use nearly nonexistent in the beauty and health cat-

Global gelatin market growth continues at an annual

egory. We will communicate collagen peptide’s high-rate of 1–2%. The key to steadily producing gelatin

performance benefits and effects based on scientificon an industrial scale is to procure large amounts ofevidence, looking to have consumers experienceraw materials of a consistent quality. That is why it isthose benefits first-hand.

imperative for us to ensure the stable procurementof raw materials.
Under these conditions in the gelatin business, we
aim to employ our global orientation, active capital

G-zain™ is a sealant enabling full automation of

investments and M&As, comprehensive abilities fromwaterproof gasket assembly in devices such as

material supply to application development, and col-smartphones, digital cameras, and smart meters.

lagen peptides from Japan with global potential toThis UV curable sealant fundamentally changes cus-

generate consolidated net sales of ¥41 billion andtomers’ manufacturing process. It will therefore take

operating income of ¥4.2 billion in the fiscal year

time to catch on with customers, but we are confi-

ending March 31, 2016 and “Amaze the World!” We

dent that G-zain™ will gradually gain ground andask shareholders for their continued support as weeventually be used widely for smartphones.

forge ahead.

Norimichi Soga
Representative Director and President
Nitta Gelatin Inc.

beMatrix® is a line of gelatin and collagen for medicalcare. Its high degree of safety enabling use in thehuman body was realized with our patented technology. The material is indispensable in regenerative
medicine, a field that is expected to grow, and in13

Nitta Gelatin

Annual report 2014

Business Activities/Overview of Operations

Collagen Material BusinessIn the Collagen Material business, we manufacture and sell high value-added gelatin, collagen peptide,collagen casing, collagen and other products made from byproducts of the meat industry, such as animalbones and skin. In the process, we aim to propose products and applications demanded by customers
and solve the issues they face.
Gelatin

Collagen Peptide

Collagen Casing

Life Sciencen For foodn For dietary foodn Sausage casingsn Testing reagent forn For capsulesn For photographic films andpaperssupplements­laboratory researchn For protein drinks andn Biomaterial

foods
n For cosmetics

n Gelatin Businessn Life Science Business

Besides its ability to solidify, gelatin has a variety of functions
such as water retention, foaming, adhesive and emulsifying properties. For this reason, gelatin has a range of applications, fromfood to pharmaceuticals and photography. In the gelatin business,
we sell gelatin for applications in such industrial sectors.
Edible gelatin is marketed as a food material primarily to thebakery and confectionery and dairy product sectors, as well as
to the beverage manufacturing industry. In other areas, edible
gelatin is marketed to the delicatessen item and frozen food
manufacturing industries to maintain the quality of convenience
store delicatessen items and frozen foods and to improve foodtexture. The main applications for pharmaceutical gelatin are
hard and soft capsules. Pharmaceutical gelatin is marketed not
only to the pharmaceutical manufacturing sector, but also to thenutritional supplement, health food and other food productmanufacturing industries. Photographic gelatin is marketed tothe photosensitive material production industry, as a binding
agent for photosensitive materials, such as photographic film
and paper.

Collagen is extracted and refined from animal skin and tendons
using acid solutions and enzymes, while preserving its triplespiral molecular structure. Collagen has a close affinity withbiological tissue. In addition to applications as research
reagents for cell cultures, collagen is used as a bio-material insynthetic tissue and bones, which promote self-regeneration
and restoration of tissue. We have also developed a highly
refined medical gelatin (beMatrix®) as a bio-material to promote
the self-regeneration and restoration of human tissue in thefield of regenerative tissue engineering. Collagen for all of theseapplications is manufactured by the Company and is marketed
to medical equipment manufacturers, as well as universities
and other research institutes.

n Peptide BusinessIn the peptide business, we manufacture and sell collagen peptide, a lower molecular form of gelatin that has been processed
through the hydrolysis of gelatin using proteolytic enzymes. The
defining property of collagen peptide is that it does not solidify
into jelly. As a high-quality protein that can be readily ingested,
collagen peptide is marketed to the dairy product sector, as wellas the beverage manufacturing industry and the bakery andconfectionery sector. Furthermore, collagen peptide has beenfound to have the ability to activate biological functions andregulate bodily functions. As such, collagen peptide is actively
used in nutritional supplements, health supplements and otherfood products that provide health benefits related to the skin,bones and joints.

n Collagen Casing BusinessIn the collagen casing business, we sell edible collagen casings. Collagen casings are tubular materials that are filled withmeat in the sausage production process. Collagen casings aremarketed to the livestock food production sector as an alternative to natural casings made from sheep and pig intestines.

14n Performance for the Fiscal Year Ended March 31,
2014 and Outlook for the Fiscal Year Ending
March 31, 2015
In the gelatin field, sales of edible gelatin and gelatin for capsules increased in the Japanese market. Profit margins declined,
however, as a result of increased import procurement costs dueto the yen’s sharp depreciation, and insufficient progress inpassing along higher costs driven by rising raw material prices
worldwide. In the North American and Asian markets, sales
increased owing to sales volume growth backed by buoyant
demand for edible gelatin and gelatin for capsules and pricerevisions. Earnings also grew steadily in the North American andAsian markets. Collagen peptide sales posted strong growth inJapan and Asia overall, but profitability declined because of therise in raw material prices. Collagen casing sales were lackluster
and a loss was incurred due to quality issues that arose during
the first six months of the fiscal year in connection with collagencasing manufactured and sold by a U.S. subsidiary. As a result,net sales in the Collagen Material business increased 20.1%
year on year to ¥22,436 million. Segment profit (operating
income) was down 20.8% to ¥1,420 million.
In the fiscal year ending March 31, 2015, the Collagen
Material business is targeting net sales of ¥26,000 million andsegment profit (operating income) of ¥2,270 million.

Annual report 2014

Nitta Gelatin

Formula Solution BusinessIn the Formula Solution business, we manufacture and sell high value-added formulations through formulation technologies for a variety of materials. Our goal is to provide product proposals and applications
demanded by customers as we help them to solve the issues they face.

Food Material

Adhesiven Gelling agentsn Stabilizers and qualityn Hot-melt adhesivesn Stabilizers for meatenhancers for heat-andserve mealsn Consumer products for
mail-order salesn Sealant material

products

n Food Material BusinessIn the food material business, we sell edible formulations, suchas gelling agents and stabilizers for meat products, to the food
manufacturing industry. Leveraging properties such as their jelly
forming ability, water retention, binding, thickening and emulsion stability, these food agents are used mainly to add value tofood and maintain food quality, by contributing to food shaperetention and texture enhancement, and so forth. These edible
formulations are also used to improve work efficiency andproduction yield during food processing. Our food agents arecustom made according to their purpose of use. Edible gelling
agents are marketed mainly to the bakery and confectionery,
dairy product, beverage and frozen food manufacturing sectors.
Stabilizers for meat products are marketed mainly to the meatproduct and livestock food manufacturing sectors. We also
manufacture and sell consumer products such as collagen
beverages and food, and cosmetics, as well as collagen forcosmetics use. These consumer products are planned anddeveloped by the Company, manufactured by partner companies
and sold by our subsidiary Nitta Biolab Inc. Collagen for cosmetics use is manufactured and sold by the Company.

n Adhesive BusinessAs with the food material business, the adhesive businessproposes adhesives applications that are optimized for client
production lines, with the view to developing adhesive functions
that fit customer needs and applications. Examples include
hot-melt adhesives, which are formulated with multiple materials, and animal glue adhesives. Hot-melt adhesives are formulated with such materials as petroleum-based synthetic resins
and natural resins such as rosin. They are heated and melted
before application. Because they provide bonding after coolingand solidifying from a molten state, hot-melt type adhesives
feature a fast bonding speed. Accordingly, hot-melt adhesives
are used widely not only in packaging applications for sectors(High-performance gaskets)

like the food and beverage industry, but also in the sanitarymaterial, bookbinding, construction and woodwork, electrical,
housing and other sectors. Moreover, animal glue adhesives aremarketed mainly to the paper processing sectors, such as the
bookbinding industry, and the paper product and craft sectors,
due to their superior adhesive properties with respect to paper.
In recent years, we have been marketing a new sealant material
based on our adhesives technology that cures with ultraviolet
exposure, mainly to the electric machinery and tool manufacturing sector.

n Performance for the Fiscal Year Ended March 31,
2014 and Outlook for the Fiscal Year Ending
March 31, 2015
In food materials, performance was sluggish on the whole, withsales increasing only slightly. Profit declined despite efforts tocurtail advertising expenses. In adhesives, overall sales
increased only slightly due to delays in the adoption of newsealants by customers, despite strong sales of hot-melt adhesives due to increased demand pending the consumption tax
rate increase. Profit declined as selling, general and administrative expenses increased due to stronger efforts to develop new
customers. As a result, net sales in the Formula Solution business increased 2.8% year on year to ¥10,377 million. Segment
profit (operating income) declined 20.1% to ¥920 million.
In the fiscal year ending March 31, 2015, the Formula
Solution business is targeting net sales of ¥10,500 million andsegment profit (operating income) of ¥990 million.

15

Nitta Gelatin

Annual report 2014

Amaze the World!
Be the Leader in Asiaand a Globally Unique Enterprise
Nitta Gelatin Group History
Note: The Company name recorded is the current Company name.

1930

Succeeded in producing thin leaf gelatin
Succeeded in producing edible thin leaf
gelatin of a high quality, and began marketing it

1971

1974

Started an adhesives business
Commenced an adhesives business by developing high-speed,
hot-melt-type adhesives as areplacement for animal glue

Started a food material business
Began marketing various foodproducts containing natural polysaccharides and other ingredients,
in addition to gelatin

1990

1968

Established Nitta Gelatin Canada, Inc.
(Canada)Established Hikone Gelatin Inc.

1918

1970

1980
1982

1937
Started production ofgelatin and animal glue

1918

Started production ofanimal glue and industrial
gelatin for the first time inJapan with industrial production methods introduced
from the West1935

Completed the Osaka Plant

16

1990

Established BostikNitta Co., Ltd.

Started production of­photographic gelatin
After having relied on
imports, research yielded
Japan’s first domesticallymade photographic gelatin

1975

Established Nitta Gelatin India Ltd.
(India)1979

Established Nitta Gelatin NA Inc. (U.S.)

Annual report 2014

1999

Began production of gelatin in India
Started production of gelatin in India in
response to the demand in Asia

Nitta Gelatin

2001

Moved into the consumer products
business
Began marketing Collagenaid   ®, a collagenfood supplement, to general consumers

2014

Started production of collagen peptide in the U.S.

2000

Started a peptide
business
Fully entered the collagen
peptide business in
response to new applications, including as ahealth food

2011

2010

Established Guangdong Baiwei Bio
Material Co., Ltd. (China)

Established Shanghai Nitta GelatinCo., Ltd. (China)

2014

2010

2000
1996

Started a casing business
Commercialized a collagencasing business in North­America, after many years of
research

2012

Beijing Nitta Collagen Casing Co., Ltd.
(China)1996

Established Nitta Casings Inc.
(U.S.)

Established Nitta Casings(Canada) Inc. (Canada)

2004

Established Nitta Gelatin USA, Inc. (U.S.)

2013

Nitta Gelatin Vietnam Co., Ltd. (Vietnam)

17

Nitta Gelatin

Annual report 2014

Board of Directors, Executive Officers and Audit &Supervisory Board Members(As of June 26, 2014)

Back row from left: Hisayuki Suekawa, Outside Director; Mayumi Ishihara, Outside Director; Hiroshi Nitta, Director; Yasuyuki Nakai,Standing Audit & Supervisory Board Member; Raymond Merz, Director and Executive Officer;
Tamon Tsuda, Outside Audit & Supervisory Board Member
Front row from left: Toru Tamaoka, Director and Executive Officer; Tsuneo Sasaki, Director and Senior Managing Executive Officer;
Norimichi Soga, Representative Director and President; Koichi Ogata, Director and Executive Officer;
Shigeoki Tougou, Outside Audit & Supervisory Board Member■ Board of Directors
Representative Director and President

Director and Senior Managing Executive Officer

Norimichi Soga

Tsuneo Sasaki

Apr. 1971 Joined Kobe Kiito Co., Ltd.
July 1973 Joined the Company
July 1991 General Manager, Overseas Sales and Marketing
Division of the Company
July 1992 General Manager, Sales & Marketing Department,
Gelatin Division of the Company
Nov. 1996 Director of the Company
July 1997 General Manager, Sales & Marketing Division andGeneral Manager, Tokyo Branch of the Company
June 1999 Managing Director of the Company
Sept. 1999 General Manager, Operating Division of the Company
June 2003 Senior Managing Director of the Company
June 2004 Representative Director, Senior Managing Director of
the Company
Jan. 2005 Executive Officer of the Company
June 2006 Representative Director and President (to present)

Apr. 1974 Joined Mitsui Bank (currently Sumitomo Mitsui Banking
Corporation)
Nov. 2002 Dispatched to the Company
Nov. 2003 Joined the Company
Mar. 2004 General Manager, Finance Department, General
Administration Division of the Company
Sept. 2004 General Manager, Production Planning Department,
Operating Division of the Company
Mar. 2005 General Manager, Production Management
Department, Operating Division of the Company
Mar. 2006 General Manager, Finance Division, General
Administration Division of the Company
June 2006 Director of the Company (to present)
June 2006 Executive Officer of the Company
Sept. 2006 General Manager, Finance Division of the Company
June 2010 Managing Executive Officer of the Company
June 2011 General Manager, General Affairs Division of theCompany
June 2012 Senior Managing Executive Officer of the Company(to present)
Mar. 2013 General Manager, General Affairs Division of theCompany (to present)18

Annual report 2014

Nitta Gelatin■ Board of Directors■ Audit & Supervisory Board Members

Director and Executive Officer

Standing Audit & Supervisory Board Member

Koichi Ogata

Yasuyuki Nakai

Apr. 1981 Joined Kanebo Foods, Ltd. (currently Kracie Foods, Ltd.)
Dec. 2005 Joined the Company
Mar. 2008 General Manager, R&D Department, Sales & Marketing
Division of the Company
June 2010 Executive Officer of the Company (to present)
June 2012 Director of the Company (to present)
Mar. 2013 General Manager, Sales & Marketing Division of theCompany (to present)

Apr. 1978 Joined Mitsui Bank (currently Sumitomo Mitsui Banking
Corporation)
Nov. 2007 Dispatched to the Company
Mar. 2008 General Manager, Corporate Planning Division of theCompany
June 2008 Joined the Company
June 2008 Executive Officer of the Company
July 2009 General Manager, GRM Division of the Company
July 2010 General Manager, Planning and Management
Department, Gelatin Division of the Company
Mar. 2011 General Manager, Planning and Management
Department, Manufacturing Division of the Company
Mar. 2013 General Manager, Planning and Management
Department, Gelatin Division of the Company
June 2013 Standing Audit & Supervisory Board Member of theCompany

Director and Executive Officer

Toru Tamaoka
Apr. 1984 Joined the Company
Mar. 2008 General Manager, Planning and Management
Department, Gelatin Division of the Company
July 2010 General Manager, Adhesives Division of the Company(to present)
June 2012 Executive Officer of the Company (to present)
June 2014 Director of the Company (to present)

Director and Executive Officer

Raymond Merz
Sept. 1984 Joined Alcan Aluminium Limited (Canada)Jan. 1995 Joined Cangel Inc. (currently Nitta Gelatin Canada, Inc.)
Jan. 1996 General Manager, Production Division of Nitta Gelatin
Canada, Inc.
Jan. 2000 Director and Vice President of Nitta Gelatin Canada, Inc.
May 2002 Chief Operating Officer (COO) of Nitta Gelatin Canada, Inc.
June 2002 Director of the Company
Dec. 2004 Director and CEO of Nitta Gelatin USA, Inc.
Jan. 2005 Executive Officer of the Company
Apr. 2006 Director and CEO of Nitta Gelatin Canada, Inc.
June 2011 Senior Executive Officer of the Company
June 2013 Executive Officer of the Company (to present)
Mar. 2014 General Manager, Gelatin Division of the Company(to present)
June 2014 Director of the Company (to present)

Director

Hiroshi Nitta
Apr. 2003 Joined Nitta Corporation
Apr. 2003 Dispatched to Nitta Haas Inc.
June 2009 Director of the Company (to present)
Jan. 2011 Deputy General Manager, Gelatin Division of the Company
Mar. 2011 Deputy General Manager, Manufacturing Division of theCompany
June 2011 Executive Officer of the Company

Outside Director

Mayumi Ishihara
Apr. 1986 Worked at Kobe District Court
Oct. 1994 Passed the bar exam
Apr. 1997 Registered as an attorney at law
Apr. 1997 Joined Oh-Ebashi LPC & Partners (to present)
June 2010 Director of the Company (to present)

Outside Director

Outside Audit & Supervisory Board Member

Shigeoki Tougou
Apr. 1966 Joined Bank of Japan
July 1993 General Manager, Secretariat of the Policy Board of
Bank of Japan
Apr. 1995 General Manager, International Department
June 1996 Managing Director of The Nippon Credit Bank, Ltd.
(currently Aozora Bank, Ltd.)
Aug. 1997 President of Aozora Bank, Ltd.
June 2000 President and Representative Director of Osaka
Shipbuilding Co., Ltd. (currently Daizo Corporation)
June 2010 President of Nippon RAD Inc.
June 2011 Chief Executive Officer of Nippon RAD Inc.
June 2012 Audit & Supervisory Board Member of the Company(to present)
Oct. 2012 President of Higashi Nippon Gakuen University(to present)

Outside Audit & Supervisory Board Member

Tamon Tsuda
Apr. 1975 Joined The Sumitomo Bank, Limited (currently
Sumitomo Mitsui Banking Corporation)
Oct. 1981 Joined Arthur Andersen, LLP
Mar. 1985 Registered as a certified public accountant
Dec. 1994 Partner of Century Audit Corporation (currently Ernst &Young ShinNihon LLC)
Nov. 2000 Representative Partner of Century Ota Showa & Co.
(currently Ernst & Young ShinNihon LLC)
July 2008 Senior Partner of Ernst & Young ShinNihon LLC
July 2012 Head of Tsuda Certified Public Accountant Office(to present)
June 2014 Outside Audit & Supervisory Board Member of theCompany (to present)■ Managing Executive Officer
Takeo Yamaki

Hisayuki Suekawa
Apr. 1982 Joined Shiseido Company, Limited
Feb. 2007 General Manager of the Business Planning Departmentof Shiseido Company, Limited
Apr. 2008 Corporate Officer, General Manager of the Corporate
Planning Department of Shiseido Company, Limited
June 2009 Director of Shiseido Company, Limited
Apr. 2011 Representative Director [incumbent], President & CEOof Shiseido Company, Limited
Apr. 2013 Senior Adviser of Shiseido Company, Limited (to present)
June 2014 Outside Director of the Company (to present)■ Executive Officers
Hidenori Takemiya
Yuji Yamamoto
Hiroshi Takase
Yoshitaka Oda
Yoshihisa Sugimoto
Juergen Gallert

19Nitta Gelatin

Annual report 2014

Investor Information■ Stock Information (As of March 31, 2014)
Number of shares authorized: 50,000,000 shares
Number of shares issued:

18,373,974 shares (including treasury stock of 162 shares)

Number of shareholders:

5,781

Major Shareholders (Top 10)
Shareholder Name

Number of Shares

Shareholding Percentage

IBP Co., Ltd.

2,951,316

16.06%The Master Trust Bank of Japan, Ltd. (trust account)

1,589,900

8.65

Nitta Corporation

840,014

4.57

Sumitomo Mitsui Banking Corporation

630,286

3.43

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

621,074

3.38

Iwaki Co., Ltd.

533,600

2.90

Japan Trustee Services Bank, Ltd. (trust account)489,500

2.66

The Nomura Trust and Banking Co., Ltd. (trust account)486,700

2.65

Nitta Gelatin Employees Shareholding Association

443,300

2.41

Ishizuka Corporation

382,0142.08(Note) Shareholding percentage is calculated based on the total number of shares issued minus treasury stock (162 shares).
Percentages are rounded to two decimal places.

■ Share Distribution<Breakdown of Shareholding by Investor Type><Breakdown of Shareholding by Number of Shares Held>

Financial institutions
0.5%

Financial instruments
business operator
0.5%

Financial instruments
business operator
0.4%

Foreign investors
0.8%

Foreigninvestors
1.7%

Domestic
companies
1.3%

Financial
institutions
29.8%
Individual,
other
97.0%

20

Individual,
other
34.7%

Domestic
companies
33.3%

Annual report 2014

Nitta Gelatin

Corporate Information■ Company Outline■ Affiliates

Headquarters:

1 Nitta Gelatin NA Inc. (U.S.A.)

Establishment:
Incorporation:
Capital:Number ofshares issued:
Net Sales:

4-26, Sakuragawa 4-chome, Naniwa-ku, Osaka
556-0022, Japan
January 1918
February 1945
¥3,144,929,440

18,373,974 shares
Non-consolidated: ¥22,169 million(Year ended March 31, 2014)
Consolidated: ¥32,814 million(Year ended March 31, 2014)
Employees:
Non-consolidated: 255(As of March 31, 2014)
Consolidated: 635(As of March 31, 2014)
Main Business:
Production and sales of edible gelatin,
pharmaceutical gelatin and photographic gelatin.
Production and sales of collagen peptides
Production and sales of collagen casings
Production and sales of collagen for cosmetics,
biomaterials and biochemical products
Production and sales of edible gelling agents,
stabilizers and other food materials
Production and sales of adhesives and sealants
for packaging, bookbinding, building materials,
hygiene products and automobiles
Operating facilities: 10 locations in Japan, 13 locations overseas

7

13
12
19

18
17

14 15

8
9

10

2 Nitta Gelatin USA, Inc. (U.S.A.)
3 Nitta Casings Inc. (U.S.A.)
4 Nitta Gelatin Holding, Inc. (U.S.A.)
5 Nitta Gelatin Canada, Inc. (Canada)
6 Nitta Casings (Canada) Inc. (Canada)
7 Alma Corporation (Japan)
8 Nitta Biolab Inc. (Japan)
9 Hikone Gelatin Inc. (Japan)
 Bostik-Nitta Co., Ltd. (Japan)
 Shinju Service Co., Ltd. (Japan)
 Shanghai Nitta Gelatin Co., Ltd. (China)
 Beijing Nitta Collagen Casing Co., Ltd. (China)
 Guangdong Baiwei Bio Material Co., Ltd. (China)
 Nitta Hong Kong, Ltd. (China)
 Nitta Gelatin Vietnam Co., Ltd. (Vietnam)
 Nitta Gelatin India Ltd. (India)
 Bamni Proteins Ltd. (India)
 Reva Proteins Ltd. (India)

5 6
3 4
1
2

11

16

Consolidated subsidiaries
Equity method affiliates
Other affiliates

21

Nitta Gelatin

Annual report 2014

Management’s Discussion and Analysis

Business Performance Summary for the Fiscal Year
Ended March 31, 2014
In the fiscal year ended March 31, 2014, the global economy continued to recover gradually, despite continuing
uncertainty due to issues such as the tapering of quantitative easing in the United States, concerns of a slowdown
among emerging economies, and the future development of
the European debt problem. Meanwhile, the Japanese economy also continued to recover gradually, with the yen depreciating and stock prices rising as a result of government
policies and the Bank of Japan’s monetary easing. Nevertheless, the situation remains unclear, due to sluggish
consumer spending following an increase in the consumption tax rate, along with concerns over the impact of a downturn in the global economy.
Amid these circumstances, Nitta Gelatin faced challenging business conditions including the increased cost ofimport procurements in Japan due to the yen’s depreciation, rising prices for gelatin and other raw materials for theGroup, and higher energy prices in Japan.
The Group worked to provide products and services a
step ahead of customers’ expectations, develop new products, cultivate new markets and reduce costs, under theslogan of “Amaze the World!” and a basic strategy to “Winout!! in growing Asian market.”
Meanwhile, the Company issued 2,603,900 shares ofcommon stock by way of public subscription in July andthird-party allocation in August 2013. The resulting proceeds of ¥3,135 million in total were used to secure funds
for capital investment and to improve the Group’s financial
position.
As a result, net sales increased 14.0% year on year to¥32,814 million in the fiscal year ended March 31, 2014.
Operating income declined 40.1% to ¥955 million, mainly
due to delays in passing along higher costs in Japan. Ordinary income decreased 43.6% to ¥1,115 million on accountof a decrease in equity in earnings of affiliates due to a
decline in the performance of an Indian affiliate. Net income
decreased 56.4% to ¥665 million, mainly reflecting thebooking of an extraordinary loss in line with a reduction in
the Company’s shareholding in an Indian affiliate due to
Indian shareholding regulations.

Consolidated Business Performance for the Fiscal
Year Ended March 31, 2014
Net Sales and Earnings
Net sales
Overseas, the Group posted strong sales owing to sales
volume growth and price revisions backed by buoyant
demand in the North American and Asian markets. The
Group’s performance was strong in the Japanese market,
as well. As a result, in the fiscal year ended March 31,
2014, net sales increased ¥4,041 million, or 14.0% year on
year to ¥32,814 million.

22

Gross Profit
Consolidated gross profit declined ¥187 million, or 2.8%
year on year to ¥6,484 million, mainly due to surging gelatin
raw material prices worldwide, higher energy cost in Japan,
and higher procurement costs of imports as a result of the
yen’s depreciation.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses increased¥452 million, or 8.9%, year on year to ¥5,528 million.
Operating income
As a result of the foregoing, operating income decreased¥640 million, or 40.1%, year on year to ¥955 million.
Net income
We booked a gain on compensation income of ¥89 million asother income, and a loss on retirement of noncurrent assetsof ¥29 million, and a loss on change in equity of ¥104 million
as other expenses. Consequently, net income decreased¥859 million, or 56.4%, year on year to ¥665 million.

Segment Performance
Collagen Material BusinessIn the gelatin field, sales of mainly edible gelatin and gelatinfor capsules increased in the Japanese market. Profit margins declined, however, as a result of increased importprocurement costs due to the yen’s sharp depreciation, andinsufficient progress in passing along higher costs driven byrising raw material prices worldwide. In the North Americanand Asian markets, sales increased owing to sales volume
growth and price revisions backed by buoyant demand foredible gelatin and gelatin for capsules. Earnings also grewsteadily in the North American and Asian markets.
Collagen peptide sales posted strong growth in Japanand Asia overall, but profitability declined because of therise in raw material prices.
Collagen casing sales were lackluster and a loss wasincurred due to quality issues that arose during the first six
months of the fiscal year in connection with collagen casing
manufactured and sold by a U.S. subsidiary.
As a result, net sales in the Collagen Material businessincreased 20.1% year on year to ¥22,436 million. Segment
profit (operating income) was down 20.8% to ¥1,420 million.
Formula Solution BusinessIn food materials, performance was sluggish on the whole,with sales increasing only slightly. Profit declined despite
efforts to curtail advertising expenses.
In adhesives, overall sales increased only slightly due todelays in the adoption of new sealants by customers, despite
strong sales of hot-melt adhesives due to increased demand
pending the consumption tax rate increase. Profit declined as
selling, general and administrative expenses increased due
to stronger efforts to develop new customers for sealants.
As a result, net sales in the Formula Solution businessincreased 2.8% year on year to ¥10,377 million. Segment
profit (operating income) declined 20.1% to ¥920 million.

Annual report 2014

Research and Development“As a world leading gelatin manufacturer, the Group uses its
proprietary technology to quickly and efficiently provide
superior products and services to global customers. The
Group produces healthy, functional and valuable products in
multinational facilities that are safe, reliable and environmentally friendly.” Guided by this vision, we are advancing
both the Collagen Material and Formula Solution businesses
with the aim of establishing Nitta Gelatin as a global brandthat is chosen first by customers.
The markets we face are constantly evolving and diversifying on a daily basis. True to our slogan, Amaze the World!,
our basic R&D policy is to quickly and efficiently develop
products and services that are a half step or a whole stepahead of customer expectations in order to enhance theCompany’s brand value and contribute to sustained business expansion and growth. We have organized a productdevelopment structure that is as close to customers as
possible in an effort to energize R&D activities and identify
shifts in market and customer needs with a constantly positive mindset. In other words, we have stationed sales,development and production personnel across the R&D
organization to ensure that requests from the customer,
markets and others are directly conveyed to technology,
service, product development and production technology
development units, so that timely responses are made.
While the internal research personnel are focused on product development and customer service, we also actively
conduct joint research with and commission research toexternal research institutes, universities and other entities,
for the purpose of promoting basic research into food ingredients, obtaining new fundamental technologies and meeting other priorities.
Since 2007, we have held TPM (Technology, Product,
Market) Presentations under the guidance of external consultants, in an initiative to promote and encourage R&D
activities. These presentations are based on the “TPM
cycle” approach of obtaining market recognition throughproduct development driven by technology. Group R&D Information Meetings have been held since 2010, to share
information about R&D within our Group by introducing
examples of development projects, as well as new technologies and products.
The following is a breakdown of R&D activities by division in each business during the fiscal year ended March
31, 2014. Total R&D expenses were ¥1,004 million.

Nitta Gelatin

Collagen Material Business
Gelatin• Improve and upgrade production technology for raw
material and gelatin processes• Develop new gelatin (new materials, new functions)• Provide optimal quality for each application
Collagen Peptide• Develop collagen peptide production technology­(peptide synthesis, refining technology)• Research functional characteristics of collagen
peptideCollagen Casing• Improve and upgrade collagen casing production• Develop new markets and productsLife Science• Research and development of collagen for bio­materials and cell cultures• Research and development of gelatin and collagen foradvanced medical care
R&D expenses in the Collagen Material business were¥561 million.
Formula Solution Business
Food Material• Develop applications utilizing application laboratories• Develop novel products (for delicatessen items andfood products for seniors, such as medical foods)• Plan and develop consumer products (collagen supplements, collagen-added cosmetics)
Adhesive• Develop high-performance polymers (sealants)• Environmentally friendly hot-melt adhesives
R&D expenses in the Formula Solution business were¥442 million.

Cash Flows■ Net cash used in operating activities
Net cash used in operating activities was ¥692 million,
compared with ¥2,050 million provided in the previous
fiscal year. The main contributing factors were an increasein notes and accounts receivable of ¥2,147 million andinventories of ¥624 million. These outflows were partly
offset by income before income taxes and minority interestsof ¥1,070 million and depreciation and amortization of¥914 million.
The increase in notes and accounts receivable reflects a
temporary curtailment of the liquidation of receivables dueto the fund procurement by way of public subscription andthird-party offering.
■ Net cash used in investing activities
Net cash used in investing activities was ¥3,105 million,
compared with ¥1,557 million in the previous fiscal year.
The main use of cash was the purchase of property, plantand equipment of ¥2,949 million.

23

Nitta Gelatin

Annual report 2014

■ Net cash provided by financing activities
Net cash provided by financing activities was ¥3,875 million, compared to ¥376 million used in the previous fiscal
year. This mainly reflected ¥3,222 million in proceeds fromlong-term debt and ¥3,135 million in proceeds from issuance of common stock, which were partly offset by ¥2,165
million in repayment of long-term debt.
As a result, cash and cash equivalents were ¥2,406
million as of March 31, 2014, an increase of 6.5% from ayear earlier.

Capital Investment
Based on business strategies under our medium-term management plan, we executed capital investment of ¥3,102
million centered on the Collagen Material business, mainly
to achieve global cost competitiveness in gelatin products,
strengthen collagen peptide supply capability, and enhancecollagen casing productivity.
In the Collagen Material business, we invested ¥1,120
million to construct a new factory (completed in May 2014)as a new collagen peptide manufacturing base at Nitta
Gelatin USA, Inc., ¥717 million to buy out leased assets
such as gelatin manufacturing plant and equipment at Nitta
Gelatin USA, Inc., and ¥596 million to introduce and renew
collagen casing manufacturing plant and equipment at Nitta
Casings Inc. and Beijing Nitta Collagen Casing Co., Ltd. We
also spent ¥400 million on renewing plant and equipment
and introducing facilities for saving energy at our Osaka
plant and subsidiary, Hikone Gelatin Inc., and at Nitta­Gelatin Canada, Inc. to maintain production capacity andenhance quality.
In the Formula Solution business, we invested ¥202
million to construct a new office and laboratory, andupgrade production facilities for the Adhesives Division, and¥25 million to construct a factory and introduce plant andequipment to Nitta Gelatin Vietnam Co., Ltd.
We allotted our own funds, borrowings, and proceedsfrom issuances of common stock by way of public subscription in July and third-party allocation in August 2013 toexecute these capital investments.
Expenses amounting to ¥9 million were booked as aloss on retirement of noncurrent assets for relocation andremoval of plant and equipment in constructing the new
office and laboratory for the Adhesives Division, in addition
to ¥20 million in ongoing replacement of machinery andother plant and equipment.

Financial Position
Current Assets
Current assets were ¥18,685 million as of March 31,
2014, an increase of ¥3,365 million from March 31,
2013. This was mainly attributable to a ¥147 million
increase in cash and deposits, a ¥2,324 million increasein notes and accounts receivable, and a ¥810 million
increase in inventories.

24

Noncurrent Assets
Noncurrent assets were ¥12,704 million as of March 31,
2014, an increase of ¥2,833 million from March 31, 2013.
This mainly reflected a ¥2,516 million increase in property,
plant and equipment in line with capital investments and anincrease of ¥307 million in investment securities.
Current Liabilities
Current liabilities were ¥10,080 million as of March 31,
2014, an increase of ¥443 million from the previous fiscal
year-end. This mainly reflected increases of ¥518 million innotes and accounts payable and ¥161 million in otherpayable, partly offset by decreases of ¥135 million in thecurrent portion of long-term debt and ¥200 million in thecurrent portion of bonds.
Noncurrent Liabilities
Noncurrent liabilities were ¥7,528 million as of March 31,
2014, an increase of ¥1,699 million from the previous
fiscal year-end. This was mainly attributable to increasesof ¥1,273 million in long-term debt and ¥175 million inlease obligations.
Net Assets
Net assets stood at ¥13,781 million as of March 31, 2014,
an increase of ¥4,056 million from the previous fiscal yearend. This was mainly attributable to increases of ¥429
million in retained earnings and ¥1,567 million each incapital stock and capital surplus resulting from the issuanceof common stock by way of public subscription and thirdparty allocation.
As a result, the equity ratio stood at 43.4% as of March
31, 2014, compared to 38.0% as of March 31, 2013.

Basic Profit Distribution Policy and Dividends
Our basic policy on profit distribution is to continuously pay
steady dividends, while securing the internal reserves
needed to develop future businesses and strengthen ouroperating structure.
Furthermore, our basic policy is to pay dividends twice
every fiscal year, with interim and year-end dividends determined by the Board of Directors and the Annual General
Meeting of Shareholders, respectively. In regard to dividends
for the fiscal year ended March 31, 2014, in accordancewith the aforementioned policies, management has decided
to pay a year-end dividend of ¥6.00 per common share.
Combined with the interim dividend of ¥6.00, the annual
dividend per common share is ¥12.00.
In regard to funds set aside as internal reserves, we
intend to effectively invest these funds in enhancing costcompetitiveness even more than before, bolstering ourtechnology and product development structure in response
to market needs, as well as implementing global strategies.
These investments will help us to address anticipatedchanges in the business environment going forward.

Annual report 2014

Nitta Gelatin

Business Risks

This section provides information about the principal business risks concerning the Nitta Gelatin Group’s operations
and related matters that may have a material impact on thedecisions of investors. Matters that do not necessarily
constitute such risks but are considered to have a material
impact on the investment decisions of investors are also
disclosed below from the standpoint of actively disclosing
information to investors. Recognizing the possibility for suchrisks to occur, we endeavor to prevent the occurrence ofsuch risks and to respond properly in the event that suchrisks occur.
This section includes for ward-looking statements
determined based on information available to us as ofJune 26, 2014.

(1) Product Development
Guided by our motto of quickly and efficiently providing
products and services that address shifting market conditions and customer needs, we actively conduct R&D andcapital investment. However, there is no guarantee that we
can successfully develop new products. In addition, even if
a new product is successfully developed, it may not matchcustomer needs and thus fail to gain their acceptance.
In regard to products for medical applications, cus­
tomers using our products require an extensive lead time todevelop and launch medical products. During this period,
the customer may suspend product development or face
protracted development delays, among other contingencies,
mainly on account of shifting market conditions, changes inoperating performance, or delays in obtaining approval from
regulatory authorities.
In the event that we face delays or are unable torecover R&D expenses and capital investment as a result,our operating results and financial position may be negatively impacted.

(2) Overseas Markets
Ever since the establishment of our first overseas sales
subsidiary in the U.S. in July 1979, we have been actively
working to expand sales in overseas markets. In the fiscal
year ended March 31, 2014, sales in overseas markets
accounted for 40.0% of our net sales. In the North American
market, our primary region for business development so far,our sales expansion may be negatively impacted by competition arising between our products and those of our competitors in the same industry.
In addition, in the future strategic Chinese, Indian andSoutheast Asian markets, our sales expansion may be
negatively impacted by even greater competition than in
North America between our products and those of our competitors in the same industry.
The Group is working to enhance its competitiveness,
mainly by reducing costs, improving quality, developing
unique new products, and conducting production in optimal
locations. However, if these measures prove ineffective,
sales growth could stagnate. This could have a negative
impact on our operating results and financial position.

(3) Exchange Rate Movements
When selling products to overseas customers either directlyor through a subsidiary, we export products on a U.S. dollardenominated basis. On the procurement front, we purchaseraw materials for gelatin, such as bovine bones and ossein,
primarily using U.S. dollars. We also import pig skin gelatinfrom overseas on a Canadian dollar-denominated basis. For
this reason, we hedge our foreign exchange risk by concluding foreign exchange forward contracts with financial institutions with respect to U.S. dollar-denominated exports, aswell as U.S. dollar- and Canadian dollar-denominatedimports. Through these measures, we reduce our exposure
to foreign exchange risk related to operating transactions.
However, in the event of unforeseeable foreign exchange
rate movements, our operating results and financial position
could be negatively impacted.
Furthermore, gains and losses arising from foreign
currency-denominated transactions as well as the translation into Japanese yen of foreign currency-denominatedreceivables and payables as well as the translation into
Japanese yen of the accounts of the financial statements ofoverseas consolidated subsidiaries prepared in foreign
currencies, are subject to foreign exchange rate movements. This could have a negative impact on our operating
results and financial position.

(4) Price Fluctuations for Primary Raw Materials
Raw material costs accounted for 57.3% of our cost of
manufacturing in the year ended March 31, 2014. Raw
material prices fluctuate for a variety of reasons. In the
Collagen Material business, primary raw materials such as
bovine bones and hides, pig skin and fish scales are all
byproducts of the livestock and fishery industries. The raw
material price may fluctuate depending on changes in meat
consumption reflecting global economic conditions, as well
as changes in supply-demand dynamics driven by regulations governing food processing and distribution in response
to various animal epidemics and other factors. In the­Formula Solution business, prices of natural polysaccharides, the primary raw material in the food material divisions
may fluctuate due to changes in the climate of growing
regions and other factors. Prices of petroleum resins, thekey raw material for adhesives, may fluctuate due tochanges in commodity prices and supply-demand dynamics
for heavy oil and naphtha.
Meanwhile, in some cases the market environment andother factors can make it difficult to transfer the impact ofprice fluctuations for these key raw materials to the selling
price of our products. Accordingly, fluctuations in raw materials prices could have a negative impact on our operating
results and financial position.

25

Nitta Gelatin

Annual report 2014

(5) Animal Diseases
Our primary products, including gelatin, collagen peptide,collagen casing and collagen, are made from animal byproducts derived from livestock and fishery production, such as
bovine bones and hides, pig skins, and fish scales. Accordingly, these materials are subject to the risk of animal diseases. We therefore procure these materials only after
confirming that they are free from any animal infectious
diseases, while working to diversify the sourcing region of
raw materials in order to ensure their safety.
Despite these efforts, in the event that an extensive
outbreak of animal disease occurs in a region from which
we procure raw materials, the supply of raw material bones
and skins may decline or stop due to a suspension or stoppage of meat production, or may cause us to switch to analternative region for sourcing raw materials. These andother related factors may have a negative impact on thestable procurement of raw materials.
In addition, our product sales may be affected by theoutbreak of an animal disease in countries in which raw
materials are produced or products are manufactured.
­Specifically, product sales may stagnate due to import
restrictions and other measures imposed on animal products made from raw materials originating from or products
manufactured in these countries.
As a result of the foregoing, the Group may be impacted
by higher raw material procurement costs, reduced revenue
due to lower product sales, higher inventories and so forth.
This could negatively affect our operating results and financial position.

regional laws and regulations, we may incur costs associated with addressing such new legislative changes.
The foregoing impacts could negatively affect our operating results and financial position.

(7) Religious Rules
Gelatin is an animal-derived product that is widely used infood, pharmaceutical capsules and other items. However,
due to religious injunctions, consumption of some of these
items may be forbidden, depending on the animal species
and the manufacturing methods. Main examples of suchreligious rules include the Halal (Islam) and Kosher­(Judaism). Followers of these religions are forbidden fromconsuming pig-derived products. In order to sell proper
gelatin to business customers who manufacture products
for these consumers, we produce gelatin by procuring raw
materials derived from permissible animal species and byusing appropriate manufacturing methods in line with religious rules. To make certain that our products conform toreligious rules, we obtain certification through audits bycertifying entities of each religion. In this context, we
strictly manage our raw materials and manufacturing.
­However, in the event that our certification is revoked as aresult of a breach of a religious rule due to a management
deficiency, we will lose sales opportunities, which could
have a negative impact on our operating results and financial position.

(8) Natural Disasters, Accidents, Terrorism,
War and Other Contingencies(6) Laws and Regulations
In the course of executing business activities, the Group’sbusiness is subject to Japanese laws and regulations,
including the Food Sanitation Law, the Japanese AgriculturalStandard and the Pharmaceutical Affairs Law, as well as
directives issued by the competent authorities. In the eventthat these laws and regulations are amended or abolished,or if new laws and regulations are established, we may incur
additional costs and other outlays to address these developments, or face restrictions in terms of the scope of ourbusiness activities.
Furthermore, the Group is subject to various laws andregulations in overseas countries where it conducts business. Our operating results and financial position could be
negatively impacted by changes to these laws and regulations and our status of legal compliance.
In regard to the environment, gelatin production requires
large amounts of water in the whole process, from raw
materials to gelatin. For this reason, our plants are suppliedwith and release large amounts of water, and are subject tothe laws and regulations of each country and region inregard to wastewater volume and water quality. Efforts are
made at each plant to recycle and reuse water and to
upgrade production processes so as to reduce the volume
of water supplied and released and to maintain water­quality. In the event of a major amendment to national or

26

In the event of natural disasters such as earthquakes,
storms and floods, accidents, problems with local communities, regional terrorism, wars and other contingencies at ourbusiness locations, the procurement of raw materials andthe production and sale of products could be disrupted,
which could have a negative impact on our operating results
and financial position. Our business locations include ourmain offices and major outsourcing partners (including
those in Osaka, Shiga and Tochigi prefectures, Japan;­Province of Ontario, Canada; State of North Carolina and
New Jersey, U.S.A.; State of Kerala, India and Guangdong
Province, China, Long An Province, Vietnam); regions fromwhich primary raw materials are procured (including India,
Canada, U.S.A., New Zealand, Thailand, Pakistan and
China); and primary regions where products are sold (including Japan, North America, India, China and various other
Asian countries).

(9) Product Quality
We endeavor to put quality first in order to earn our customers’ trust. To this end, we develop products focused on
customer needs, and manufacture products under an internationally accepted quality assurance system. One particular focus lies in ensuring traceability from raw materials tofinished products in an effort to market safe products.

Annual report 2014

We have enrolled in product liability insurance policies,
among other safeguards. However, in the event that a customer suffers damages as a result of defects in our products, there is no guarantee that our liability for damages will
be covered within the compensation limits of these insurance policies.
Accordingly, in the event of a serious quality problem,the ensuing claims for damages, loss of public trust in theGroup and other factors could negatively impact our operating results and financial position.

(10) Alternative Products
There is a growing trend to switch the raw materials used incertain pharmaceuticals, cosmetics and food from animal toplant-derived materials. In the capsule market, one of ourcore markets for gelatin, this trend has given impetus to thedevelopment of plant-derived (starch and cellulose derivatives) capsule products. Certain pharmaceutical and healthfood manufacturers have adopted these capsules as analternative to gelatin capsules. We believe that the popularization of plant-derived capsules has been limited only tocertain segments of the market.
Nevertheless, in the event of new regulations on animalderived products or a change in consumer sentiment, therapid popularization of plant-derived capsules could reducedemand for gelatin capsules, and have a negative impact on
our operating results and financial position.

Nitta GelatinGroup pays close attention to international taxation risks
such as the transfer pricing taxation applicable in eachcountry, additional taxes may be imposed in the event that
the Group’s views on this matter conflict with those of the
tax authorities.

(13) Information Security
We have established an information system that enables us
to obtain and analyze necessary information in real time invarious processes, including purchasing, production, sales
and management. We put particular emphasis on the strict
management of access rights to the system for the purposeof ensuring stable system operation and preventing any
leaks of sales data, including client data and personal information stored on the system. These efforts notwithstanding, in the event of difficulty in maintaining the stable
operation of the information system due to a software­malfunction, unauthorized external access or other factors,
our business activities could be disrupted. In the event thatsales or client data is leaked outside our Group, we could
face consequences such as claims for damages from customers, and a loss of public trust in our Group. As a result,our operating results and financial position could be negatively affected.

(14) Infringement of Intellectual Property Rights

We primarily borrow funds from financial institutions tofinance capital investments. The percentage of interestbearing liabilities relative to total assets was 26.1%(including lease obligations) in the fiscal year ended
March 31, 2014.
We endeavor to reduce borrowings and other interestbearing liabilities. However, in the event of an increase inmarket interest rates going forward, our operating results
and financial position could be negatively impacted.

We protect our intellectual property rights through suchmeans as obtaining patents on proprietary technology andother innovations we have developed. Efforts are also madein the product development process to prevent any infringement of rights held by third parties, including intellectual
property rights. These efforts notwithstanding, we cannot
completely rule out the possibility of becoming subject toallegations and claims by third parties concerning the ownership or infringement of intellectual property and otherrights. In the event that we are subject to claims for damages or cease-and-desist orders as a result, our operating
results and financial position could be negatively affected.

(12) Taxation(15) Legal Disputes and Litigation

In Japan, a 17% tariff is levied on imported gelatin except
for photographic use. Going for ward, the selling price of
these imports may decrease as a result of the reduction or
abolition of this tariff. A price difference may arise
between imports such as South American bovine hidegelatin and Indian bovine bone gelatin, and bovine bonegelatin produced at the Company’s Osaka Plant. In suchan event, our operating results and financial position could
be negatively affected.
Moreover, the Group conducts production and sales
activities on a global scale, and materials, semi-finishedgoods and other items are mutually supplied within theGroup. Each Group business entity complies with the tax
laws to follow the proper procedures for calculating andpaying taxes in the country of its jurisdiction. While theIn the course of our business activities, we endeavor toenhance our internal control system and strengthen compliance, encompassing legal compliance and observance ofsocial norms, while reducing our exposure to various formsof risk. At the same time, the Group receives advice fromlawyers and other experts as necessary. These efforts
notwithstanding, the Group may be subject to lawsuits inthe course of business activities, irrespective of whether or
not there is a breach of laws or regulations. In such an
event, our operating results and financial position could be
negatively affected.

(11) Interest-Rate Fluctuations

27

Nitta Gelatin

Annual report 2014

Consolidated Balance Sheets
Nitta Gelatin Inc. and Consolidated Subsidiaries
As of March 31, 2014 and 2013

2014

2013

Thousands of U.S.
dollars (Note 1)
2014

AssetsCurrent assets:
Cash and deposits (Notes 6, 10 and 18)
Notes and accounts receivable (Notes 3 and 10)
Inventories (Note 4)
Deferred tax assets (Note 7)
Other
Allowance for doubtful accounts
Total current assets¥    2,426
8,164
7,642
158
306
(13)
18,685¥    2,278
5,839
6,831
134
251
(16)
15,319$    23,580
79,35474,280
1,535
2,974
(126)
181,619

Property, plant and equipment:
Buildings and structures (Note 6 )Machinery, equipment and vehicles (Note 6)
Land (Note 6)
Lease assets (Note 9)
Construction in progress
Other
Accumulated depreciation
Net property, plant and equipment

7,564
9,841
768
1,136
2,260
1,316
(14,084)
8,804

7,204
8,554
761
786
777
1,279
(13,077)
6,287

73,522
95,655
7,465
11,041
21,967
12,791(136,897)
85,575

50

48

486

3,075
8
399
253
111
3,849
¥  31,389

2,768
13
524
–
228
3,534
¥  25,190

29,889
77
3,878
2,459
1,078
37,412$  305,103

Millions of yen

Intangible assets

Investments and other assets:
Investment securities (Notes 5, 6 and 10)
Long-term loans receivable
Deferred tax assets (Note 7)
Asset for retirement benefits (Note 8)
Other
Total investments and other assets
Total assets
See notes to consolidated financial statements.

28

Annual report 2014

Nitta Gelatin

2014

2013

Thousands of U.S.
dollars (Note 1)
2014

Liabilities
Current liabilities:
Notes and accounts payable (Note 10)
Short-term loans payable (Note 6)
Current portion of long-term debt (Notes 6 and 10)
Current portion of bonds (Notes 6 and 10)
Lease obligations (Notes 6, 9 and 10)
Other payable (Note 10)
Income taxes payable
Provision for bonuses
Other
Total current liabilities¥ 4,255
1,121
1,932
–
215
1,747
147
177
481
10,080¥ 3,736
1,145
2,068
200
154
1,586
81
220
443
9,637

$ 41,358
10,896
18,779–2,089
16,980
1,428
1,720
4,675
97,978

Noncurrent liabilities:
Long-term debt (Notes 6 and 10)
Lease obligations (Notes 6, 9 and 10)
Provision for retirement benefits (Note 8)
Liability for retirement benefits (Note 8)
Provision for directors’ retirement benefits
Other
Total noncurrent liabilities
Total liabilities

4,415
495
–
2,524
37
55
7,528
17,608

3,142
319
2,276
–
35
54
5,828
15,46542,914
4,811–
24,533359
534
73,172
171,150

3,144

1,577

30,559

2,966
8,623

1,398
8,194

28,82983,816(0)
14,734(0)
11,170(0)143,215

622
(5)
(187)
(1,528)–(1,097)
144
13,781¥31,389

499
27
(667)
–
(1,452)(1,592)
147
9,724¥25,190

6,045(48)(1,817)(14,852)–(10,662)
1,399
133,952$305,103

Millions of yen

Commitments and contingent liabilities (Notes 9, 11 and 12)
Net assets
Shareholders’ equity (Note 15):
Capital stock:
Authorized — 50,000,000 shares
Issued — 18,373,974 shares in 2014 and15,770,074 shares in 2013
Capital surplus
Retained earnings
Treasury stock — 162 shares in 2014 and162 shares in 2013
Total shareholders’ equity
Accumulated other comprehensive income:
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Accumulated adjustments for retirement benefit (Note 8)
Pension liability adjustment of foreign subsidiaries
Total accumulated other comprehensive income
Minority interests
Total net assets
Total liabilities and net assets
See notes to consolidated financial statements.

29

Nitta Gelatin

Annual report 2014

Consolidated Statements of Income
Nitta Gelatin Inc. and Consolidated Subsidiaries
Years ended March 31, 2014 and 2013

2014

2013

Thousands of U.S.
dollars (Note 1)
2014¥32,814
26,3296,484¥28,772
22,1006,671$318,954
255,919
63,024

5,528
955

5,075
1,595

53,732
9,282

24
(133)
35
97
166
(23)
(37)
–
89
(29)
–
–
(104)
31
114

19
(147)
29
262
179
–
(15)
11
–
(58)
(12)
(4)
–
53
319

233
(1,292)
340
942
1,613
(223)
(359)
–
865
(281)
–
–
(1,010)
301
1,108

1,070

1,915

10,400

350
67
418

402
1
403

3,402
651
4,062

651
(13)
¥   6651,512(13)¥ 1,525

6,327
(126)
$  6,463

Millions of yen

Net sales
Cost of sales (Note 4)
Gross profit
Selling, general and administrative expenses (Note 13)
Operating income
Other income (expenses):
Interest and dividends income
Interest expenses
Rent income
Equity in earnings of affiliates
Foreign exchange gains
Going public expenses
Commissions paid
Gain on sales of noncurrent assets
Gain on transfer of business
Loss on retirement of noncurrent assets
Loss on valuation of investment securities
Loss on sales of golf club membership
Loss on change in equity
Other, net

Income before income taxes and minority interests
Income taxes (Note 7):
Current
Deferred
Total income taxes
Income before minority interests
Minority interests in income
Net income (Note 17)
See notes to consolidated financial statements.

30

Annual report 2014

Nitta Gelatin

Consolidated Statements of Comprehensive Income
Nitta Gelatin Inc. and Consolidated Subsidiaries
Years ended March 31, 2014 and 2013

Millions of yen

Income before minority interests

Thousands of U.S.
dollars (Note 1)
2014

2014

2013

¥  651¥1,512$ 6,327

Other comprehensive income (Note 19):
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Pension liability adjustment of foreign subsidiaries
Share of other comprehensive income of associates
accounted for using equity method
Total other comprehensive income
Comprehensive income

123
(30)
388
(11)

83
17
600
(395)

1,195
(291)
3,771
(106)

105
575
¥1,22795
401¥1,913

1,020
5,589$11,926

Comprehensive income attributable to:
Owners of the parent
Minority interests¥1,2242¥1,918(4)$11,89719

See notes to consolidated financial statements.

31

Nitta Gelatin

Annual report 2014

Consolidated Statements of Changes in Net Assets
Nitta Gelatin Inc. and Consolidated Subsidiaries
Years ended March 31, 2014 and 2013

Capital stock

Millions of yen
Shareholders’ equity
CapitalRetained
Treasury
surplusearnings
stock

Total

Balance at April 1, 2012
Cumulative effect of changes in accounting policies
Balance at April 1, 2012 after reflecting changes inaccounting policies
Issuance of new shares
Dividends from surplus
Net income
Net changes of items other than shareholders’ equity¥1,577¥1,398¥6,889¥(0) ¥ 9,865
–

1,577

1,398

6,889

(0)

Balance at March 31, 2013
Issuance of new shares
Dividends from surplus
Net income
Net changes of items other than shareholders’ equity
Balance at March 31, 2014

¥1,577
1,567

(220)
1,525
¥1,3981,567¥8,194(236)
665¥3,144¥2,966¥8,623

9,865
–
(220)
1,525
–

¥(0) ¥11,170
3,135
(236)
665
–
¥(0) ¥14,734

Millions of yen
Accumulated other comprehensive income
Valuationdifference
Deferredon available- gains orfor-salelosses on
securities
hedgesBalance at April 1, 2012
Cumulative effect of changes
in accounting policies
Balance at April 1, 2012
after reflecting changes inaccounting policies
Issuance of new shares
Dividends from surplus
Net income
Net changes of items otherthan shareholders’ equity
Balance at March 31, 2013
Issuance of new shares
Dividends from surplus
Net income
Net changes of items otherthan shareholders’ equity
Balance at March 31, 2014
See notes to consolidated financial statements.

32

¥416

¥    6

Foreigncurrencytranslation
adjustment¥(1,350)

Accumulated Pension liability
adjustments
adjustment
for retirementof foreign
benefitsubsidiaries¥      –Total¥  (903) ¥(1,832)

Minority
interests

Total net
assets¥ 74¥ 8,108

(153)

(153)

(153)

(1,057)(1,986)

74

7,954
–
(220)
1,525
465
¥ 9,724
3,135
(236)
665

416

6

(1,350)

–

83
¥499

21
¥  27

683
¥  (667)–¥      –

(395)393
¥(1,452) ¥(1,592)

72
¥147

122
¥622

(32)
480
¥ (5) ¥  (187)(1,528)¥(1,528)1,452¥       –

(3)491¥144 ¥13,781

494¥(1,097)

Annual report 2014

Nitta Gelatin

Thousands of U.S. dollars (Note 1)
Shareholders’ equity
CapitalRetained
Treasury
surplusearnings
stock

Capital stock

Balance at March 31, 2013
Issuance of new shares
Dividends from surplus
Net income
Net changes of items other than shareholders’ equity
Balance at March 31, 2014$15,328
15,231$13,588
15,231$79,646

$(0)

$(0)

Minority
interests

Total net
assets(2,293)
6,463$30,559$28,829$83,816

Total$108,573
30,472(2,293)
6,463–$143,215

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income
Valuationdifference
Deferredon available- gains orfor-salelosses on
securities
hedgesBalance at
March 31, 2013
Issuance of new shares
Dividends from surplus
Net income
Net changes of items
other thanshareholders’ equity
Balance at
March 31, 2014

Foreigncurrencytranslation
adjustment

Accumulated Pension liability
adjustments
adjustment
for retirementof foreign
benefitsubsidiaries$4,850$   262

1,185

(311)

$6,045$ (48) $(1,817) $(14,852)$  (6,483) $       –4,665(14,852)

Total$(14,113) $(15,474) $1,428 $ 94,517
30,472(2,293)
6,463

14,113

4,801

(29)

4,772

$        – $(10,662) $1,399 $133,952

See notes to consolidated financial statements.

33

Nitta Gelatin

Annual report 2014

Consolidated Statements of Cash Flows
Nitta Gelatin Inc. and Consolidated Subsidiaries
Years ended March 31, 2014 and 2013

Millions of yen

Operating activities:
Income before income taxes and minority interests
Depreciation and amortization
Increase (decrease) in provision for retirement benefits
Increase (decrease) in provision for directors’
retirement benefits
Increase (decrease) in provision for bonuses
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in liability for retirement benefits
Interest and dividends income
Interest expenses
Foreign exchange losses (gains)
Equity in earnings of affiliates
Gain on sales of property, plant and equipment
Loss on retirement of noncurrent assets
Loss on valuation of investment securities
Loss on valuation of golf club membership
Loss on sales of golf club membership
Decrease (increase) in notes and accounts receivable
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable
Increase (decrease) in accrued consumption taxes
Other, net
SubtotalInterest and dividends income received
Interest expenses paid
Income taxes paid
Net cash provided by operating activities
Investing activities:
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Purchase of investment securities
Purchase of stocks of affiliates
Proceeds from cancellation of insurance funds
Purchase of insurance funds
Other, net
Net cash used in investing activities
See notes to consolidated financial statements.

34

Thousands of U.S.
dollars (Note 1)
2014

2014

2013

¥  1,070
914–¥  1,915
825(81)$  10,400
8,884
–

1
(46)
(2)
(27)
(24)
133
(35)
(97)
–
29
–
104
–
(2,147)
(624)
324
(52)
88
(391)
134
(134)
(301)
(692)

1
(21)
1
–
(19)
147
(71)
(262)
(11)
58
12
–
4
897
(650)
40
(66)
13
2,732
153
(148)
(686)
2,050

9
(447)
(19)
(262)
(233)
1,292
(340)
(942)
–
281
–
1,010
–
(20,868)(6,065)
3,149
(505)
855
(3,800)1,302(1,302)(2,925)(6,726)(20)
20(2,949)
–
(12)
(6)
(142)
15
(4)
(5)
¥(3,105)(20)
20(1,193)
14
(40)
(38)
(302)
29
(4)
(21)
¥(1,557)(194)
194(28,664)
–
(116)
(58)
(1,380)
145
(38)
(48)
$(30,180)

Annual report 2014

Nitta Gelatin

Millions of yen

Financing activities:
Net increase (decrease) in short-term loans payable
Proceeds from long-term debt
Repayment of long-term debt
Redemption of bonds
Proceeds from issuance of common stock
Proceeds from stock issuance to minority shareholders
Proceeds from sale and leaseback transaction
Repayments of lease obligations
Cash dividends paid
Cash dividends paid to minority shareholders
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period (Note 18)

2014

2013

¥   (91)
3,222(2,165)
(200)
3,135
–
432
(216)
(236)
(5)
3,875
70
147
2,258
¥  2,406¥     84
2,124
(2,103)
(330)
–
85
132
(140)
(220)
(8)
(376)
63
180
2,078
¥  2,258

Thousands of U.S.
dollars (Note 1)2014$   (884)
31,318(21,043)(1,944)30,472–
4,199(2,099)(2,293)(48)
37,665680
1,428
21,947$  23,386

See notes to consolidated financial statements.

35

Nitta Gelatin

Annual report 2014

Notes to Consolidated Financial Statements
Nitta Gelatin Inc. and Consolidated Subsidiaries

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of Nitta Gelatin Inc. (the “Company”) and its consolidated subsidiaries(together, the “Group”) have been prepared in accordance with the provisions set forth in the Financial Instruments andExchange Act of Japan and its related accounting regulations and in conformity with accounting principles generally acceptedin Japan which are different in certain respects as to application and disclosure requirements of International Financial
Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to theconsolidated financial statements issued domestically in order to present them in a form which is more familiar to readers
outside Japan. In addition, certain reclassifications have been made in the 2013 financial statements to conform to the­classifications used in 2014.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company isincorporated and operates. As permitted by the regulations under the Financial Instruments and Exchange Act of Japan,
amounts of less than one million yen have been omitted. As a result, the totals shown in the accompanying consolidated
financial statements in yen do not necessarily agree with the sums of the individual amounts.
The U.S. dollar amounts shown in the accompanying consolidated financial statements and notes thereto were translated
from the presented Japanese yen amounts into U.S. dollar amounts at the rate of ¥102.88 = U.S. $1, the approximate rateof exchange at March 31, 2014, and were then rounded down to the nearest thousand. As a result, the totals shown in theaccompanying consolidated financial statements in U.S. dollar do not necessarily agree with the sums of the individual
amounts. This translation of Japanese yen amounts into U.S. dollar amounts is included solely for convenience of readers
outside Japan. Such translation should not be construed as a representation that Japanese yen could be converted into U.S.
dollars at that or any other rate.

2. Significant Accounting Policies(1) Principles of consolidation and accounting for investments in unconsolidated subsidiaries and affiliates
The consolidated financial statements as of and for the year ended March 31, 2014 include the accounts of the Company
and its 14 significant subsidiaries (14 significant subsidiaries in 2013). The fiscal year-end of three consolidated subsidiary(December 31) is different than the consolidated fiscal year-end (March 31), and necessary adjustments are made for any
significant transactions between its fiscal year-end and the consolidated fiscal year-end.
Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise
control over operations are consolidated, and those companies over which the Group has the ability to exercise significant
influence are accounted for using the equity method.
For the year ended March 31, 2014 three affiliates (three affiliates in 2013) are accounted for using the equity method.
Investments in companies accounted for using the equity method whose fiscal year-ends are different than the consolidated
fiscal year-end are accounted for on the basis of the companies’ respective fiscal year-end. Investments in one unconsolidated subsidiary and two affiliates are excluded from the application of the equity method and stated at cost because theGroup’s share of their net income and retained earnings have slight effects on the accompanying consolidated financial
statements and are considered insignificant overall.

(2) Foreign currency translation
Receivables and payables denominated in foreign currencies are translated into yen at the exchange rates as of the consolidated balance sheet date, and differences arising from the translation are included in the consolidated statements of income.
The asset and liability accounts of the foreign consolidated subsidiaries are translated into yen at the exchange rates asof the consolidated balance sheet date, and revenue and expense accounts are translated at the average rate during theyear. Differences arising from the translation are presented in foreign currency translation adjustment and minority interests
in net assets.

(3) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, cash in banks which can be withdrawn at any time and short-term
investments with a maturity of three months or less when purchased which are readily convertible into cash and are exposed
to insignificant risk of changes in value.

36Annual report 2014

Nitta Gelatin(4) Investment securities
In general, securities are classified into three categories: trading, held-to-maturity or available-for-sale securities. Securities
held by the Group are all classified as available-for-sale securities. Available-for-sale securities with a determinable market
value are stated at fair value, with any changes in unrealized holding gain or loss, net of the applicable income taxes,
included directly in net assets. Cost of securities sold is determined by the moving-average method. Available-for-sale­securities without a determinable market value are stated at cost determined by the moving-average method.

(5) Inventories
Finished goods are mainly stated at the lower of cost determined by the gross average method or net selling value. Merchandise, semi-finished goods, work in process, raw materials and supplies are mainly stated at the lower of cost determined by
the moving-average method or net selling value.

(6) Property, plant and equipment and depreciation (excluding lease assets)
Depreciation of property, plant and equipment held by the Company and its domestic consolidated subsidiaries is computed by
the declining-balance method, except for buildings on which depreciation is computed by the straight-line method. Depreciationof property, plant and equipment held by foreign consolidated subsidiaries is computed mainly by the straight-line method.
The useful lives of property, plant and equipment are summarized as follows:
Buildings and structures:
7 to 50 years
Machinery, equipment and vehicles: 4 to 10 years(7) Intangible assets and amortization (excluding lease assets)
Intangible assets are amortized by the straight-line method. Internal use software is amortized by the straight-line method
over the estimated useful lives of five years.

(8) Lease assets
Lease assets are depreciated by the straight-line method over the lease term with no residual value (residual value guarantee amount if it is agreed).
In addition, the Group accounts for the finance lease transactions that commenced on or before March 31, 2008 and do
not transfer ownership of the leased assets to the lessee as operating lease transactions.

(9) Allowance for doubtful accounts
The Company and its domestic consolidated subsidiaries provide allowance for doubtful accounts mainly to cover a loss from
uncollectible receivables at an amount determined based on the historical experience of bad debt with respect to ordinary
receivables and an estimated uncollectible amount based on individual collectibility of specific doubtful receivables such as
doubtful accounts receivable.
The foreign consolidated subsidiaries provide allowance for doubtful accounts mainly at an estimated uncollectible
amount for specific doubtful receivables.

(10) Provision for bonuses
The Company and its consolidated subsidiaries record provision for bonuses at an amount estimated to cover the bonus
payments for services rendered by employees during each fiscal year.

(11) Provision for directors’ retirement benefits
Certain domestic consolidated subsidiaries record provision for directors’ retirement benefits to cover future payments at an
amount required according to the internal rules as of the balance sheet date.

(12) Accounting method for retirement benefits
The retirement benefit obligation is calculating by allocating the estimated retirement benefits to period of service by thestraight-line method.
Prior service benefits and costs are recognized as income or expense by the straight-line method over a certain period(mainly 10 years) which is within the average remaining years of service of the employees at the time they arise.
Actuarial gains and losses are amortized by the straight-line method over a certain period (mainly 10 years), which iswithin the average remaining years of service of the employees at the time when the gains or losses arise, from the fiscal
year following the fiscal year in which it arises.

37

Nitta Gelatin

Annual report 2014(13) Hedge accounting
In principle, deferral hedge accounting is adopted for hedge transactions. Interest rate swaps are accounted for by the exceptional treatment if the interest rate swaps meet certain criteria to adopt the treatment.
The following summarizes hedging derivative instruments used by the Group and items hedged:
2014
Hedged items
Hedging instruments
Foreign exchange forward contracts	Payables denominated in foreign currencies in connection with imports of raw
materials and forecasted transactions denominated in foreign currencies
Interest rate swaps
Loans and debt
2013
Hedging instruments
Hedged items
Foreign exchange forward contracts	Payables denominated in foreign currencies in connection with imports of raw
materials and forecasted transactions denominated in foreign currencies
Loans and debt
Interest rate swaps
As a policy, the Group utilizes derivative transactions within a certain range to hedge market fluctuations in connection withhedged items in accordance with internal management rules defining authorization policies and transaction limits. The Groupassesses the hedge effectiveness by comparing the accumulated gains or losses on the hedging instruments and the related
hedged items during the period from the commencement of the hedging transactions to the assessment of effectiveness. Forinterest rate swaps accounted for by the exceptional treatment, however, the assessment of effectiveness is not performed.

(14) Going public expenses
Going public expenses are charged to income as incurred.

(15) Income taxes
Income taxes are computed based on taxable income of each group company.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in whichthose temporary differences are expected to be recovered or settled. The effect of deferred tax assets and liabilities due tothe change in tax rate is recognized in the statement of income for the period including the enacted date.

(16) Accounting Change(Application of International Accounting Standards (IAS) 19 Employee Benefits)
Certain overseas affiliate companies started applying IAS 19 Employee Benefits (June 16, 2011) from the year ended March
31, 2014. This change in accounting policy was also applied retroactively to restate results for the fiscal year ended March
31, 2013 in the consolidated financial statements.
As a result, net income for the year ended March 31, 2013 decreased ¥40 million after restatement. Moreover, net
assets as of April 1, 2012 were restated ¥153 million lower to mainly reflect the accumulative impact of this accounting
policy change.
Also net asset per share at the year ended March 31, 2013 decreased ¥15.43 and net income per share for the year
ended March 31, 2013 decreased ¥2.58.
(Application of Accounting Standard for Retirement Benefits, etc.)
The Company has applied the “Accounting Standard for Retirement Benefits” (Accounting Standards Board of Japan (“ASBJ”)
Statement No. 26, issued on May 17, 2012) and “Guidance on Accounting Standard for Retirement Benefits” (ASBJ Guidance
No. 25, issued on May 17, 2012) from the fiscal year ended March 31, 2014 (excluding, however, the stipulations of the
body text of Article 35 of the Retirement Benefit Accounting Standard and the body text of Article 67 of the Retirement­Benefit Accounting Guidance).
Under this accounting standard, the Company has adopted the method of recording unrecognized actuarial gains andlosses and unrecognized prior service costs after tax as a liability for retirement benefits. The Company has also recorded
the amounts of retirement benefit obligations minus pension assets as a liability for retirement benefits.

38

Annual report 2014

Nitta Gelatin

In accordance with the transitional treatment stipulated by Article 37 of the Retirement Benefit Accounting Standard, as ofMarch 31, 2014, the amounts of the impacts resulting from the application of Retirement Benefit Accounting Standard, etc.,
were added to, or deducted from, Accumulated adjustments for retirement benefit in accumulated other comprehensive income.
As a result, the Company recorded liability for retirement benefits of ¥2,524 million ($24,533 thousand) as of March 31,
2014, and accumulated other comprehensive income was reduced by ¥75 million ($729 thousand), as of the same date.
Also net asset per share as of March 31, 2013 decreased ¥4.12 ($0.04).
Following the application of the Retirement Benefit Accounting Standard, etc., the Company has included pension liability
adjustment of foreign subsidiaries in Accumulated adjustments for retirement benefit on the consolidated balance sheets
and the consolidated statements of changes in net assets from March 31, 2014. Previously, the Company had shownpension liability adjustment of foreign subsidiaries as a separate account on the consolidated balance sheets and theconsolidated statements of changes in net assets.

(17) New accounting standards(Application of Accounting Standard for Retirement Benefits, etc.)“Accounting Standard for Retirement Benefit” and “Guidance on Accounting Standard for Retirement Benefit”
1. Outline
These accounting standards were revised with regard to the accounting method for unrecognized actuarial gains and losses
and unrecognized prior service costs, the calculation method of retirement benefit obligations and service costs, andenhanced disclosures.
2. Scheduled adoption date
The revised method for calculating retirement benefit obligations and service costs is scheduled for adoption from April 1, 2014.
In accordance with the transitional treatment provided for these revised accounting standards, past consolidated financial statements were not restated.
3. Impact of applying the accounting standard and guidance
The Company is currently evaluating the impact of applying the accounting standard and guidance on financial statements
when the accompanying consolidated financial statements were prepared.
(Application of Accounting Standard for Business Combinations, etc.)
Revised Accounting Standard for Business Combination (ASBJ Statement No. 21, issued on September 13, 2013) and otherrelated revised standards
1. Outline
The main revisions are as follows.
(1) Gain or loss arising from a change in the parent company’s equity in subsidiaries in cases where control is retained wasrevised to a method recognizing them as capital surplus. “Minority interests” in financial statements prior to the accounting standard revision will be restated as “non-controlling interests” upon adoption of the revision.
(2) Acquisition costs in connection with business combinations were revised to a method expensing them in the consolidated
fiscal year in which they arise.
(3) In the event that the accounting of a business combination is recognized provisionally in the fiscal year following the combination, when the consolidated financial statements for that year are disclosed together with the statements from the previous fiscal year in which the combination took place, the disclosure method was revised to restate the distribution of
acquisition cost due to the provisional recognition in the statements of the fiscal year in which the combination took place.
(4) “Income (loss) before minority interest” in financial statements prior to the accounting standard revision will be restatedas “net income” upon adoption of this revision. In conjunction, “net income” in financial statements prior to the accounting standard revision will be restated as “net income attributable to owners of the parent” upon adoption of the revision.
2. Scheduled adoption dateThis revised accounting standard is scheduled for adoption from April 1, 2015.
3. Impact of applying the accounting standard
The impact of applying the revised accounting standard had not been ascertained at the time when the accompanying consolidated financial statements were prepared.

39

Nitta Gelatin

Annual report 2014

3. Notes Receivable and Notes Payable Maturing at Fiscal Year-End
Notes receivable maturing at the fiscal year-end are settled on the date of clearance. As March 31, 2013 was a bank holiday,
the following notes receivable were included in the balances as of March 31, 2014 and 2013.
Millions of yen
2014

2013

¥–

Notes receivable¥106

4. Inventories
The balances of inventories as of March 31, 2014 and 2013 consisted of the following:Thousands of
U.S. dollars
2014

Millions of yen

Merchandise and finished goods
Work in process
Raw materials and supplies
Inventories, total

2014

2013

¥4,732
1,089
1,820¥7,642¥4,404918
1,508¥6,831$45,995
10,585
17,690$74,280

The inventory write-down of ¥(28) million ($(272) thousand) and ¥39 million were recorded in cost of sales for the years
ended March 31, 2014 and 2013, respectively, due to decline in profitability.

5. Investment Securities
Information of available-for-securities as of March 31, 2014 and 2013 was as follows:
Millions of yen

Securities whose carrying value
exceeds their acquisition cost:
Equity securities
Securities whose carrying value does
not exceed their acquisition cost:
Equity securities
Total

Carrying value

2014
Acquisition
cost

Difference¥1,194¥227

5¥1,1996¥234

Carrying value

2013
Acquisition
cost

Difference¥966¥  977

¥201

¥775

(1)
¥965

29
¥1,006

30
¥232

(1)
¥774

Thousands of U.S. dollars
2014
Acquisition
Carrying value
cost
Difference

Securities whose carrying value
exceeds their acquisition cost:
Equity securities
Securities whose carrying value does
not exceed their acquisition cost:
Equity securities
Total$11,605$2,206$9,38948$11,65458$2,274(9)$9,379Unlisted equity securities of ¥18 million ($174 thousand) as of March 31, 2014 and 2013 were not included in theabove tables as there were no market prices available and it is extremely difficult to determine their fair value.
Investments in unconsolidated subsidiaries and affiliates of ¥1,857 million ($18,050 thousand) and ¥1,743 million were
included in investment securities as of March 31, 2014 and 2013, respectively.

40

Annual report 2014

Nitta Gelatin

Impairment losses on available-for-sale securities with fair market value are recognized if the available fair market value
declined by 50% or more from the acquisition cost or when the fair market value declined of 30% to 50% and the decline wasconsidered not recoverable.
The impairment losses on available-for-sale securities for the year ended March 31, 2013 were ¥12 million.

6. Short-Term Loans Payable, Long-Term Debt, Bonds and Lease Obligations
Millions of yen

Current portion of long-term debt
Lease obligations (current portion)
Long-term debt excluding
current portion
Lease obligations excluding
current portion
No. 16 unsecured corporate bonds
Less: Current portion

Millions of yen
2013

Thousands of
U.S. dollars
2014

Amount2014
Weighted
averageinterest rate (%)

DueAmountAmount¥  1,932
215

1.536%–––¥  2,068154$  18,779
2,089

4,415

1.834

2015 to 2021

3,142

42,914495–
7,060(2,148)¥  4,911–
1.82

2015 to 2022
Aug. 2013

319
200
5,884
(2,422)¥  3,461

4,811–
68,623(20,878)$  47,735

The weighted average interest rate of short-term loans payable at March 31, 2014 was 2.460%. Average interest rate onlease obligations is not provided because the balance of lease obligations includes interest equivalent that is contained in
the total lease payments.
The maturities of bonds, long-term debt and lease obligations outstanding on or after April 1, 2014 were as follows:Year ending March 31,

Millions of yen
Long-term debt
Lease obligations

2015
2016
2017
2018
2019 and thereafter
Total¥1,932
1,520
1,220
741
933
¥6,348

¥215
192
144
112
46
¥711

Thousands of U.S. dollars
Long-term debt
Lease obligations$18,779
14,774
11,8587,202
9,068$61,702$2,089
1,866
1,399
1,088
447
$6,910The following assets were pledged as collateral as of March 31, 2014 and 2013.
Millions of yen

Buildings and structures
Machinery, equipment and vehicles
Land
Investment securities
Total
Assets pledged as factory foundation mortgage includedin the above assets:
Buildings and structures
Machinery, equipment and vehicles
Land
Total

Thousands of
U.S. dollars
2014

2014

2013

¥1,20381
191
213¥1,689¥1,199122191
373¥1,886$11,693
787
1,856
2,070
$16,417¥1,20381
191¥1,475¥1,199122
191¥1,513$11,693787
1,856$14,337

41

Nitta Gelatin

Annual report 2014

The obligations collateralized by the above assets as of March 31, 2014 and 2013 were as follows:
Millions of yen

Long-term debt
Factory foundation mortgage included in the above liabilities:
Long-term debt

Thousands of
U.S. dollars
2014

2014

2013

¥3,214¥3,733$31,240¥2,920¥3,277$28,382

For the purpose of obtaining working funds effectively, the Company and one consolidated subsidiary have entered into
overdraft agreements and loan commitment agreements amounting to ¥4,950 million ($48,114 thousand) in total with fivebanks at March 31, 2014 and 2013. There was no borrowing outstanding under these agreements as of March 31, 2014
and 2013.

7. Income Taxes
Income taxes applicable to the Company and its domestic consolidated subsidiaries comprise corporation, inhabitants andenterprise taxes. The statutory tax rate applicable to the Company was approximately 38.01% for the years ended March 31,
2014 and 2013. For the years ended March 31, 2013, reconciliations between the statutory income tax rate and the effective income tax rate as a percentage of income are as follows:
2013

Statutory tax rate
Adjustments for:Non-deductible expenses for income tax purposes
Non-taxable income
Inhabitants taxes—per capita levy
Tax credit for research and development, etc.
Unrecognized tax benefits of net operating losses of subsidiaries
Difference in tax rates between the Company and subsidiaries
Equity in earnings of affiliates
Effect of change in accounting policy applied retroactively
Other
Effective tax rates

38.01%
0.77(0.38)
0.24(2.39)(9.99)(1.46)(5.21)
1.38
0.08
21.06%For the years ended March 31, 2014, reconciliations between the statutory income tax rate and the effective income tax
rate as a percentage of income are omitted since the difference between the statutory income tax rate and the effective
income tax rate is less than 5% of the statutory income tax rate.

42

Annual report 2014

Nitta Gelatin

The significant components of deferred tax assets and liabilities at March 31, 2014 and 2013 were as follows:
Millions of yen

Deferred tax assets:
Loss on valuation of inventories
Unrealized profit
Provision for bonuses
Accrued enterprise tax
Loss on valuation of golf club membership
Loss on valuation of investment securities
Provision for retirement benefits
Liability for retirement benefits
Provision for directors’ retirement benefits
Interest expenses
Impairment loss
Net loss carried forward
Other
Subtotal
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation
Valuation difference on available-for-sale securities
Provision for retirement benefits
Asset for retirement benefits
Other
Total deferred tax liabilities
Net deferred tax assets

Thousands of
U.S. dollars
2014

2014

2013

¥   47
38
72
15
1
249
–
851
29
23
29
752
50
2,162
(996)
1,165

¥   48
19
70
12
1
250
843
–
28
9
29
853
47
2,215
(959)
1,256

$   456
369
699
145
9
2,420
–
8,271
281
223
281
7,309
486
21,014(9,681)
11,323

(235)

(245)

(2,284)

(342)
–
(34)
–
(611)
¥  553

(274)
(64)
–
(15)
(601)
¥  655(3,324)–(330)–(5,938)$ 5,375

Following the promulgation on March 31, 2014 of the “Act for Partial Revision of the Income Tax Act etc.,” the Special
Reconstruction Corporation Tax will not be imposed for the fiscal years beginning on or after April 1, 2014.
In line with these changes the effective statutory tax rate used to measure deferred tax assets and liabilities as of March
31, 2014 was changed from approximately 38.0% to 35.6% for temporary differences expected to be utilized in the fiscal
years beginning on or after April 1, 2014.
As a result, total deferred tax assets (excluding the amount of deferred tax liabilities) as of March 31, 2014 decreased by¥7 million ($68 thousand), and income taxes for the fiscal year ended March 31, 2014 increased by ¥7 million ($68 thousand).

8. Retirement Benefit Plans(For the year ended March 31, 2014)
The Company and certain consolidated subsidiaries have defined benefit plans and defined contribution plans for­employees’ retirement benefits. Defined benefit plans are composed of lump-sum payment plans and defined benefit­corporate pension plans.
The lump-sum payment plans which certain consolidated subsidiaries have are calculated using the simplified accounting method.

43

Nitta Gelatin

Annual report 2014

(1) Defined benefit plans including plan applied simplified method(a) Retirement benefit obligations

Retirement benefit obligations:
Balance at beginning of year
Service cost
Interest cost
Actuarial gains and losses
Benefits paid
Foreign currency translation adjustment
Balance at end of year

Millions of yen
2014

Thousands of
U.S. dollars
2014¥7,632
179
259
372
(357)
293
¥8,379$74,183
1,739
2,517
3,615
(3,470)2,847$81,444

Millions of yen
2014

Thousands of
U.S. dollars
2014¥5,458
253
(23)
255
172
2
(249)
238
¥6,107$53,052
2,459
(223)
2,478
1,671
19
(2,420)2,313$59,360(b) Plan assets

Plan assets:
Balance at beginning of year
Expected return on plan assets
Administrative fees
Actuarial gains and losses
Contribution paid by the employer
Contribution paid by the employees
Benefits paid
Foreign currency translation adjustment
Balance at end of year(c) Reconciliation from retirement benefit obligations and assets to liability (assets) for retirement benefits

Funded retirement benefit obligations
Plan assets
Unfunded retirement benefit obligations
Total Net liability (asset) for retirement benefits
Liability for retirement benefits
Asset for retirement benefits
Total Net liability (asset) for retirement benefits

Millions of yen
2014

Thousands of
U.S. dollars
2014¥  6,527(6,107)419
1,851¥  2,271¥  2,524(253)¥  2,271$  63,442(59,360)
4,072
17,991$  22,074$  24,533(2,459)$  22,074

Millions of yen
2014

Thousands of
U.S. dollars
2014¥  179
259
(253)
23
75
(13)
¥  270$  1,739
2,517(2,459)
223
729
(126)
$  2,624(d) Retirement benefit costs

Service cost
Interest cost
Expected return on plan assets
Administrative fees
Amortization of actuarial gains and losses
Amortization of prior service benefit and cost
Total Retirement benefit costs

44

Annual report 2014

Nitta Gelatin(e) Adjustments for retirement benefit
Millions of yen
2014

Thousands of
U.S. dollars
2014

¥18
¥18

$174
$174

Millions of yen
2014

Thousands of
U.S. dollars
2014

Unrecognized prior service costs¥     55$     534

Unrecognized actuarial gains and losses(1,673)(16,261)

Total¥(1,617)$(15,717)

Adjustments for retirement benefit:
Actuarial gains and losses
Total(f) Accumulated adjustments for retirement benefit

Accumulated adjustments for retirement benefit:(g) Plan assets
Plan assets comprise:
2014

54%
37
4
5
100%

Bonds
Equity securities
Cash and deposits
Other
Total

Current and target assets allocations, current and expected returns on various categories of plan assets have been
considered in determining the long-term expected rate of return.
(h) Actuarial assumptions
2014

Discount rate:
The Company and domestic consolidated subsidiaries
Foreign consolidated subsidiaries
Long-term expected rate of return:
The Company and domestic consolidated subsidiaries
Foreign consolidated subsidiaries

1.1%
3.3%–4.5%
2.1%
4.3%–6.5%(2) Defined contribution plans
Certain consolidated subsidiaries that have defined contribution plans are expected to contribute ¥71 million ($690 thousand) to the defined contribution plans for the year ended March 31, 2014.
(For the year ended March 31, 2013)
The Company and certain consolidated subsidiaries have defined benefit plans and defined contribution plans for employees’
retirement benefits. Defined benefit plans are lump-sum payment plans and defined benefit corporate pension plans.

45

Nitta Gelatin

Annual report 2014

The following table sets forth the funded and accrued status of the plans and the amounts recognized in the consolidated balance sheets as of March 31, 2013 for the Company’s and the consolidated subsidiaries’ defined benefit plans.
Millions of yen
2013

Retirement benefit obligation¥(7,632)

Plan assets at fair value

5,458

Unfunded retirement benefit obligation(2,173)

Unrecognized actuarial loss

(6)

Unrecognized prior service benefit and cost(69)

Net retirement benefit obligation(2,249)Prepaid pension cost

27

Provision for retirement benefits¥(2,276)

Note: Certain consolidated subsidiaries apply the simplified method in calculating retirement benefit obligation.

The components of retirement benefit expenses for the years ended March 31, 2013 were outlined as follows:
Millions of yen
2013

Service cost (Note 1)¥   166

Interest cost

243

Administrative fees

6

Expected return on plan assets(227)

Amortization of actuarial loss

77

Amortization of prior service benefit and cost

(24)

Other (Note 2)

52

Retirement benefit expenses¥   295

Note 1: Retirement benefit expenses of consolidated subsidiaries which apply the simplified method are included in “Service cost.”
Note 2: “Other” includes contributions to the defined contribution plans.

Both discount rates and expected rates of return on plan assets used in calculation of retirement benefit obligations forthe years ended March 31, 2013 were mainly 2.10%.

9. Leases(1) Finance leases (lessee)
The Company leases production facilities (machinery, equipment and vehicles) in connection with collagen material businessas a lessee through finance lease transactions that do not transfer ownership of the leased property to the lessee. Financeleases that do not transfer ownership of the leased property to the lessee and commenced on or before March 31, 2008 are
accounted for as operating leases.
The following pro forma amounts represent the acquisition cost, accumulated depreciation and net book value of theleased properties as of March 31, 2013, which would be reflected in the consolidated financial statements if the financelease accounting was applied to the finance leases currently accounted for as operating leases.

Machinery, equipment and vehicles
Total

46

Acquisition cost

Millions of yen
2013
Accumulated
depreciation

Net book value

¥240
¥240

¥197
¥197

¥42
¥42

Annual report 2014

Nitta Gelatin

Lease payments relating to finance leases accounted for as operating leases and the pro forma depreciation expenses
and interest expenses relating to assets leased under finance leases accounted for as operating leases for the years ended
March 31, 2014 and 2013 were as follows:
Millions of yen
2014

Lease payments
Depreciation expenses
Interest expenses

¥20
17
0

2013

¥66
56
4

Thousands of
U.S. dollars
2014

$194
165
0

The pro forma depreciation expenses are computed by the straight-line method over the lease term with no residual value(residual value guarantee amount if it is agreed), and the pro forma interest expenses are computed by the interest method.
There were no impairment losses allocated to lease assets for the years ended March 31, 2014 and 2013.

(2) Operating Leases
Future minimum lease payments subsequent to March 31, 2014 for non-cancelable operating leases were as follows:Year ending March 31,

20152016 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars

¥313
153
¥467

$3,042
1,487$4,539

10. Financial Instruments(1) Overview(a) Policy for financial instruments
In consideration of plans for capital investment, the Group raises necessary funds mainly through bank borrowings. The
Group invests temporary surplus funds mainly in highly liquid financial assets and raises short-term operating capitalthrough bank borrowings. The Group uses derivatives to avoid after-mentioned risks and does not enter into derivatives
for speculative purposes.
(b) Descriptions of financial instruments and related risk
Trade receivables such as notes and accounts receivable are exposed to customer credit risk. Although trade receivables
denominated in foreign currencies arising from foreign operations are exposed to foreign currency risk, the balances ofreceivables are always less than payables denominated in the same currencies.
Investment securities are mainly composed of equity securities of companies with business relationship and are
exposed to market risk. The Company also provides long-term loans to companies with business relationship.
Substantially all trade payables such as notes and accounts payable have payment due dates within five months.
Although certain payables denominated in foreign currencies are exposed to foreign currency risk, such risk is hedged byforeign exchange forward contracts except for payables less than receivables denominated in the same currencies.
Long-term debt, bonds and lease obligations under finance leases are principally for the purpose of making capital
investments and due up to seven years from the balance sheet date. Although certain of them are exposed to interest
rate fluctuation risk, such risk is hedged by derivatives (interest rate swaps).
As for derivatives, the Group has entered into foreign exchange forward contracts to hedge the foreign currency risk
arising from trade payables denominated in foreign currencies and interest rate swap transactions to hedge fluctuation
risk deriving from interest payments of long-term debt.
Information regarding the method of hedge accounting, hedging instruments and hedged items, hedging policy andassessment of hedge effectiveness is disclosed in Note 2. “Significant Accounting Policies (13) Hedge accounting.”

47

Nitta Gelatin

Annual report 2014(c) Risk management for financial instruments
Credit risk management (risk of default by customers or counterparties)
In accordance with the credit management rules of the Company, for trade receivables and long-term loans receivable,sales departments of each division monitor credit worthiness of their main customers periodically and manage due dates
and outstanding balances by customer. In addition, the Company is making efforts to identify uncollectibility in the earlier
stage and mitigate risks of bad debts from customers having financial difficulties. Consolidated subsidiaries similarly
manage such risks in accordance with the Company’s credit management rules.
The Company believes that the credit risk of derivatives is insignificant as it has entered into derivative transactions
only with financial institutions with a sound credit rating.
Market risk management (risks of fluctuations in foreign exchange rates, interest rates and others)
For trade payables denominated in foreign currencies, the foreign currency risk of the Company identified by currency ona monthly basis is hedged by foreign exchange forward contracts. In addition, in order to mitigate the interest rate risk
for interest payments of long-term debt, the Company has entered into interest rate swap transactions.
For investment securities, the Company periodically monitors the fair values and the financial position of the issuers(companies with business relationship) and continuously reviews the holding status taking into account market conditions and relationships with the issuers.
Derivative transactions are conducted and managed by the responsible division with the approval of authorized personnel in accordance with the internal management rules which define the authorization policies and transaction limits.
Consolidated subsidiaries have not entered into derivative transactions.
Management of liquidity risk on funding (risk of default at due dates)
Based on reports from each division, the responsible division of the Company prepares and updates its cash flow plan
on a timely basis and manages liquidity risk by maintaining liquid funds. Consolidated subsidiaries manage their liquidity
risk in a similar manner.
(d) Supplementary explanation of the fair value of financial instruments
The fair value of financial instruments is based on their market price if available. When there is no market price available,
fair value is reasonably calculated. Since various assumptions and factors are reflected in the calculation of fair value,
different assumptions and factors could result in different fair value. In addition, the notional amounts of derivatives inNote 11. “Derivative Transactions” are not indicative of the market risk involved in derivative transactions.

(2) Fair value of financial instruments
Carrying value of financial instruments on the consolidated balance sheets as of March 31, 2014 and 2013, fair value andtheir difference are shown in the following table. Financial instruments whose fair value is extremely difficult to determine are
not included in the following table.

Cash and deposits
Notes and accounts receivable
Investment securities
Total assets
Notes and accounts payable
Other payable
Long-term debt (including its current portion)
Total liabilities
Derivative transactions(*)*) The value of assets and liabilities arising from derivative transactions is shown at net value.

(48

Carrying value

Millions of yen
2014
Fair value¥ 2,426
8,164
1,199¥11,790
4,255
1,747
6,348
¥12,352¥     8

¥ 2,426
8,164
1,199¥11,790
4,255
1,747
6,359
¥12,362¥     8Difference

¥   –
–
–
¥   –
–
–
10
¥10
¥   –

Annual report 2014

Cash and deposits
Notes and accounts receivable
Investment securities
Total assets
Notes and accounts payable
Other payable
Long-term debt (including its current portion)
Total liabilities
Derivative transactions(*)

Nitta Gelatin

Carrying value

Millions of yen
2013
Fair value¥ 2,278
5,839
1,006¥ 9,125¥ 3,736
1,586
5,210¥10,533¥    40¥ 2,278
5,839
1,006¥ 9,125¥ 3,736
1,586
5,231¥10,554¥    40

Difference

¥   –
–
–
¥   –
¥   –
–
21
¥21
¥   –

*) The value of assets and liabilities arising from derivative transactions is shown at net value.

(

Thousands of U.S. dollars

Cash and deposits
Notes and accounts receivable
Investment securities
Total assets
Notes and accounts payable
Other payable
Long-term debt (including its current portion)
Total liabilities
Derivative transactions(*)

Carrying value

2014
Fair value$ 23,580
79,354
11,654$114,599$ 41,358
16,98061,702$120,062$     77

$ 23,580
79,354
11,654$114,599$ 41,358
16,98061,809$120,159$     77

Difference

$   –
–
–
$   –
$   –
–
97
$97
$   –

*) The value of assets and liabilities arising from derivative transactions is shown at net value.

(

Note 1. Methods to calculate the fair value of financial instruments and other matters related to securities andderivative transactions
Assets:Cash and deposits and Notes and accounts receivable
Since these items are settled in a short period of time, their carrying value approximates fair value.
Investment securities
The fair value of equity securities is based on quoted market prices. The information on securities classified by holding
purpose is disclosed in Note 5. “Investment Securities.”
Liabilities:
Notes and accounts payable and Other payable
Since these items are settled in a short period of time, their carrying value approximates fair value.
Long-term debt
The fair value of long-term debt is based upon the present value of the total of principal and interest discounted by theinterest rate to be applied if similar new borrowings were entered into.
Derivative transactions:
The information on derivative transactions is disclosed in Note 11. “Derivative Transactions.”

Note 2. Financial instruments whose fair value is extremely difficult to determine
Millions of yen
2014

Carrying value:
Unlisted equity securities

¥18

2013

¥18

Thousands of
U.S. dollars
2014

$174

These are not included in investment securities in the above table because there was no quoted market price available
and it is extremely difficult to determine the fair value.

49

Nitta Gelatin

Annual report 2014(3) As of March 31, 2014 and 2013, monetary receivables with maturities were deposits of ¥2,422 million ($23,541 thousand) and ¥2,275 million and notes and accounts receivable of ¥8,164 million ($79,354 thousand) and ¥5,839 million,
respectively. These were all due within one year.

11. Derivative Transactions
The hedge accounting has been applied to all derivative transactions held by the Group as of March 31, 2014 and 2013, andtheir fair value information is stated as follows. Fair value is measured based on quotes and prices provided by counterparty
financial institutions.
Currency related:
Millions of yen

Deferral hedge accounting
Foreign exchange forward
contracts
Buy: USD and CAD

Contract ornotional amount2014
Maturing after
one year¥533¥–

Fair value

Contract ornotional amount2013
Maturing after
one year

Fair value

¥248

¥–

¥41

2013
Maturing after
one year

Fair value¥(8)

Thousands of U.S. dollars
2014
Contract or
Maturing after
notional amount
one year
Fair value

Deferral hedge accounting
Foreign exchange forward
contracts
Buy: USD and CAD$5,180$–$(77)

Contract ornotional amount2014
Maturing after
one year

Fair value

Contract ornotional amount¥       –

¥    –¥–¥1,500¥     –

¥(1)

2,050

¥123

(

*)

1,950

¥290

(

Interest related:
Millions of yen

Deferral hedge accounting
Interest rate swaps
Receive/floating andpay/fixed
Exceptional treatment
Interest rate swaps
Receive/floating andpay/fixed*)

Thousands of U.S. dollars
2014
Contract or
Maturing after
notional amount
one year
Fair value

Deferral hedge accounting
Interest rate swaps
Receive/floating andpay/fixed
Exceptional treatment
Interest rate swaps
Receive/floating andpay/fixed$        –$    –$–

19,926

1,195

(

*)

*) Interest rate swaps to which the exceptional treatment is applied are accounted for together with long-term debt designated as a hedged item. Therefore, theirfair value is included in the fair value of long-term debt.

(

50

Annual report 2014

Nitta Gelatin

12. Contingent Liabilities
As of March 31, 2013, the Group was contingently liable for the assignment of receivable with recourse in the amount of¥475 million.

13. Selling, General and Administrative Expenses
The main components of selling, general and administrative expenses for the years ended March 31, 2014 and 2013 wereas follows:
Thousands of
U.S. dollars
2014

Millions of yen

Packing and freightage expenses
Salaries
Bonuses
Provision for bonuses
Retirement benefit costs
Provision for directors’ retirement benefits
Provision of allowance for doubtful accounts
Depreciation
Research and development expenses

2014

2013

¥  822
1,305
205
60
74
1
3
86
814

¥  740
1,138
236
61
81
1
4
78
793

$ 7,989
12,684
1,992
583
719
9
29
835
7,912

For the years ended March 31, 2014 and 2013, research and development expenses included in general and administrative expenses and manufacturing costs were ¥1,004 million ($9,758 thousand) and ¥1,026 million, respectively.

14. Information on Related Party Transactions
Transactions of the Company with affiliates for the year ended March 31, 2014 were as follows:
Name

Paid in capital

Guangdong Baiwei(Thousands of RMB)
Bio Material Co., Ltd. 67,600(Guangdong, China)

Description oftransaction

Principal business

Ownership ratio

Manufactureof collagen
peptidoDirect44.6% Subscription ofcapital stock

Millions of Thousands ofyen
U.S. dollars¥142$1,380Transactions of the Company with affiliates for the year ended March 31, 2013 were as follows:
Name

Reva Proteins Ltd.
(Gujarat, India)

Paid in capital

Principal business

Ownership ratio

Description oftransaction(Thousands of rupees) Manufacture of Direct25.4% Subscription of405,675
osseinIndirect34.6% capital stock

Millions of
yen

¥196

For the years ended March 31, 2014 and 2013, significant affiliates were Nitta Gelatin India Ltd. and Bostik-Nitta Co.,
Ltd., and the condensed financial information prepared by combining the financial statements of these significant affiliates
was as follows:
Millions of yen

Thousands of
U.S. dollars
2014

2014

2013

Total current assets
Total noncurrent assets¥2,9382,111¥3,371
1,599$28,557
20,519Total current liabilities
Total noncurrent liabilities

1,922
262

1,837
142

18,681
2,546

Total net assets

2,864

2,990

27,838Net sales
Income before income taxes
Net income

8,040
327
185

7,849
1,189
747

78,149
3,178
1,798

51

Nitta Gelatin

Annual report 201415. Shareholders’ Equity
The Companies Act of Japan provides that an amount equivalent to 10% of the amount of deduction from surplus as a resultof the payment of dividends shall be recorded as additional paid-in capital (a component of capital surplus) or legal reserve(a component of retained earnings) on the dividend date until the total of additional paid-in capital and legal reserve equals
25% of the capital stock account.
Such distributions can be made at any time by resolution of the shareholders’ meeting or the board of directors if certain
conditions are met.
Changes in total number of shares of capital stock issued for the years ended March 31, 2014 and 2013 were as follows:
As of March 31,

2012

Increase/(decrease)2013

Increase/(decrease)

2014

Issued:Common stock
Total

15,770,074
15,770,074––

15,770,074
15,770,074

2,603,900–

18,373,974
18,373,974

Treasury stock:
Common stock

162

–

162

–

162

For the year ended March 31, 2014, the increase in the number of issued shares of common stock was due to issuanceof new shares by public offering, the payment date of which was July 29, 2013 (2,400,000 shares) and issuance of newshares by third-party allotment, the payment date of which was August 28, 2013 (203,900 shares).

16. Information Related to Consolidated Statements of Changes in Net Assets(1) Dividends paid to shareholders

Resolution

Type of shares

June 26, 2013
CommonAnnual general meetstock
ing of shareholders
November 5, 2013
CommonBoard of directors
stock

Amount(Millions of yen)

2014
Amount(Thousands of
U.S. dollars)

Amount per
share (Yen)Amount per
share(U.S. dollars)¥126$1,224

¥8.00

$0.07

March 31,2013

June 27,
2013

110

1,069

6.00

0.05

September
30, 2013

December 6,
2013

Record date

Effective date

Record date

Effective date2013
Resolution

June 27, 2012
Annual general meeting of shareholders
November 9, 2012
Board of directors

52

Amount(Millions of yen)Amount per
share (Yen)Common
stock

¥126

¥8.00

March 31,2012

June 28,
2012

Common
stock

94

6.00

September
30, 2012

December 7,
2012Type of shares

Annual report 2014

Nitta Gelatin(2) Dividends with a record date during the fiscal year but an effective date subsequent to the fiscal year
2014

Resolution

June 26, 2014
Annual general
meeting ofshareholders

AmountAmount(Thousands ofType of shares (Millions of yen) U.S. dollars)Commonstock¥110$1,069Paid from

Retainedearnings

Amountper share(Yen)

Amountper share(U.S. dollars)

¥6.00

$0.05

Record date

Effective date

March 31, June 27,
2014
2014

2013

Resolution

June 26, 2013
Annual general
meeting ofshareholders

AmountType of shares (Millions of yen)

Commonstock¥126

Paid from

Retainedearnings

Amountper share(Yen)

Record date

Effective date

March 31, June 27,
2013
2013

¥8.00

17. Amounts per Share
Net assets per share is computed based on net assets available for distribution to the shareholders of common stock andthe number of shares of common stock outstanding at the year-end.
Net income per share is computed based on the net income available to shareholders of common stock and weighted
average number of shares of common stock outstanding during the period which was 17,556,927 shares and 15,769,912
shares for the years ended March 31, 2014 and 2013, respectively.
Yen

Net assets per share
Net income per share

2014

2013

¥742.2037.90¥607.31
96.72

U.S. dollars
2014

$7.21
0.36

Diluted net income per share is not disclosed due to the absence of dilutive shares for the years ended March 31, 2014
and 2013.
Certain overseas affiliate companies started applying IAS 19 Employee Benefits (June 16, 2011) from the year ended
March 31, 2014. This change in accounting policy was also applied retroactively to restate results for the fiscal year ended
March 31, 2013 in the consolidated financial statements.

18. Cash Flow Information
Reconciliations between cash and cash equivalents in the consolidated statements of cash flows for the years ended
March 31, 2014 and 2013 and cash and deposits in the consolidated balance sheets as of March 31, 2014 and 2013
were as follows:
Millions of yen

Cash and deposits
Time deposits with a maturity in excess of three months
Cash and cash equivalents

2014

2013

¥2,426(20)¥2,406¥2,278(20)¥2,258

Thousands of
U.S. dollars
2014$23,580(194)$23,386

53

Nitta Gelatin

Annual report 2014

19. Comprehensive Income
Reclassification adjustments and income tax benefit (expense) on components of other comprehensive income for the year
ended March 31, 2014 and 2013 were as follows:
Thousands of
U.S. dollars
2014

Millions of yen
2014

Valuation difference on available-for-sale securities:
Losses arising during the period
Reclassification adjustments
Pre-tax amount
Income tax benefit
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges:
Losses arising during the period
Reclassification adjustments
Adjustments to acquisition cost of assets
Pre-tax amount
Income tax expense
Deferred gains or losses on hedges
Foreign currency translation adjustment:
Losses arising during the period
Pension liability adjustment of foreign subsidiaries:
Losses arising during the period
Reclassification adjustments
Pre-tax amount
Income tax expense
Pension liability adjustment of foreign subsidiaries
Share of other comprehensive income of associates
accounted for using equity method:
Losses arising during the period
Reclassification adjustments
Share of other comprehensive income of associates
accounted for using equity method
Total other comprehensive income

2013

¥191
(0)
191
(68)
123

¥ 117
12
129
(46)
83

$1,856
(0)
1,856
(660)
1,195

(15)
–
(33)
(49)
18
(30)

75
4
(52)
27
(10)
17

(145)
–
(320)
(476)
174
(291)

388

600

3,771

(58)
77
18
(30)
(11)

(461)
51
(409)
14
(395)

(563)
748
174
(291)
(106)

53
52

95
–

515
505

105
¥575

95
¥ 401

1,020
$5,58920. Segment Information(1) Overview of reportable segment
Reportable segments are defined as a component of the Group for which separate financial information is available andwhose operating results are regularly evaluated by the board of directors to make decisions about how resources are allocated among the Group and assess its performance.
The Group plans comprehensive domestic and overseas strategies for its products and services and develops businessactivities based on business segments by product and service.
Accordingly, the Group consists of two segments by product and service based on the business activities as follows:“Collagen material business” produces gelatin, collagen peptide, collagen casings and others.
“Formula solution business” produces various materials for foods, adhesives and others.

(2) Basis of measurement for the amounts of net sales, profit, assets and other items by reportable segment
The accounting policies of each reportable segment are consistent with those disclosed in Note 2. “Significant Accounting­Policies.” Segment profit is based on operating income, and intersegment sales and transfers are based on actual market prices.
(Application of IAS 19 Employee Benefits)
Certain overseas affiliate companies started applying IAS 19 Employee Benefits (June 16, 2011) from the year ended March
31, 2014. This change in accounting policy was also applied retroactively to restate results for the fiscal year ended March
31, 2013 in the consolidated financial statements.

54

Annual report 2014

Nitta Gelatin

As a result, segment profit of Collagen material business for the year ended March 31, 2013 decreased ¥23 million
after restatement.

(3) Information about net sales, profit, assets and other items by reportable segment
Millions of yen
2014

Net sales:
Sales to third parties
Intersegment sales and transfers
Total
Segment profit
Segment assets
Other items:
Depreciation and amortization
Increase in property, plant andequipment and intangible assets

Reconciliation(Note 1)

Amounts on
consolidated
financialstatements(Note 2)¥32,814
1,487
34,301
2,340
29,118¥      –
(1,487)(1,487)(1,384)
2,271¥32,814–32,814955
31,389

70

878

35

914

229

3,075

27

3,102

Reconciliation(Note 1)

Amounts on
consolidated
financialstatements(Note 2)

Collagen material
business

Formula solution
business¥22,436
1,487
23,923
1,420
23,327¥10,377–
10,377
920
5,791

808
2,845

Total

Millions of yen
2013

Net sales:
Sales to third parties
Intersegment sales and transfers
Total
Segment profit
Segment assets
Other items:
Depreciation and amortization
Increase in property, plant andequipment and intangible assets

Collagen material
business

Formula solution
business¥18,674
1,304
19,9791,794
18,370¥10,097–
10,097
1,151
4,528¥28,772
1,304
30,076
2,945
22,899¥      –
(1,304)(1,304)(1,349)2,290¥28,772–
28,772
1,595
25,190

721

72

793

31

825

1,229

73

1,302

124

1,426

Reconciliation(Note 1)

Amounts on
consolidated
financialstatements(Note 2)

Total

Thousands of U.S. dollars
2014

Net sales:
Sales to third parties
Intersegment sales and transfers
Total
Segment profit
Segment assets
Other items:
Depreciation and amortization
Increase in property, plant and­equipment and intangible assets

Collagen material
business

Formula solution
business$218,079
14,453
232,533
13,802
226,739$100,865–
100,865
8,942
56,288$318,954
14,453
333,40722,744
283,028$       –(14,453)(14,453)(13,452)
22,074$318,954–
318,9549,282
305,103

7,853

680

8,534

340

8,884

27,6532,225

29,889262

30,151

Total

55

Nitta Gelatin

Annual report 2014

Note 1. “Reconciliation” included the following:
2014

2013

Thousands of
U.S. dollars
2014¥      3
(1,387)¥(1,384)¥       2(1,352)¥(1,349)$      29
(13,481)$(13,452)

Millions of yen

Segment profit:
Intersegment elimination
Corporate expense(*)Total*) “Corporate expense” presents mainly general and administrative expenses that are not allocated to reportable segments.

(

Millions of yen

Segment assets:
Intersegment elimination
Corporate assets(*)
Total

2014

2013

¥   (567)
2,838¥2,271¥   (458)
2,749¥2,290Thousands of
U.S. dollars
2014$  (5,511)
27,585$22,074*) “Corporate assets” presents mainly cash and deposit, property, plant and equipment and investment securities that are not allocated to reportable segments.

(

Note 2. Segment profit is reconciled to operating income on the consolidated statements of income.
Note 3. Related information for the years ended March 31, 2014 and 2013(a) Information by geographical area
Net sales:Japan¥19,684

Japan¥19,098

Millions of yen
2014
North America
CanadaAsia¥2,022¥8,240Millions of yen
2013
North America
CanadaAsia¥1,239

Japan

Asia

$191,329$19,653¥2,006¥5,879¥1,740Thousands of U.S. dollars
2014North America
Canada$80,093$19,498

Millions of yen
2014
North America

Canada

Other

¥860

Other

¥814

Other

$8,359Total¥32,814

Total¥28,772

Total$318,954

Property, plant and equipment:Japan¥2,990Japan¥2,955

Japan$29,062

Asia

¥255

Asia

¥91

Asia

$2,478¥4,664
Millions of yen
2013
North America¥2,344
Thousands of U.S. dollars
2014North America$45,334¥894

Canada¥896

Canada$8,689Total¥8,804

Total¥6,287

Total$85,575(b) Information by product and service has been omitted since similar information is disclosed as information by reportable segment. Information by major customer has been omitted since there were no sales to single externalcustomer accounting for 10% or more of the consolidated sales.

56

Annual report 2014

Nitta Gelatin

21. Subsequent Events(Introduction of stock compensation-type stock options)
At a Board of Directors’ meeting held on April 25, 2014, the Company has passed a resolution to submit a proposal regarding the introduction of stock compensation-type stock options for the Company’s directors (excluding outside directors) andallotment stock acquisition rights as stock options at less than ¥100 million per one fiscal year.
The proposal was approved by the 75th Ordinary General Meeting of Shareholders held on June 26, 2014, based on
Articles 361 of the Companies Act.
Date of resolution

June 26, 2014

Persons granted

6 directors of the Company (excluding outside directors) (Note 1)

Type of shares

Common stock

Numbers of options granted

The maximum number of shares that may be granted due to the exercise of stockacquisition rights on any day within one year of the day of the Annual general meetingof shareholders for each fiscal year shall be 200,000.
The number of shares underlying each stock acquisition right (hereinafter, “thenumber of shares to be granted”) shall be 100 shares. (Note 2)

Total amount to be invested upon
exercise of stock acquisition rights

The amount to be invested upon exercise of stock acquisition rights shall be theamount to be paid in per share, for each share that can be granted due to the exerciseof stock acquisition rights, which shall be one yen, multiplied by the number of shares
granted.

Exercise period of stockacquisition right

The Company’s Board of Directors shall determine the exercise period within a period
not to exceed 40 years from the allotment date.

Conditions for exercising stockacquisition rights

Conditions, including those enabling the recipients of stock acquisition rights allotments who have lost their position as a Director of the Company to exercise their stockacquisition rights from the day after the day they lose their position, shall be determined by the Company’s Board of Directors.

Limits on acquisition of stockacquisition rights via assignment

Approval of the Board of Directors of the Company shall be required for the acquisitionof stock acquisition rights via assignment.

(Note 1)	After the 75th Annual General Meeting of Shareholders is adjourned, the Company plans to pass a Board of Directors
resolution to allot the same aforementioned stock options (stock acquisition rights) as stock compensation-type
stock options to its executive officers.
(Note 2)	In the event that the Company conducts a stock split of its common stock (including the gratis allotment of commonshares; hereinafter, the same as the stipulations for a stock split) or a stock consolidation, the Company shalladjust the number of shares to be granted according to the formula below, and any fraction under one share resulting from such adjustment shall be rounded down.
Number of shares to be granted after adjustment =Number of shares to be granted before adjustment × Stock split or stock consolidation ratio.
		 In addition to the foregoing, in the event that the Company conducts a merger or corporate split or in any otherequivalent cases that require the adjustment of the number of shares to be granted, the Company shall be able toadjust the number of shares to be granted with a scope deemed rational under the circumstances.

(Supplementary Note)
As stated in Note 1. “Basis of Presenting Consolidated Financial Statements,” the Company, by its own judgment, has
prepared the accompanying consolidated financial statements by making reclassification and rearrangements to the financial
statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. These
financial statements have not been audited by independent auditors.
The Group’s consolidated financial statements for the years ended March 31, 2014 and 2013, which were included in
the Annual Securities Report, have been prepared in thousands of yen and audited by Ernst & Young ShinNihon LLC in accordance with Article 193-2 (1) of the Financial Instruments and Exchange Act of Japan.

57