Public & Investor Relations Section, Finance Department,
Kanematsu Corporation
2-1, Shibaura 1-chome, Minato-ku, Tokyo 105-8005, Japan
Tel: 81-3-5440-8000
Fax: 81-3-5440-6503

Kanematsu Corporation Annual Report 2017

For more information on this Annual Report, or to obtain
additional copies, please contact:

GENERATINGNEW VALUEANNUAL REPORT 2017

Kanematsu stock has been selected for inclusion in the JPX-Nikkei Index
400 and the JPX-Nikkei Mid and Small Cap Index for, respectively,
the last four and two consecutive years.

Our Website
Detailed additional information about theKanematsu Group is available on our website in English, Japanese and Chinese.
Content includes information about theCompany and its businesses, press releases,
investor relations materials (for shareholders
and investors), and details on its environmental and CSR activities, employment
opportunities and other topics are available.

English: http://www.kanematsu.co.jp/en/

Printed in JapanTo Our Stakeholders

Accelerating Business Creation to
Spur Growth
At Kanematsu, we have codified the entrepreneurial spirit of the Company’s founder,
Fusajiro Kanematsu, in our Corporate Principle. Toward our corporate aspiration of“being a ‘Value Creator’ by continuing to build new businesses,” we are implementing
VISION-130, our medium-term vision. While maintaining financial soundness and working to expand revenue through cooperation and mutual development based on trading with our business partners, we are more deeply developing business domains
where we have strength and aggressively making new investments to spur businesscreation from a long-term perspective.
I believe that the true role of a trading company is to create new businesses andapproaches to value, and by doing so, contribute to international society. To fulfill thisrole, we will continue working to ensure that we reach the goals of our medium-term
vision while reinforcing our management base, including corporate governance, anddeveloping the human resources that are the driving force by which the future is built.
Going forward, we will redouble our efforts to increase our enterprise value by
pursuing functions and generating value unique to the Kanematsu Group.
July 2017

Kaoru Tanigawa
PresidentKanematsu’s Progress and Strengths

Kanematsu’s Progress and Strengths
2 The Kanematsu Group’s
Value Creation Process

4 At a Glance

Corporate Principle

6 Six Key Strategic Business Areas“Let us sow and nurture the seeds ofglobal prosperity”

8 Financial and ESG Highlights
16 Message from the CFO

Special Features
18 Special Feature 1

Growth in ICT Solutions
20 Special Feature 2

The Potential of the SpaceBusiness

Our Beliefs: Kanematsu's Guiding Principles

Review of Operations

Review of Operations

1. Reflecting the pioneering spirit of our predecessors, we believe that fairness
and justice should guide our business dealings and the wise use of creative
imagination and ingenuity will bring prosperity
2. Our purpose as a Company is not only to build a sound and flourishingbusiness, but to fulfill our responsibilities as a corporate citizen, contributing tosociety and the security and well-being of all.
3. As members of a corporation, we act not as individuals but as representativesof that organization and as such we are bound by Company rules andattendant loyalties and must work together with a spirit of cooperation while
cultivating mutual understanding and respect for fellow members.

Special Features“Sow a seed now,” and take action to benefit people around the globe, badeour founder, Fusajiro Kanematsu, setting a standard of public duty that we at
Kanematsu continue to uphold through a commitment to ethical business principles and corporate responsibility.
The beliefs and philosophies that inspired Fusajiro Kanematsu in the latenineteenth century Meiji period, a time when Japan was striving to build anational economy, were encapsulated in the document Our Beliefs:
Kanematsu’s Guiding Principles in 1967, on the occasion of our merger withThe Gosho Company.

10 Interview with the President

22 Review of Operations
24 Electronics & Devices
26 Foods, Grain, Oilseeds & Feedstuff
28 Steel, Materials & Plant
30 Motor Vehicles & Aerospace

CSR and Corporate Governance

CSR and Corporate Governance
32 CSR
38 Corporate Governance
41 Corporate Officers
42 Roundtable Discussion with the
Executive Vice President and Outside
Directors

Forward-Looking Statements
This annual report contains statements regarding the Kanematsu Group's
plans, strategies, and expectations for future performance. Such statements are inherently subject to risk and uncertainty. Actual results could
diverge materially from the Group's projections due to changes in theeconomic and market environment surrounding the Group's businessareas, such as exchange rate fluctuation.

Financial Section and Company Information
44
46
48
54

Management’s Discussion and Analysis

112
113
114
115
117

Independent Auditor’s Report

Financial Section and Company Information

Editorial Policy
The content of the Kanematsu Group annual reports is based on an integrated reporting approach with reference to the International Integrated
Reporting Council’s International Integrated Reporting Framework, the G4
Sustainability Reporting Guidelines, a set of international standards created by the Global Reporting Initiative, and ISO 26000. We hope that thereport will help readers deepen their understanding of the KanematsuGroup.

Business Risks
Consolidated Financial Statements
Notes to Consolidated Financial
Statements
Global Network
Major Group Companies
Network
Corporate Profile
KANEMATSU ANNUAL REPORT 2017

1

The Kanematsu Group’s Value Creation Process
We have laid out the ways that the Kanematsu Group creates value in the short, medium and long terms from an
integrated perspective. The Kanematsu Group's Corporate Principle was created as a codification of theentrepreneurial spirit passed down from the Group’s founder, Fusajiro Kanematsu. Based on this principle and inlight of social issues and other external factors, we utilize various forms of capital amassed through our corporate
activities over the years to build the future. The chart below explains this process.

• Five divisions, organized by business field, each withspecific expertise

Organizational
Capital• Organizational functions that support businessactivities from specialized perspectives• Locations around the world• Highly specialized Group companies• Wide range of business fields

Human andIntellectual
Capital• Expertise and technical capabilities regarding
industries and products• Accumulated know-how• Global professionals/Diverse professionals• Business creation and proposal abilities

Social Issues

Market changes, market
relocation, evolution in theneeds of customers andbusiness partners• Sound financial position (Net D/E ratio of less than 1.0)

Financial Capital• Stable earnings base
• Average annual cash flows of approximately ¥20 billion

Social and
Relationship
Capital• High quality and quantity of business partners• Contribution to local communities• Trust built over our 128-year history• Biodiversity (animals, plants, fungi, etc.)

Natural Capital• Sunlight, air, forests, and soil
• Geothermal, wind, and other forms of renewable energy

2

KANEMATSU ANNUAL REPORT 2017

Kanematsu’s Progress and Strengths“Let us sow and nurture the seeds of global prosperity”“Being a ‘Value Creator' and continuing tobuild new businesses”

Special Features

Businesses in the areas where we havestrength and expertise (our four segments)• Electronics & Devices• Foods, Grain, Oilseeds & Feedstuff (Foods/
Grain, Oilseeds & Feedstuff)• Steel, Materials & Plant• Motor Vehicles & Aerospace

Generating new value
by meeting the needsof our customers
and society

CSR and Corporate Governance• Providing products that meet customer needs• Providing safe, reliable products• Providing products and services with addedvalue• Building global value chains• Developing new products and technologies• Business investment and M&A that createsynergy• Business activities that contribute to the global
environment

Review of Operations

Building on existing trading operations
through cooperation and mutual
development with our business partners

Bolstering the management baseFinancial Section and Company Information• Increasing sophistication of investment risk
management• Strengthen governance• Develop global professionals

KANEMATSU ANNUAL REPORT 20173

At a Glance

Under the VISION-130 medium-term vision we aim for “being a ‘Value Creator’ by continuing to build
new businesses.” Accordingly, we are striving to embody the Kanematsu Group’s traditional
entrepreneurial spirit and further increase enterprise value.

VISION-130
Kanematsu takes on new challenges for further growth
April 2014 – March 2019

Being a “Value Creator” by continuing to build new businesses

Timeline following major
business selection andconcentration• April 2004 – March 2007 MediumTerm Business Plan: “New KG200”• April 2007 – March 2010 MediumTerm Business Plan: “team KG120”

Building strong businessfoundations

Shifting to an aggressive
management stance• April 2010 – March 2013 Medium-TermBusiness Plan: “S-Project”• April 2013 – March 2016 Medium-TermBusiness Plan —Jump to the next stage—• As a result of restructuring, we enhanced ourbusiness foundations and achieved a net D/E
ratio of 0.9 times, improved the equity ratio to
16.7%, and paid dividends for the first time in
15 years in fiscal 2014
• We further strengthened our financial positionin fiscal 2015

• VISION-130 medium-term vision
unveiled in April 2014
• Aiming for further growth leading up
to fiscal 2019, the Company’s 130th
anniversary• Establishment of a clear edge in highly
specialized fields Reinforcing market
competitiveness in six focus areas• New investment in business expansion
and M&As Investment capacity of up to¥100 billion over five years

Business Areas

Motor Vehicles &Aerospace

Other
1.8%

7.5%

37.6%

• Motor Vehicles and Parts• Aerospace• Semiconductors• Electronic Components and Materials• Industrial Electronics• Semiconductor Equipment• ICT Solutions• Mobile

Composition of
Revenue

Steel, Materials& Plant

Revenue¥675.6 billion(FY 2017)

19.4%• Steel• Materials (Functional Chemicals
and Energy)• Plant and Ships*Beginning with reporting for fiscal 2016, Kanematsu prepares its consolidated financial
statements in accordance with International Financial Reporting Standards (IFRS).

4

Electronics &Devices

KANEMATSU ANNUAL REPORT 2017

Foods, Grain,
Oilseeds & Feedstuff

33.7%• Foods• Meat and Marine Products• Grain, Food Soybeans, Oilseeds• Feedstuffs• Processed Agricultural Products• Pet Products and Groceries

Kanematsu’s Progress and Strengths

Progress Under the Medium-Term Business Plan

Consolidated net income*

FY2019 Targets

8.0 billion yen

15.0 billion yen

8.4%

12%

ROE

100.4 billion yen

Shareholders’ Equity**

Over

0.55

Net D/E ratio

120.0 billion yen
Less than

1.0

Stable and sustained
payments targeting a
consolidated payout ratio of

Review of Operations

31.4%

Consolidated payout ratio

Special Features

FY201725%* Profit for the year attributable to owners of the Parent** Total equity attributable to owners of the Parent

Six Key Strategic Business Areas &Innovation

New investments using funds provided
by operating activities

Six key strategic business areas

Improve financial stability throughdiversification of funding vehicles

ICT solutions

Build a system to ensure the flexibility needed to fund future growth

MobileCSR and Corporate Governance

Growth-Oriented Investment Strategies

SpecialFeaturep.18

Shelf registration of ¥30 billion in straight corporate bonds

Investment standards
Establish Companywide investment standards

Formulate standards for market entry and exit

Standards for exit
Formulate Companywide minimum standards
In addition, as before, specific standards will be established for eachindividual caseAt the same time, establish a system of following up on cases

Investments shall be monitored at the management level
Established the Business Development & Investment Innovation
Office as an organ to support M&A

North American shale
oil and gas markets
Global motorization
Overseas expansion by
Japanese companies

Financial Section and Company Information

Standards for entry
Qualitative standards:
Invest in the areas where the Company excels based on knowledge andexperience; Do not invest in resource development or the real estate sector.
Quantitative standards:
Companywide minimum standards:s )22  INCLUDING PERIPHERAL TRANSACTIONS ON A CONSOLIDATED BASIS
s 0AYBACK PERIOD 7ITHIN SEVEN YEARS AS A RULE

Asian food markets

Innovation
Technological support
Technological support in the in-car productand EMS areas; Camera –related business

TPP Response
Strengthen functions in the foods and grains
AREAS AHEAD OF THE 400

KANEMATSU ANNUAL REPORT 20175

Six Key Strategic Business Areas
Six key strategic business areas

Management Objective

Both maintainfinancial soundness
and expand theearnings base1

ICT solutions

2

MobileThe Kanematsu Group is implementing its
medium-term vision for the period leading up to
fiscal 2019—VISION-130: Kanematsu takes on
new challenges for further growth—the end ofwhich coincides with the 130th anniversary of the

3

Asian food markets

Group’s founding. Our key aspiration under the
medium-term vision is “being a ‘Value Creator’and continuing to build new businesses.” In linewith this vision, we are striving to both ensurebusiness stability by prioritizing the maintenanceof financial soundness and expand the earnings

4

North American
shale oil andgas markets

5

Globalmotorization

6

Overseas expansion
by Japanesecompanies

base by steadily capturing business opportunities.
By more deeply developing business domains
where we are already strong and making newinvestments, we aim to raise corporate value to
new levels.

Innovation

Technological Support

TPP Response

6

KANEMATSU ANNUAL REPORT 2017

Leverage Kanematsu’s competitive advantage as aprovider of multi-vendor solutions to reinforce theGroup’s overall strength by bolstering sales capabilities
and management efficiency

Key Regions:Japan, Asia (China, Southeast Asia)

Kanematsu’s Progress and Strengths

Main points:

Strengths: Providing IT Infrastructure with One-Stop Services• Strengthening system integration functions through M&As
• Strengths in infrastructure development and virtualization businesses• Competitive advantage as a vendor of multifaceted solutions

Key Business Companies: Kanematsu Electronics Ltd., Nippon Office Systems Ltd.

Main points:

Realize scale expansion and synergies through M&A

Key Region:Japan

Key Business Company: Kanematsu Communications Ltd.

Develop business as a one-stop shop for concept development, manufacturing, and supplies, and build value-chain
infrastructure

Key Region:

Asia

Key Business Companies: Kanematsu Corporation, PT. Kanemory Food Service,
PT. Aeternit Prima Mandiri

Expand oilfield tubing value chains

Key Region:

North America

Key Business Companies: Kanematsu Corporation, Benoit Premium Threading, LLC,
Steel Service Oilfield Tubular, Inc.

Main points:

Sourcing, technology development, and improved logistics
in the global auto market

Key Regions:

The Americas, Europe, Asia

Key Business Companies: Kanematsu Corporation, Aries Motor Ltd., Aries Power Equipment
Ltd., Kanematsu Advanced Materials Corp.

Support and collaborate with Japanese makers moving
into overseas markets

Key Regions:North America, emerging countries

Key Business Company: Kanematsu Corporation

Technological support in the in-car product and EMS areas;
Camera-related businesses

Key Regions:Japan, Asia

Strengths: Steady Investment Targeting Demand• Constructing a value chain in North America• Medium- and long-term expansion of the oilfield tubing market• Preparing a framework in anticipation of recovery in oil prices

Strengths: Making New Proposals to Meet Partners’ Needs• Technological support and quality management capabilities for OEM
automobile component trading• Global sales and sourcing capabilities and logistics network• Identifying/suggesting high-value-added performance materials andproducts

Strengths: Support Based on Know-How in Main Fields• Further expanding overseas network from around 40 cities currently
and bolstering overseas staff• Providing backup in the areas of machine tools and industrial machineryfor Japanese manufacturers expanding into emerging countries• Supporting customers that seek growth opportunities in Asia throughthe new fund

Key Business Companies: Kanematsu Sustech Corporation, Kantatsu Co., Ltd.,
Kanematsu Advanced Materials Corp.

Strengths: Providing High-Level Technological Capabilities and Products• Kanematsu Advanced Materials Corp. Established• Capital and business alliance with Nippon Manufacturing Service
Corporation• Kanematsu Sustech Corporation became a consolidated subsidiary• Micro-lens unit business (Kantatsu Co., Ltd.) expanded

Main points:

Strengthen functions in the foods and grain areas ahead of
the TPPStrengths: Support for Stronger Farms and Expanding Sales of

Key Regions:Japan, Asia

Key Business Companies: Kanematsu Corporation, Kanematsu Agritec Co., Ltd.

Financial Section and Company Information

Main points:

Strengths: Building Value Chain Infrastructure• Entering animal feedstuff/feedstuffs materials and other upstream areas• One-stop proposal, manufacturing, and supply• Rigorous traceability management• Know-how in Japan and Group strengths

CSR and Corporate Governance

Main points:• Developing a comprehensive mobile & communications businessbased on mobile devices• Nationwide sales locations• Providing ASP services for corporations

Review of Operations

Main points:

GrowthSpecial Features

Main points:

Strengths: Capturing Domestic Market Share and Pursuing New

Imported Animal Products• Reinforce animal feedstuff and meat product business and respond toindustry reorganization• Entering the smart agriculture field• Participating in businesses aimed at making livestock a “sixth industry”

KANEMATSU ANNUAL REPORT 20177

Financial and ESG Highlights(As of March 31, 2017)

JGAAP

2007

2008

2009

2010

2011

Net sales3¥1,281,331¥1,244,020¥1,138,755¥861,277¥936,891

Revenue

—

—

—

—

—

Gross profit

103,711

90,32786,292

74,10476,905

Operating income/Operating profit

21,71322,60519,027

12,18618,029

Income (loss) before income taxes andminority interests/Profit before tax

14,61528,97577

8,407

13,030Net income (loss)/Profit for the year
attributable to owners of the Parent4

7,507

19,016(12,787)

3,528

9,175

Cash flows from operating activities

20,87414,30817,177

26,441

7,827

Cash flows from investing activities

23,14938,799(370)(19,149)

17,322

Free cash flow

44,023

53,107

16,807

7,292

25,149Total assets

563,176

503,456

414,928

398,629

388,676

Net assets/Total equity

48,767

62,23942,03545,80449,576

Shareholders’ equity/Total equity
attributable to owners of the Parent

32,95945,587

24,93628,916

33,101

Net interest-bearing debt

204,900

148,944

134,582

109,350

104,612Net income/Basic earnings per share
attributable to owners of the Parent4¥17.94¥ 45.44¥(30.56)¥ 8.44¥21.93

Net assets/Total equity

78.75

108.95

59.61

69.15

79.07

—

—

—

—

—

25.46

48.42

(36.26)

13.10

29.59

Equity ratio (%)

5.9

9.1

6.0

7.3

8.5

Net D/E ratio (times)

6.2

3.3

5.4

3.8

3.2

For the year:

At year-end:

Per share (yen):

Cash dividends
Financial indicators:
Return on equity (ROE) (%)

ESG* (Non-Financial) Data: *ESG: Short for environmental, social, and corporate governance.
Employees—consolidated
Employees—non-consolidated (Women)
Percentage of women among employees—
non-consolidated
CO2 emissions (t-CO2)
Directors (Outside directors)

5

Audit & Supervisory Board Members5(Outside Audit & Supervisory Board Members)

4,545

4,543

4,874

4,871

4,770

859 (234)872 (251)

890 (262)

850 (264)

832 (250)

27%

29%

29%

31%

30%

823.59577.95450.29368.25482.36

11 (0)

11 (0)

10 (0)

10 (0)

10 (0)

5 (3)

4 (3)

4 (3)

4 (3)

4 (3)

Notes For the above items with two titles, the first applies to figures under JGAAP and the second to figures under IFRS.
1. Figures are rounded down to the nearest million yen. Percentages have been rounded off.
2. The U.S. dollar amounts represent the arithmetical results of translating yen to dollars at the rate of ¥112.19 to U.S.$1.00, the exchange rate prevailing on March 31, 2017.
3. Net sales shown here for fiscal 2015 and after are based on accounting principles generally accepted in Japan, calculated as the sum of transactions in which the Group
acted as a party to the contract and transactions in which the Group acted as agent.
4. JGAAP: Net income attributable to owners of the Parent / IFRS: Profit for the year attributable to owners of the Parent.
5. The number following the General Meeting of Shareholders, after the year-end.

8

KANEMATSU ANNUAL REPORT 2017

IFRS
Thousands of
U.S. dollars2

2015

2016

2017

2017

¥1,006,365¥1,019,232¥1,114,539¥1,108,230¥1,056,230¥1,100,254$9,807,059

—

—

—

704,211

668,374

675,579

6,021,748

80,90080,021

86,402

87,88086,238100,139

892,589

21,426

18,262

19,77623,547

18,772

22,633201,739

13,52916,781

19,07522,373

18,122

17,875

159,334

6,110

9,564

11,79910,546

8,959

8,049

71,74815,822

1,355

22,384

6,758

33,024

11,852

105,647

1,291

1,466

(1,111)(6,649)(4,214)(14,691)(130,951)

17,113

2,821

21,273

109

28,810(2,839)(25,304)

399,753

399,186

428,459

466,314443,592

479,7174,275,941

55,99275,912

96,204

119,015

120,706

129,863

1,157,530

39,00854,51971,657

90,244

91,599100,357

894,527

90,01286,43968,03872,155

48,81355,429494,063¥14.60¥ 22.80¥ 28.09¥ 25.10¥ 21.29¥ 19.13

$0.17

93.16

129.82170.54214.76217.68238.44

2.13

—

—

3.00

4.00

5.00

6.00

0.05

16.95

20.45

18.70

12.99

9.85

8.39

9.8

13.7

16.7

19.4

20.6

20.9

2.3

1.6

0.9

0.8

0.5

0.6

4,770

5,522

5,747

6,002

5,832

6,727

795 (238)

782 (242)

800 (246)

813 (253)

816 (259)

835 (273)

31%

31%

31%

32%

33%

376.92365.37414.58387.80408.02426.3310 (0)

10 (0)

6 (1)

7 (2)

7 (2)

8 (3)

4 (3)

4 (3)

4 (2)

4 (3)

4 (3)

4 (3)

KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

30%

CSR and Corporate Governance

2014

Review of Operations

2013

Special Features

2012

Kanematsu’s Progress and Strengths

Millions of yen1

9Interview with the President

It was my honor to assume the position of president in June 2017.
Under the VISION-130 medium-term vision for the period leading up to 2019, the130th anniversary of Kanematsu’s founding, our management objectives are to bothmaintain financial soundness and expand the earnings base. By doing so, we are working
toward our key aspiration of “being a ‘Value Creator’ by continuing to build new
businesses.” We regard the achievement of the objectives of VISION-130 as just a waypointon our forward trajectory. By taking a long-term perspective to ensure we stay ahead of thecurve, we are working to achieve steady growth and increase Kanematsu’s enterprise value.
President

Kaoru Tanigawa

10

KANEMATSU ANNUAL REPORT 2017

Please tell us about your goals and intentions as president.
ahead of the curve. Furthermore, I hope to develop
human resources with the skills to manage businesses
and to nurture greater expertise throughout the Group.
After a number of years working in the electronic
devices business in both Japan and the United States,
I became involved in corporate management andplanning. Most recently, I’ve been involved in several
M&As, accumulating know-how for business expansion
going forward. In addition, I’ve worked with some of
our younger employees to build interdivisional teams
around such themes as cutting-edge technologies,
thereby advancing information gathering and research.
As president I will foster communication, such as that
promoted by these teams, while taking the helm inmaking even larger decisions.

Special Features

I want to make sure that all our employees and theirfamilies can take pride in Kanematsu, and to increase
Kanematsu’s enterprise value so that it can better contribute to society. To that end, my mission is to makethe Group’s path forward to growth clearer and to build
new business models. The realization of VISION-130,
which we are implementing now, will be just a point
along that path, and I am aiming for growth far beyond
its end. In this way, I hope to raise the Group’s enterprise value so that it will continue to contribute toJapan’s economy.
Drawing on the Kanematsu Group’s capabilities,
we will create international supply chains, connecting
Japan to other countries and other countries to one
another. I also aim to advance cutting-edge initiatives

Review of Operations

Q2

Kanematsu’s Progress and Strengths

Q1

How do you see Kanematsu’s current position and the hurdles
and risks it faces?
Japan, the shrinking population and market.
In light of such management hurdles and risks, toturn changes in society into business opportunities, wemust breathe new life into the business creation aspectsof our corporate culture. Since its founding, entrepreneurial spirit, creative imagination, and ingenuity havebeen basic tenets of the Kanematsu Group. As theinheritors of this tradition, all of us in the Group must
work together to foster a strong drive toward businesscreation.
To secure and expand new businesses, we will
actively utilize M&A. For example, in fiscal 2017, theyear ended March 31, 2017, we acquired a mobile
phone sales company and took over a card printer business. By establishing clear policies and goals for thecompanies we invest in and integrating our businesses
based on mutual respect for each company’s corporate
culture and personnel, we will strive to quickly realize
synergies. We will build businesses that offer new
added value while quickly establishing business models
that incorporate sophisticated functions, such as for
managing the parts of various supply chains. To makethis happen, we must reinforce human resource development aimed at raising the quality of our employees
and work to shift mindsets within the Group.

Financial Section and Company Information

KANEMATSU ANNUAL REPORT 2017

CSR and Corporate GovernanceThrough business selection and concentration, theKanematsu Group has been reinforcing its managementbase. Under the VISION-130 medium-term vision,launched in April 2014, we have focused on our areasof strength, seeking to both broaden and deepen ourbusinesses. In such areas across our four segments, weare developing business models centered on trading—our basic function as a trading company—that utilize
supply chains in and outside Japan, working to expand
profit through cooperation and mutual developmentwith our business partners. The true role of a trading
company, of course, is to create new approaches tovalue and new businesses. For quite some time now,the Kanematsu Group has been focusing on rebuilding
its management base, a situation that has, frankly, negatively affected our speed of new business creation.
In terms of management hurdles, urgent mediumterm tasks include creating mechanisms for steadily
generating profit, improving profitability, and cultivating
new businesses as well as revising our business portfolio. Over the long term, I believe that our traditional
trading operations are headed for a major turning point
as a result of sweeping changes in demand and lifestyles accompanying the evolution of artificial intelligence (AI) and the Internet of Things (IoT) as well as, in

11

Q3

Please tell us about Kanematsu’s fiscal 2017 results.

In fiscal 2017, the U.S. economy expanded steadily,
supported by firm domestic demand, while the economies
of China and other emerging economies, especially thoseof Asia, showed signs of slowing even as they continued
to grow. In Japan, personal consumption remained weak,
but the economy improved, albeit gradually, supported
by governmental economic measures and the Bank ofJapan’s monetary measures. However, in light of politicalrisk in European countries, policy trends in the UnitedStates, and other causes for concern overseas, the outlook going forward remained unclear.

Fiscal 2017 revenue came to ¥675.6 billion, up
1.1% year on year. Operating profit rose 20.6% to ¥22.6
billion. We saw firm business performance, particularly in
the ICT solutions business and mobile business as well as
in the meat product business, which saw improved profit
due to market recovery. However, Kanematsu also
incurred financial costs due to changes in the market values of investment securities and a loss on investments
accounted for using the equity method. As a result, profit
for the year attributable to owners of the Parent
decreased 10.2% year on year to ¥8.0 billion.

Pursuing Active Investments Centered on The Six Key Strategic Business Areas & Innovation(Billions of yen)
VISION-130

Electronics & Devices
ICT Solutions

FY2015FY2016FY2017• FY2015: Nippon Office Systems Ltd. (which became a consolidated subsidiary in FY2013)
became a wholly owned subsidiary (total ¥2.7 billion)

Electronics & Devices

4.8

2.4

13.4

MobileFoods, Grain, Oilseeds &Feedstuff

0.4

2.0

0.2

Steel, Materials & Plant

0.0

0.0

0.0

Motor Vehicles &Aerospace

0.5

0.0

1.8

Others

0.0

0.3

0.1

• FY2016: Invested in Alfa Group Inc. (¥0.4 billion).
• FY2017: Acquired Diamondtelecom, Inc. (¥17.4 billion).

Technological support (camera-related business)• FY2015: Kanematsu-NNK Corporation (now Kanematsu Sustech Corporation) became asubsidiary (¥1.5 billion).
• Underwrote convertible bonds and preferred shares of Kantatsu (total ¥2.5 billion).

Printer business• FY2017: Acquired shares of G-Printec, Inc. jointly with AZ-Star Co., Ltd. (¥0.6 billion)

Fixed assets etc.

3.2

(0.5)

(0.8)

Cash flow frominvesting activities

8.9

4.2

14.7

Foods, Grain, Oilseeds & Feedstuff
Asian food markets• Developed the franchise business for restaurant chains in Japan and for Indonesia.
• Strengthened cooperation with stable suppliers to increase sales of feedstuff to Asia.

TPP response (advance into overseas food markets)• Participated in the Be Smile Project, a sixth sector business.

OthersOverseas expansion by Japanese companies• FY2016: Participated in a fund that supports business expansion in Asia (AZ-Star).

12

KANEMATSU ANNUAL REPORT 2017

Please tell us about the progress of VISION-130 and yourdetermination to achieve its goals.
and concentration. They encompass a variety of businesses, but there are some areas in which our operations
have shrunk or consolidated a little too much. I believethat we need to reexamine such areas and work to
expand businesses that show unrealized growth potential. We will seize opportunities and accelerate investment
and business expansion rooted in business areas where
we have strength.
We are steadily approaching our target for shareholders’ equity2 of over ¥120.0 billion. Going forward,
if investment and M&A aimed at growth expand, we
will need to further increase shareholders’ equity.
Accordingly, we will steadily build up shareholder’sequity by increasing profit. As we do so, we will strive
to maintain a healthy balance of investment and internal reserves.

Review of Operations
CSR and Corporate GovernanceAs I said earlier, the realization of VISION-130 will be but
a waypoint along the path to further growth, and theachievement of its goals is essential.
Markets are changing, and demand for greater
specialization is rising. The companies that are able tomeet that demand are profiting. That is, there is a clear
reward for filling that role. Given these circumstances,
we aim to leverage the Kanematsu Group’s areas ofstrength and its expertise in each of these to further
expand the earnings base.
We are working to ensure that we achieve the management objective of ¥15.0 billion in consolidated net
income1 in fiscal 2019, the final year of the vision. At thesame time, however, we are also looking toward growth
beyond fiscal 2019, considering expansion not justthrough the growth of existing businesses but througheffective investment and M&A as well. Our current four
segments are the result of a process of business selection

Q5

equity attributable to owners of the Parent rose to¥100.4 billion, reflecting retained earnings and anincrease in the fair value of financial assets due to stock
price increases recorded under other comprehensive
income. As a result, Kanematsu’s financial position
remained sound, with the equity ratio up 0.3 of a percentage point to 20.9% and the net D/E ratio at 0.6.

Special Features

Q4

Kanematsu’s Progress and Strengths

These results were somewhat less than satisfactory.
One issue was our limited control over equity-method
affiliates. Going forward, we will place greater emphasison carefully evaluating the influence that the performance of companies in which we invest will have on
Kanematsu in order to minimize the risk presented byloss on investments accounted for by the equity method.
Looking at our consolidated financial status, total

1. Profit for the year attributable to owners of the Parent under IFRS.
2. Total equity attributable to owners of the Parent under IFRS.

Please tell us about the strengths of Kanematsu’s four segments
and their efforts toward growth.
business initiatives aimed at offering new forms ofvalue, such as those related to AI and data businesses.
The Foods & Grain segment is a key part of theGroup. Boasting the top market share in Japan byimport volume for certain products, our businesses areimportant to Japan’s food market and wield considerable influence. To respond to changes in customer
needs and market shifts, we strive to secure reliable
product sources and differentiate our products
through greater added value. At the same time,

KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

The strengths of the Electronics & Devices Segment lie
in its high level of expertise and consolidated management. In the ICT solutions business of Kanematsu
Electronics Ltd., we are working to increase profitability by providing expert knowledge, know-how, and value-added service. In the mobile business, we acquired
Diamondtelecom, Inc. in 2016 and merged it with
Kanematsu Communications Ltd. in April 2017.
Through these and other measures, we continue toexpand the business. Going forward, we will consider

13

we are reinforcing supply chains that leverage our longstanding networks and proposing new business models.
Within the Steel, Materials & Plant Segment, thestrength of our iron and steel business lies in its relationships of trust with business partners; that of theplant business is in its market formation approach, primarily in remote overseas locations; that of the energy
business in its consolidated operations; and that of thechemicals business in its pharmaceuticals, pharmaceutical and agrichemical intermediates, and other highly
specialized businesses. The scale of each of these businesses is relatively small, but their consolidated management, with highly specialized affiliates, is a sourceof strength. Furthermore, we are seeking synergies inbusinesses that transcend the boundaries between the

Q6

Please tell us about your investment policy.

We will give equal consideration to investment in eachof our four segments while also looking into new fields
as needed. When considering an investment opportunity, it is important to carefully examine such input as
market analyses along with such factors as future business potential, personnel makeup and corporate culture,
and whether there are truly synergies that can be realized. Our decisions will be based on the comprehensive

Q7

examination of a variety of opinions and insights frominside and outside the Company. In principle, we will
make new investments using funds provided by operating activities while diversifying our funding vehicles.
Furthermore, we have been building a system to ensure
the flexibility needed to fund future growth throughsuch means as the shelf registration of ¥30 billion instraight corporate bonds.

How are you reinforcing the management base?

We are taking gradual steps to strengthen corporate
governance. The June 2017 General Meeting of
Shareholders elected a new outside director, bringing

14

fields of steel, materials (energy and chemicals) andplant. From within this unique and distinctive group ofbusinesses, we must quickly determine which areas
will be future business pillars and expand them.
The Motor Vehicles & Aerospace Segment’s
strength lies in its wealth of information and capacity
to make proposals and solve problems, thanks to its
relationships with industry-leading business partners,
long track record and worldwide network. This segment
offers business opportunities in next-generation automobile markets, such as those related to network connectivity (so-called connected cars) and self-driving
vehicles. At the same time, in the aerospace field, weare focusing on new business creation. This segment is
one of the keys to the future of the Kanematsu Group.

KANEMATSU ANNUAL REPORT 2017

the number of outside directors up to three. The two
incumbent outside directors offer academic expertiseand managerial experience in another industry; tohave even greater expectations for our younger
employees and hope to create even greater opportunities going forward.
Turning to the Kanematsu Group’s CSR initiatives,
one of Kanematsu’s Corporate Principles is fulfilling
our corporate social responsibilities by building asound, flourishing business. We have established a
CSR Committee with a Companywide mandate to formulate and execute policy on Groupwide CSR initiatives as necessary. To address CSR issues related tosupply and procurement operations with our business
partners’ supply chains, we have created a practicalframework that includes the CSR Action Guidelines for
Supply Chains. Furthermore, we are engaged in business that contributes to environmental preservation
through activities that aim to conserve forests, support
local communities, and preserve biodiversity.
The Group’s social contribution activities include
locally based initiatives, such as volunteering indisaster-affected areas, as well as initiatives conducted
through educational institutions, such as those of theKanematsu Foundation for the Research of Foreign
Trade, which is jointly operated with the ResearchInstitute for Economics and Business Administration of
Kobe University. (For more details on Kanematsu’s CSR
initiatives, please refer to page 37.)
We will continue to increase our enterprise value
and make social contributions that only Kanematsu can.

Special Features
Review of Operations
CSR and Corporate Governance

Q8

Kanematsu’s Progress and Strengths

these, the new director brings managerial experienceat another trading company. We also appointed separate chairs of the Board of Directors and Management
Committee, which is composed of executive officers,
as part of efforts to clarify management and businessexecution functions and thus further strengthen oursystem of corporate governance.
Human resources are a trading company’s mostimportant management resource. Going forward, we
hope to focus on personnel development aimed atstrengthening management capabilities, which we
believe will be indispensable to growth as a highly
expert corporate group. We must work to make surethat our business partners feel that they can entrust
Kanematsu with their business management. We arealso working to expand the global training program
for local staff at overseas affiliates and are considering
selecting management-class employees from said staff.
Furthermore, I believe that diversity is woven into
the very fabric of the Kanematsu Group. Diversity ofvalues is essential for a trading company. Such differences spark dialog and thought, and, through mutual
respect, these are what sustain our corporate activities.
Going forward, we will further strengthen awarenessand implement diversity management. In particular, interms of opportunities for women, while we have a
track record of appointing women to managerial positions in Japan and as presidents of overseas affiliates, I

Please tell us about dividends and any message you have forstakeholders.
In fiscal 2018, we once again plan to increase the pershare dividend by ¥1 to ¥7. We will continue to strive
to pay stable, ongoing dividends, seeking to balance
investments in growth with shareholder returns as we
aim for a consolidated payout ratio of 25%.
Going forward, we will continue to work toincrease enterprise value in order to live up to the
expectations of our stakeholders.

KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

In fiscal 2018, we are planning for revenues of¥700.0 billion, up 3.6% year on year, operating profitof ¥25.0 billion, up 10.5%, and profit for the year
attributable to owners of the Parent of ¥12.0 billion,
up 49.1%.
The Kanematsu Group regards providing returns
to shareholders as one of its most important tasks.
Since resuming the payment of dividends in fiscal
2014, we have increased dividend payments each year.

15

Message from the CFO

Raising Kanematsu’sEnterprise Value

Tetsuro Tsutano
Director, Executive Officer, CFO

revenue in the vision’s final year to be supported by growth in
the Foods, Grain, Oilseeds & Feedstuff Segment due to recovery
in the meat product market as well as by improvement in theiron and steel business due to growth in oilfield tubing demand.

Progress of the VISION-130 Medium-Term Vision
The Kanematsu Group is now more than three years into
VISION-130, its medium-term vision for the five years leading
up to fiscal 2019, the Company’s 130th anniversary. In thevision’s second year, fiscal 2016, ended March 31, 2016, majorchanges in the external environment, including the decelerationof Chinese economic expansion and plummeting crude oil prices, hurt the Group’s operating profit. Fiscal 2017, the vision’s
third year, saw a significant increase in operating profit, but
because of such factors as temporary valuation losses, profit for
the year attributable to owners of the Parent decreased year on
year. In fiscal 2018, operating profit is improving, and we aremoving steadily forward toward achieving the targets set for fiscal 2019, the final year of the vision.
Going forward, the Electronics & Devices Segment, which
includes such outstanding Group companies as Kanematsu
Electronics Ltd. and Kanematsu Communications Ltd., will drive
the Group’s consolidated revenue. However, we also expect

Kanematsu’s Unique Characteristics
Our policy is to actively invest, focusing mainly on areas ofstrength in which we have insight and experience in orderto achieve business expansion and growth and increase
corporate value. We do not invest in natural resource development or real estate, engage in speculative investment
solely for the purpose of securing dividends or capital gains,or make equity-method investments solely for the purposeof securing a share of profit of investments accounted forusing the equity method.
We avoid holding assets that tend to fluctuate greatly invalue, such as resource development rights and real estate,
and make business investments aimed at maximizing trading

Operating Profit/Profit for the Year Attributable to Owners of the Parent/ROE(Billions of yen)

(%)

30

15

13
12

25.0

25

23.5

22.6

10

10
10

20

18.8

8
15.0

15

12.0
10.5

10

9.0

5

8.0

5

0

0
FY2015

Operating profit

16

FY2016FY2017

Profit for the year attributable to owners of the Parent

KANEMATSU ANNUAL REPORT 2017

FY2018(planned)

ROE

FY2019(planned)(Billions of yen)

40

29.1

30

26.6
23.5

21.9

23.2

17.2

18.8 18.1

33.0
30
JGAAP

22.6

Financial Section and Company Information

22.4
20

Net Cash Provided by Operating Activities(Billions of yen)

34.6

35

25

CSR and Corporate GovernanceConsolidated Operating Profit/Profit before Tax/
Consolidated and Non-Consolidated Retained Earnings

Review of Operations

In the 1980s and first half of the 1990s, Kanematsu expanded
its investments in fields where it lacked expertise and in realestate. As a result, after the Asian financial crisis hit in the latter
half of the 1990s, we were forced to implement a major

Special Features

Shareholder-Focused Management

program of business selection and concentration in 1999,
making reducing interest-bearing debt our foremost priority as
we reshuffled our assets and businesses, working for sometime to get the Group back on track. This improved our financial position significantly, and we were able to pay an interim
dividend in September 2013, our first dividend in 15 years.
Until then, we had been forced to put the rehabilitation of theCompany’s financial position before shareholder returns.
Under VISION-130, launched in 2014, we have shifted tomore shareholder-focused management, aiming to expand ourearnings base by increasing operating profit and to enhance
ROE and shareholders’ equity. Our policy is to raise enterprisevalue by making new investments that are limited, in principle,
to the amount of cash provided by operating activities, which
averages about ¥20 billion per fiscal year. If annual investments
fall short of this level, we consider multifaceted ways of returning cash to shareholders while taking into account the level ofshareholders’ equity.
Kanematsu has been included in the JPX-Nikkei Index 400,
which is regarded as an important market benchmark, since fiscal 2014. We are also one of the 200 companies included in the
JPX-Nikkei Mid and Small Cap Index, which applies the same
indicator concept as the Index 400, with a focus on companies
that offer capital efficiency and investor-oriented management.
Going forward, we will continue to actively engage withshareholders and investors, giving careful consideration to theirviews as we seek to ensure that Kanematsu remains highly
attractive to investors.
Lastly, I will continue working to both maintain financial
soundness and expand the earnings base. I intend to provide
support in terms of financial management to help the Group
achieve further growth, particularly by providing guidance related to the scale of the balance sheet, aiming to increase
Kanematsu’s enterprise value.

Kanematsu’s Progress and Strengths

revenue. Through such investment, we aim to either growconsolidated operating profit by incorporating the resulting
revenue into our consolidated results, or to expand the scale oftrading operations through minority investments. As a result,the share of profit or loss of investments accounted for using
the equity method and dividend income subject to significant
year-on-year change accounts for only a small part ofKanematsu’s overall revenue. A consequence of this is that
Kanematsu’s operating profit and profit before tax are almost
the same. This is one unique characteristic of Kanematsu.
Another of Kanematsu’s unique characteristics is that its
increase in retained earnings, on both a non-consolidated andconsolidated basis, is roughly the same each fiscal year. We target a consolidated payout ratio of 25%, aiming to implement
stable and sustained shareholder returns. The Company secures
funds from which to pay dividends by increasing unconsolidated
capital reserves using consolidated revenue, as it receives dividends from consolidated subsidiaries that maintain high payout
ratios. As a result, unconsolidated retained earnings are morethan 10 times the amount of annual dividends paid, allowing ahealthy amount of flexibility.
In April 2016, we acquired mobile phone sales company
Diamondtelecom, Inc. for ¥17.4 billion, and in April 2017, wecompletely merged it with existing Group company Kanematsu
Communications Ltd. We expect to see the full-scale effects ofthis merger beginning in fiscal 2018. Going forward, we willcontinue to aggressively make business investments to increase
consolidated operating profit by expanding our logistics business base.

22.4
17.9

20

18.5

15

14.7
11.9

10

10

6.8

5

6.6
4.2

0

0
FY2015FY2016FY2017

Operating profit
Profit before tax
Retained earnings (consolidated)
Retained earnings (non-consolidated)

1.1
FY2014FY2015FY2016FY2017

Net cash provided by operating activities (annual)
Net cash used in investing activities (annual)
Net cash provided by operating activities (4-year average)
KANEMATSU ANNUAL REPORT 201717

Special Features

1

Growth in ICT Solutions

Timeline of Kanematsu Electronics Ltd.
July 1968

Established Kanematsu Electronic Service Co., Ltd. for the installment, adjustment andmaintenance of electronic devices sold by Kanematsu-Gosho, Ltd. (now Kanematsu Corporation)

October 2013 Founded the IT distribution company Growth D Ltd. as a joint venture with Toppan M&I Ltd.
(now NDI Solutions Ltd.) and Tokyo Nissan Computer System Co., Ltd.

April 2014

Established an overseas affiliate in Thailand.

July 2015

Made Nippon Office Systems Ltd. a wholly owned consolidated subsidiary.

Market Environment• IT investment is expanding in areas related to businessgrowth strategies generated by customers’ front offices
and increasing work efficiency• IT investment is shifting from conventional patterns led
by information system departments toward businessdepartments• Understanding of customers’ sectors, industries, andbusinesses and the ability to suggest usage options (suchas on-premises or cloud-based systems) tailored to each IT
system’s purpose are now essential skills for IT vendors

Because Kanematsu Electronics Ltd. is notoverly dependent on any one manufacturer,
it handles a wide range of IT products and isthus positioned to always offer the ideal IT
infrastructure solution for each customer.
In addition to our sales locations throughout Japan and nationwide maintenanceservice network, we offer IT infrastructure
solutions through overseas locations in China,
the ASEAN region, and India.
Building on our infrastructure development business, which is in turn backed by ouraccumulated technological and development
prowess, we are focusing on solutions inareas with strong growth, such as virtualization, security, and work style innovation. We
offer one-stop service encompassing thedesign, construction, installation, operation,and maintenance of system environments
optimized for customer needs.

Kanematsu Electronics Ltd.

18

KANEMATSU ANNUAL REPORT 2017

Mineo Sakai

Yasuhiro Kikukawa

Chairman & CEO

President & COO

Kanematsu’s Progress and Strengths

The Strengths of Kanematsu Electronics Ltd.

We serve as a provider of multi-vendor solutions, taking the customer’s perspective
and not relying overly on any specific product or manufacturer
Building IT infrastructure systems that can flexibly meet customer needs

We offer comprehensive group strength that encompasses subsidiaries that handle mostly
operations and maintenance, such as Nippon Office Systems Ltd. and KEL Technical Service Ltd.
Comprehensive one-stop service that covers a wide range of customers IT investment needs, from designand construction to operation and maintenanceSpecial Features

Customer-firstpolicyProviding multivendor solutions

One-stop service

Review of Operations

Service as a Provider of Multi-Vendor Solutions Built on Strong Ties to Vendors and Manufacturers
Kanematsu Electronics Ltd. is a system integrator with thefunctionality of a trading company. Not limited to any one
manufacturer, our ability to offer service as an industryleading provider of multi-vendor solutions is one of ourgreat strengths. Based on knowledge and understanding ofeach product, technological know-how, and comprehensive

group strengths, we provide IT infrastructure systems optimized for each customer.
In recognition of its technological ability and sales performance, Kanematsu Electronics receives numerous manufacturer awards every year.

Key Vendors
CSR and Corporate Governance

Main Awards Received in 2016/2017
NetApp: Partner of the Year 2016
Hewlett-Packard Japan: 2016 Best Performer Award, Datacenter Care Best Seller Award
Dell EMC: 2016 Data Protection Solution Award
IBM: Global Award, Large Growth Leadership 2016
VMware: APJ Regional Award, Marketing Partner of the Year 2016
Cisco Systems: Reseller of the Year 2016, Data Center Architecture of the Year 2016
Red Hat: Best Ready Business Partner 2016

Financial Section and Company Information

NetApp Partner of the Year 2016

Cisco Reseller of the Year 2016

VMware APJ Regional Award
KANEMATSU ANNUAL REPORT 201719

2

The Potential of the Space Business

Reinforcing the Space Business for the Future
Timeline
1985 Established Kanematsu Aerospace Corp., a company specializing in aerospace and defense trading
2002 Acquired contract for imager (camera) on the Multifunctional Transport Satellite 2 (Himawari 7)
2005 Acquired a contract for the Lockheed Martin BSAT-3a communications satellite

2008
2015
2017

Acquired additional contracts for BSAT-3b and BSAT-3c in 2008
Also delivered satellite tracking and control software for said satellites
Began sales activities as an agency for micro satellite manufacturer SSTL
Received contract for rocket downrange operations for JAXAEntered the small launch vehicle field

Market Environment• The space equipment industry’s market is expected to
grow worldwide• The global space industry’s market is now about 70%
government and 30% commercial, with the commercial
portion growing• In 2015, the Japanese Cabinet Office’s Strategic
Headquarters for Space Development established a Basic
Plan for Space Policy

The 2016 passage of the Space Activities Act andSatellite Remote Sensing Act has made it easier for private entities to enter the space business in Japan.
Taking a global perspective, in the United States andelsewhere, private companies continue to enter theindustry, and the market is expected to expand worldwide. Since 2002, Kanematsu has provided support for
the launch of satellites in Japan as a sales agency forcommunications satellites and micro satellites. In 2015,
we began rocket downrange operations for rockets
launched by the Japan Aerospace Exploration Agency(JAXA). In January 2017, we made a strategic investment in Vector Space Systems, a U.S.-based small
launch vehicle start-up. Going forward, we will provide
support for micro satellite launching using Vector’s
rockets and build supply chains for rocket components
being handled increasingly by private industry. Also, inthe future we plan to build businesses using satellitedata, and our aim is to establish a whole value chain in
the space business.

Yoshiya Miyabe
Managing Executive Officer,
Chief Officer, Motor Vehicles & Aerospace Division

20

KANEMATSU ANNUAL REPORT 2017

Kanematsu’s Progress and Strengths

Business Model and Strategy
Comprehensive space business, encompassing ground-based facilities, launch vehicles, and satellites• Engaging in sales support for communications satellites and the sale of satellite subsystems, telemetry, tracking
and command systems, and satellite imagery• Recently entered the fields of rocket downrange operations and small launch vehicle services, developing andreinforcing the comprehensive space business

Services

Sales Support

Rocket launching

Broadcast satellites

Special Features

Equipment and Related Facilities

Rocket downrange operations
Launching and related services for rockets for micro satellites

Sales
Satellite subsystems; telemetry,tracking and command systems; satellite imagery

Strengths and Defining Characteristics
vehicle service business. We made a strategic investment in
U.S.-based Vector Space Systems (Vector), forming a businesstie-up. Under this tie-up, we are developing rockets for microsatellites and plan to commence launching and related services in 2018. Vector has received orders from several countries, including NASA in the United States, and is attracting
significant attention. Demand for micro satellite launchinghas been rising. Currently, however, micro satellites arelaunched using spare space on the large rockets used tolaunch medium-sized and large satellites. Because of this,
there are significant limitations in terms of launch timing andthe orbits that the satellites can enter. By offering a launchservice utilizing small launch vehicles specialized for microsatellites, Vector’s business will make it possible to affordably
launch micro satellites at the desired timing and into thedesired orbit. In addition, utilizing virtual machines, Vector
offers Galactic Sky, a satellite simulation platform.
The Kanematsu Group aims to expand its customer basein space-related businesses and bring micro satellites launching and Galactic Sky service to the Japanese market.

Review of Operations
CSR and Corporate GovernanceIn the space field, the Kanematsu Group has long focusedon expanding sales of such products as micro satellites andperipheral equipment as an agency for European and U.S.
companies, including satellite manufacturer Lockheed
Martin. In January 2015, the Japanese Cabinet Office’s
Strategic Headquarters for Space Development established a
Basic Plan for Space Policy, laying out an operating plan forlaunching up to 45 satellites and other equipment over thefollowing 10 years. Kanematsu regards the various government measures related to space development based on the
Basic Plan for Space Policy as an excellent opportunity todevelop its space business. We are developing a comprehensive business encompassing satellite subsystem sales, small tolarge satellites, telemetry, tracking and command systems,
small launch vehicle launching, and rocket downrange operations.
In 2015, Kanematsu entered into a domestic distributionagreement with the U.S.-based TeleCommunication Systems,
Inc. and received a contract for rocket downrange operations
from JAXA. In January 2017, we entered the small launch

Key Business Company
Financial Section and Company Information

Kanematsu Aerospace Corp
• A specialized trading company selling aerospace and defense-related
products• Handles a wide range of excellent products from overseas manufacturers,
including electronic devices, communications equipment, structuralcomponents, and materials used in aircraft, ships, automobiles, satellites,
and rockets as well as ground-based equipment, virtual reality andsimulation products, 3D laser scanners, and security-related products.
• Focusing on offering new product lines to the automotive, plant, andother industries by leveraging experience accumulated in aerospace

KANEMATSU ANNUAL REPORT 201721

Review of Operations

Electronics & Devices
Main Business

Products

Semiconductors

Semiconductors

Semiconductor devices; Sensor devices;
LCD panels; Components for smartphones andtablets; Control modules for lithium ion
batteries

Electronic
Components
and Materials

Electronic
Components

Amusement related products; Vehicle
equipment; AV related products; Camera
modules; Micro-lenses; System boards; Printed
circuit boards and materials; RFID components
and materials; Image sensors; Image sensor
back-end processing

Semiconductors/
LCD Materials

LED components; OLED materials; Solar cellcomponents; Battery components; Metal
materials for electronic and functional
components; Surface treatment agents;
Functional films; Board assembly; Finished EMS
products; IoT solutions

Optical Device
Materials

Components for display devices and opticaldevicesIndustrial
Electronics

Industrial Printers

Industrial printers and related consumables

Livingwares

Batteries; Household supplies

Semiconductor
Equipment

Semiconductor/
LCD Manufacturing
Equipment

Semiconductor manufacturing and testing
equipment; LCD manufacturing and testing
equipment; OLED production equipment

ICT Solutions

ICT and communications equipment anddevices; ICT and communication services;
System integration

MobileMobile communication terminals;
Mobile internet system and services

Foods, Grain, Oilseeds & Feedstuff
Main Business

Products

Foods

Processed fruits (frozen/canned); Concentrated fruit/vegetablejuices; Confectionery ingredients (couverture chocolate, cocoa
powder, nuts, dry fruits, dairy products, etc.); Coffee; Teas; Alcoholic
beverages (wine, etc.); Sugar; Honey; Sesame seeds; Peanuts; Pulses
and peas; Nuts and seeds; Cooked foods; Others

Meat andMarine Products

Meat products: Beef; Pork; Chicken; Mutton/Lamb; Special poultry
such as turkey and duck; Horse meat; Others
Marine products: Cephalopods (octopus, squid, etc.); Crustaceans(shrimp, etc.); Frozen fish; Seafood ingredients for sushi; Others

22

Grain, Food Soybeans,
Oilseeds

Rice; Wheat; Barley; Corn; Soybeans (for food, for oil); Defatted
soya-flake for soy sauce production; Buckwheat; Corn grits; Cornstarch; High-fructose corn syrup; Rapeseed; Cottonseed; Others

Feedstuff

Feed grain (corn, milo, soybeans, etc.); Plant protein meal (soybean
meal, rapeseed meal, etc.); Animal protein meal (Fish meal, etc.);
Other by-products; Dairy products for feed (skim milk, whey
powder); Roughage (baled hay, beet pulp pellets, etc.); Fish oil;Prebiotics (Laxel Force); Fertilizer; Others

Processed
Agricultural Products

Processed wheat (wheat flour, pasta, frozen bread dough, etc.);
Cereal ingredients; Vegetable oil; Olive oil; Others

Pet Products andGroceries

Pet food and snacks; Pet products; Tropical fish; Raw ingredientsfor pet food and snacks; Products wholesaled to DIY stores (homeimprovement retailers)

KANEMATSU ANNUAL REPORT 2017

Kanematsu’s Progress and Strengths

Steel, Materials & Plant
Products

Steel

Overseas Trading of Iron
and Steel

Export of various kinds of steel sheets, plates,
bar products, and pipe and tubing products;
Export of porcelain enamel steel sheets

Overseas Trading ofSpecialty Steel

Export of stainless steel sheets and plates;
Export of alloy steel wire and bar products

Domestic and Overseas
Trading of Full Range ofSteel Products

Import and third-country trade of ferrous raw
materials; Export and import of steel materials
and sub-materials

Healthcare

Functional food materials; Health supplements

Life Science

Pharmaceuticals and pharmaceutical andagrichemical intermediates; Pharmaceuticalingredients

Crude Oil, Petroleum
Products

Crude oil; Jet fuel oil; Gasoline; Kerosene; Diesel
oil; Fuel oil (bunker A and C); Lubricant oil andadditives for industrial and automobile use

LPG

LPG (propane, butane, autogas)

Development ofEnvironment-RelatedMaterials and New
Technologies

Heat reflective paint; Carbon credit trading;
Biomass fuelPlants, Environmental
Business

Chemical and petrochemical plants; Industrial
plants (papermaking plants, auto-manufacturing
plants and other plants); Utility and processsystems for oil and gas plants; Infrastructure
facilities; Scrap-processing facilities;
Environmental facilities

Cargo Vessels

Shipbuilding; Used ships; Equipment package
deals for new ships (including ship design,
engineering)

Machine Tools andIndustrial Machinery

Machine tools; Industrial machinery andperipheral equipment

Electric Power Cable
Projects

Electric power and communication cableprojects; Power generation plants (including
design, engineering, installation)

ODA

ODA projects (educational, medical/
pharmaceutical, water supply-related,
agricultural, environmental)

Plant& Ships

CSR and Corporate Governance

Incense materials; Lubricant-related materials;
Fertilizer materials; Papermaking chemicals;
Synthetic rubber; Petrochemical productsReview of Operations

Materials Functional Chemicals

Special Features

Main Business

Motor Vehicles & Aerospace
Products

Motor Vehicles
and Parts

Motorcycle and automobile parts; Complete Built Up (CBU) vehicles;
Construction & industrial machinery; Power products

Aerospace

Fixed-wing aircraft; Helicopters; Equipment and Components/Parts
for aircraft & helicopters; Aircraft rotable parts; Small satellites;
Space-related products, Small launch vehicles
Night vision goggles

KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

Main Business23

Electronics & Devices
Our operations include the ICT solutions and themobile businesses as well as value chains ranging
from electronics-related materials to components
and equipment. Using our wealth of electronics
technology and know-how, we are advancing new
initiatives in the IoT and AI fields and offering newvalue to contribute to society.

Masahiro Harada
Executive Officer,
Chief Officer, Electronics & Devices Division

Division Composition
The Electronics & Devices Division comprises
four business areas: 1. electronic devices andmaterials, 2. semiconductor components andequipment, 3. ICT solutions, and 4. the mobile
business. We are building supply chains andsales networks for these business areas in andoutside Japan. In addition to our longstanding
businesses in electronic devices, mainly for consumer and automotive use, and hardware component and material value chains, we offer
services to meet a wide range of customer
needs, including in the network solutions andmobile communications businesses, which havebeen growing in recent years, as well as areas
related to the Internet of Things (IoT).

Business Results and Forecasts
FY2017FY2018 (Forecast)

Revenue–External

254.3 billion yen

260.0 billion yen

Segment profit

14.3 billion yen

14.5 billion yen

Segment Profit(¥ billion)
15.0

14.3

14.5

FY2017FY2018(Forecast)

12.0

10.2

10.7

9.0

• Semiconductors• Electronic Components and Materials• Industrial Electronics• Semiconductor Equipment• ICT Solutions• Mobile

24

KANEMATSU ANNUAL REPORT 2017

6.0

3.0

0

FY2015FY2016FY2019(Forecast)GROUP COMPANY’S COMMENT

President & CEO
Kanematsu Sustech Corporation

Kanematsu Sustech Corporation
In October 2016, Kanematsu-NNK Corp. changed
its name to Kanematsu Sustech Corporation. The
name “Sustech” has its roots deep in our
corporate mission, “Support our Society withTechnology.”
Our core business is the following three businesses with our proprietary technology, such as
Ground survey & reinforcement, Wood preservation treatment and Distribution of video surveillance system.
Although the Distribution of video surveillance system, launched in 2006, is the newest of
the among three, demand for video surveillancefield, which we are good at, is increasing its market growth of more than 10% a year is expectedin the future from the viewpoint of each company, public security guard and internal control.
In recent years, the technology relating tosurveillance cameras continues to evolve, andvarious kinds of products such as those capableof notifying a specific person by face recognition, those capable of storing videos in the cloudstorage system, those supporting videos for 4K
resolution, etc. have released. From now on, thetrend for IoT that helps improve the services
using the analysis of big data generated by sensors is also expected to incorporate video data of
network cameras, which are currently the mainstream in the market.
In addition to grasping the trends of network cameras in the future, we have expanded
this business from the sale of equipment to technical services including system integration, customers required. In the near future, we willfurther evolve into a security integrator businessthat can make system proposals based on theabove technology trends.

KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

Minoru Takasaki

Our ICT solutions and mobile businesses boast solid foundations within the industry and are generating stable profits. In
the semiconductor components and equipment as well as theelectronic devices and materials fields, we maintain expansive
supply chains, handling items ranging from large LCD-related
equipment to components and materials, as well as a robust
customer base, allowing us to offer unique proposals andsolutions. In our electronic devices business, we are working
to develop globally in such areas as commercial printers, aniche market, and national ID system projects. While these
two business areas are small, they are growing steadily. We
also offer such unique added value as industrial CMOS image
sensors as well as component and module supply chains forthe amusement market. Furthermore, in electronic materials,
by providing just-in-time services, we are playing a crucial rolein helping customers build their supply chains.
At the same time, we are facing a variety of challenges,
such as rapid changes in Japan’s major electronics companies,changes in markets and their major players due to technological innovation, the saturation of PC markets, and the slowdown of smartphone markets.
Going forward, I believe that we can achieve further
expansion by rallying overall Group strengths to advance new
initiatives and create new businesses.

CSR and Corporate Governance

The Electronics & Devices Division has assumed a policy
aimed at 1. securing added value, 2. scale expansion, and3. improving quality. By pursuing business tie-ups, capitalalliances, business acquisitions, and R&D investment, we
will further develop and strengthen our current mainstay

Strengths and Tasks to Address

Review of Operations

Division Medium- and Long Term Visionbusinesses to increase added value and aim for scale expansion. In the ICT business, we will further expand the systems
business and streamline the service and support businesswhile pursuing overseas development. In the mobile business,
we will continue to seek to improve service and expand ourbusiness scale. Furthermore, by combining our current businesses with IoT, M2M, AI, cloud service, fintech, blockchain
and other cutting-edge technologies, we aim to create new
business models, raise customer satisfaction, and achieve
ongoing business development.

Special Features

In recent years, the ICT solutions business, mobile businessand electronics industry have seen accelerating technologicaladvancement and increasing price transparency. As customers
and suppliers further globalize and develop their overseas
businesses, there is greater demand for fine-tuned services
located near customer operations. Furthermore, with developments in Internet, Wi-Fi, sensing, and computing technologies, new applications and combinations of technologies,
including those related to the IoT, are advancing across all
fields, creating demand for business model innovation.
In this environment, Kanematsu is working to achieve differentiation. We are evolving from conventional sales of individual components and materials to supply modules andother such products through electronics manufacturing services (EMS) and offer package solutions. We are adding value
through just-in-time supply using advanced warehouse functions and reinforcing our one-stop ICT solutions to achieve
greater differentiation. Overseas, the Electronics & Devices
Division is strengthening operations in China, Southeast Asia,
North and Central America, and elsewhere, creating support
structures near our customers as we aim to establish global
value chains. By incorporating such innovations as IoT technologies, we will offer business models with even higher
added value. Furthermore, in each of our current businesses,
we are advancing business tie-ups and M&As with business
partners with which we can generate synergies in order toaccelerate the achievement of our VISION-130 goals.

Kanematsu’s Progress and Strengths

External Environment andStrategies to Achieve VISION-130

25

Foods, Grain, Oilseeds & Feedstuff

Committed to safe, secure food, this segment works to ensure stable supplies of a wide range of foods, including
grains, raw oil and fat materials, animal feedstuff, marine products, and other high-value-added items, through an
integrated supply system spanning raw material procurement to finished product processing.
Hiroyasu Hirasawa

Masayuki Hamasaki

Executive Officer,
Chief Officer, Foods Division

Executive Officer,
Chief Officer, Grain, Oilseeds & Feedstuff Division

Division Composition
As of April 1, 2016, to increase specialization,
more effectively implement strategies, andstrengthen customer relationships while reinforcing business development, the former Foods& Grain Division was split into the Grain,
Oilseeds & Feedstuff Division, which handles
such products as grain and animal feedstuff, andthe Foods Division, which handles such products
as processed foods and animal products. These
two divisions provide a wide range of goods andservices related to food for people and theirpets, spanning everything from grain, agricultural products, meat and marine products, ingredients for desserts, alcoholic and non-alcoholic
beverages, frozen foods, and processed foods toanimal feedstuff and fertilizer.

Business Results and Forecasts
FY2017FY2018 (Forecast)

Revenue–External

227.8 billion yen

230.0 billion yen

Segment profit

2.5 billion yen

3.5 billion yen

Segment Profit(¥ billion)
4.0

3.5

3.4
3.0

2.5
2.0

• Foods• Meat and Marine Products• Grain, Food Soybeans, Oilseeds• Feedstuff• Processed Agricultural Products• Pet Products and Groceries

26

KANEMATSU ANNUAL REPORT 2017

1.4
1.0

0

FY2015FY2016FY2017FY2018(Forecast)

FY2019(Forecast)

Foods Division In Japan, the food market faces long-term con-TOPICS

Grain, Oilseeds & Feedstuff Division We provide a steady sup-ply of safe, high-quality products through our globe-spanningvalue chains. To produce safe, high-quality products, we are reinforcing ties with farmers and actively investing in production
regions and suppliers. We are working to further improve thefunctions of the Kanematsu Group in mid-stream areas and, in
downstream areas, striving to discover and develop raw foodmaterials in order to offer richer, more enjoyable food options.

Strengths and Tasks to Address
Foods Division Kanematsu’s strengths lie in the firm relationships with business partners and customers that it has cultivatedover the years as well as in the steady revenue generated by its
handling of a differentiated product lineup unique to its Foods
Division. At present, we face the urgent task of leveraging thesestrengths to horizontally expand and create new businesses. By
revising the allocation of management resources, improving the
responsiveness of sales divisions, and effectively using assessment systems, we will improve the new business acceleration
framework and achieve robust growth.
Grain, Oilseeds & Feedstuff Division From grain, food soybeans, oilseeds, feedstuff materials, fertilizer, and processed agricultural products to pet-related businesses, all of the Grain,
Oilseeds & Feedstuff Division’s businesses boast differentiatedproducts and provide added value, a Kanematsu hallmark. These
are the division’s strengths. In terms of scale, however, thesebusinesses have considerable room for growth. Through collaboration and alliances with our partner companies, we will
improve the functions of the Kanematsu Group at every stage ofthe value chain to expand business scale and provide usefulproducts and services to even more customers.

CSR and Corporate Governanceincreases, competition to secure food resources is intensifying. At
the same time, uncertainty in world affairs is increasing. In thedomestic agricultural sector, industry reorganization triggered byagricultural cooperative reform is picking up steam. In this environment, to secure a stable supply of safe, high-quality foodresources, the Grain, Oilseeds & Feedstuff Division is going back tothe basics, honing its roles and functions in order to advance thefollowing businesses in up-, mid- and downstream areas.
Upstream, we are establishing logistics bases in raw material producing regions to secure a stable supply of grain and feedstuff
materials and promote sales in both domestic and overseas markets. Midstream, we are reinforcing the sales functions of Group
companies to create frameworks to more quickly and precisely
meet customer needs. Downstream, we are actively developing
restaurant and other businesses, mainly focused on Be Smile
Project, a“sixth industry” business entity that Kanematsu hastaken part in since 2016. Furthermore, Kanematsu is leveraging its
strengths in business development that crosses industry boundaries to accelerate expansion in the smart agriculture field, mostnotably in its business with the dairy farming IT start-up Farmnote.

Foods Division We aim to evolve from mere trading operations
by building “glocal” value chains. Moreover, by improving thefunctions of the Kanematsu Group in up-, mid- and downstream
roles, we are radically strengthening our earnings power. We are
actively implementing business investments and M&As as ways ofrealizing such functional improvement. At the same time, we are
steadily implementing growth strategies, astutely allocating management resources to focus areas and targeted overseas markets.
In addition, we are working to actively develop the humanresources who will make this implementation possible.

Review of Operations

Grain, Oilseeds & Feedstuff Division As the global population

Division Medium- and Long Term Vision

Special Featurestraction, reflecting the low birth rate and a graying and declining
population. Expanding Southeast Asian food markets, meanwhile,
present the merits of growing populations and peak demographic
windows. To capture demand in these markets, major food companies are aggressively expanding overseas. In this market environment, the Foods Division is working to reinforce the earnings
base through selection and concentration in the domestic market
while strengthening Group company functions. In the meat product business, especially, Kanematsu is strengthening coordination
with Group company Kanematsu Shintoa Foods Corporation to
improve logistics, processing, and development functions in order
to increase profit. Overseas, we are creating new businesses byapplying know-how and business models cultivated in Japanesemarkets to expand horizontally into emerging markets, mainly inSoutheast Asia. Notably, we are operating a restaurant management business in Indonesia centered on a cooked foods factorythat began operations in 2015. In such ways, we are building
value chains that extend both upstream and downstream, thereby
advancing horizontal expansion into China, Vietnam, Myanmar,
and elsewhere as we seek further business growth.

Kanematsu’s Progress and Strengths

External Environment andStrategies to Achieve VISION-130

SAKE NETWORKNETWORK, a cross-border e-commerce site, andlaunched a sake export business.
SAKE NETWORK serves as a platform connecting overseas buyers with breweries thatcannot easily ship overseas themselves or thathope to expand their overseas sales. Sake soldthrough SAKE NETWORK is shipped via
Kanematsu’s logistics and overseas distribution
channels. Kanematsu has begun shipping toEuropean markets and plans to expand service
to the United States, Asia, and other markets.
Building on the momentum of this business,
Kanematsu will further accelerate the overseas
expansion of its Foods Division going forward.

KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

While the domestic market for sake has been
contracting, the export market has been steadily expanding year after year and is expected tocontinue growing as Japanese cuisine gains
popularity around the globe. At the same time,
the Japanese government has helped improvethe export market environment by adopting
new policies aimed at increasing sake exports.
While the number of Japanese restaurants isincreasing worldwide, sake prices remain high,with availability largely limited to major urban
centers. As such, sake has yet to reach its fullmarket potential. Now, in collaboration with
web and video production company MONSTER
DIVE, Inc., Kanematsu has established SAKE

27

Steel, Materials & Plant

This segment engages in operations covering thefull range of iron and steel products, energy solutions, functional chemicals, and industrial plantand infrastructure facilities. While this segment
handles a wide variety of operations, in each business area we boast highly specialized staff who
uphold our commitment to supplying and developing high-value-added products.
Takashi Gunji
Director, Senior Managing Executive Officer,
Chief Officer, Steel, Materials & Plant Division

Division Composition
The Steel, Materials & Plant Division was
launched in April 2013, integrating three divisions that, until then, had operated independently. By gathering experts in the fields ofsteel, materials (centered mainly on functional
chemicals and energy), and plant to share
information and insights, we believe that we
can generate substantial synergies.
Businesses that span the fields of steel,materials and plant are already beginning togrow into pillars of profit. Such businesses
include the oilfield tubing business and thespecialty steel business for petrochemicalplants, which supplies chimney desulfurizationequipment and other products. At the sametime, we are actively working to develop a newgeneration of businesses for the future.

Business Results and Forecasts
FY2017FY2018 (Forecast)

Revenue–External

131.2 billion yen

150.0 billion yen

Segment profit

2.8 billion yen

4.0 billion yen

Segment Profit(¥ billion)
10.0

8.0

6.0

6.3

4.0

4.0

• Steel• Materials(Functional Chemicals and Energy)• Plant and Ships

28

KANEMATSU ANNUAL REPORT 2017

3.4
2.8

2.0

0

FY2015FY2016FY2017FY2018(Forecast)

FY2019(Forecast)

PARTNER’S COMMENTCEO

Benoit Premium Threading, LLC
Our durability was tested these past few years
amidst a global downturn in the oil and gas
industry. However, despite the difficult market
conditions, our partnership with Kanematsu
continues to grow. Today, the oil and gas industry is trying to move past the difficulties of thepast few years. The durability of our partnershipwith KG was proven by how our two companies
persevered despite the industry decline. Our
partnership with KG helped us emerge stronger
than before from the challenging market of thelast few years. We will always remain one of theleading players in our market because of thestrong foundation Kanematsu has helped us
build and because of their continued support.

We are committed to this relationship and thegrowth and stability of both the companies.

Financial Section and Company Information

Mr. Ronald L. Pederson

The Steel, Materials & Plant Division is composed of businesses
in multiple sectors. Our greatest strengths are the wide rangeof products we handle and our relationships with diverse
customers.
By taking a flexible approach, I believe that we can further develop this strength and create even stronger businessmodels while improving existing businesses. Going forward,
accurately assessing the potential of emerging new businesses
and allocating management resources appropriately willbe the key to future growth.
As we seek to maximize synergies within the division,
maintaining healthy Group management is a task that willremain vital well into the future. By giving young employees
experience overseas and at affiliated companies early in theircareers, we are focusing on developing the next generationof capable human resources.

CSR and Corporate Governance

Going forward, we will continue to position automobiles,
the environment, and energy as our three key businessareas as we aim for further growth in the Steel, Materials& Plant Division. However, as the Japanese market is
expected to hit a ceiling going forward, reflecting continued low birth rates and demographic graying, the entire
Group will accelerate measures to expand profits centeredon overseas markets.

Strengths and Tasks to Address

Review of Operations

Division Medium- and Long Term Vision

Furthermore, in environment-related efforts, we willcontinue to pursue business models that are both profitable and environmentally friendly, such as efforts to
expand the biofuel business.
At the same time, rather than restricting ourselves tosimple trading, we will actively look for opportunities toprovide additional added value through business investment, M&A, and business alliances. One example of suchan approach is reinforcing our after-sales service businessthrough tie-ups with business partners. In such ways, wewill work to expand the Group’s range of business areas
and further enhance customer satisfaction. In addition, we
will work to optimize our portfolio in and outside Japan
while maximizing synergies across the Group to make theDivision highly resilient to changes in outside factors.

Special Features

In the iron and steel business, crude oil prices, which had long
been stagnant, have begun to stabilize, and the North
American oilfield tubing business, one of our mainstay businesses, has begun to show signs of improvement.
Until fiscal 2016, we were streamlining operations, mainly
by improving inventories, while preparing our businesses formarket recovery. Now, markets are steadily beginning to
improve, especially in shale gas. Going forward, we will makeour logistics more efficient and expand our product lineup as
we work to further bolster our business.
In the chemicals business, we have been advancing a
growth strategy centered on pharmaceuticals and pharmaceutical and agrichemical intermediates. Going forward, however, we will also focus on developing new products, such as
those in the sports nutrition market, which is growing, especially in the area of health promotion products for elderly consumers. In the energy business, domestic demand is expected
to continue shrinking, so we aim to expand trading of bunker
oil mainly in Southeast Asia.
In the plant and ships business, we continue to work tocreate projects to meet growing infrastructure demand,
mainly in emerging economies.

Kanematsu’s Progress and Strengths

External Environment andStrategies to Achieve VISION-130

KANEMATSU ANNUAL REPORT 201729

Motor Vehicles & Aerospace

This division comprises the motor vehicles andparts business, which handles motorcycle andautomobile parts as well as completed built up
vehicles, and the aerospace business, which handles aircraft and parts as well as space-related
products. Leveraging its superb expertise andextensive information resources, the division
operates these businesses on a global scale.
Yoshiya Miyabe
Managing Executive Officer,
Chief Officer, Motor Vehicles & Aerospace Division

Division Composition
The Motor Vehicles & Aerospace Division wasformed in April 2013 as an integration and concentration of the highly competitive automobile- andaerospace-related business units that previously
existed as part of the Electronics & IT, Iron & Steel,and Machinery & Plant divisions. By integrating andconcentrating our motor vehicles businesses, forwhich global demand is expected to grow, we aim
to connect the supply chains and customer bases ofour motorcycle and automobile businesses andthereby strengthen our sales and sourcing capabilities. Also, bringing the aerospace-related business
units into this division has facilitated the sharing of
information about cutting-edge aerospace technologies that can be used in the motor vehicles andparts field, and we expect synergies between theaerospace and automotive units to create new
businesses. Since the launch of this division, we
have been improving our global frameworks in linewith the advance of global motorization to reinforce our roles and functions and better serve ourcustomers and business partners.

Business Results and Forecasts
FY2017FY2018 (Forecast)

Revenue–External

50.4 billion yen

50.0 billion yen

Segment profit

2.2 billion yen

2.5 billion yen

Segment Profit(¥ billion)
4.0

3.0

3.0

2.6

2.5
2.2

2.0

1.0

• Motor Vehicles and Parts• Aerospace

30

KANEMATSU ANNUAL REPORT 2017

0

FY2015FY2016FY2017FY2018(Forecast)

FY2019(Forecast)We continue to pursue the four basic policies laid out under the
VISION-130 medium-term plan: 1. maximize synergies resulting
from reorganization, 2. improve and strengthen our global business structure, 3. maximize the role of logistics transactions, and4. build new businesses besides the trading business.
The automobile market is on the verge of major innovationand change, with increasing networking giving rise to so-called
connected cars and advances in AI technology leading toward
self-driving cars. In this environment, we will continue gathering

Director,
Chief Officer,
Aerospace and Marine
Department

US-2 amphibious aircraft
Photo: Maritime Self-Defense Force,
Ministry of Defense

Shintoa Corporation
Due to expanding geopolitical risk, awareness ofnational defense in Japan has been growing steadily.
Accordingly, the country’s defense budget has beensteadily rising as new equipment is adopted. This
includes plans in the coming fiscal year for new
deployments of V-22 Osprey vertical takeoff andlanding aircraft, E-2D airborne early warning aircraft,and Global Hawk high-altitude unmanned aircraft.
For more than 50 years, Shintoa Corporation
has served as the sales agency in Japan for suchleading overseas manufacturers as Rolls-Royce in the
United Kingdom and Honeywell in the UnitedStates, supplying aircraft and ship engines andinstruments to Japanese government agencies,
including the Ministry of Defense and Ministry ofLand, Infrastructure, Transport and Tourism. All
three new types of aircraft mentioned above,
including the V-22 Ospreys, use Rolls-Royce engines.
We also sell around half of all the components
required to maintain the engines of the escort shipsof Japan’s Maritime Self-Defense Force. In addition,
we are currently focusing on sales of cutting-edgeengines for more than 20 new 3,000-ton-class escort
vessels that the Maritime Self-Defense Force plans tobuild.
Furthermore, as a sales agency for the Canadiancompany CAE, which is one of the world’s leading
simulator manufacturers, we provide education andtraining so that newly adopted aircraft and otherequipment can be operated with safety and assurance.
Currently, we have two branches located in the
United States and one branch in the United
Kingdom. Keeping close contact with our overseas
manufacturers, we are expanding our sales activities
to satisfy our nation’s demand.
In the future, based on the achievements andtrust we have built with our customers, we will keep
working to support Japan’s use of the aircraft andmaritime vessels that play an important role inJapan’s defense, disaster recovery assistance, andcontribution to international society. These efforts
will ultimately contribute to the Kanematsu Group’s
ongoing development.

KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

Hitoshi Kubota

Our greatest strength is the customer base and roster of business partners we have built up over decades by doing business
together. We receive high marks for our excellent product andsolution proposals, which leverage our expertise and extensive
informational resources gained through our dealings withindustry-leading customers and partners. Taking a step beyond
our existing trading business, we will deepen ties with customers and business partners around the world. Furthermore, wewill aggressively make necessary investments and focus ondeveloping entrepreneurial human resources. By concentrating
business resources in specialized fields, we aim to lead theindustry and achieve further growth.

CSR and Corporate Governance

GROUP COMPANY’S COMMENTStrengths and Tasks to Address

Review of Operations

Division Medium- and Long Term Vision

information about and conducting research into cutting edge
technologies, at the same time investigating new business creation and cross-sector business partnerships. To achieve this, wewill keep seeking out new technologies and promising start-ups
in and outside Japan.
In the aircraft business, we will expand sales of aircraft andparts in the growing defense-related and commercial aircraft
markets. At the same time, more efforts will be made in thespace business to advance new business development. As one
example of these efforts, in January 2017 we made a strategic
investment in Vector Space Systems, a small launch vehicle startup in the United States. Through these and other efforts, we willbuild the foundation of our space business.

Special Features

The worldwide motorcycle and automobile market is growing
ever more globalized and multipolar. In this market, we are striving to strengthen the earnings base by enhancing our global
framework, reinforcing logistics, and building quality management and testing functions to bolster our roles and functions.
Our businesses are expanding through the deepening coordination between branches established in Chongqing, China and
Mexico in 2014, a branch established in Detroit in 2015, as wellas other existing branches. We also plan to expand the automobiles and parts business in Middle Eastern markets.
In the aircraft business, we are promoting sales to theJapanese government of the Cessna Citation series. In thecommercial aircraft market, which is forecast to see major
growth in demand, we are promoting the sale of Bombardier
Aerospace’s new C Series airliners. We will expand our aircraft rotable parts business, which currently operates mainlyin Europe and North America, by moving into new regions
and increasing the range of parts we handle. Along with theaircraft business, we will focus on the space business, inwhich major market growth is expected, to expand ourearnings base.

Kanematsu’s Progress and Strengths

External Environment andStrategies to Achieve VISION-130

31

CSR (Corporate Social Responsibility)
Kanematsu’s Approach to CSR
The Kanematsu Group defines the pioneering spirit as fostered by our predecessors along with the wisest use of our creative imagination and ingenuity, conduct abiding by the rules of the organization, and fulfilling our corporate social
responsibilities by engaging in sound, flourishing businesses as its Corporate Principles. The Group conducts its business inaccordance with these principles and the Company’s Code of Conduct. Based on the Company’s Corporate Principles,
Kanematsu’s Code of Conduct serves as a set of standards for all of Kanematsu’s corporate activities.
The Kanematsu Group offers a wide range of products and services in Japan and around the world. The Group thus
regards creating shared value while meeting the needs and expectations of its many stakeholders, including shareholders,investors, business partners, local communities, and employees, as its corporate social responsibility.
Kanematsu’s Code of Conduct
1. Origin of corporate
activities
2. Fair transactions

We became involved in corporate activities to serve our various stakeholders by providing socially valuable goods andservices in accordance with the aim of our founder to realize a sustainable society.
Our corporate activities are conducted in compliance with laws and ordinances in Japan and abroad, international rules
and practices, and internal rules as well as with social common sense.
3. Information manageInformation is properly managed to protect personal information, customer information, and intellectual property and isdisclosed in a timely and proper manner to establish mutual trust between Kanematsu and the community and mainment & disclosure
tain a high level of transparency.
4. Respect for human rights We respect human rights and do not discriminate. Employee career development and capability development are
actively supported. Diversity, personality, and character are respected so as to create a dynamic corporate culture.
5. Consideration of theWe exercise sufficient consideration in our corporate activities to maintain a sound global environment for sustainablegrowth.
global environment
6. Social contribution
We are aware of the importance of our social responsibility as good corporate citizens, and proactively undertake social
contribution activities. Employee activities to contribute to community development and to comfortable and safe living
are supported.

CSR Framework
Kanematsu has established a CSR Promotion Office within its Personnel & General Affairs Department as well as a
Companywide CSR Committee. These bodies formulate policies and reinforce initiatives for the Group as necessary toaddress various CSR-related issues, including social contribution and environmental preservation.

CSR through Our Business Activities
The Kanematsu Group engages in CSR initiatives in the course of its ordinary business activities. In and outside Japan, we
focus on expanding businesses that make best use of our capabilities as a trading company to sustain and improve theenvironment. We also strive to conduct business with due consideration given to biodiversity.

CSR Procurement• Does the supplier conduct its business activities with due
consideration given to the environment?
• Does it conduct its business activities with due consideration
given to human rights? (Respecting bans on child labor andforced labor, etc.)• What is its compliance record like?
• Does it meet the latest quality standards? (Usage restrictions
on harmful substances that go beyond legal requirements)

32

KANEMATSU ANNUAL REPORT 2017

Flow of CSR Procurement
Suppliers of raw materials/
business partners(suppliers of each manufacturer,
producer, etc.)

Procurement of raw materials
by Kanematsu

Supply chain

CSR procurement refers to the practice of a company requiring
its suppliers of materials, parts, and products to implement
CSR initiatives in addition to meeting such everyday requirements as consistently high quality and speed. CSR procurement
is growing in importance year by year as awareness of CSR
increases among companies and the general public.
We have established systems to promote CSR activities,
including CSR Action Guidelines for Supply Chains, to meet the
CSR procurement requirements of our business partners. The
requests made by business partners as part of CSR procurement activities touch on a wide variety of concerns, including
employee relations, health and safety, environmental activities,
CSR management, and corporate ethics. Areas of concern
include the following.

CSR procurement
required ofcustomers by
Kanematsu(business with companies
practicing CSR)

Added value such as
manufacturing, processing,and customization by Kanematsu
Sales of products by Kanematsu
Buyers of products(sales offices, retailers,manufacturers, government offices, etc.)

Sales by customers

End users

CSR procurement
required ofKanematsu bycustomers(CSR practices)Kanematsu’s Progress and Strengths

Environmental Businesses
Environmentally Friendly Ground Improvement Using Lumber
treatments, minimizes these risks. And, by using large volumes ofdomestically produced timber, we are contributing to the revitalization of forestry (specifically, environmentally friendly forest management) in Japan.
In addition, we offer LP-LiC, a method of ground improvement
aimed at preventing liquefaction that also uses wood piles. Thismethod has been used in liquefaction prevention following theGreat East Japan Earthquake. Jointly developed with another company, LP-LiC involves driving wood piles into the ground in highconcentration. Moreover, the technology is attracting attention
because it both supports environmentally friendly forestry and helps
mitigate global warming by acting as a carbon sink.
Going forward, Kanematsu Sustech will continue to find effective, long-term uses of wood, a source of comfort and warmth,with an eye toward environmental friendliness.

Special Features

Kanematsu Sustech Corporation, a Group subsidiary, is receiving
increasing orders for its Eco Wood Pile, a method of ground
improvement that uses wooden piles. Conventional construction
methods use cement and iron-based materials for foundation stabilization when building houses and other small structures.
Unfortunately, the production of such materials generates large
amounts of CO2. Eco Wood Pile instead employs wood, which
absorbs CO2 during its growth process, greatly reducing the resulting environment burden. A number of major housing construction
companies that value environmental performance have adopted
the Eco Wood Pile method, which has been evaluated favorably,
and, in 2016, the cumulative total number of houses built using themethod surpassed 10,000. In the past, ground stabilization technologies based on wood piles were at greater risk of rot and insect
damage. Kanematsu Sustech’s proprietary lumber preservation
treatment technology, which combines anti-rot and anti-termite

Review of Operations

Promoting the Use of Electric Vehicles
northern part of the state, and real time information services arebeing provided to EV drivers while various data about EV usage
patterns is collected, analyzed and studied. The results of thisdemonstration project are expected to help improve the usability of
EVs and promote their adoption in the United States and aroundthe world. Through this project, Kanematsu is helping to reduce
CO2 emissions and improve energy efficiency.

CSR and Corporate GovernanceIn cooperation with Nissan Motor Co., Ltd., Kanematsu was selected by NEDO1 to implement a demonstration project aimed at
expanding the effective range of electric vehicles (EVs) on inter-cityroutes in northern California, in the United States, and has begun
operations at the demonstration sites.
This demonstration project is being implemented in cooperation with the government of California, where consumer EV sales
are currently the highest in the country, as well as EVgo,2 a U.S. EV
charging infrastructure operator. Under the project, more than 50
new chargers have been installed at 20-plus locations in the

1. New Energy Industrial Technology and Development Organization.
2. The biggest EV charging infrastructure operator in United States, establishedin 2010.

Financial Section and Company Information

Environmental Initiatives
Kanematsu is engaged in environmental businesses in Japan and overseas that help protect and improve the global
environment. The global Group also continuously works to improve its ISO 14001-based environmental management
system. By effectively operating this system, the Group is reducing electricity and paper consumption, promoting comprehensive waste sorting and reduction, and helping to reduce CO2 emissions. Through these efforts, the Group strives
to contribute to the creation of a low-carbon, recycling-oriented society.
For more details, please refer toKanematsu’s Environmental Report.

http://www.kanematsu.co.jp/en/csr/environment/environmental_report.html
KANEMATSU ANNUAL REPORT 201733

Human Resource Initiatives
Human resources are a vital asset for Kanematsu, and retaining and training human resources is important for theCompany’s growth. Kanematsu maintains systems to promote work-life balance, including child care support and familycare support systems, seeking to create workplaces that are comfortable and rewarding for employees. Furthermore, we
focus considerable effort on human resource development, an indispensable part of Kanematsu’s growth.

Comment from theGeneral Manager of the
Human Resources &General Affairs Department

Fumiko Miyakado
General Manager,
Human Resources & General
Affairs Department

34

It goes without saying that Kanematsu’s greatest asset is its people.
Indeed, the VISION-130 medium-term vision includes “develop global professionals” as one of its initiatives aimed at “being a ‘Value Creator’ and continuing to build new businesses.”
Our off-the-job training, in which employees are temporarily taken out of their normal work environments for education and training, includes the following.
• Level-specific training, starting with introductory training for new hires• Practical lessons on the basics and key points of business operations• Foreign language training
In addition, we conduct training in business plan formulation to foster the skills needed to create new businesses. In terms of on-the-job training, we also have an overseas dispatch training system for younger
employees.
Going forward, we will focus on training for local staff overseas and training aimed at reinforcing management capabilities.
In addition to these, we are implementing a number of other personnel systems, such as personnel rotation and evaluation. I believe that the effective use of these systems will help us develop truly global professionals. As such, we will endeavor to further enhance our personnel development framework.

Training in Business Plan Formulation

Overseas Dispatch Training System

Kanematsu aims to improve corporate value by further developing areas of strength, making new investments for businesscreation, and taking on other new challenges. To this end, we
have created training courses covering business plan formulation to impart the skills necessary for drafting roadmaps to thecreation and successful launch of new businesses.

Kanematsu operates an overseas training system for employees
in their first five years with the Company. Participants are dispatched to overseas subsidiaries, representative offices, andbusiness corporations to experience local work- and lifestyles foraround six months. This system exposes employees to diverse
values and provides the experiences, insights, and knowledge
that members of a globally operating trading company need.

Business Plan Formulation Trainee’s Perspective

Overseas Dispatch Training System Trainee’s Perspective

This training provided me withvaluable experience in the process of formulating a businessplan, from discussing and debating with team members to drafting and presenting the plan. My
team was composed of participants with varying levels of
experience working in various
Ayako Ishiguro
roles in different parts of theCredit Control Department,Group. The combination ofCredit Control Section No. 4
insights and experiences fromthese diverse backgrounds led to
ways of thinking and perspectives that felt new and fresh. I’m
thankful to have had the opportunity to discuss and share ways ofthinking with them outside of normal work.
The plan we put together through the training did not lead to agreat deal of revenue, but all of us on the team worked on it
together, thinking about what we could each contribute, to overcome the difficulty of creating something new. As a result, when
we presented it, there was a real sense of accomplishment.
Working in a corporate division, I became more involved in the
project after most of the initial difficulty on the part of the sales
division was over. Going forward, I will do my utmost to support
our sales divisions as a member of the larger team that is
Kanematsu as we work to create new businesses.

I embarked on my training inShanghai, China, with the mission of building experience inoverseas cooked foods sales
and the ultimate aim of helping
expand sales of cooked foods inJapan, across Asia, and aroundthe world going forward. While
there, I learned through experiDaisuke Horience about finance, accounting,Food Department No. 2,
and credit management in
Cooked Foods Section
China, and made new proposals
for cooked foods to restaurants
and convenience stores. Through this training, I learned firsthandhow difficult it can be to work overseas. Besides obvious differences in the language and culture, ways of thinking are also different,
and things that are a matter of course in Japan are not always
understood. There were times when I came up against this wall andfaced real setbacks, but I think that having had this experience
early on in my career will prove an asset for me. I also got to meet
and work with other dispatched employees and senior colleagues,
including those in other sections, as well as and local staff who I
would not have had the chance to meet in Japan. I feel that thisbroadened my perspective and taught me a lot about how I should
conduct myself and how to work with and learn from local staff toincrease sales when stationed abroad in the future.

KANEMATSU ANNUAL REPORT 2017

Kanematsu’s Progress and Strengths

Diversity
Helping Women Succeed
Action Plan to Help Women Excel
In line with its efforts to raise its enterprise value, Kanematsu aims to utilize diverse human resources, allocating them where they
can be most effective and allowing individuals to make the most of their abilities. To help women excel in the Company, we haveformulated the action plan outlined below.

Action Plan for Helping Women Excel (Outline) Plan duration: April 1, 2016 to March 31, 2019
1. Although Kanematsu hires a certain number of women every year, the proportion of women in core operations and management positions is low.
2. The Company’s retention rate for female employees is lower than that for male employees.

Targets

1. Increase the number of women working in core operations.
Within job class II, which comprises the main part of employees working in core operations, as of March 31, 2016 increase the number of employees
in assistant section manager-level positions by about 1.5 times from the present 17 to 25.
2. Create an employment environment that makes it easier for women to continue working to improve the retention rate.

Female career-track employees 1
Responsibility band 3

2

FY2013

FY2014FY2015FY2016FY2017

49

51

55

54

56

11

12

18

17

20

Special Features

Issues theCompany Faces

1. Work location is determined according to the Company’s needs and not restricted to any specific area. These employees eventually move into
core operations.
2. Equivalent in level to assistant section manager.

Mariko Arai
President, Kanematsu G.m.b.H.,
Kanematsu Europe PLC

Finding the Seeds of New Businessand steel products and applications are createdevery day.
As president, I have the opportunity to step outside iron and steel products, the area that I’ve spent
most of my career in, and come into contact withbusinesses I’ve never before been involved with,such as foods, chemicals, machinery, IT, automobile
parts, and finance. Every product and market has its
own trading practices, so it’s not easy, but I seek tobring a new perspective as I enthusiastically search
for new ideas. By doing so, I hope to help expand
Kanematsu’s business outward from Europe.

I have been working for Kanematsu USA in our steel
department since 1992. I have spent almost all ofthat time working in our Houston office, but I also
had an excellent experience of one year of training
in Kanematsu’s Headquarters in Tokyo in 2000. Mostof my business in the steel department is buying
steel from Japan and supplying it to customers in
the USA, so my one year of experience in Japan has
helped me immensely ever since as I learned muchbetter how Japanese steel mills do business.
I attended high school in Switzerland at an
International School with students from over 40 different countries. So, after that I wanted to havesome career in international business dealing withpeople from all around the world. Fortunately, I’ve
been able to do that at Kanematsu, and it has beena great pleasure for me. In addition to doing business and spending time in Japan, I have had theopportunity to do business in more than a dozen
other countries around the world.
My work has always been challenging and everchanging as the market and world trade dynamics
are always in flux. So, it has been impossible to bebored, and I have always been given the opportunity
to pursue new, creative business ideas. Some ideas
have failed and some have succeeded, but in orderto create something truly significant we have to bewilling to try and take the chance. I have always
admired Kanematsu’s entrepreneurial spirit and liketo encourage other coworkers to have this attitude.
I would also like to add that over the years
I have met and worked with many different people at Kanematsu, and I have found them to besome of the kindest, friendliest and most decent
people I know. I truly appreciate all of my years
at Kanematsu.

CSR and Corporate Governance

I’ve worked in iron and steel product trading since
I joined Kanematsu, and I’m currently stationed
as president of Kanematsu Europe PLC and
Kanematsu G.m.b.H. in Germany. As president,
it’s my job to manage both companies. In addition,from Dusseldorf, where I’m stationed, I conductbusiness related to iron and steel across Europe,
including Spain, Eastern Europe, and the Baltic
States. At first glance, “iron” and “women” mayseem rather far removed from each other, but
in reality, iron products are all around us, an integral part of everyone’s everyday life. New iron

Review of Operations

Perspective of a Female
Employee Stationed Overseas

Utilizing Global Professionals

Global Staff Comment

Kanematsu USA Inc.,
Houston Branch

KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

Brian Barnett

35

Work-Life BalanceKanematsu is proactively committed to ensuring a good work-life balance, and discourages long working hours to foster a healthy
workforce. We have been improving the working environment so that employees can treasure the time they spend with their families
as well as the time spent on hobbies and participating in social activities.

Child Care Support

Bronze Week

In addition to comprehensive maternity and childcare leave arrangements, we allow mothers to work short hours and flexi-time after
taking leave for pregnancy or care reasons, so they can continue tocare for growing children after rejoining the workforce.
Many mothers take childcare leave, and when they return towork, they generally go to the same divisions in which they worked
before. These measures have been taken to create a pleasant working environment.

On April 1, 2016, Kanematsu introduced a new “Bronze Week”
system for systematically encouraging the use of annual paidvacation days. This is intended to make it easier for employees
to take off the time they are entitled to, improve work-life balance,and create workplaces that are comfortable and rewarding. In
its first year, the system raised the rate of annual vacation days
used from around 60% to 65.6%.

Number of Employees Taking Childcare Leave
FY2010FY2011FY2012FY2013

10

9

3

4

FY2014FY2015FY2016FY2017

14

10

7*

9

* Includes two male employees

Family Care Support
In addition to the conventional family care leave system,
Kanematsu has recently enabled special paid holidays for familycare. We also have in place a child-raising and care consultation office for one-to-one consultation on these matters.

Refreshment Day
By urging employees across Kanematsu to do no overtime on
Wednesdays, we aim to improve working efficiency andencourage a better work-life balance. We have also set aside
one day every month as a special “Refreshment Day” during
which we monitor hours worked, to bring down overtime.

Bronze Week System Outline• Makes it easier to take off a bridge day between two
ordinary days off or the day before or after a three-day
weekend, effectively extending the number ofconsecutive days off for the individual to four or more.
• The system is designed to allow employees to choose
their own days off. At the start of the fiscal year, eachsection designates at least four days in the year as
candidate days for paid vacation, and each individual
then chooses at least two of these to take off.
• Applies to all employees in principle, excluding those on
dispatch within Japan, stationed overseas, or on leave.
• The system, which encourages the use of paid annual
vacation, especially multiple consecutive days off, isnamed “Bronze Week” in reference to the yearlyclusters of public holidays in Japan popularly known as“Golden Week” and “Silver Week.”

Annual Vacation Usage Rate(%)
80

Introduction of the Bronze Week system
to promote the use of paid vacation

General Employer Action Plan
70

In December 2010, Kanematsu was awarded the “Kurumin”
certification of support for the nurturing of the next generationby the Ministry of Health, Labour and Welfare’s Tokyo Labor
Bureau. In January 2017, we received the “Kurumin” certification a second time.
In October 2016, we formulated ourfourth General Employer Action Plan.
Based on this plan, we are continuingmeasures to fully harness employee potential by encouraging a better balance
between work and childcare duties and bycreating a more pleasant workplace for all.

36

KANEMATSU ANNUAL REPORT 2017

65.6%

60

58.0%

58.8%

FY2013

FY2014

60.4%

59.7%

FY2015FY201650

FY2017

Kanematsu’s Progress and Strengths

Social Contribution
The Kanematsu Foundation for the Research of Foreign Tradeof Kobe University, the Kanematsu Foundation for the Researchof Foreign Trade, and Kanematsu Corporation. Every year,
graduate students are invited to submit their dissertations toapply for the fellowship. The Kanematsu Fellowship thus provides graduate students in the fields of economics, management, and accounting across Japan with opportunities to win a
research fellowship and to present their research.
In fiscal 2016, of 11 dissertations submitted, one was selected
for the fellowship. In addition to a financial stipend, the author wasawarded the title of junior research fellow at the Research Institutefor Economics and Business Administration of Kobe University
for the coming five years. Kanematsu will continue to support
research in the fields of economics, management, and accounting
and contribute socially through the Kanematsu Fellowship.

Special Features

The Kanematsu Foundation for the Research of Foreign Tradewas established in 1940 with the purpose of contributing toeconomic development through support and funding for
research into trade and international economics. The
Foundation is jointly operated by the Research Institute for
Economics and Business Administration of Kobe University and
Kanematsu. In the more than 70 years since its founding, theFoundation has earned an international reputation as a top
level research institute focusing on international economics
and management and has won high acclaim in Japan andoverseas for its long list of research achievements.
In 1993, the Kanematsu Fellowship—a Kanematsu postgraduate research scholarship—was jointly established by the
Research Institute for Economics and Business Administration

Review of Operations

Reconstruction Support Activities
such support activities, which included hearing from
Rikuzentakata’s Mayor Toba about the city’s latest community
building initiatives, visiting temporary housing, and talking withresidents directly to help participants better understand the community’s current needs as they sought to help with recovery. In
addition, the program included a business proposal meeting,where a local NPO and other groups made presentations.
Kanematsu will continue to provide support in line with theneeds of the area and local residents in order to assist in thecity’s development.

CSR and Corporate Governance

After the March 2011 Great East Japan Earthquake, theKanematsu Group donated money and supplies to affectedareas. Since September of the same year, the Group has provided ongoing support for Rikuzentakata city in Iwate, through its
own volunteer program. In addition to the Company’s volunteer
leave system, Kanematsu has a system to support employees
volunteering in disaster-affected areas that includes reimbursement of transportation and accommodation expenses for
employees participating in the Company’s volunteer program. In
November 2016, we marked the 15th occasion of engaging in

Financial Section and Company Information

Kanematsu Invitational Kids’ Soccer Tournament
Since 2011, Kanematsu has held kids’ soccer tournaments at
its athletic field in Chiba Prefecture, seeking to provide a venue
for enjoying soccer to children who have limited opportunities
to play outside due to the nuclear accidents following theGreat East Japan Earthquake. The 2016 Kanematsu Invitational
Kids’ Soccer Tournament invited six teams from Fukushima,
Chiba, and Kanagawa prefectures. A total of 93 fifth and sixth
grade boys and girls competed for the title. The tournament
used fair trade-certified soccer balls in support of decent working environments, education and welfare in the places wheresuch balls are made. Kanematsu will continue to host thistournament as part of its social contribution efforts.

KANEMATSU ANNUAL REPORT 201737

Corporate Governance
Our Basic Stance on Corporate Governance
Kanematsu’s founder himself put down the words “Let us sow and nurture the seeds of global prosperity.” Basedon this, The Kanematsu Group recognizes the pioneering spirit fostered by our predecessors along with the wiseuse of our creative imagination and ingenuity, fulfilling our corporate social responsibilities through sound, flourishing businesses, and adherence to Company rules as key parts of its Corporate Principle. We operate in accordance with this principle and our Code of Conduct, striving to carry out corporate activities to serve our various
stakeholders and help realize a sustainable society by providing socially valuable goods and services.
To this end, Kanematsu endeavors to strengthen corporate governance to increase the transparency of management and create a more equitable, efficient, and sound company. We work to improve corporate governancewith the aim of increasing our enterprise value and winning the support of all our stakeholders, including shareholders, customers, business partners, and employees.

System of Corporate Governance
Board of Directors
Directors are appointed to the Board for one-year terms toallow the Board to respond appropriately to changes in thebusiness environment.
Kanematsu has adopted an executive officer system toimprove the flexibility of business execution, speed up management decision making, and further clarify roles and responsibilities through the separation of supervisory and executivefunctions.

The Board of Directors is made up of eight directors. The Board
decides on matters required of it as set out in law andKanematsu’s Articles of Incorporation as well as business policies and other important matters, and oversees business execution by directors. Three of the eight directors are outside
directors to ensure that the Board conducts appropriate
decision making and to further reinforce the supervision ofbusiness execution. In principle, the Board of Directors meetsonce a month, with additional meetings held as necessary.

Advisory Bodies
To reinforce the objectivity, independence, and accountability of
the Board of Directors, Kanematsu has established a Nominating
Committee and Compensation Committee as advisory bodies
under the Board of Directors.
• Nominating Committee: Comprises the president as committee chair and the three outside directors. The committee
provides advice and recommendations to the Board of
Directors based on deliberations regarding such matters as
proposals for the General Meeting of Shareholders related tothe appointment and dismissal of directors and the necessary

policy, rules, and procedures for reaching related resolutions.
• Compensation Committee: Comprises the president as committee chair and the three outside directors. The committee
provides advice and recommendations to the Board of
Directors based on deliberations regarding such matters aspolicy regarding the setting of compensation levels and types
for individual directors and executive officers as well as thenecessary policy, rules, and procedures for reaching related
resolutions.

Corporate Governance Structure
General Meeting of Shareholders
Appointment/Dismissal
Consultation

Board of Directors

Advice/Suggestions

Eight directors(including threeoutside directors)

Nominating Committee
Compensation Committee

Appointment/Dismissal/
Supervision

President

Appointment/
Dismissal

Appointment/Dismissal
Audit

Audit & Supervisory Board
Four Audit & Supervisory
Board Members(including three outside members)

Collaboration

Audit
Collaboration

Management Committee
Project Deliberation Committee
Internal Control and Compliance Committee

Internal Auditing
Department
Internal
controls

CSR Committee

Accounting audit

Accounting Auditor

Collaboration

Marketing Area/Support Area, Domestic and Overseas Offices(As of June 23, 2017)38

KANEMATSU ANNUAL REPORT 2017

Kanematsu’s Progress and Strengths

Management Committee
To facilitate rapid decision making and flexible management,
Kanematsu has set up a Management Committee composedof executive officers, including the President. In principle, theCommittee meets at least twice a month. The Committee
establishes basic policies for Companywide general businessexecution in accordance with basic policies determined by the
Board of Directors and provides instruction and guidance on
the execution of business. The Management Committee is also
attended by the outside directors and outside Audit &Supervisory Board members.

Project Deliberation Committee
The Project Deliberation Committee was established toenhance debate and speed up decision making on important
projects. The Committee considers and discusses matters froma Companywide perspective and submits recommendations to

the designated decision makers for each item before the decision must be made. In principle, the Committee meets at least
twice a month.

Special Features

Audit & Supervisory Board
The Audit & Supervisory Board acts as an independent organ
to audit directors’ performance of their duties. Specifically, thefour Audit & Supervisory Board members, including three outside members, receive reports from directors and employees on

the performance of their duties as required, and attend meetings of the Board of Directors, Management Committee,
Project Deliberation Committee, Internal Control andCompliance Committee, and other important meetings.

Reasons for Selection of Outside Directors and Outside Audit & Supervisory Board Members
Name

Outside Audit &Supervisory
Board members

Fiscal 2016 Attendance

18 of 18 Board of Directors meetings

Seiichi Katayama

So that he can utilize the wide-ranging knowledge and insight regarding
corporate management as well as expertise amassed as a professor of
economics—albeit with no direct experience in management other thanas an outside director—in Kanematsu’s management and provide management oversight.

17 of 18 Board of Directors meetings

Tsutomu Yajima

So that he will provide advice to management and appropriate oversight ofbusiness execution based on his sophisticated insight and wealth of experience in corporate management, including as a managing executive officer of
JFE Steel Corporation and president and CEO of JFE Shoji Trade Corporation.

—*

Sohei Ogawa

So that he can audit Kanematsu based on his abundant experience in theinternal management of financial institutions and wide-ranging insight.

18 of 18 Board of Directors meetings
15 of 15 Audit & Supervisory Board meetings

Yonosuke Yamada

So that he can audit Kanematsu based on his expert insight and experience
as a lawyer

18 of 17 Board of Directors meetings
15 of 14 Audit & Supervisory Board meetings

Tsukasa Miyachi

So that he can audit Kanematsu based on his expert knowledge and experience as a certified public accountant.

18 of 18 Board of Directors meetings
15 of 15 Audit & Supervisory Board meetings

CSR and Corporate Governance

Yutaka Hirai

Review of Operations

OutsideDirectors

Reasons for selection

So that he can utilize his wide-ranging insight and many years of businessexperience, including that as representative director and executive vice president of Daifuku Co., Ltd., and wide-ranging insight in Kanematsu’s management and provide management oversight.

* Appointed on June 23, 2017.

Internal Auditing
To ensure that proper accounting records are kept and to monitor appropriate business execution, Kanematsu has establishedauditing rules, in accordance with which the Internal Auditing Department conducts internal audits of all divisions and consolidated subsidiaries.

Internal Control System and Risk Management System
Maintaining the Internal Control Systemestablished the Internal Control and Compliance Committee.
We develop, operate, assess, and improve internal controls
related to financial reporting to ensure the correctness of theGroup’s reporting in line with the internal control reporting systems defined in the Financial Instruments and Exchange Law.

Financial Section and Company Information

To comprehensively assess risks facing the Kanematsu Group,
to comply with laws and regulations relating to operational
effectiveness and efficiency and business activities, to protect
its assets, and to ensure the reliability of its financial reporting,the Kanematsu Group has built an internal control system. To
operate this system effectively and efficiently, we have also

Compliance
In light of the importance of corporate legal compliance, wehave set up internal control systems for the Company and theGroup as well as an Internal Control and Compliance Committee
to implement said systems, seeking to strengthen our internal
compliance system. In addition to preparing a ComplianceHandbook that covers all Group companies, we work toenhance awareness of and training on sensible behavioral ethics.
The Group also maintains a hotline system that allows employees to directly report to or consult with the Internal Control andCompliance Committee or an outside lawyer.
KANEMATSU ANNUAL REPORT 201739

Diagram of the Kanematsu Group Compliance System
Board of Directors

Instructions, Feedback

Management Committee

Reports, Consultation

Audit & Supervisory Board

Internal Control and Compliance Committee
Internal Control and Compliance Committee Members
Promotion Office: Legal & Compliance Department(For items that do not have a controlling division at Kanematsu Corporation)

Marketing Area/Support Area
Departmental Compliance Officers(Chief officers of business divisions and administrative departments)

Officers & Employees of Kanematsu Corporation

Group Companies
Compliance Officer(President of Head of Location)

Officers & Employees of Group companies*Sub-subsidiaries report through their immediate parent companies(As of June 23, 2017)

Elimination of Antisocial Forces
One of Kanematsu’s compliance commitments is to take a firm
stand against and eschew all relationships with antisocial forces.
To promote the elimination of antisocial forces, Kanematsu
belongs to the Tokyo Metropolitan Police Department’s Special
Violence Prevention Countermeasures Association, cooperatingclosely on a regular basis by sharing information. The Personnel& General Affairs Department is designated to coordinate
Companywide response and information gathering to address
any unreasonable demands from antisocial forces, and theCompany maintains a framework for responding in coordination
with outside organizations, including the police and attorneys.

Information Management System
With regard to information management, we have establishedstandards for the custody, retention, and disposal of accounting
records, balance sheets, agreements and contracts concerning
the basic rights and obligations of Kanematsu, certificates
related to properties, and other similar documents. As information is a valuable corporate asset, we have also formulated,
and work to reinforce, rules on information security management with the aim of protecting and managing personal dataand other information in line with compliance requirements.

With regard to the security of information systems, theGroup has established information security management rules
aimed at preventing leaks and losses of important informationand established standardized rules covering the use of PCs,
networks, and e-mail to protect corporate and personal information. Furthermore, the Group continually reviews its systems
framework aimed at enhancing security and operates andmaintains said framework to ensure that security is maintained
at necessary and appropriate levels.

Risk Management
With respect to business risks that may affect our operations,such as market risk, credit risk, investment risk, or country risk,
Kanematsu has designated departments responsible for eachtype of risk, established internal regulations and detailed
enforcement regulations, and prepared operational guidelines.
We furthermore use training and other means to ensure thorough awareness of risk management. The Company also sets up
cross-departmental committees as necessary to control risks.
To comprehensively assess risks facing the KanematsuGroup, promote operational effectiveness and efficiency, andensure the reliability of financial reporting, we have establishedthe Internal Control and Compliance Committee as aGroupwide organization. We have established an approval
request system based on designated levels of authority tominimize business risks. The Project Deliberation Committee
considers important investments and loans by comprehensively
examining relevant risks.
To address the risk of crises related to the occurrence ofmajor events, such as natural disasters, we have put in place asystem, including specific rules and policies of action, to ensure
the appropriate management of the Group at such extraordinary
times.

Groupwide Activities
Group company presidents meet twice a year and at other times as necessary to share information on Groupwide business activities.
These meetings are aimed at ensuring mutual understanding and awareness with regard to corporate governance issues.

Disclosure
We promote proper and transparent management by promptly and accurately disclosing important corporate information about
management to shareholders and all other stakeholders, institutional investors, analysts, and the media. In addition to timely disclosure
to financial instruments exchanges, we disclose information through our website and engage actively in IR activities, including regularbriefings for institutional investors and analysts and meetings.

40

KANEMATSU ANNUAL REPORT 2017

Corporate Officers(As of June 23, 2017)

Kanematsu’s Progress and Strengths

Directors and Audit & Supervisory Board Members

Kaoru Tanigawa

Masao Hasegawa

ChairmanPresident

Executive Vice President

Special Features

Masayuki Shimojima

Tetsuro Tsutano

Yutaka Hirai

Seiichi Katayama

Tsutomu Yajima

Director

Director

Director

Director

Director

Fumihiko Nashimoto

Sohei Ogawa

Yonosuke Yamada

Tsukasa Miyachi

Audit & Supervisory
Board Member (full-time)

Audit & Supervisory
Board Member (full-time)

Audit & Supervisory
Board Member

Audit & Supervisory
Board Member

Review of Operations

Takashi Gunji

CSR and Corporate Governance

1. Mr. Yutaka Hirai and Mr. Seiichi Katayama, and Mr. Tsutomu Yajima are Outside Directors.
2. Mr. Sohei Ogawa, Mr. Yonosuke Yamada and Mr. Tsukasa Miyachi are Outside Audit & Supervisory Board Members.
3. Mr. Yutaka Hirai, Mr. Seiichi Katayama, Mr. Tsutomu Yajima, Mr. Yonosuke Yamada and Mr. Tsukasa Miyachi are Independent Officers, as defined in the Securities Listing
Regulations.

Executive Officers
Kaoru Tanigawa

Executive Vice President

Masao Hasegawa

Chief Officer, Supporting Area; Chief Officer, Internal Auditing

Senior Managing
Executive Officer

Takashi Gunji

Chief Officer, Steel, Materials & Plant Division,
General Manager, Osaka Branch; General Manager, Nagoya BranchManaging Executive
Officers

Tetsuya Kaneko

Chief Officer, IT Planning, Traffic & Insurance

Yoshiya Miyabe

Chief Officer, Motor Vehicles & Aerospace Division

Kazuo Shibata

Chief Officer, Credit Control, Legal & Compliance; General Manager of Credit Control Dept.

Eiji Kan

Deputy Chief Officer, Steel, Materials & Plant Division

Katsumi Morita

President, Kanematsu USA Inc.

Masayuki Hamasaki

Chief Officer, Grain, Oilseeds & Feedstuff Division

Hiroyasu Hirasawa

Chief Officer, Foods Division

Masahiro Harada

Chief Officer, Electronics & Devices Division

Kazuo Tanaka

Chief Officer, Human Resources & General Affairs, Corporate PlanningTetsuro Tsutano

Chief Officer, Finance, Accounting, Business Accounting; General Manager of Finance Dept.

Executive Officers

KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

President

41

Roundtable Discussion with the Executive Vice President
and Outside Directors

Supporting the Kanematsu Group’s Sustainable Growth
Masao Hasegawa

Yutaka Hirai

Seiichi Katayama

Executive Vice President

Outside Director

Outside Director

A Highly Transparent System
of Corporate GovernanceHasegawa Today, I and our two outside
directors will discuss Kanematsu’s system ofcorporate governance and the management
challenges the Company faces with regard
to sustainable growth going forward.
In addition to the Board of Directors,
Kanematsu has a Management Committee,
made up largely of executive officers, whichfunctions as an executive body. The two of
you sit on both. To begin, please tell me
your impressions regarding the ways these
two bodies function.
Hirai I think an important feature of theManagement Committee is its open, uninhibited discussions. Kanematsu’s 2014 adoption of the executive officer systemincreased the number of participants in theManagement Committee from each business division. This has caused greater inclusion of views straight from the front lines in
discussions, which has enlivened the committee’s activities. I expect to see more highly
capable executive officers emerge going forward. I think such officers will help

42

KANEMATSU ANNUAL REPORT 2017

Kanematsu achieve its aspiration under
VISION-130 of “being a ‘Value Creator’ bycontinuing to build new businesses.”

provide us with your views. I think that, inthese ways, we maintain a high level ofdiversity and transparency in management.

Katayama Being able to take part in theManagement Committee as an outside
director is very valuable. As Kanematsu
shifts toward a more growth-oriented
approach, the number of projects taken up
by the Management Committee will likely
increase. My impression is that Kanematsu’s
internal monitoring functions operate effectively, thanks, perhaps, to the Company’s
experience in implementing a major program of business selection and concentration in 1999. Thorough information
disclosure within the Company ensures thatthe topics up for discussion by the Project
Deliberation Committee are well understood ahead of time. The Company also
maintains a good balance in terms of risk
evaluation, and I think that, overall,Kanematsu’s corporate governance initiatives are quite advanced.

Management Challenges Related
to Risk Management andSustainable Growth

Hasegawa Effective corporate governancedepends on an open corporate culture that
accepts diverse values along with management transparency maintained by providing
accurate, timely information, whether within the Company or to outside parties.
Kanematsu’s outside directors participate inManagement Committee meetings as wellas internal meetings where important matters are deliberated. As a result, you havefull access to discussions, including thedetails of matters handled, and are able toHasegawa Regarding the Project
Deliberation Committee, in principle, allprojects that have more than a certain
amount of risk are subject to evaluation anddiscussion by this committee, which considers numerous perspectives, including risk,
profitability, and business sustainability. The
results of these deliberations are reported tothose authorized to make final decisions,and the committee regularly follows up on
matters of particular concern. Thus, theProject Deliberation Committee provides
fundamental risk management for individual projects. How effective do you think thecommittee is? And, do you think it provides
adequate information for the Board of
Directors to use as the basis to makedecisions?
Hirai I don’t personally take part in the
Project Deliberation Committee, but I
receive information about its deliberations
and discussions indirectly. That said, I think
the committee properly examines projects
and raises sensible concerns, adequately fulfilling its intended function. For more than adecade, Kanematsu has been focused on
reducing interest-bearing debt rather thanaggressively investing. As a result, whenitems related to new investment or new

Katayama Kanematsu has a tradition oftargeting niche areas. No matter how far
information technologies develop, there
will always be flaws, and there will never
be a perfect information-based world. Aslong as there are needs left to meet, they
will continue to be a source of business
opportunity. It’s important that Kanematsu
understand its own strength in niche businesses. And, because niche areas require
high levels of specialization, Kanematsu
must secure and develop human resources
with sophisticated knowledge.
Hasegawa Yes, accurately recognizing theneeds of markets where we’re strong andinvesting resources there is key. Businessniches, industry distortions, trading rights

Katayama According to the Ministry of
Economy, Trade and Industry’s Practical
Guidelines for Corporate Governance
Systems, the role of an outside director is tocontribute to management strategy andappoint members of top management. I
feel that the formulation of medium- tolong-term management strategies is anespecially pressing issue, and I hope to discuss such strategies thoroughly going forward.
Hirai Kanematsu has improved its system
of internal control over the past few years,
and I think that it now operates in a waythat fits its management. When it comes tomanagement strategy, I try my best to participate in discussions as much as possible
and offer my opinions as an outside officer.
I also think that it is my role to point out,
from an outside perspective, such internal
issues as problems with morale and communication that could lead to significant
losses. Last year, I went with Audit &Supervisory Board members on some of
their on-site audits, which allowed me totalk directly with the personnel of Group
companies. I found this an excellent chance
to learn about each company’s culture andatmosphere. As an outside director, I willcontinue to watch Kanematsu from many
angles.

Financial Section and Company Information

Hasegawa Kanematsu’s management philosophy, Our Beliefs: Kanematsu’s Guiding
Principles, states that “fairness and justice
should guide our business dealings.”
Similarly, the management objective of
VISION-130 includes “building on existing
trading operations to expand the earnings
base through cooperation and mutual
development with our business partners.”
I feel that these are perhaps the clearest
expressions of our Corporate Principle andHirai The Kanematsu Group currently has anumber of upstream manufacturing functions, in a number of forms, but managing
and controlling all of these is not always
easy. The Company has specified technological support as a key strategic area under
VISION-130, which I think is an interestingand very Kanematsu kind of choice. The
important thing is to speed up the monitoring cycle so that when losses occur, they
can be minimized as effectively as possible.
And, of course, Kanematsu will not survive
if it does not firmly maintain forms of business that benefit its customers and business
partners.

Hasegawa Lastly, please tell me what you
see as your role as outside directors.

CSR and Corporate Governance

Kanematsu’s Role as a Trading
Company and the Challenges it
Faces

Hasegawa Could you share any insights
based on your experience at a manufacturing company and your thoughts on how
trading companies should function going
forward?

The Roles of Outside Directors

Review of Operations

Hasegawa Medium- and long-term visionand management policy are important topics for discussion by the Board of Directors.
I think that efficiency is also a management
issue that the board should consider. In
shifting from a focus on reinforcing theCompany’s financial position to strengthening growth strategies, I think that it will be
important to dig deeper into discussions ofefficiency, including labor productivity andcapital efficiency.

Katayama Large-scale general trading
companies cover everything from the
upstream to downstream areas of supply
chains. Kanematsu has traditionally focusedon downstream areas, nearer to customers.
Recently, the Company has been moving
into areas that are more upstream. The further upstream you go, the more technicalknow-how is needed in such areas as production; I think that this will be a challenge
for Kanematsu going forward.

structures, and customer needs all change
constantly, so figuring out what thoseneeds are is not something that can bedone from behind a desk. Only by frequently visiting business partners can the answers
be found. This is what makes the work of a
trading company hard, but also whatmakes it rewarding.

Special Features

Katayama Capital efficiency can get tricky
when you start to consider the efficiency ofboth real and human capital. I think that,going forward, the Board of Directors
should spend more time discussing medium- and long-term issues, beyond the
VISION-130 period, including questions ofefficiency. To that end, the board should
gather and consider a wide range of information, including the opinions of institutional investors, industry analysts, andshareholders.

corporate culture. It is crucial that we effectively use the experience and lessons ofKanematsu’s 128-year history to pursue
sound, sustainable growth.
Director Katayama, as a professor emeritus at the Research Institute for Economics
and Business Administration of Kobe
University, where the Kanematsu Memorial
Hall is located, what do you see as
Kanematsu’s role as a trading company,
given the Company’s history and management philosophy?

Kanematsu’s Progress and Strengths

businesses are suddenly on the table, if
might run into a shortage of relevant experience and knowledge. Even so, I hope thatthe committee will not hesitate to consider
high-quality projects. To help with this, I
think that Kanematsu must continue toreinforce its planning and concept-building
capabilities. Furthermore, I think that, going
forward, post-launch monitoring for new
projects will be important. With each project, Kanematsu must carefully examine it
against the exit rules, considering real andhuman capital efficiency as it keeps watch
over the Group as a whole. Failure to do so
may weaken the Group structurally.

Hasegawa I look forward to your continued support of Kanematsu’s sustainablegrowth through your participation in the
Board of Directors, internal bodies, and visits to Group companies, where you provide
us with opinions based on your uniquesense of values and experiences. Thank you
for taking time to talk today.
KANEMATSU ANNUAL REPORT 201743

Management’s Discussion and Analysis
As a result, in the Foods & Grain segment, revenue
increased ¥5,187 million year on year to ¥227,764 million,
and operating profit rose ¥1,062 million to ¥2,489 million.

Business Results
For the fiscal year ended March 31, 2017, revenue rose ¥7,205
million (1.1%) from the previous fiscal year to ¥675,579
million. Gross profit increased ¥13,901 million (16.1%) fromthe previous fiscal year to ¥100,139 million. Operating profit
rose ¥3,861 million (20.6%) from the previous fiscal year to¥22,633 million, reflecting the increase in gross profit, despite
an increase in selling, general and administrative expenses andworsening of other income and expenses. Profit before tax
decreased ¥247 million (1.4%) from the previous fiscal year to¥17,875 million, reflecting an increase in finance costs and adeterioration in the share of loss of investments accounted forusing the equity method. Profit for the year attributable toowners of the Parent decreased ¥910 million (10.2%) from theprevious fiscal year to ¥8,049 million.

Steel, Materials & Plant
Performance in the energy business was favorable, due to
steady demand for kerosene and heavy oil over the winter. In
the plant business, transactions related to machine tools andindustrial machinery were firm. However, in the iron andsteel business, the mainstay oilfield tubing business faceddifficult conditions as a result of low crude oil prices.
As a result, revenue in the Steel, Materials & Plant segment
decreased ¥4,068 million year on year to ¥131,201 million.
Operating profit decreased ¥568 million to ¥2,820 million.

Motor Vehicles & Aerospace
Performance in the motor vehicles and parts business was
solid. However, in the aerospace business, aircraft part
trading was in an off year, and performance was weak.
As a result, revenue in the Motor Vehicles & Aerospacesegment decreased ¥13,373 million year on year to ¥50,419
million. Operating profit fell ¥741 million to ¥2,223 million.

Segment Information
Results for each business segment are described below.

Electronics & Devices
Performance in the ICT solutions business was favorable,
particularly in transactions in manufacturing industries.
Performance in the mobile business was firm, reflecting
market recovery in the latter half of the fiscal year. However,the semiconductor parts business faced difficult conditions.
As a result, revenue in the Electronics & Devices segmentrose ¥19,252 million year on year to ¥254,280 million, andoperating profit increased ¥3,690 million to ¥14,348 million.

Other
Revenue rose ¥208 million year on year to ¥11,914 million.
Operating profit increased ¥427 million to ¥756 million.

Analysis of Financial Status
Assets, Liabilities and Net Assets
Total assets at the end of the fiscal year under review
increased ¥36,125 million from the end of the previous fiscal
year to ¥479,717 million. This was due largely to increases incurrent trade and other receivables and intangible assets.
Interest-bearing debt declined ¥3,023 million from theend of the previous fiscal year to ¥133,844 million. Net
interest-bearing debt, which is interest-bearing debt minus

Foods, Grain, Oilseeds & Feedstuff
Performance in the food business was firm. In addition,
performance in the meat product business improved fromthe previous year’s weak showing, due in part to market
recovery. However, the foodstuff business faced challenging
conditions as a result of falling sales prices in Japan.
Revenue

Operating Profit /Operating Profit Ratio(Millions of yen)

(Millions of yen)(%)

(Millions of yen)

26,000

4.0

12,000800,000

704,21123,547668,374

19,5003.0

18,772(Yen)
40

10,546

22,633

675,579

600,000

Profit for the Year Attributable to Ownersof the Parent / Basic Earnings per Share

9,000

8,049

25.10
2.1

2.1
13,000400,000

30

8,959

2.0

1.8

6,000

20

21.29
19.13

6,500

200,000

00

FY2015FY2016FY2017

Revenue

44

KANEMATSU ANNUAL REPORT 2017

FY2015FY2016FY2017

1.0

3,000

0

0

10

0

FY2015FY2016FY2017

Operating Profit

Profit for the Year Attributable to Owners of the Parent

Operating Profit Ratio

Basic Earnings per ShareFundraising

Net Interest-Bearing Debt /Net D/E Ratio

Total Equity / Equity Attributable to
Owners of the Parent per Share(Millions of yen)(Times)80,000

2.0

CSR and Corporate Governance

The management objective of the Kanematsu Group’s five-year
medium-term vision, VISION-130, is to both maintain financial
soundness and expand the earnings base. Toward this end, theGroup’s basic policy is to stably procure funds at low cost.
The Group raises funds primarily through indirect financing
based on good relations with its main banks, regional banks,
life and non-life insurers, and other financial institutions.
Kanematsu also raises funds directly from the market byissuing straight corporate bonds as a means of long-term
capital procurement. To secure liquidity on hand, the Group

Review of Operations

In the year under review, net cash provided by operating
activities totaled ¥11,852 million, reflecting the recording ofoperating profit. Net cash used in investing activities
amounted to ¥14,691 million, due in part to cash paid forthe absorption-type merger of Kanematsu Telecom
Investment Co., Ltd. and Diamondtelecom, Inc. Net cashused in financing activities amounted to ¥6,904 million, due
in part to dividends paid and the repayment of borrowings.
As a result, after the effect of exchange rate changes on cash
and cash equivalents, cash and cash equivalents at the endof the fiscal year under review stood at ¥77,566 million,
down ¥9,900 million from the end of the previous fiscal year.

Special Features

Cash Flows

maintains an ample balance of cash and cash equivalents andhas established commitment lines with major financial
institutions. Surplus funds are flexibly managed in highly
secure short-term financial products as appropriate in responseto the Company’s funding needs and financial circumstances.
To facilitate capital procurement, the Company receives
ratings from Japan Credit Rating Agency, Ltd. (JCR) and
Rating and Investment Information, Inc. (R&I). The Company’s
long-term ratings as of the end of the fiscal year under review
are BBB+ (stable) from JCR and BBB (stable) from R&I.
Although Kanematsu did not do so during the fiscal
period under review, it will continue to consider fundraising
directly from the market by issuing straight corporate bonds
as appropriate in terms of time and cost.
With regard to consolidated capital management, theGroup has adopted a cash management system underwhich, in principle, fundraising for domestic subsidiaries andaffiliates is concentrated at the Company and proceeds arethen allocated in response to capital requirements. At theend of the fiscal period under review, the Company’s
interest-bearing debt accounted for 70% of the consolidated
Group’s interest-bearing debt.
As a result of the above fundraising activities, at the endof the fiscal period under review, the balance of interestbearing debt stood at ¥133,844 million, a decrease of¥3,023 million from the end of the previous fiscal year.
Nevertheless, because cash and bank deposits decreased
from the end of the previous fiscal year, net interest-bearing
debt at the end of the fiscal year under review stood at¥55,429, an increase of ¥6,616 from the end of the previous
fiscal year.
Corporate bonds and long-term borrowings (including
the current portion of long-term borrowings) accounted for
70% of the balance of interest-bearing debt at the end of
the fiscal year under review (or 93% on a non-consolidated
basis). As such, Kanematsu’s fundraising was highly stable.

Kanematsu’s Progress and Strengths

cash and bank deposits, increased ¥6,616 million from theend of the previous fiscal year to ¥55,429 million.
Total equity attributable to owners of the Parent increased¥8,758 million to ¥100,357 million, reflecting the recordingof retained earnings as a result of the profit for the year
attributable to owners of the Parent and an increase infinancial assets measured at fair value through othercomprehensive income as a result of stock price increases.
As a result, the equity ratio improved 0.3 of a percentage
point from the end of the previous fiscal year to 20.9%. The
net D/E ratio stood at 0.6.

Total Equity Attributable to Owners of
the Parent / Ratio of Equity Attributable to
Owners of the Parent(Millions of yen)

(Yen)

(Millions of yen)(%)

140,000

300

120,00040

129,863

72,155
119,015
60,000120,706

100,357

238.44225

90,00090,24470,000150

60,00019.4

0.5

35,00075

30,000

0

0

0

0

1.5

105,000

1.0

55,429214.76217.6891,59930

48,813
20.6

20.9

Financial Section and Company Information

40,000

20

0.8
0.6
0.5

20,0000FY2015FY2016Net Interest-Bearing Debt

FY2017
Net D/E Ratio*	Net interest-bearing debt = Interest-bearing debt
–Cash and cash equivalents*	Net D/E ratio = Net interest-bearing debt / Total
equity attributable to owners of the Parent

FY2015FY2016FY2017100

FY2015FY2016FY2017

Total Equity

Total Equity Attributable to Owners of the Parent

Equity Attributable to Owners of the Parent per Share

Ratio of Equity Attributable to Owners of the Parent
KANEMATSU ANNUAL REPORT 201745

Business Risks

Below are details of the risks that could affect the business performance and financial position of the Group.
The forward-looking statements below are based on information available as of June 23, 2017.
The Group takes all risk that it faces on a daily basis in the course of its business very seriously. Risk control
is undertaken through management mechanisms and methods tailored to the nature of each category of risk.

Market Risk Related to Supply and Demand andPrices of Goods Traded

Price Fluctuation Risk of Marketable
Securities, etc.

In its mainstay commodity trading business in Japan andoverseas, the Group deals with grains and petroleum
products as well as electronic parts and information,communications and technology (ICT) products. Grains andpetroleum products will be influenced by the market conditions, while electronic parts and ICT products are exposed to
the risk of frequent price erosion caused by competition andobsolescence resulting from technological innovation. An
unexpected loss may result from causes such as rapid
movements in commodities prices or a decline in demand,when our positions in these commodities increase.

The Group may hold shares in trade partners as means ofstrengthening its relationship with them. There is a risk ofprice fluctuation inherent in these shares, which could havean effect on the financial position of the Group due tochanges in financial assets measured at fair value throughother comprehensive income.

Foreign Currency Risk
The Group is engaged in foreign currency transactions in a
number of currencies and terms incidental to its export andimport trading. The Group participates in derivatives
transactions such as forward contracts to reduce the risk ofcurrency fluctuations.
The Group also has local subsidiaries and businesscorporations overseas. Account balances at these companies
are converted into yen at the exchange rates prevailing at thetime of account closing, for the purposes of preparing
consolidated financial statements. For this reason, capitallevels may change as a result of translation adjustments
related to overseas operations.

Default Risk and Credit Risk
The Group extends credit in a number of forms, including
accounts receivable, advance payments, loans andguarantees in diverse business transactions with its trading
partners in Japan and abroad. For this reason, late repayments
and defaults may occur with developments such as adeterioration in the financial strength of its trading partners.
The Group could also be forced to honor obligations that
could be accompanied by a monetary loss in association withthe conclusion and performance of a commodity supply
agreement, a contract agreement, subcontract agreement,or other agreement, irrespective of reasons, if the trade
partner defaults on its obligation or contract.
Although the Group has set aside an allowance for theselosses in our accounting procedures using certain estimates,
an additional loss could arise if the loss exceeds the scope of
the allowance.

Business Investment Risk
Interest Rate Risk
The Group raises most funds needed for operating andfinancing activities in the form of borrowings from financial
institutions at variable interest rates, with the exception ofcertain loans. Since these borrowings and fund management
are exposed to an interest rate risk, interest paid by theGroup may increase with a rise in interest rates.
The Company and certain consolidated subsidiaries use
interest rate swaps to avoid interest rate risk related toborrowings.

46

KANEMATSU ANNUAL REPORT 2017

The Group makes business investments to achieve objectives,
including deep mining of existing businesses and expansionof business areas. The Group decides whether to make suchinvestments through procedures established according totheir details and amounts. When making investment
decisions, the Group evaluates and analyzes risk factors andthe profitability of the business based on cash flows, taking
the criteria for business withdrawal into account. Aftermaking an investment, the Group regularly reevaluates andreviews business potential and investment value to minimize
any potential loss. The value of the business investments may
fluctuate according to the financial conditions of investment
targets and their business success or failure.

Country Risk

Legal Risk Related to Lawsuits and Disputes

Compliance and Fraud Risk
The Group operates businesses to buy, sell, and provide a
broad array of products and services in Japan and overseas
and carefully monitors laws and regulations, including thoserelated to exports and imports, that are established andenforced for these products and services in Japan and othercountries. However, it is difficult to execute all procedures at
all times across all of the trading operations we conduct with
the involvement of multiple parties. Although we take anumber of actions to prevent violations, there is a risk that
we may overlook a violation of a law or an instance of fraud.
If the violation or fraud is material, the financial position andoperating results of the Group could be affected.

KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

Business operations by the Group, and its assets and liabilities
associated with the business operations may become subject
to legal proceedings, including lawsuits, and other disputes,
in various ways through the course of the business activities
undertaken by the Group in Japan and overseas. Suchlawsuits and other disputes are generally unpredictable, andresolving them is often very time-consuming when they occur.
Any prediction of the results therefore involves uncertainties.
Any occurrence of such lawsuits or other disputes andunexpected outcomes may affect the Group’s financial
position and operating results.

The Group owns facilities and equipment, including businessoffices, warehouses and manufacturing plants, in Japan andoverseas. It also owns cargo being stored or transported inand outside Japan for business transactions. Such assets may
be damaged or deteriorate as a result of natural disasters,
accidents and other developments, and the businesses of theGroup may be suspended due to developments such as
earthquakes, fires, floods, and riots. Such incidents may
seriously affect the future financial position and operating
results of the Group, depending on the extent of the damage.

CSR and Corporate GovernanceThe business activities undertaken by the Group in Japan andoverseas are subject to a wide range of legal regulations inJapan and other countries. The Group may become unable
to continue certain transactions because of factors such as
unexpected changes in laws, changes in export and importregulations, including a punitive tariff that could be
introduced unilaterally following changes in the international
political environment, and changes in regulations such as
permits and licenses related to the sales and handling ofproducts. An unexpected expense for the Group may also
arise from a lawsuit or from an order issued by authorities.
This risk also includes the risk that a tax rate or tax
arrangements imposed by authorities or between countries
under international taxation arrangements may change.
Changes in these legal systems could influence the financial
position and operating results of the Group.

Product and Facility Deterioration Risk due to
Natural Disasters and Accidents
Review of Operations

Legal Risk Related to Changes in Laws

The Group builds and operates information systems forsharing information and streamlining its operations. The
Group has adopted information security control rules, and istaking steps to ensure that all members of the Group arefamiliar with crisis control responses, to meet the safety
requirements for operating its information systems. However,information systems cannot be made entirely invulnerable tothe unauthorized disclosure of business sensitive informationor personal information through unauthorized access,computer viruses and other means, as well as inoperability
due to factors such as natural disasters, destruction of
information system facilities attributable to accidents andother causes, and communication line troubles. Inoperability
may reduce the efficiency of operations that depend on thesystems, and seriously affect the future business results of
the Group, depending on the scale of damages.

Special Features

The Group engages in transactions, loans, and investments
in other countries. The collection of receivables may bedelayed or impossible as a result of political or economic
developments in each of these countries. To minimize losses
that could arise should these country risks become reality, theGroup regularly sets a limit based on ratings given to eachcountry and region according to the scale of their respective
country risk, and operates its businesses in such a way thatprevents overexposure to certain countries and regions. The
Group takes steps such as enrolling in trade insurance
programs, according to the ratings and project details, in an
attempt to minimize recovery risks. However, continuingtransactions may become difficult if these risks actualize incertain countries and regions, and this development may
affect the future business results of the Group.

Security Risk Related to Information Systems
and Information Security

Kanematsu’s Progress and Strengths

The range of market changes tends to be particularly
wide in overseas businesses. Local laws and relationships
with partners may also prevent the Group from executing its
policy for operating or withdrawing from a business.

47

Consolidated Financial Statements
Consolidated Statement of Financial Position
March 31, 2017 and 2016
JPY

2017

USD (Note 2)

2016

2017

(Assets)
I. Current assets
1. Cash and cash equivalents (Note 27)

77,56687,466

691,387

2. Trade and other receivables (Note 7)

191,193

163,540

1,704,195

3. Inventories (Note 8)

80,66280,195

718,977

4. Other financial assets (Note 30)

3,705

2,596

33,033

18,20012,776

162,232

371,329

346,574

3,309,824

26,85826,883

239,400

2. Goodwill (Note 10)

6,304

4,631

56,197

3. Intangible assets (Note 10)

20,935

8,083

186,611

4. Investments accounted for using the equity method(Note 11)

4,885

7,420

43,546

5. Trade and other receivables (Note 7)

1,169

460

10,425

6. Other investments (Note 12)

34,112

31,535304,057

7. Other financial assets (Note 30)

5,295

5,441

47,202

8. Deferred tax assets (Note 29)

5,018

9,084

44,737

9. Other non-current assets (Note 13)

3,807

3,477

33,941

Total non-current assets

108,388

97,017966,117

Total assets

479,717443,592

4,275,941

5. Other current assets (Note 13)
Total current assets

II. Non-current assets
1. Property, plant and equipment (Note 9)(Notes) Presentation of fiscal year and amounts (Japanese Yen and U.S. dollars)
1. “2017” refers to the Company’s consolidated fiscal year ended March 31, 2017 and the other fiscal year is referred to in the corresponding manner.
2. “JPY” means millions of Japanese Yen and “USD” means thousands of U.S. dollars.

48

KANEMATSU ANNUAL REPORT 2017

JPY

USD (Note 2)

2016

2017

1. Trade and other payables (Note 14)

165,011

142,143

1,470,822

2. Bonds and borrowings (Note 15)

64,643

61,989576,197

3. Other financial liabilities (Note 30)

5,255

7,129

46,841

4. Income taxes payable

4,226

2,274

37,670Kanematsu’s Progress and Strengths

2017(Liabilities)
I. Current liabilities

28

31

251

6. Other current liabilities (Note 17)

26,291

19,465234,348

Total current liabilities

265,455

233,034

2,366,128

1. Bonds and borrowings (Note 15)

69,201

74,877

616,824

2. Other financial liabilities (Note 30)

6,118

6,679

54,541

3. Retirement benefit liabilities (Note 28)

6,641

6,024

59,198

4. Provisions (Note 16)

1,397

1,272

12,460

424

297

3,786

5. Provisions (Note 16)

II. Non-current liabilities

614

699

5,475

Total non-current liabilities

84,39889,851

752,283

Total liabilities

349,854322,885

3,118,411

1. Share capital (Note 18)

27,781

27,781

247,626

2. Capital surplus (Note 18)

26,797

26,463

238,857

3. Retained earnings (Note 18)

34,57929,103308,225

(217)

(235)

(1,942)

1) Exchange differences on translation of foreign operations

2,349

2,912

20,943

2) Financial assets measured at fair value through other comprehensive
income

9,455

6,967

84,285

6. Other non-current liabilities (Note 17)

Special Features

5. Deferred tax liabilities (Note 29)(Equity)

Review of Operations

4. Treasury stock (Note 18)
5. Other components of equity (Note 26)(1,393)(3,465)

11,416

8,486

101,762

Total equity attributable to owners of the Parent

100,357

91,599894,527

29,50629,107

263,003

Total equity

129,863

120,706

1,157,530

Total liabilities and equity

479,717443,592

4,275,941

3) Cash flow hedges

6. Non-controlling interests

CSR and Corporate Governance(388)

Total other components of equity

Financial Section and Company Information

KANEMATSU ANNUAL REPORT 201749

Consolidated Statement of Income and Consolidated Statement ofComprehensive Income: (a) Consolidated Statement of Income
JPY

For the fiscal years ended March 31, 2017 and 2016

USD (Note 2)

2017

2016

2017

I. Revenue (Notes 6 & 19)

675,579

668,374

6,021,748

II. Cost of sales(575,440)(582,135)(5,129,159)

Gross profit

100,139

86,238892,589

III. Selling, general and administrative expenses (Note 20)(76,163)(68,577)(678,876)

1. Gain (loss) on sale or disposal of property, plant and equipment andintangible assets, net (Note 21)

384

(311)

3,430

2. Impairment loss on property, plant and equipment and intangible
assets (Note 22)

(866)

(94)

(7,724)

IV. Other income (expenses)

3. Other income

1,400

2,596

12,481

4. Other expenses(2,261)(1,078)(20,161)(1,343)

1,111(11,975)

22,633

18,772201,739

1. Interest income (Note 24)

421

478

3,759

2. Dividend income (Note 24)

1,116

927

9,948

Total finance income

1,537

1,405

13,707

1. Interest expenses (Note 24)(2,304)(2,407)(20,538)

2. Other finance costs (Notes 24 & 30)(2,000)(323)(17,832)

Total other income (expenses)
Operating profit (Note 6)
V. Finance income

VI. Finance costs

Total finance costs(4,304)(2,731)(38,371)VII. Share of profit (loss) of investments accounted for using theequity method (Note 11)(1,990)675(17,740)

Profit before tax

17,875

18,122

159,334

Income tax expense (Note 29)(7,589)(7,313)(67,645)

Profit for the year

10,286

10,80891,690Owners of the Parent

8,049

8,959

71,748Non-controlling interests

2,237

1,848

19,942

Total

10,286

10,808

Profit for the year attributable to:Yen

91,690U.S. dollars

Earnings per share attributable to owners of the Parent:50

Basic earnings per share (Note 25)

19.13

21.29

0.17

Diluted earnings per share (Note 25)

19.13

21.29

0.17

KANEMATSU ANNUAL REPORT 2017

Consolidated Statement of Income and Consolidated Statement ofComprehensive Income: (b) Consolidated Statement of Comprehensive Income
JPY

For the fiscal years ended March 31, 2017 and 2016

USD (Note 2)

2016

2017

10,286

10,80891,6901. Financial assets measured at fair value throughother comprehensive income (Note 26)

2,671(1,580)23,815

2. Remeasurement of defined benefit pension plans (Note 26)

(284)

(426)

(2,532)

24

(14)

222

2,412

(2,021)

21,505

1. Exchange differences on translation of foreign operations (Note 26)(829)(2,894)(7,391)

2. Cash flow hedges (Notes 26 & 30)

984(1,511)8,779

3. Share of other comprehensive income of investments accounted forusing the equity method (Note 26)

109

(127)

980

I. Profit for the year

Kanematsu’s Progress and Strengths

2017

II. Other comprehensive income
Items that will not be reclassified to profit or loss:

3. Share of other comprehensive income of investments accounted forusing the equity method (Note 26)
Total items that will not be reclassified to profit or loss
Items that may be reclassified to profit or loss:

265(4,532)

2,368

2,678

(6,554)23,873

Total comprehensive income for the year

12,965

4,253

115,563

Owners of the Parent

10,7203,248

95,559Non-controlling interests

2,244

1,005

20,004

Total

12,965

4,253

115,563

Special Features

Total items that may be reclassified to profit or loss
Other comprehensive income for the year, net of tax

Total comprehensive income for the year attributable to:

Review of Operations
CSR and Corporate Governance
Financial Section and Company Information

KANEMATSU ANNUAL REPORT 201751

Consolidated Statement of Changes in Equity
For the fiscal years ended March 31, 2017 and 2016
JPY

EquityI . Share capital (Note 18)
Balance at the beginning of the year
Balance at the end of the year
II . Capital surplus (Note 18)
Balance at the beginning of the year
Disposition of treasury stock
Equity transactions with non-controlling interests
Other changes
Balance at the end of the year
III . Retained earnings (Note 18)
Balance at the beginning of the year
Dividends
Profit for the year attributable to owners of the Parent
Reclassification from other components of equity
Other changes
Balance at the end of the year
IV . Other components of equity (Note 26)
Balance at the beginning of the year
Exchange differences on translation of foreign operations
Financial assets measured at fair value through other comprehensive
incomeCash flow hedges
Remeasurement of defined benefit pension plans
Reclassification to retained earnings
Balance at the end of the year
V . Treasury stock (Note 18)
Balance at the beginning of the year
Acquisition of treasury stock
Disposition of treasury stock
Balance at the end of the year
Total equity attributable to owners of the Parent
VI . Non-controlling interests
Balance at the beginning of the year
Dividends to non-controlling interests
Equity transactions with non-controlling interests
Other changes
Profit for the year attributable to non-controlling interests
Other components of equity
Exchange differences on translation of foreign operations
Financial assets measured at fair value through other comprehensive
incomeCash flow hedges
Remeasurement of defined benefit pension plans
Balance at the end of the year
Total equity
Comprehensive income for the year attributable to:
Owners of the Parent
Non-controlling interests
Total comprehensive income for the year

52

KANEMATSU ANNUAL REPORT 2017

USD (Note 2)

2017

2016

2017

27,781
27,781

27,781
27,781

247,626
247,626

26,4633
4
326
26,797

26,6210(158)－
26,463

235,87828
39
2,911
238,857

29,103(2,314)
8,049
(259)
－
34,57921,879(1,683)
8,959
(11)
(40)
29,103

259,415(20,628)
71,748(2,310)－308,225

8,486
(562)

14,185(2,346)75,641(5,015)2,613(1,542)

23,299

1,004
(384)
259
11,416(1,535)
(286)
11
8,486

8,955
(3,428)2,310
101,762

(235)
(5)
22
(217)
100,357

(222)
(12)
0
(235)
91,599(2,096)(49)
203(1,942)894,527

29,107(1,324)
(36)
(484)
2,237
6
(178)

28,771
(891)
222
－
1,848
(843)
(650)

259,448(11,806)(323)(4,319)19,94262(1,587)

82

(53)

738

1
100
29,506
129,8630(139)
29,107
120,706

15
896
263,003
1,157,530

10,7202,244
12,965

3,248
1,005
4,253

95,55920,004
115,563

Consolidated Statement of Cash Flows
For the fiscal years ended March 31, 2017 and 2016
JPY

91,69025,7207,724
24,664

1,990

(675)

17,740(384)

311(3,430)

7,589(10,613)
200
6,861
(120)
(1,437)
20,890436
1,503(2,291)(8,686)
11,852

7,313
19,262
10,664(17,662)
274
3,812
38,613491
1,193(2,414)(4,860)33,02467,645(94,602)
1,788
61,157(1,078)(12,812)186,207
3,890
13,404(20,427)(77,426)
105,647(4,188)
3,424
(605)
(986)
733
(12,786)(6)(1,835)
1,952(392)(14,691)(1,982)572(496)(5,054)
502
1,178
(165)
(917)
1,005
1,142
(4,214)(37,334)
30,525(5,398)(8,792)
6,539(113,972)(62)(16,363)
17,403(3,497)(130,951)

7,044
18,786(28,857)－(2,308)(9,718)18,687(22,231)
9,923(1,678)62,787
167,452(257,216)－(20,574)

(30)

(328)

(271)

(1,277)(262)(6,904)(9,743)87,466(156)
77,566(897)(485)(6,729)22,081
66,485(1,100)87,466(11,385)(2,336)(61,542)(86,846)
779,625(1,392)
691,387

KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

10,808
3,082
94
1,326

CSR and Corporate Governance

10,286
2,885
866
2,767

Review of Operations

2017

Special Features

2016

Kanematsu’s Progress and Strengths

I. Cash flows from operating activities
Profit for the year
Depreciation and amortization
Impairment loss on property, plant and equipment and intangible assets
Finance income and costs
Share of (profit) loss of investments accounted for using the equity
method(Gain) loss on sale or disposal of property, plant and equipment andintangible assets, net
Income tax expense(Increase) decrease in trade and other receivables(Increase) decrease in inventories
Increase (decrease) in trade and other payables
Increase (decrease) in retirement benefits liabilities
Other
Sub totalInterest received
Dividends received
Interest paid
Income taxes paid
Net cash provided by (used in) operating activities
II. Cash flows from investing activities
Payments for property, plant and equipment
Proceeds from sale of property, plant and equipment
Payments for intangible assets
Purchases of other investments
Proceeds from sale of other investments
Proceeds from (payments for) acquisition of subsidiaries (Note 27)
Proceeds from (payments for) sale of subsidiaries (Note 27)
Increase in loans receivable
Proceeds from collection of loans receivable
Other
Net cash provided by (used in) investing activities
III. Cash flows from financing activities
Increase (decrease) in short-term borrowings, net
Proceeds from long-term borrowings
Repayment of long-term borrowings
Proceeds from issuance of bonds
Dividends paid
Payments for acquisition of subsidiaries' interests from non-controllinginterests
Dividends paid to non-controlling interests
Other
Net cash provided by (used in) financing activities
IV. Increase (decrease) in cash and cash equivalents, net
V. Cash and cash equivalents at the beginning of the year
VI. Effect of exchange rate changes on cash and cash equivalents
VII. Cash and cash equivalents at the end of the year (Note 27)

USD (Note 2)

2017

53

Notes to Consolidated Financial Statements
For the fiscal years ended March 31, 2017 and 2016

1. Reporting Entity
Kanematsu Corporation (the “Company”) is a company located inJapan. The addresses of the Company’s registered headquarters
and main offices are available on its corporate website (http://
www.kanematsu.co.jp/en/). The consolidated financial statementsof the Company as of and for the year ended March 31, 2017
comprise the Company and its subsidiaries (collectively, the“Consolidated Group”), and the Consolidated Group’s interests inassociates. The Consolidated Group operates its businesses as anintegrated trading company by providing a broad array of products
and services through the organic integration of domestic and international business networks; expertise acquired in various fields;
and the functions of a trading company, including commodities
trading, information gathering, market exploration, business development and organization, risk management, and distribution.
Detailed information on the business operations for each reportable segment are provided in Note 6 Segment Information.

2. Basis of Preparing Consolidated Financial Statements(1) Statement of compliance with IFRS

(4) Use of estimates and judgments

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”)
pursuant to the provision of Article 93 of the Ordinance on
Terminology, Forms, and Preparation Methods of Consolidated
Financial Statements (Ordinance of the Ministry of Finance No. 28
of 1976) as all the requirements of the “Specified Company for
Designated IFRSs” set forth in Article 1-2 of said Ordinance havebeen fulfilled.
The consolidated financial statements were authorized by theboard of directors meeting on June 23, 2017.

The preparation of the consolidated financial statements in accordance with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income andexpenses. Actual results could differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. The effect of a change in an accounting estimate isrecognized in the period of the change and future periods. The following notes include information on critical judgments in the application of accounting policies that have a significant effect on theamounts recognized in the consolidated financial statements:• Note 3. Significant Accounting Policies: (1) Basis of consolidation• Note 3. Significant Accounting Policies: (11) Revenue
The following notes include information on uncertainties ofassumptions and estimates that have a significant risk to causematerial revisions in the next fiscal year:• Note 22. Impairment Loss
• Note 28. Employee Benefits• Note 29. Current and Deferred Income Tax• Note 30. Financial Instruments: (6) Fair value of financial instruments
When measuring the fair value of an asset or a liability, theConsolidated Group uses observable market data as much as it isavailable. Fair values are categorized into the following three hierarchy levels based on the inputs to the valuation techniques:• Level 1: quoted prices (unadjusted) in active markets for identicalassets or liabilities that the Consolidated Group can access at themeasurement date
• Level 2: inputs other than quoted prices included within Level 1
that are observable, either directly or indirectly• Level 3: unobservable inputs
The following notes include detailed information on assumptions
made when measuring the fair value:• Note 22. Impairment Loss
• Note 30. Financial Instruments: (6) Fair value of financial instruments(2) Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis except for:• financial assets and liabilities measured at fair value through profit or loss, which are measured at fair value;• financial assets measured at fair value through other comprehensive income, which are measured at fair value; and• defined benefit assets or liabilities, which are measured at thepresent value of the defined benefit obligations less the fair valueof plan assets.

(3) Functional currency and presentation currency
The consolidated financial statements are presented in Japaneseyen, which is the Company’s functional currency. All financial information presented in Japanese yen has been rounded down to thenearest million.
The U.S. dollar amounts appearing in the consolidated financial
statements and the notes thereto represent the arithmetical resultsof translating yen to dollars at the rate of ¥112.19 to U.S.$1.00,
the approximate exchange rate prevailing on March 31, 2017. The
translation of such dollar amounts is solely for convenience of thereaders outside Japan and should not be construed as a representation that the Japanese yen amounts have been, or could be readily converted, realized or settled in dollars at the above, or any
other rate.

54

KANEMATSU ANNUAL REPORT 2017

The accounting policies set out below have been applied consistently to all the periods presented in these consolidated financial
statements, and have been applied consistently by theConsolidated Group.

(1) Basis of consolidation

2) Associates and joint ventures
Associates are those entities over which the Consolidated Group
has significant influence, where significant influence is defined as
the power to participate in the financial and operating policy decisions of the entities but is not control or joint control of those entities. If the Consolidated Group holds between 20 percent and 50
percent of the voting rights of each those entities, it is presumed
that the Consolidated Group has significant influence over each of
those entities.
Even if the Consolidated Group holds less than 20 percent of thevoting rights of another entity, such entity is included in the associates of the Consolidated Group as long as it is determined that theConsolidated Group has significant influence over the entity
through the dispatch of the board members, the shareholders’agreement or the like.
Joint ventures are those entities with respect to which multiple
parties, including the Consolidated Group, have joint control overthe economic activities by contract and unanimous consent of allof such parties is required when deciding on the relevant activities,
whereby the Consolidated Group has rights to the net assets of thearrangement.
Except for those that are classified as assets held for sale inaccordance with IFRS 5 Non-current Assets Held for Sale andDiscontinued Operations, investments in associates and joint ventures (“equity method investee”) are measured at the carrying
amount following the application of the equity method (including
goodwill recognized at the time of acquisition) less any accumulated impairment losses.
The consolidated financial statements include the Consolidated
Group’s share of profit or loss and other comprehensive income of
the associates and joint ventures from the date the Consolidated
Group obtains significant influence or joint control until the date it
loses such significant influence or joint control. When the accounting policies adopted by the equity method investees are different
from those adopted by the Consolidated Group, the financial
statements of the equity method investees are adjusted as necessary.

Special Features
Review of Operations
CSR and Corporate Governance1) Subsidiaries
Subsidiaries are entities which are controlled by the Consolidated
Group. The Consolidated Group controls an entity when it is
exposed, or has rights, to variable returns from its involvementwith the entity and has the ability to affect those returns throughits power over the entity. When the Consolidated Group holds
more than half of the voting rights of another entity, such entity is
included in the subsidiaries of the Consolidated Group as it isdetermined that control exists, unless it can be clearly demonstrated that such ownership does not constitute control. In addition,even when the Consolidated Group holds only half or less of thevoting rights of another entity, such entity is included in the subsidiaries of the Consolidated Group if it is determined through agreements with other investors that the Consolidated Group has
control over such entity’s financial and operating policies and thus
has the ability to affect returns from such entity.
The financial statements of subsidiaries are included in the consolidated financial statements of the Consolidated Group from thedate the Consolidated Group obtains control of the subsidiaries
until the date it loses such control of the subsidiaries. When theaccounting policies adopted by the subsidiaries are different fromthose adopted by the Consolidated Group and the difference isconsidered material, the financial statements of the subsidiaries areadjusted as necessary.
Changes in the Consolidated Group’s interest in a subsidiary that
do not result in a loss of control are accounted for as equity transactions. The Company recognizes directly in equity any difference
between the amounts by which the non-controlling interests areadjusted and the fair value of the consideration paid or received,
and attribute it to the owners of the Company.
If the Consolidated Group loses control of a subsidiary, theConsolidated Group derecognizes the assets and liabilities of theformer subsidiary, and any non-controlling interests and other components of equity related to the former subsidiary. Any gains orlosses arising from such loss of control are recognized in profit orloss. If the Consolidated Group retains any interest in the former
subsidiary after the control is lost, such interest is measured at fairvalue at the date that control is lost.

Kanematsu’s Progress and Strengths

3. Significant Accounting Policies

Financial Section and Company Information

KANEMATSU ANNUAL REPORT 201755

3) Business combinations
Business combinations are accounted for using the acquisition
method. The Consolidated Group recognizes goodwill as the sumof the fair value of the consideration transferred, the amounts ofany non-controlling interests in the acquiree and the fair value ofthe acquirer’s previously held equity interest in the acquiree measured at the acquisition date; less the net of the acquisition-dateamounts of the identifiable assets acquired and the liabilities
assumed (generally measured at fair value). When such difference
results in a negative balance, it is immediately recognized in profit
or loss. Non-controlling interests are measured either at fair value
or at the non-controlling interests’ proportionate share in the recognized amounts of the acquiree’s identifiable net assets. The measurement method to be applied at the acquisition date isdetermined on a transaction-by-transaction basis. Acquisitionrelated costs, which are costs that the Consolidated Group incurs
to effect a business combination (excluding costs to issue debt orequity securities), are accounted for as expenses in the periods inwhich the costs are incurred, and thus not included in the cost of
goodwill. In a business combination achieved in stages, theConsolidated Group remeasures its previously held equity interestin the acquiree at its acquisition-date fair value and recognizes any
gains or losses arising from such remeasurement in profit or loss.
Changes in the value of the Consolidated Group’s equity interest in
the acquiree that had been recognized in other comprehensive
income prior to the acquisition date are recognized in profit or loss,or other comprehensive income, on the same basis as would be
required if the Consolidated Group had disposed of the previously
held equity interest.

2) Translation of foreign operations
The assets and liabilities of foreign operations, including any goodwill and fair value adjustments arising on the acquisition of foreign
operations, are translated using the exchange rate at the end of
the reporting period. In addition, income and expenses of foreign
operations are translated using the average exchange rate for thereporting period unless exchange rates fluctuate significantly.
Exchange differences arising from the translation are recognizedin other comprehensive income and the cumulative amounts of theexchange differences are included in other components of equity.
When the Consolidated Group’s foreign operations are disposedof, the cumulative amounts of the exchange differences related toforeign operations are reclassified to profit or loss when the gain orloss on disposal is recognized. Based on the application of the
exemption clauses under IFRS 1, the Consolidated Group has
reclassified the cumulative exchange differences that existed at thetransition date to retained earnings.

(3) Cash and cash equivalents
Cash and cash equivalents are comprised of cash on hand; demand
deposits; and short-term, highly liquid investments with a maturityof three months or less from the date of acquisition that are readily
convertible to known amount of cash and which are subject to an
insignificant risk of changes in value.

(4) Inventories
Inventories are measured at the lower of cost determined by themoving-average method and net realizable value.

(5) Property, plant and equipment
4) Transactions eliminated in consolidation
Intragroup balances and transactions, as well as any unrealized
gains and losses arising from intragroup transactions, are eliminated when preparing the consolidated financial statements.

(2) Foreign currency translation
1) Translation of foreign currency transactions
Foreign currency transactions are translated into functional currencies of individual companies using the exchange rates at the datesof such transactions. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies aretranslated into functional currencies using the exchange rate at theend of each reporting period. Exchange differences on monetary
items are recognized in profit or loss in the period in which theyarise. Non-monetary items that are measured on a historical costbasis in a foreign currency are translated into the functional currency using the exchange rate at the date of the transaction. Nonmonetary items that are measured at fair value in a foreign
currency are translated into the functional currency using theexchange rates at the date when the fair value was measured.
With respect to the exchange differences of a non-monetary
item, when a gain or loss on a non-monetary item is recognized inother comprehensive income, the Consolidated Group recognizes
any exchange component of that gain or loss in other comprehensive income. Conversely, when a gain or loss on a non-monetary
items is recognized in profit or loss, the Consolidated Group recognizes any exchange component of that gain or loss in profit or loss.

56

KANEMATSU ANNUAL REPORT 2017

The Consolidated Group uses the cost model to measure an itemof property, plant and equipment after initial recognition and carries it at its cost less any accumulated depreciation and any accumulated impairment losses. The cost of property, plant andequipment include the cost directly attributable to the acquisitionof the asset.
Property, plant and equipment are depreciated using thestraight-line method over the estimated useful life of each component thereof. The ranges of principal estimated useful lives are presented as follows:
Buildings and structures:			
3 to 50 years
Machinery, vehicles, tools, furniture & fixtures:
2 to 20 years
Leased assets are fully depreciated over the shorter of the leaseterm and their estimated useful lives if there is no reasonable certainty that the Consolidated Group will obtain ownership by theend of the lease term.
The depreciation method, useful life and residual value of anasset are reviewed at least at the end of each reporting period andamended as necessary.

The Consolidated Group has early adopted IFRS 9 Financial
Instruments (as amended in July 2014).
1) Financial assets
The Consolidated Group classifies financial assets at initial recognition as financial assets measured at fair value through profit orloss, financial assets measured at fair value through other comprehensive income or financial assets measured at amortized cost. The
Consolidated Group initially recognizes financial assets measured
at amortized cost on the date that they arise and the other financial assets on the transaction date.
The Consolidated Group derecognizes a financial asset when,and only when (i) the contractual rights to cash flows from thefinancial asset expire, or (ii) it transfers the contractual rights tocash flows and substantially all the risks and rewards of ownershipof the financial asset.
(i) Financial assets measured at amortized cost
A financial asset that meets both of the following conditions isclassified as a financial asset measured at amortized cost:• The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash
flow and,• The contractual terms of the financial asset give rise on specified
dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

(7) Impairment of non-financial assets(ii) Financial assets measured at fair value through othercomprehensive income
A financial asset that meets both of the following conditions isclassified as a financial asset measured at fair value through othercomprehensive income:• The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flow and selling
financial assets and,• The contractual terms of the financial asset give rise on specified
dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

CSR and Corporate Governance

The Consolidated Group initially recognizes and measures afinancial asset measured at fair value through other comprehensive
income at its fair value plus any transaction costs directly attributable to the acquisition of the financial asset. The Consolidated
Group subsequently measures it at fair value and recognizes thesubsequent changes in fair value as other comprehensive income.
When the financial asset is derecognized, the cumulative gain orloss is reclassified to profit or loss.

Financial Section and Company Information

The Consolidated Group assesses at the end of each reporting period whether there is any indication that an asset may be impaired.
If any such indication exists, it estimates the recoverable amount of
the asset or the cash-generating unit to which the asset belongs.
Goodwill and an intangible asset with an indefinite useful life aretested for impairment annually and whenever there is an indicationthat such assets may be impaired. If the carrying amount of anindividual asset or the cash-generating unit exceeds its recoverable
amount, the carrying amount of the asset is reduced to its recoverable amount and that reduction is recognized as an impairment
loss.
The Consolidated Group assesses at the end of each reporting
period whether there is any indication that an impairment loss recognized in prior fiscal years for an asset other than goodwill may
no longer exist or may have decreased. If any such indication exists,
the Consolidated Group will estimate the recoverable amount ofthat asset. If the recoverable amount exceeds the carrying amountof that asset or the cash-generating unit to which the asset
belongs, the carrying amount is increased to its recoverable
amount, which is, however, limited up to the carrying amount thatwould have been determined (net of amortization or depreciation)
had no impairment loss been recognized for the asset in prior fiscal
years; and that increase is recognized as a reversal of an impairment loss. An impairment loss recognized for goodwill is notreversed in a subsequent period.
In addition, because goodwill that forms part of the carrying
amount of an investment in an equity method investee is not separately recognized, it is not tested for impairment separately. If it isindicated that the investment in an equity method investee may be
impaired, the entire carrying amount of the investment is tested for
impairment as a single asset, by comparing its recoverable amountwith its carrying amount.

The Consolidated Group initially recognizes and measures afinancial asset measured at amortized cost at its fair value plus any
transaction costs directly attributable to the acquisition of thefinancial asset. The Consolidated Group subsequently measures it
at amortized cost using the effective interest method.

Review of Operations

2) Intangible assets
The Consolidated Group uses the cost model to measure an intangible asset after initial recognition and carries it at its cost less any
accumulated depreciation and any accumulated impairment losses.
A separately acquired intangible asset is initially recognized andmeasured at cost. The cost of an intangible asset acquired in abusiness combination is its fair value at the acquisition date. With
respect to an internally generated intangible asset that does not
qualify for asset recognition, expenditures on such an internallygenerated intangible asset are recognized as expenses when they
are incurred. Conversely, the cost of an internally generated intangible asset that qualifies for asset recognition is the sum of expenditures incurred from the date when it first meets the recognition
criteria.
An intangible asset with a finite useful life is amortized using thestraight-line method over its estimated useful life. The
Consolidated Group’s intangible assets with finite useful lives arecomprised mainly of software whose estimated useful life is 5
years.
The depreciation method, useful life and residual value of an
intangible asset with a finite useful life are reviewed at the end ofeach reporting period and amended as necessary.
Certain intangible assets with indefinite useful lives such as carrier shop operating rights are not amortized, but instead tested for
impairment based on the cash-generating unit at least once a year
and whenever there is an indication that they may be impaired.

Special Features(8) Financial instruments

1) Goodwill
Goodwill is carried at cost less any accumulated impairment losses.

Kanematsu’s Progress and Strengths(6) Goodwill and intangible assets

KANEMATSU ANNUAL REPORT 201757

(iii) Equity instruments measured at fair value through othercomprehensive income
With regard to a financial asset that has not been classified aseither a financial asset measured at amortized cost or a financial
asset measured at fair value through other comprehensive income,and classified as a financial asset measured at fair value throughprofit or loss, IFRS 9 permits an entity to make an irrevocable election to present in other comprehensive income changes in fairvalue of an investment in an equity instrument that is not held for
trading. The Consolidated Group makes this election on an instrument-by-instrument basis.
The Consolidated Group initially recognizes and measures anequity instrument measured at fair value through other comprehensive income at its fair value plus any transaction costs directly
attributable to the acquisition of the financial asset. The
Consolidated Group subsequently measures it at fair value and recognizes the subsequent changes in fair value as other comprehensive income. When the equity instrument is derecognized, or its fairvalue substantially decreases, the Consolidated Group reclassifies
the cumulative amount of other comprehensive income to retained
earnings and not to profit or loss. Dividends are recognized in profit or loss.
(iv) Financial assets measured at fair value through profit orloss
A financial asset other than those classified as (i), (ii) and (iii) above
is classified as a financial asset measured at fair value through profit or loss.
The Consolidated Group initially recognizes and measures afinancial asset measured at fair value through profit or loss at its
fair value and expenses the transaction costs as incurred that are
directly attributable to the acquisition of the financial asset. The
Consolidated Group subsequently measures it at fair value and recognizes the subsequent changes in fair value in profit or loss.
2) Impairment of financial assets
The Consolidated Group assesses impairment of financial assets
measured at amortized cost and financial assets measured at fairvalue through other compressive income based on the expectedcredit loss approach.
If, at the reporting date, the credit risk on a financial instrument
has not increased significantly since initial recognition, theConsolidated Group measures the loss allowance for that financial
instrument at an amount equal to the 12-month expected credit
losses, i.e., the expected credit losses that result from default
events on that financial instrument that are possible within the
12-months after the reporting date. Conversely, if, at the reporting
date, the credit risk on that financial instrument has increased significantly since initial recognition, the Consolidated Group measures the loss allowance for that financial instrument at an amountequal to the lifetime expected credit losses, i.e., the expected credit
losses that result from all possible default events over the expected
life of that financial instrument.
However, the Consolidated Group always measures the loss
allowance for trade receivables that do not contain a significant
financing component at an amount equal to the lifetime expectedcredit losses despite the above requirement.
Detailed information on the assessment of significant increases
in credit risk and the measurement of expected credit losses is provided in Note 30. Financial Instruments: (3) Credit risk management.

58

KANEMATSU ANNUAL REPORT 2017

3) Financial liabilities
The Consolidated Group classifies financial liabilities at initial recognition as financial liabilities measured at fair value through profit orloss or financial liabilities measured at amortized cost. The
Consolidated Group initially recognizes financial liabilities measured
at amortized cost on the date that they arise and the other financial liabilities on the transaction date.
The Consolidated Group derecognizes financial liabilities when
they are extinguished, i.e., when obligations specified under a contract is discharged, cancelled or expires.
(i) Financial liabilities measured at amortized cost
The Consolidated Group classified financial liabilities, other thanfinancial liabilities measured at fair value through profit or loss, as
financial liabilities measured at amortized cost. The Consolidated
Group initially recognizes and measures a financial liability measured at amortized cost at its fair value less any transaction costs
directly attributable to incurring of the liability, and subsequently
measures it at amortized cost using the effective interest method.
(ii) Financial liabilities measured at fair value through profit
or loss
The Consolidated Group initially recognizes and measures a financial liability measured at fair value through profit or loss at its fairvalue, and subsequently measures it at fair value and recognizes
subsequent changes in fair value in profit or loss.
4) Derivatives and hedge accounting
In order to hedge the foreign currency fluctuation risk, interest rate
fluctuation risk and commodity price fluctuation risk, theConsolidated Group enters into derivative transactions, such as forward exchange transactions, interest rate swap transactions andcommodity futures and forwards transactions.
When initiating a hedge, the Consolidated Group designatesand documents the risk management purposes and strategies
regarding the hedge relationship and initiation of such hedge.
Such documentation includes the designation of the hedging
instrument, the hedged item or transaction, the nature of the risk
being hedged and methods of assessing the hedging instrument’s
effectiveness in offsetting the exposure to changes in the hedged
item’s fair value or cash flows attributable to the hedged risk.
Although such hedging is expected to be highly effective in offsetting changes in fair value or cash flows attributable to the hedgedrisk, it is assessed on an ongoing basis whether it was actuallyhighly effective throughout the reporting periods for which suchhedging was designated.
The Consolidated Group initially recognizes and measures derivatives at fair value and subsequently measures them at fair value
and accounts for subsequent changes in fair value as follows:(i) Fair value hedge
The Consolidated Group recognizes the changes in fair value of a
derivative used as a hedging instrument in profit or loss, and thechanges in fair value of a hedged item attributable to the hedged
risk in profit or loss by adjusting the carrying amount of thehedged item.

(9) Provisions(ii) Rendering of services
If results of revenue from the rendering of services can be reliably
estimated, such revenue will be recognized in accordance withsuch transaction’s degree of progress as of the fiscal year end. If allof the following conditions are satisfied, it is determined that
results of a transaction can be reliably estimated:• the amount of revenue can be measured reliably;• it is probable that the economic benefits associated with thetransaction will flow to the Consolidated Group;• the stage of completion of the transaction at the end of thereporting period can be measured reliably; and,• the costs incurred for the transaction and the costs to complete
the transaction can be measured reliably.
When the outcome of the transaction involving the rendering ofservices cannot be estimated reliably, the Consolidated Group recognizes revenue only to the extent of the expenses recognized thatare recoverable.

CSR and Corporate Governance

The Consolidated Group recognizes a provision when, only when(a) the Consolidated Group has a present obligation (legal or constructive) as a result of a past event; (b) it is probable that an outflow of resources embodying economic benefits will be required tosettle the obligation; and (c) a reliable estimate can be made of theamount of the obligation.
Where the effect of the time value of money is material, theConsolidated Group recognizes the provision by discounting it
using a current pre-tax discount rate that reflects the risks specificto the liability.

1) Revenue recognition criteria(i) Sale of goods
Revenue from the sale of goods is recognized when all of the following conditions have been satisfied:• the Consolidated Group has transferred to the buyer the significant risks and rewards of ownership of the goods;• the Consolidated Group retains neither continuing managerial
involvement to the degree usually associated with ownership nor
effective control over the goods sold;• the amount of revenue can be measured reliably;• it is possible that the economic benefits associated with thetransaction will flow to the Consolidated Group; and,• the costs incurred or to be incurred in respect to the transaction
can be measured reliably.

Review of Operations

5) Offsetting of financial assets and financial liabilities
Financial assets and financial liabilities are offset and the net
amount of such offset is presented in the consolidated statementsof financial position only when the Consolidated Group has alegally enforceable right to offset the recognized amounts andintends either to settle them on a net basis or realize the assets andsettle the liabilities simultaneously.

Revenue is measured at fair value of the consideration received or
receivable, net of returned goods, discounts and rebates. If there
are multiple identifiable components in a single transaction, suchtransaction is separated into components, and revenue is recognized per such component. Conversely, when the actual economic
state cannot be expressed without treating multiple transactions as
one unit, revenue is recognized by treating such multiple transactions as one unit. The recognition standards and presentation
method with respect to revenue are presented as follows:

Special Features(iii) Derivatives not designated as hedging instruments
The Consolidated Group recognizes the changes in fair value ofderivatives not designated as hedging instruments in profit or loss.

(11) Revenue

Kanematsu’s Progress and Strengths(ii) Cash flow hedge
Of the changes in fair value of a derivative used as a hedging
instrument, the portion determined to be effective is recognized inother comprehensive income and the cumulative amount is included in other components of equity. Conversely, the portion determined to be ineffective is recognized in profit or loss. The amounts
accumulated in other components of equity are reclassified fromother components of equity to profit or loss in the same periodthat the transaction of the hedged item affects profit or loss; provided, however, that if hedging of a forecast transaction subsequently results in the recognition of a non-financial asset or liability,
the amounts accumulated in other components of equity are thenaccounted for as an adjustment to the initial carrying amount of
the non-financial asset or liability.
When the hedging instrument expires or is sold, terminated or
exercised; or when the hedge no longer meets the criteria for thehedge accounting, the Consolidated Group discontinues the hedge
accounting prospectively. If the forecast transaction is no longer
expected to occur, the amounts accumulated in other componentsof equity are reclassified immediately from other components ofequity to profit or loss.

(10) Equity

Financial Section and Company Information

When the Consolidated Group repurchases the shares of treasury
stock, it is measured at cost and is presented as a deduction fromequity. Transaction costs directly attributable to the repurchase of
the shares of treasury stock are deducted from capital surplus.
When the Consolidated Group sells the shares of treasury stock,the consideration received is recognized as an increase in equity.

KANEMATSU ANNUAL REPORT 2017592) Method of presenting revenue
When the Consolidated Group is acting as a principal in a transaction, revenue is presented in the gross amount received from a customer. Conversely, when the Consolidated Group is acting as anagent for a third party in a transaction, revenue is presented in theamount of commission, which is the gross amount received by acustomer less the amount collected on behalf of the third party.
The following features are considered when determining whether the Consolidated Group is acting as a principal or as an agent in
a transaction:• whether the Consolidated Group has the primary responsibility
for providing goods or services to the customer or for fulfilling theorder;• whether the Consolidated Group has inventory risk before orafter receiving the customer order, during shipping or on return;• whether the Consolidated Group has latitude in establishing prices, either directly or indirectly;• whether the Consolidated Group bears the customer’s credit risk
for the amounts receivable from the customer; and,• whether the amounts the Consolidated Group earns are predetermined, being either a fixed fee per transaction or a stated percentage of the amounts billed to the customer.

(12) Finance income and finance costs
Finance income comprises interest income, dividend income, gainon sale of financial instruments and gain arising from changes infair value of financial instruments. Interest income is recognized at
the time of receipt by using the effective interest method. Dividend
income is recognized on the date when the Consolidated Group’s
right to receive payment is established. Finance costs compriseinterest expenses, loss on sale of financial instruments and loss arising from changes in the fair value of financial instruments.

(13) Employee benefits
1) Post-retirement benefits(i) Defined benefit plans
Defined benefit plans are retirement benefit plans other thandefined contribution plans. Defined benefit obligations are calculated separately for each plan by estimating the future amounts ofbenefits that employees will have earned in return for their services
provided in the current and prior periods, and discounting suchamounts in order to determine the present value. The fair value ofany plan assets is deducted from the present value of the defined
benefit obligations. The discount rate is determined by reference tothe market yields on highly rated corporate bonds at the fiscal
year-end that have maturity terms that are approximately the sameas those of the Consolidated Group’s defined benefit obligations
and use the same currencies as those used for future benefits payments.
When the retirement benefit plans are amended, the change indefined benefit obligations related to past service by employees isimmediately recognized in profit or loss.
The Consolidated Group recognizes the changes in the net
defined benefit liability (asset) due to remeasurements in othercomprehensive income and immediately reclassifies them toretained earnings.

60

KANEMATSU ANNUAL REPORT 2017(ii) Defined contribution plans
Defined contribution plans are retirement benefit plans underwhich an employer pays fixed contributions into a separate entity
and will have no legal or constructive obligation to pay further
contributions. The obligations already paid or to be paid as contributions under the defined contribution plans are recognized as
expenses in the period in which the employees render the related
services.
2) Other long-term employee benefits
The Consolidated Group recognizes obligations for long-term
employee benefits other than post-employment benefits as a liability by estimating the amounts as of the reporting date that will be
paid to the employees in return for their services without discounting that amounts unless it is material.
3) Short-term employee benefits
The Consolidated Group recognizes short-term employee benefits
as a liability and an expense by estimating the amounts that will be
paid to the employees in return for their services without discounting those amounts. The Consolidated Group recognizes bonuses tobe paid pursuant to the bonus system as a liability when it haspresent legal or constructive obligations to pay as a result of past
employee service, and when the amounts of the obligations can be
estimated reliably.

(14) Income taxes
Income tax expenses comprises current tax expense and deferred
tax expense. The Consolidated Group recognizes them in profit orloss, except when they arise from items that are recognized inother comprehensive income or directly equity, and from businesscombinations.
Current tax expense is measured by the expected taxes receivable from or taxes payable to tax authorities, and the tax rates or
tax laws that are used to calculate the tax amount are those thathave been enacted or substantially enacted by the end of the fiscal
year.
The Consolidated Group recognizes deferred tax assets anddeferred tax liabilities for temporary differences between the carrying amount of an asset and liability in the statements of financial
position and its tax base, the unused tax losses carried forward andunused tax credits carried forward. The amounts of deferred tax
assets and deferred tax liabilities are calculated by applying the
expected tax rate or tax law applicable as of the period in whichassets are realized or liabilities are settled in accordance with a statutory tax rate or a substantially enacted statutory tax rate and thetax law as of the fiscal year-end. The Consolidated Group does notrecognize deferred tax assets and deferred tax liabilities in the following cases:• when taxable temporary differences arise from the initial recognition of goodwill;• when they arise from the initial recognition of an asset or a liability in a transaction which is not a business combination; and on
the transaction date, affects neither accounting profit nor taxable
profit (tax loss); or,• with respect to taxable temporary differences associated withinvestments in subsidiaries and associates, when the Consolidated
Group is able to control the timing of the reversal of the temporary
differences; and it is probable that the temporary differences will
not reverse in the foreseeable future.

(15) Leases

Kanematsu’s Progress and Strengths

The Consolidated Group determines whether an agreement is, or
contains, a lease based on the substance of the agreement at
inception of the lease. The substance of an agreement is assessed
based on (a) whether fulfillment of the arrangement is dependent
on the use of a specified asset or assets; and (b) whether theagreement conveys a right to use the asset.
1) Finance lease
A finance lease is a lease that transfers substantially all the risks
and rewards incidental to ownership of an asset. The Consolidated
Group initially recognizes a leased asset at the lower of the fairvalue of the leased asset and the present value of the minimum
lease payments, and subsequently accounts for the lease asset
based on the applicable accounting policies. Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated toeach period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Special Features

Deferred tax assets and deferred tax liabilities are offset only
when the Consolidated Group has a legally enforceable right to set
off the current tax assets against current tax liabilities, and, suchdeferred tax assets and liabilities relate to income taxes levied on
the same taxation entity. However, even in the case of different
taxable entities, the Consolidated Group can set off if the tax taxable entities intend either to settle current tax liabilities and assets
on a net bases, or to realize the assets and settle the liabilities
simultaneously. Deferred tax assets are recognized for deductible
temporary differences, the unused tax losses carried forward andunused tax credits carried forward to the extent that it is probablethat they can be used against future taxable profit. The carrying
amounts of deferred tax assets are reassessed at each fiscal yearend, and such carrying amount will be reduced to the extent it is
no longer probable that related tax benefits from such assets will
be realized. Unrecognized deferred tax assets are also reassessed at
the end of each reporting period and are recognized to the extent
that it is probable that future taxable profit will be available torecover the deferred tax assets.
The Company and its wholly owned domestic subsidiaries apply
the consolidated tax payment system, by which the Company andits wholly owned domestic subsidiaries are allowed to file a tax
return and pay the corporation tax as a consolidated tax filinggroup.

Review of Operations

2) Operating lease
An operating lease is a lease other than a finance lease. The
Consolidated Group recognizes lease payments under an operatinglease as an expense on a straight-line basis mainly over the lease
term. When the Consolidated Group is the lessor of assets underan operating lease, it presents the assets subject to the operatinglease in its consolidated statements of financial position.

CSR and Corporate Governance
Financial Section and Company Information

KANEMATSU ANNUAL REPORT 201761

4. Standards and interpretations issued but not yet adopted
The following are the major standards and interpretations thathave been newly issued or amended prior to the date of authorization for issuance of the consolidated financial statements. The
Consolidated Group has not yet adopted these standards for theStandard

Mandatory application(from fiscal years
beginning on or after)

Title

fiscal year ended March 31, 2017. The effects of application ofthese standards on the Consolidated Group are currently underassessment and cannot be estimated as of the filing date.
Fiscal year in which theConsolidated Group will apply
the standard

Summary of new or amended standard

IFRS 15

Revenue from Contracts
with Customers

January 1, 2018

Fiscal year ending
March 31, 2019

Amendment of accounting treatment forand disclosure on revenue recognition

IFRS 16

LeasesJanuary 1, 2019

Fiscal year ending
March 31, 2020

Amendment of accounting treatment forlease contracts

5. Business Combinations
There were no major business combinations that occurred during
the fiscal year ended March 31, 2016.
The major business combination that occurred during the fiscal
year ended March 31, 2017 is described as follows:

be complemented and strengthened by the addition of Diamond
Telecom’s network and achieve a national network of blue-chip
shops, service sophistication through shared human resources andknow-how and the enhancement of management efficiency forboth companies.

(1) Contents of the business combination
Name of the acquired company

Contents of businessDiamondtelecom, Inc.

(3) Acquisition costs and the detail

Information communication
business involved with sales ofmobile communication devices
and systems

Acquisition costs (cash consideration)

Date of the businesscombination

April 1, 2016

Legal form of the businesscombination

Acquisition of the shares of
Diamondtelecom, Inc. by
Kanematsu Telecom Investment
Co., Ltd., a wholly owned
subsidiary of the Company.
(Kanematsu Telecom
Investment Co., Ltd. absorbed
the acquired company as ofApril 1, 2016 and changed its
company name to
Diamondtelecom, Inc.)

Company name after the
combination
Percentage of the voting
rights acquired

Diamondtelecom, Inc.
100.0%(2) Purpose of the business combination
The mobile business of the Consolidated Group is driven mainly by
Kanematsu Communications Limited (“Kanematsu
Communications”), a wholly owned subsidiary of the Company.
With its large market share in the mobile phone sales distribution
industry, the mobile business is one of the core businesses as wellas one of the focus areas under the Consolidated Group’s mediumterm vision, VISION-130.
Diamondtelecom, Inc. (“Diamond Telecom”) has been engaging
in the mobile phone sales business for more than 20 years since its
foundation in 1994 as a wholly owned subsidiary of Mitsubishi
Electric Corporation, and owns a dominant number of carrier-certified shops throughout Japan.
As a result of the acquisition of Diamond Telecom, theConsolidated Group’s total sales volume combining the sales of thetwo companies will reach the industry’s top class, and we expectthat this will significantly enhance our presence in the mobile
phone sales distribution industry.
We also believe that the integration of Diamond Telecom will
enable us to create synergies in the Consolidated Group as theKanematsu Communications’ network of carrier-certified shops will

62

KANEMATSU ANNUAL REPORT 2017

JPY

USD

17,400155,094(4) Acquisition-related costs and its line item
Acquisition-related costs for the business combination were ¥168
million ($1,498 thousand), and they were recognized in selling,
general and administrative expenses in the consolidated statementof income of the fiscal year ended March 31, 2016.

(5) Assets and liabilities on the day of the businesscombination
Fair value of the consideration paid

JPY

USD

17,400155,094

Cash and cash equivalents

4,613

41,122

Trade receivables

12,828114,343

Inventories

1,212

10,806

Other current assets

351

3,132

Property, plant and equipment

736

6,561

Goodwill (Note)

1,635

14,576

Intangible assets

13,930124,170

Other non-current assets

764

6,817
(158,179)

Current liabilities(17,746)

Non-current liabilities(925)(8,252)

Total

17,400155,094(Note) Goodwill consists primarily of future economic benefits andsynergies with the Consolidated Group’s existing businesses.
The total amount of goodwill that is expected to be deductible fortax purposes is ¥12,918 million ($115,151 thousand).

(6) Effects on cash flows through business combination
JPY

USD

Payments for acquisition costs (cashconsideration)(17,400)(155,094)

Cash and cash equivalents on theacquisition date

4,613

41,122(12,786)(113,972)

Payments for acquisition of subsidiaries
sharesThe performance of Diamond Telecom from April 1, 2016 to March
31, 2017 is included in the consolidated financial statements.

(8) Earnings since the acquisition date
Revenue
ProfitJPY

USD

27,800161

247,798
1,439

Kanematsu’s Progress and Strengths(7) Period of the performance of the acquired company
in the consolidated financial statements

There is no pro forma information presented since the businesscombination occurred at the beginning of the period.

6. Segment Information(1) Overview of Reportable Segments(Steel, Materials & Plant)
The Steel, Materials & Plant segment operates the domestic andinternational trade of general steel products including steel plates,bars and wire rods, pipes, and stainless products, carries out overseas projects such as plant and infrastructure development, andsells machine tools and industrial machinery. Additionally, this segment operates the domestic and international trade of crude oil,petroleum products, LPG, functional chemicals and food products,
pharmaceuticals and pharmaceutical intermediates, and otherproducts. It also develops environmental materials such as heatshield paints and new technologies, and operates businesses related to emissions rights.

Review of Operations(Electronics & Devices)
The Electronics & Devices segment provides a wide range of products including electronic parts and components, semiconductorand LCD manufacturing equipment, materials and indirect materials related to electronics, coupled with development and proposal
services. This segment also conducts retail sales of electric cells,
LED, etc. and deals with mobile communications terminals, mobileinternet systems, and information and telecommunication equipment and security equipment and services.

(Foods & Grain)
The Foods & Grain segment integrates the handling of a broadarray of food and foodstuffs, with operations ranging from sourcing raw materials reliably to providing food and foodstuffs, including high value-added products. Merchandise in this segment
includes cooked foods, processed fruits, processed agricultural
products, beverage ingredients, animal and fishery products,
wheat, rice, soybeans, feedstuff and pet foods.

Special Features

The reportable segments of the Consolidated Group are components of the Consolidated Group for which discrete financial information is available and are reviewed by the Board of Directors of
the Company normally and regularly assesses its business performance and examines the allocation of management resources.
The Consolidated Group offers a broad array of merchandiseand services, using expertise in each business field and trading
function from Japan and its international network. Trading functions include commercial trade, information gathering, market
development, business development and arrangement, risk management and logistics.
The Consolidated Group therefore consists of merchandise andservice segments based on its business units: “Electronics &Devices”, “Foods & Grain”, “Steel, Materials & Plant”, and “Motor
Vehicles & Aerospace”.
The principal merchandise and services handled by each segment are presented as follows:(Motor Vehicles & Aerospace)
The Motor Vehicles & Aerospace segment primarily operates international trade of aircrafts and aircraft parts, satellite- and aerospace-related products, automobiles, motorcycles and relatedparts, industrial vehicles, construction machinery, etc., and also
provides products with added value based on demand or use.

CSR and Corporate Governance
Financial Section and Company Information

KANEMATSU ANNUAL REPORT 201763

(2) Information on reportable segments
The accounting methods for the reportable operating segments are largely consistent with those stated in Note 3. Significant Accounting
Policies. Inter-segment revenue and transfers are based on the transaction prices to external customers.
Fiscal year ended March 31, 2017 (from April 1, 2016 to March 31, 2017)

(JPY)

Reportable segment
Electronics &Devices

Foods & Grain

Steel, Materials Motor Vehicles& Plant& Aerospace

Total

Others(Note 1)

Adjustment(Note 2)

Consolidated

Revenue
254,280

227,764

131,201

50,419663,664

11,914—

675,579

Inter-segment

359

4

54

0

419

62

(481)

—

Total revenue

254,640

227,769

131,256

50,419664,084

11,977(481)

675,579

Segment profit

14,348

2,489

2,820

2,223

21,881756(5)22,633

Depreciation andamortization

1,202

601

620

333

2,758

142

(15)

2,885

Share of profit (loss) ofinvestments accounted forusing the equity method(2,494)

103

13

31

(2,346)355—(1,990)173,258

106,057

111,957

36,738428,012

10,293

41,412479,717

531

1,354

71

308

2,266

2,233

385

4,885

1,548

376

164

2,537

4,627

129

213

4,970

External

Other profit or loss:

Segment assets
Other assets:
Investments accounted forusing the equity method
Capital expenditures

Fiscal year ended March 31, 2017 (from April 1, 2016 to March 31, 2017)

(USD)

Reportable segment
Electronics &Devices

Foods & Grain

Steel, Materials Motor Vehicles& Plant& Aerospace

Total

Others(Note 1)

Adjustment(Note 2)

Consolidated

6,021,748

Revenue
2,266,518

2,030,164

1,169,455

449,408

5,915,545

106,204—

Inter-segment

3,204

44

489

0

3,737

559

(4,296)—

Total revenue

2,269,722

2,030,208

1,169,944

449,408

5,919,282

106,762(4,296)

6,021,748

Segment profit

127,892

22,18725,144

19,817

195,040

6,747

(48)

201,739

Depreciation andamortization

10,717

5,362

5,530

2,976

24,585

1,270

(136)

25,720Share of profit (loss) ofinvestments accounted forusing the equity method(22,238)

926

122

278

(20,912)

3,172—(17,740)

1,544,332

945,339

997,926

327,469

3,815,065

91,747369,129

4,275,941

Investments accounted forusing the equity method

4,734

12,076640

2,753

20,203

19,9093,434

43,546

Capital expenditures

13,807

3,359

1,464

22,617

41,247

1,155

1,899

44,301

External

Other profit or loss:

Segment assets
Other assets:(Notes) 1 The “Others” column is a business segment that is not included in the reportable segments and includes the logistics and insurance service business and thegeotech business.
2 Adjustments are presented as follows:(1) Adjustment for segment profit of ¥(5) million ($(48) thousand) includes inter-segment elimination of ¥(5) million ($(48) thousand).
(2) Adjustment for segment assets of ¥41,412 million ($369,129 thousand) includes inter-segment elimination of ¥(13,794) million ($ (122,954) thousand) andcorporate assets of ¥55,206 million ($492,083 thousand) that are not allocated to any reportable segment. The corporate assets consist mainly of cash and bankdeposits associated with financing activities and assets such as investment securities.
(3) Adjustment for depreciation and amortization of ¥(15) million ($(136) thousand) includes inter-segment elimination of ¥(15) million ($(136) thousand).
(4) Adjustment for investments accounted for using the equity method of ¥385 million ($3,434 thousand) includes inter-segment elimination of ¥(2) million ($(23)thousand) and corporate assets of ¥387 million ($3,458 thousand) that are not allocated to any reportable segment.
(5) Adjustment for capital expenditures of ¥213 million ($1,899 thousand) includes inter-segment elimination of ¥(22) million ($(204) thousand) and corporate assetsof ¥235 million ($2,103 thousand) that are not allocated to any reportable segment. The corporate assets consist mainly of lease equipment related to theinformation system of the subsidiary.

64

KANEMATSU ANNUAL REPORT 2017

Reportable segment
Electronics &Devices

Foods & Grain

Steel, Materials Motor Vehicles& Plant& Aerospace

Others(Note 1)

Total

Adjustment(Note 2)

Consolidated

668,374

Kanematsu’s Progress and Strengths

Fiscal year ended March 31, 2016 (from April 1, 2015 to March 31, 2016)(JPY)

Revenue
External

235,028

222,577

135,269

63,792656,667

11,706—

Inter-segment

220

2

56

0

279

68

(347)

—

Total revenue

235,249

222,579

135,325

63,792656,947

11,774(347)

668,374

Segment profit

10,658

1,427

3,388

2,964

18,439329

418,772

1,036

621

929

364

2,951

141

(10)

3,082

278

77

13

34

403

271

—

675

152,348

110,116

102,204

25,172389,842

9,907

43,842443,592

Investments accounted forusing the equity method

3,918

1,208

50

332

5,509

1,913

(2)

7,420

Capital expenditures

1,604

439

527

278

2,850

117

258

3,226

Other profit or loss:
Depreciation andamortization

Segment assets

Special Features

Share of profit (loss) ofinvestments accounted forusing the equity method
Other assets:

Review of Operations(Notes) 1 The “Others” column is a business segment that is not included in the reportable segments and includes the logistics and insurance service business and thegeotech business.
2 Adjustments are presented as follows:(1) Adjustment for segment profit of ¥4 million includes inter-segment elimination of ¥4 million.
(2) Adjustment for segment assets of ¥43,842 million includes inter-segment elimination of ¥(11,964) million and corporate assets of ¥55,807 million that are notallocated to any reportable segment. The corporate assets consist mainly of cash and bank deposits associated with financing activities and assets such as
investment securities.
(3) Adjustment for depreciation and amortization of ¥(10) million includes inter-segment elimination of ¥(10) million.
(4) Adjustment for investments accounted for using the equity method of ¥(2) million includes inter-segment elimination of ¥(2) million.
(5) Adjustment for capital expenditures of ¥258 million includes inter-segment elimination of ¥(71) million and corporate assets of ¥329 million that are not allocatedto any reportable segment. The corporate assets consist mainly of software related to the information system of the Company.

Adjustments from segment profit (operating profit) to profit before tax presented in the consolidated statements of income are presented asfollows:
JPY

USD

2017

2016

2017

22,633

18,772201,739(2,767)(1,326)(24,664)

Share of profit (loss) of investments accounted for using
the equity method(1,990)675(17,740)

Profit before tax

17,875

18,122

159,334

CSR and Corporate Governance

Segment profit
Finance income and finance costs(3) Information on products and services
This disclosure is omitted because the classification of products and services is the same as that of reportable segments.

Financial Section and Company Information

KANEMATSU ANNUAL REPORT 201765

(4) Geographic information
1) External revenue
JPY

USD

2017

2016

2017

5,127,582

Japan

575,263542,333

Asia

46,62062,185415,547

North America

36,74843,571

327,558

Europe12,771

13,598113,835

4,176

6,685

37,226

675,579

668,374

6,021,748

2017

2016

2017

Japan

48,204

34,464

429,670

Asia

990

1,046

8,831

OthersTotal

Revenue is classified by country or region based on the locations of customers.
2) Non-current assets (excluding financial assets and deferred tax assets)
JPY

USD

North America

4,946

5,432

44,088Europe

3,731

2,092

33,265

33

39

296

57,906

43,076516,150

OthersTotal(5) Information on major customers
There is no customer whose transaction volume is equal to or more than 10% of the Consolidated Group’s revenue for the fiscal years ended
March 31, 2017 and March 31, 2016.

7. Trade and Other Receivables
The breakdown of trade and other receivables is presented as follows:
JPY

Notes and accounts receivable

USD

2017

2016

2017

186,705

159,173

1,664,187

Loans receivable

3,078

3,019

27,444

Other

4,718

4,190

42,057

Less: loss allowance
Total
Current assets
Non-current assets
Total(2,139)(2,383)(19,066)

192,363

164,001

1,714,621

191,193

163,540

1,704,195

1,169

460

10,425

192,363

164,001

1,714,621

Information on changes in loss allowance is provided in Note 30. Financial Instruments: (3) Credit risk management.

8. Inventories
The breakdown of inventories is presented as follows:
JPY

USD

2017

2016

2017

Merchandise and finished goods

77,85676,899693,968

Raw materials and supplies

1,972

2,328

17,580Work in progress
Total

833

967

7,430

80,66280,195

718,977

The amounts of inventories that were recognized as expense during the fiscal year ended March 31, 2017 and March 31, 2016 are ¥558,429
million ($4,977,533 thousand) and ¥561,989 million, respectively.
The amount of reversal of write-downs on inventories that was recognized as income during the fiscal year ended March 31, 2017 is ¥164
million ($1,464 thousand), and the amount of write-downs on inventories that was recognized as expense during the fiscal year ended
March 31, 2016 is ¥820 million.

66

KANEMATSU ANNUAL REPORT 2017

Kanematsu’s Progress and Strengths

9. Property, Plant and Equipment
Changes in costs, accumulated depreciation and accumulated impairment losses of property, plant and equipment are presented as follows:[Costs]

As of April 1, 2015

(JPY)
Buildings andstructures

Machinery, vehicles,
tools, furniture andfixtures

Land

Construction inprogress

Total

26,781

14,114985

58,253

652

1,380

—

309

2,342

Acquisitions through business combinations

419

3

326

—

749

Transfers from construction in progress

357

369

—

(727)

—

Disposals(520)(1,965)(468)—(2,954)

Exchange differences

(96)

(456)

(54)

(39)

(647)

Increases (decreases) due to a change in thescope of consolidation

(594)

(214)

—

—

(808)

Other

(112)

60

(1,372)(43)(1,468)16,47625,95912,545484

55,466

Acquisitions

467

3,616

—

211

4,295

Acquisitions through business combinations

501

230

—

4

736

Transfers from construction in progress

11

57

—

(68)

—

(1,037)(1,952)(1,954)(0)(4,946)

Exchange differences

(36)

(83)

(18)

(1)

(139)

Increases (decreases) due to a change in thescope of consolidation

(2)

(8)

—

—

(11)

As of March 31, 2016

Disposals

As of March 31, 2017

60

155

—

(41)

175

16,43927,974

10,572588

55,575

Review of Operations

Other

Special Features

16,371

Acquisitions[Accumulated depreciation and accumulated impairment losses](JPY)
Buildings andstructures

As of April 1, 2015

Machinery, vehicles,
tools, furniture andfixtures

Construction inprogress

Land

Total

(19,065)(360)—(29,287)(547)(1,652)——(2,199)Impairment losses

(15)

(2)

(64)

—

(81)

Disposals

428

1,599

—

—

2,028

Exchange differences

23

224

—

—

247

Increases (decreases) due to a change in thescope of consolidation

321

208

—

—

529

Other

98

82

—

—

181

(9,551)(18,605)(425)—(28,582)

Depreciation(355)(1,611)——(1,966)

Impairment losses

(37)

(4)

(132)

—

(173)

Disposals

290

1,117

519

—

1,928

Exchange differences

6

103

—

—

109

Increases (decreases) due to a change in thescope of consolidation

0

6

—

—

7

As of March 31, 2016

Other
As of March 31, 2017

(16)

(22)

—

—

(39)

(9,663)(19,016)(37)—(28,717)

CSR and Corporate Governance(9,860)Depreciation

Financial Section and Company Information

KANEMATSU ANNUAL REPORT 201767

[Carrying amount](JPY)
Buildings andstructures

Machinery, vehicles,
tools, furniture andfixtures

Land

As of March 31, 2016

6,924

7,354

12,119484

26,883As of March 31, 2017

6,776

8,958

10,534588

26,858Construction inprogress

Total[Costs]

As of March 31, 2016

(USD)
Buildings andstructures

Machinery, vehicles,
tools, furniture andfixtures

Land

Construction inprogress

Total

146,859

231,391

111,8214,323

494,394

Acquisitions

4,169

32,237—

1,882

38,289Acquisitions through business combinations

4,469

2,051

—

40

6,561

98

515

—

(613)

—

(9,252)(17,408)(17,421)(8)(44,088)

Exchange differences

(324)

(744)

(165)

(9)

(1,242)

Increases (decreases) due to a change in thescope of consolidation

(25)

(78)

—

—

(103)

Transfers from construction in progress
Disposals

Other
As of March 31, 2017

541

1,388

—

(368)

1,561

146,536

249,352

94,236

5,247

495,371[Accumulated depreciation and accumulated impairment losses]

(USD)

Buildings andstructures

Machinery, vehicles,
tools, furniture andfixtures

As of March 31, 2016

(85,137)(165,841)(3,790)—(254,768)

Depreciation(3,164)(14,368)——(17,532)

Construction inprogress

Land

Total

Impairment losses

(337)

(36)

(1,177)—(1,550)

Disposals

2,593

9,964

4,631

—

17,189Exchange differences

59

920

—

—

979

Increases (decreases) due to a change in thescope of consolidation

3

60

—

—

63

Other
As of March 31, 2017

(149)

(202)

—

—

(351)

(86,133)(169,502)

(335)

—

(255,970)

Buildings andstructures

Machinery, vehicles,
tools, furniture andfixturesLand

60,403

79,84993,900[Carrying amount]

As of March 31, 2017

(USD)
Construction inprogress

5,247

Total

239,400

The amounts of expenditures relating to property, plant and equipment under construction are presented in the table above as “Constructionin progress”.
Depreciation for property, plant and equipment are included in “Cost of sales” and “Selling, general and administrative expenses” in the
consolidated statement of income.

68

KANEMATSU ANNUAL REPORT 2017

Kanematsu’s Progress and Strengths

10. Goodwill and Intangible Assets(1) Goodwill
1) Costs, accumulated impairment losses and carrying amount
Changes in costs, accumulated impairment losses and carrying amount of goodwill are presented as follows:[Costs]
JPY

USD

2016

2017

Balance at the beginning of the year

5,387

5,249

48,022Acquisitions through business combinations

1,842

277

16,420

(25)

(139)

(230)

7,203

5,387

64,212

2017

2016

2017

Balance at the beginning of the year

(756)

(756)

(6,740)

Impairment losses

(143)

—

(1,275)

Exchange differences

—

—

—

(899)

(756)

(8,015)

2017

2016

2017

6,304

4,631

56,197

Exchange differences
Balance at the end of the year

Special Features

2017[Accumulated impairment losses]
JPY

Balance at the end of the year

USD

[Carrying amount]
JPY2) Impairment test
The Consolidated Group’s cash-generating units to which goodwill
has been allocated are tested for impairment annually, and when-

Review of Operations

Carrying amountUSD

ever there is an indication that the Consolidated Groups may be
impaired. The carrying amount of significant goodwill allocated to
the Consolidated Group’s cash-generating units was as follows:
JPY

USD

2017

2016

2017

Electronics business of the domestic subsidiaries

1,763

1,763

15,716

Mobile business of the domestic subsidiaries

1,635

—

14,576

426

569

3,798

2,271

2,300

20,250Electronics & Devices segment

Foods & Grain segment
Pet-related businesses of the domestic subsidiaries

CSR and Corporate Governance

Steel, Materials & Plant segment
Oilfield tubing business of the foreign subsidiaries
The recoverable amounts of the Consolidated Group’s cash-generating units to which significant goodwill has been allocated were
calculated based on its value in use founded on the five-year forecast that was approved by management.
The five-year forecast of cash flows is based on future plansreflecting past performance. In addition, the main assumption used
to determine such forecast was the growth rates of gross profits

through such terms, such growth rates being consistent with theforecasts of the nominal GDP growth rates or the like of the countries in which such Consolidated Group’s cash-generating units are
situated. The ultimate growth rates are determined by considering
the average long-term growth rates of the markets or countries towhich the Consolidated Group’s cash-generating units belong.

Financial Section and Company Information

KANEMATSU ANNUAL REPORT 2017

69

The pre-tax discount rates which were used in calculating the value in use of the Consolidated Group’s cash-generating units to which significant goodwill has been allocated were as follows:
2017

2016

Electronics business of the domestic
subsidiaries

3.3%

3.4%

Mobile business of the domestic
subsidiaries

7.2%

—

5.7%

6.3%

13.0%

12.0%

Electronics & Devices segment

Foods & Grain segment
Pet-related businesses of the domestic
subsidiaries
Steel, Materials & Plant segment
Oilfield tubing business of the foreignsubsidiaries

With respect to goodwill that has been allocated to the Consolidated Group’s cash-generating units, the recoverable amount of such goodwill largely exceeds its carrying amount. Thus, even if major assumptions are changed to a reasonable extent, it is unlikely that such changes
in major assumptions will reduce the recoverable amounts of the Consolidated Group’s cash-generating units below the carrying amount.

(2) Intangible assets
Changes in costs, accumulated amortization and accumulated impairment losses of intangible assets are presented as follows:[Costs]
As of April 1, 2015
Acquisitions
Acquisitions throughbusiness combinations(JPY)
Software

Carrier shop operating rights

Other

Total

8,174

3,291

4,968

16,434

656

—

37

693

4

—

9

14

Disposals

(161)

—

(45)

(207)

Exchange differences

(32)

—

(235)

(267)

Other

(4)

—

(242)

(246)

8,636

3,291

4,492

16,421

Acquisitions

609

—

4

614

Acquisitions throughbusiness combinations

68

13,849—13,917

As of March 31, 2016

(728)

—

(55)

(784)

Exchange differences

Disposals

(3)

—

(18)

(21)

Other

13

—

4

18

8,596

17,1404,427

30,164

Carrier shop operating rights

Other

Total

As of March 31, 2017

[Accumulated amortization and accumulated impairment losses]
Software

As of April 1, 2015

(6,361)(234)(1,196)(7,792)

(571)

—

(373)

(944)

Impairment losses

—

—

(12)

(12)

Disposals

140

—

35

175

Exchange differences

25

—

57

82

Other

(4)

—

158

153

Amortization

As of March 31, 2016

(6,771)(234)(1,331)(8,337)

Amortization

(568)

—

(331)

(899)

Impairment losses

(688)

—

(4)

(692)

Disposals

654

—

55

709

3

—

0

3

(12)

—

(0)

(12)

(7,383)(234)(1,611)(9,228)Exchange differences
Other
As of March 31, 2017

70

(JPY)

KANEMATSU ANNUAL REPORT 2017

(JPY)
Software

Carrier shop operating rights

Other

Total

As of March 31, 2016

1,864

3,057

3,161

8,083

As of March 31, 2017

1,213

16,906

2,816

20,935

Software

Carrier shop operating rights

Other

Total

As of March 31, 2016

76,982

29,34140,046

146,369

Acquisitions

5,432

—

41

5,474

606

123,442—

124,049[Costs]

Acquisitions throughbusiness combinations
Disposals

(USD)

—

(499)

(6,989)

(29)

—

(163)

(192)

Other

123

—

38

161

76,624

152,784

39,463

268,871

Software

Carrier shop operating rights

Other

Total

(60,359)(2,090)(11,869)(74,318)[Accumulated amortization and accumulated impairment losses]
As of March 31, 2016

(USD)

(5,064)—(2,952)(8,017)(6,136)—(38)(6,174)

Disposals

5,832

—

494

6,326

29

—

4

33

(110)

—

(0)

(110)

(65,809)(2,090)(14,361)(82,260)

Other
As of March 31, 2017

Review of Operations

Amortization
Impairment losses
Exchange differences

Special Features(6,490)Exchange differences
As of March 31, 2017

Kanematsu’s Progress and Strengths[Carrying amount]

[Carrying amount](USD)
As of March 31, 2017

Software

Carrier shop operating rights

Other

Total

10,815

150,694

25,101

186,611

CSR and Corporate GovernanceThe carrier shop operating rights were recognized as intangible assets upon acquisition of the mobile business by the consolidated subsidiaryof the Company. As the rights are expected to exist fundamentally as long as the business continues, they are determined to be classified as
intangible assets with indefinite useful lives.
The recoverable amounts of the Consolidated Group’s cash-generating units including the carrier shop operating rights were calculated
based on its five-year forecast’s value in use that was approved by management. The five-year forecast of cash flows is based on the futureplans anticipated based on past performance. In addition, the main assumption used to determine such forecast was the growth rates ofgross profits through such terms, such growth rates being consistent with the forecasts of the nominal GDP growth rates or the like of thecountries in which such Consolidated Group’s cash-generating units are situated. The ultimate growth rates are determined by considering
the average long-term growth rates of the markets or countries to which the Consolidated Group’s cash-generating units belong.
There were no material internally-generated intangible assets as of March 31, 2017 and March 31, 2016.
Amortization expenses are included in “Cost of sales” and “Selling, general and administrative expenses” in the consolidated statement ofincome.
The discount rates before tax used to determine the value in use of the Consolidated Group’s cash-generating units are presented as follows:
2017

2016

7.0%

6.0%

Electronics & Devices segment
Financial Section and Company Information

Mobile business of the domestic subsidiaries

With respect to the carrier shop operating rights, the recoverable amounts of the Consolidated Group’s cash-generating units largely exceed
their carrying amounts. Thus, even if major assumptions are changed to a reasonable extent, it is unlikely that such changes in major assumptions will reduce the recoverable amounts of the Consolidated Group’s cash-generating units below the carrying amount.

KANEMATSU ANNUAL REPORT 201771

11. Interests in Associates and Joint Ventures
There are no associates or joint ventures that are material to the Consolidated Group.
The aggregate amounts of interests in individually immaterial associates and joint ventures that are accounted for using the equity method
are presented as follows:[Aggregate carrying amount]
JPY

Associates

USD

2017

2016

2017

4,497

7,420

40,088

387

—

3,458

2016

2017

Joint ventures[Profit or loss from continuing business]

JPY

2017

Associates

USD(1,990)675(17,740)

(21)

—

(190)

Joint ventures[Other comprehensive income]

JPY

2017

USD

2016

2017

Associates

134

(141)

1,203

Joint ventures

—

—

—

2016

2017

[Total comprehensive income]
JPY

2017

Associates

USD(1,855)533(16,538)

(21)

—

(190)

Joint ventures

12. Other Investments
The breakdown of other investments is presented as follows:
JPY

2017

USD

2016

2017

Financial assets measured at fair value through profit or loss

5,054

5,637

45,053Financial assets measured at fair value through other comprehensive income

28,06324,897250,140

Financial assets measured at amortized cost

994

1,000

8,864

Total

34,112

31,535304,057

2017

2016

2017

Advance payments

10,567

5,739

94,192

Prepaid expenses

4,299

3,908

38,323

Other

7,141

6,606

63,65822,00816,253

196,173

18,20012,776

162,232

13. Other Current Assets and Other Non-current Assets
The breakdown of other current assets and other non-current assets is presented as follows:
JPY

Total
Current assets
Non-current assets
Total

72

KANEMATSU ANNUAL REPORT 2017

USD

3,807

3,477

33,941

22,00816,253

196,173

Kanematsu’s Progress and Strengths

14. Trade and Other Payables
The breakdown of trade and other payables is presented as follows:
JPY

USD

2017

2016

2017

Notes and accounts payable

120,673102,276

1,075,613

Import bills payable

32,992

31,034

294,079

Accounts payable - commission
Total
Current liabilities

11,345

8,832

101,129

165,011

142,143

1,470,822

165,011

142,143

1,470,822———

165,011

142,143

1,470,822

Non-current liabilities
Total

Special Features

15. Bonds and Borrowings
The breakdown of bonds and borrowings is presented as follows:
2017

2016

Averageinterest rate
(Note)

Maturity date

USD

JPY

Short-term borrowings

40,402360,127

33,374

0.97%—

Current portion of long-term borrowings

24,240216,069

28,615

1.20%—

Bonds (excluding the current portion)

9,945

88,652

9,925

—

—

1.30%

August2018 to
October
2029

Long-term borrowings (excluding the current portion)

59,255528,172

64,952

133,844

1,193,021

136,867

Current liabilities

64,643576,197

61,989Non-current liabilities

69,201

616,824

74,877

133,844

1,193,021

136,867

Total

Total

Review of Operations

JPY(Note) The “average interest rate” is presented as the weighted average interest rate against the borrowings outstanding at the end of the fiscal year. For the purpose of
avoiding the interest rate fluctuation risk for borrowings hedged by derivative transactions, such as interest rate swaps, the average interest rate is calculated using
the interest rate after hedging. The interest rate for bonds is presented in the “Details of bonds” below.

[Details of bonds]
Bond Name

Issue dateKanematsu
Corporation

Unsecured Straight
Bonds No 1
(3-year bonds)

Kanematsu
Corporation

Unsecured Straight
Bonds No 2(5-year bonds)

2017

2016

Coupon rate

Collateral

Maturity date

4,961

0.40% per
annum

None

March 8,
2019

4,964

0.64% per
annum

None

March 10,
2021

JPY

USD

JPY

March 10,
2016

4,974

44,341March 10,
2016

4,971

44,311

CSR and Corporate Governance

Issuer(Note) The maturity schedule of bonds (excluding the current portion) within 5 years after the end of the current fiscal year is presented as follows:

Corporate bonds

Over one year andwithin two years

Over two years andwithin three years

Over three years andwithin four years

Over four years andwithin five years

JPY

USD

JPY

4,974

44,341

—

USD

JPY

USD

JPY

USD

—

4,971

44,311——
Financial Section and Company Information

KANEMATSU ANNUAL REPORT 201773

16. Provisions
Changes in provisions are presented as follows:(JPY)
Asset retirement obligations

Other

Total

As of April 1, 2016

922

382

1,304

Provisions made

68

92

160

Provisions used

(26)

(14)

(41)

Provisions reversed

—

(8)

(8)

Unwinding of discount

18

—

18

Foreign exchange translationdifferences

—

(6)

(6)

As of March 31, 2017

981

444

1,426

Asset retirement obligations

Other

Total

As of April 1, 2016

8,219

3,408

11,626

Provisions made

608

822

1,429

Provisions used

(240)

(127)

(367)

Provisions reversed

—

(79)

(79)

Unwinding of discount

164

—

164

Foreign exchange translationdifferences

—

(62)

(62)

8,750

3,961

12,711(USD)

As of March 31, 2017

The current and non-current portions of provisions are presented as follows:
JPY

2017

Current liabilities
Non-current liabilities
Total

USD

2016

2017

28

31

251

1,397

1,272

12,460

1,426

1,304

12,711

Asset retirement obligations are obligations for restoring offices and shops in accordance with provisions of the property leasing contracts.
While these expenditures will be made after at least one year has passed, the amounts may be affected by the future business plan and otherfactors.

17. Other Current Liabilities and Other Non-current Liabilities
The breakdown of other current liabilities and other non-current liabilities is presented as follows:
JPY

2016

2017

Advances received

11,854

6,515

105,667

Accrued expenses

3,343

3,351

29,806

Unearned revenue

2,918

2,958

26,013

Other

8,788

7,339

78,337

26,905

20,164

239,823

26,291

19,465234,348

Total
Current liabilities
Non-current liabilities
Total

74

USD

2017

KANEMATSU ANNUAL REPORT 2017

614

699

5,475

26,905

20,164

239,823

Kanematsu’s Progress and Strengths

18. Equity(1) Capital management
The Consolidated Group has a basic policy of increasing shareholders’ equity (See Note 1) up to a certain level and strengthening its
financial base to enhance its enterprise value through building new
businesses and increasing revenues while maintaining a soundfinancial position. In addition, the Company uses net DER (SeeNote 2) as a key indicator for capital management.

The Consolidated Group will strive to expand its business to theextent allowed by its own financial strength with the target net
DER to be kept under 1.0, as per the medium-term vision“VISION-130”, for which the revision was made and announced
on May 10, 2016. These indices are periodically reported to andmonitored by management.

(Note 1) Shareholders’ equity is defined as equity attributable to owners of the Parent.
(Note 2) Net DER is defined as a ratio of net interest-bearing debt to shareholders’ equity, while net interest-bearing debt is the total amount of interest-bearing debt lesscash and cash equivalents.

The figures of net DER as of March 31, 2017and March 31, 2016 are presented as follows:
2017

2016

0.6

0.5

Special Features

Net DERThe Consolidated Group is not subjected to any externally imposed capital requirements (except for general requirements, such as those in
the Companies Act).

(2) Number of shares authorized to be issued, issued shares and shares of treasury stock(Unit: share)
2016

1,016,653,604

1,016,653,604

Issued shares(No-par common stock)
Balance at the beginning of the year
Changes during the period
Balance at the end of the year

422,501,010—
422,501,010

422,501,010—
422,501,010

Treasury stock(No-par common stock)
Balance at the beginning of the year
Balance at the end of the year

2,953,939
2,531,799

2,893,263
2,953,939

Shares authorized to be issued(No-par common stock)

Review of Operations

2017

The number of shares of treasury stock includes treasury stock held by the associates of the Company.

(3) Surplus
1) Capital surplus
Capital surplus mainly consists of legal capital surplus.

CSR and Corporate Governance2) Retained earnings
Retained earnings consist of legal retained earnings and otherretained earnings.
The Companies Act of Japan provides that an amount equal to
10% of distribution of surplus for each fiscal year must be appro-

priated as legal capital surplus or legal retained earnings until the
total aggregate amount of legal capital surplus and legal retained
earnings equals 25% of share capital.
Under the Companies Act, the amounts available for distribution
are calculated based on the amounts of capital surplus andretained earnings, exclusive of legal capital surplus and legal
retained earnings, all of which are recorded in accordance with theaccounting principles generally accepted in Japan.

Financial Section and Company Information

KANEMATSU ANNUAL REPORT 201775

(4) Dividends
1) Amounts of dividends paid
Resolution

Type of stock

Source ofdividends

Dividends
per share

Total amounts of dividends
JPY

USD

Yen

U.S.$

Record date

Effective date

May 23, 2016
Board of Directors
meeting

Commonstock

Retainedearnings

1,053

9,388

2.50

0.022

Mar. 31, 2016

Jun. 6, 2016

Nov. 2, 2016
Board of Directors
meeting

Commonstock

Retainedearnings

1,263

11,265

3.00

0.027

Sep. 30, 2016

Dec. 2, 2016

Resolution

Type of stock

Source ofdividends

Record date

Effective date

Total amounts ofdividends

Dividends
per share

JPY

Yen

May 25, 2015
Board of Directors
meeting

Commonstock

Retainedearnings

632

1.50

Mar. 31, 2015

Jun. 4, 2015

Nov. 5, 2015
Board of Directors
meeting

Commonstock

Retainedearnings

1,053

2.50

Sep. 30, 2015

Dec. 4, 20152) Dividends with record date in the current fiscal year, and effective date in the following fiscal year
Resolution

May 22, 2017
Board of Directors
meetingType of stock

Commonstock

Source ofdividends

Retainedearnings

Dividends
per share

Total amounts of dividends
JPY

USD

Yen

U.S.$

1,263

11,265

3.00

0.027

Record date

Effective dateMar. 31, 2017

Jun. 5, 2017

19. Revenue
The breakdown of revenue is presented as follows:
JPY

USD

2017

2016

2017

Revenue from the sale of goods

653,529

646,004

5,825,206

Revenue from rendering of services and others

22,05022,369196,543

675,579

668,374

6,021,748

2016

2017

Total

20. Selling, General and Administrative Expenses
The breakdown of selling, general and administrative expenses is presented as follows:
JPY

2017

Depreciation and amortization

1,822

1,883

16,243

Personnel expenses

42,83437,782

381,803

Outsourcing service charges

6,827

6,417

60,859Rent expenses

6,320

5,351

56,336

18,35817,143

163,635

76,163

68,577

678,876

Other
Total

76

USD

KANEMATSU ANNUAL REPORT 2017

Kanematsu’s Progress and Strengths

21. Gain or Loss on Sale or Disposal of Property, Plant and Equipment and Intangible Assets
The breakdown of gain or loss on sale or disposal of property, plant and equipment and intangible assets is presented as follows:
JPY

2017

USD

2016

2017

Gain on sale of property, plant and equipment

543

25

4,845

Gain on sale of intangible assets

—

14

—

40

4,845

(1)

(251)

(10)

Loss on sale of intangible assets

—

(0)

—

(1)

(252)

(10)

Loss on disposal of property, plant and equipment

(83)

(76)

(748)

Loss on disposal of intangible assets

(73)

(22)

(657)

Total loss on disposal of property, plant and equipment and intangible assets

(157)

(99)

(1,405)Gain (loss) on sale or disposal of property, plant and equipment and intangible
assets, net

384

(311)

3,430

Total gain on sale of property, plant and equipment and intangible assets

Total loss on sale of property, plant and equipment and intangible assets

Special Features

543

Loss on sale of property, plant and equipment

22. Impairment Loss
(1) Breakdown of impairment loss by each class of assets
The breakdown of impairment losses by class of assets is presented as follows. Impairment losses for property, plant and equipment andintangible assets are included in “Impairment loss on property, plant and equipment and intangible assets” , and impairment losses for goodwill are included in “Other expenses” in the consolidated statement of income.
JPY

USD

2016

2017

Property, plant and equipment

(173)

(81)

(1,550)Goodwill(143)—(1,275)Intangible assets

(692)

(12)

(6,174)(1,009)(94)(8,999)

Total

Review of Operations

2017(2) Breakdown by reportable segment
The breakdown of impairment losses by reportable segment is presented as follows:
JPY

2017

USD

2016

2017

(721)

(13)

(6,429)Foods & Grain

(143)

—

(1,275)

Steel, Materials & Plant

(13)

(79)

(118)

Other/Adjustment and elimination

(132)

(1)

(1,177)(1,009)(94)(8,999)Total

nized as a result of reducing the carrying amount of goodwill tothe recoverable amount of ¥1,027 million ($9,154 thousand)because future cash flows anticipated to be generated was judged
to be lower than originally assumed. The recoverable amount isbased on the value in use and it was estimated by discounting
future cash flows at a pre-tax rate of 4.61%. The asset belongs to
the Food & Grain segment.
Regarding intangible assets, an impairment loss of ¥656 million($5,854 thousand) was recognized as the enterprise system, which
had been in process of development but was abandoned, wasevaluated to have a zero recoverable amount. The recoverable
amount is based on the value in use. The asset belongs to theElectronic & Devices segment.
While fair values are categorized into three levels depending on
inputs to valuation techniques used, all the fair values above arecategorized within Level 3 of the fair value hierarchy with its details
described in Note 2. Basis of Preparing Consolidated Financial
Statements, (4) Use of estimates and judgments.

KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

For the fiscal year ended March 31, 2016, an impairment loss of¥79 million was recognized as a result of reducing the carrying
amount of property, plant and equipment related to several petrol
service stations in Japan, as the Company had determined to withdraw from this business, to the recoverable amount of ¥4 million.
The recoverable amount is based on fair value less costs of disposal
and the fair value is estimated mainly based on the real estateappraisal. The assets belong to the Steel, Materials & Plant segment.
For the fiscal year ended March 31, 2017, an impairment loss of¥132 million ($1,177 thousand) was recognized as a result of
reducing the carrying amount of land owned in Japan, which theCompany determined to sell, to the recoverable amount of ¥589
million ($5,250 thousand). The recoverable amount is based on fairvalue less costs of disposal and the fair value is estimated mainly
based on the real estate appraisal. The asset belongs to the Other
segment.
Regarding the pet-related business of the domestic subsidiary,an impairment loss of ¥143 million ($1,275 thousand) was recog-

CSR and Corporate GovernanceElectronics & Devices

7723. Exchange Differences
Exchange differences recognized in profit or loss for the fiscal years
ended March 31, 2017 and March 31, 2016 were ¥(812) million($(7,239) thousand) and ¥713 million, respectively and are included in“Other expenses” and “Other income” in the consolidated
statement of income. In addition, each amount includes gains orlosses arising from currency-related derivative transactions thatwere entered into for the purpose of hedging the foreign currency
risk. Gains and losses arising from translating assets and liabilities
denominated in a currency other than the functional currency orfrom settling such items are included in profit or loss as they arise.

24. Finance Income and Finance Costs
The breakdown of finance income and finance costs is presented as follows:
JPY

USD

2017

2016

2017

Interest income
Financial assets measured at amortized cost

399

478

Financial assets measured at fair value through profit or loss

22

—

3,563
196

Total interest income

421

478

3,759

209

147

1,868
8,080

Dividend income
Financial assets measured at fair value through profit or loss

906

779

Total dividend income

1,116

927

9,948

Total finance income

1,537

1,405

13,707(2,033)(2,167)(18,126)

(270)

(240)

(2,412)(2,304)(2,407)(20,538)

Other finance costs(2,000)(323)(17,832)

Total other finance costs(2,000)(323)(17,832)

Total finance costs(4,304)(2,731)(38,371)

Financial assets measured at fair value through other comprehensive income

Interest expenses
Financial liabilities measured at amortized cost
Derivatives
Total interest expenses
Other finance costs (Note)(Note) The amounts of other finance costs are those related to financial assets measured at fair value through profit or loss and the details are presented in Note 30. Financial
Instruments: (6)-3)-(ii) Recurring fair value measurements categorized within Level 3 of the fair value hierarchy.

25. Earnings Per Share Attributable to Owners of the Parent(1) Basic earnings per share
Yen

Basic earnings per share

U.S. dollar

2017

2016

2017

19.13

21.29

0.17

2017

2016

2017

8,049

8,959

71,748

—

—

—

8,049

8,959

71,748

Diluted earnings per share is not presented as there are no shares with a dilutive effect.

(2) Bases for calculation of basic earnings per share
JPY

Profit attributable to owners of the Parent
Amount not attributable to common shareholders of the Parent
Profit used to calculate basic earnings per share

USD

Thousand shares

Weighted average number of common shares

78

KANEMATSU ANNUAL REPORT 2017

2017

2016

420,821420,803

Kanematsu’s Progress and Strengths

26. Other Components of Equity and Other Comprehensive Income
Changes in other components of equity are presented as follows:
JPY

USD

2017

2016

2017

2,912

5,258

25,958Changes during the period(562)(2,346)(5,015)

Balance at the end of the year

2,349

2,912

20,943

Exchange differences on translation of foreign operations
Balance at the beginning of the year

Financial assets measured at fair value through other comprehensive income
6,967

8,784

62,104

Changes during the period

2,613(1,542)

23,299Reclassification to retained earnings

(125)

(275)

(1,118)

Balance at the end of the year

9,455

6,967

84,285(12,421)

Special Features

Balance at the beginning of the year

Cash flow hedges
Balance at the beginning of the year

(1,393)142

Changes during the period

1,004(1,535)

8,955

Balance at the end of the year(388)

(1,393)(3,465)Remeasurements of defined benefit pension plans———

Changes during the period

(384)

(286)

(3,428)

Reclassification to retained earnings

384

286

3,428

Balance at the end of the year

—

—

—

Balance at the beginning of the year

8,486

14,18575,641

Changes during the period

2,671(5,711)

23,811

259

11

2,310

11,416

8,486

101,762

Balance at the beginning of the year

Other components of equity

Balance at the end of the year

Review of Operations

Reclassification to retained earnings

CSR and Corporate Governance
Financial Section and Company Information

KANEMATSU ANNUAL REPORT 2017

79

The breakdown for the amounts of reclassification adjustments and deferred tax in other comprehensive income is presented as follows:
JPY

USD

2017

2016

2017

3,690

(2,727)32,898Amount before deferred tax

3,690(2,727)32,898Deferred tax(1,019)1,147(9,084)

Financial assets measured at fair value through other comprehensive income

2,671(1,580)23,815

Amount arising during the year

(323)

(578)

(2,880)

Amount before deferred tax

(323)

(578)

(2,880)

39

152

349

(284)

(426)

(2,532)

Amount arising during the year(826)

(2,911)(7,365)

Reclassification adjustments

(2)

17

(26)

(829)

(2,894)(7,391)

Amount arising during the year467

(1,097)

4,170

Reclassification adjustments

918(1,058)8,186

Amount before deferred tax

1,386(2,156)

12,356

Deferred tax

(401)

645

(3,577)

Cash flow hedges

984(1,511)

8,779

Amount arising during the year

113

(114)

1,011

Reclassification adjustments

21

(27)

191

134

(141)

1,203

2,678

(6,554)23,873Financial assets measured at fair value through other comprehensive income
Amount arising during the year

Remeasurements of defined benefit pension plans

Deferred tax
Remeasurements of defined benefit pension plans
Exchange differences on translation of foreign operations

Exchange differences on translation of foreign operations
Cash flow hedges

Share of other comprehensive income of investments accounted for using theequity method

Share of other comprehensive income of investments accounted for using theequity method
Total other comprehensive income

80

KANEMATSU ANNUAL REPORT 2017

Kanematsu’s Progress and Strengths

27. Cash Flow Information(1) Cash and cash equivalents
The breakdown of cash and cash equivalents and its reconciliation to the amounts presented in the consolidated statement of financial position are as follows:
JPY

Cash and bank deposits except for time deposits with original term of more than
three months

USD

2017

2016

2017

77,23087,466688,387—

3,000

77,56687,466

691,387

Cash and cash equivalentsin the consolidated statement of cash flows

77,56687,466

691,387
Special Features

336

Cash and cash equivalentsin the consolidated statement of financial position

Short-term investments with original maturity of three months or less(2) Net payment for acquisition of subsidiaries
The breakdown of the main assets and liabilities of newly acquired subsidiaries at the time control thereof was acquired, and the reconciliation between consideration paid and net payment for the acquisition are presented as follows:
JPY

USD

2017

2016

2017

Current assets (including cash and cash equivalents)

19,005

5,276

169,403

Non-current assets

17,066

1,285

152,123(17,746)(5,572)(158,179)

(925)

(696)

(8,252)

2016

2017

Breakdown of assets at the acquisition date

Breakdown of liabilities at the acquisition dateCurrent liabilities
Non-current liabilities

Consideration paid
Cash and cash equivalents included in the assets at the time control thereof was
acquired
Net proceeds from (payment for) acquisition of subsidiaries

Review of Operations

JPY

2017

USD

(17,400)(105)(155,094)

4,613

1,283

41,122(12,786)

1,178(113,972)(3) Net proceeds from sale of subsidiaries
The breakdown of the main assets and liabilities of companies that are no longer the subsidiaries of the Company as a result of the sale ofshares at the time control thereof was lost, and the relationship between consideration received and net proceeds from the sale are presented as follows:
JPY

USD

2016

2017

Current assets (including cash and cash equivalents)

143

1,833

1,276

Non-current assets

61

493

550

Current liabilities(85)(2,941)(764)

Non-current liabilities

(9)

—

(87)

CSR and Corporate Governance2017

Breakdown of assets upon loss of control

Breakdown of liabilities upon loss of control

JPY

USD

2016

2017

Consideration received

66

282

588

Cash and cash equivalents included in the assets at the time control thereof was
lost

(72)

(447)

(651)

Net proceeds from (payment for) sale of subsidiaries

(6)

(165)

(62)

Financial Section and Company Information

2017(4) Significant non-cash transactions
There were no significant non-cash transactions for the fiscal years ended March 31, 2017 and March 31, 2016.

KANEMATSU ANNUAL REPORT 201781

28. Employee Benefits(1) Post-employment benefits
1) Outline of retirement benefit plans adopted by theConsolidated GroupThe Company has a defined benefit pension plan and lump-sum
retirement benefit plan covering substantially all employees otherthan directors and executive officers. The benefit amounts for thedefined benefit pension plan are determined based on the periodof employees’ enrollment in the plan, contribution granted to
employees and other factors. The Company has a responsibility to
manage pension assets faithfully and has an obligation to makecontributions for the employees enrolled in the plan in compliancewith applicable laws and regulations.
The pension plan that the Company maintains is a contract-typedefined benefit pension plan.
Matters such as asset management performance, status of theplan and accounting treatment are reported to the Management
Committee by the Finance Department and the Personnel &General Affairs Department, which are in charge of operation of
the pension plan. These departments hold a meeting on a timely
manner to discuss the matters such as a revision to the plan and achange in the asset investment policy.
Most of the subsidiaries have unfunded retirement benefit plans
and/or funded pension plans. Employees, other than directors, areentitled to, under most circumstances, upon mandatory retirement
at normal retirement age or earlier termination of employment, alump-sum retirement benefit based on compensation at the timeof retirement, years of service and other factors. Certain subsidiaries have adopted the defined contribution retirement benefit plan.
2) Defined benefit plan(i) Net defined benefit liability (asset)
Reconciliation of the beginning and ending balances of net defined
benefit liability (asset) and the components for the years ended
March 31, 2017 and March 31, 2016 are presented as follows:(JPY)

Present valueof the defined
benefit obligation

Fair value of plan
assets

As of March 31, 2015

18,823(13,422)—

5,400

Current service cost

1,260

—

—

1,260

Effect of the asset
ceiling

Net defined benefit
liability (asset)

Net interest

103

(77)

—

26

Remeasurements

639

(60)

—

578

Foreign exchange translation differences

(60)

14

—

(46)

Employer contributions to the plan
Benefits paid
Effect of business combinations and disposals
Other
As of March 31, 2016
Current service cost
Net interest
Remeasurements

—

(929)

—

(929)

(1,577)

1,160

—

(416)

—

—

—

—

(106)

4

—

(102)

19,082(13,309)

—

5,772

1,350
54

—

—

1,350

(40)

—

14

123

(61)

261

323

Foreign currency translation difference

(8)

0

—

(7)

Employer contributions to the plan

—

(877)

—

(877)

(1,625)

976

—

(649)

Effect of business combinations and disposals

Benefits paid

706

—

—

706

Other

(56)

6

—

(50)

19,625(13,305)

261

6,581

As of March 31, 2017

(USD)
Present valueof the defined
benefit obligation

Fair value of plan
assets

As of March 31, 2016

170,087(118,637)—

51,450Current service cost

12,040——12,040Net interest
Remeasurements

Effect of the asset
ceiling

Net defined benefit
liability (asset)

487

(360)

—

127

1,100

(550)

2,330

2,880

Foreign currency translation difference

(79)

7

—

(71)

Employer contributions to the plan—

(7,819)—(7,819)(14,490)

8,701—(5,789)Effect of business combinations and disposals

Benefits paid

6,297

—

—

6,297

Other

(507)

60

—

(447)

174,935(118,598)

2,330

58,667

As of March 31, 2017

Remeasurements of the defined benefit obligation for the fiscal years ended March 31, 2017 and March 31, 2016 are the differences arising
primarily from changes in financial assumptions.

82

KANEMATSU ANNUAL REPORT 2017

JPY

2017

USD

2017

2016

Defined benefit obligations of funded plan

15,37915,561137,084

Plan assets(13,305)(13,309)(118,598)

Net defined benefit liability of funded plan

2,073

2,251

18,485

Defined benefit obligations of unfunded plan

4,246

3,520

37,851

Net liability or asset presented on the consolidated statements of financial position(Before the effect of the asset ceiling)

6,320

5,772

56,337

thereon, the Consolidated Group formulates a strategic asset mix
which aims at an optimal portfolio on a long-term basis and supervise asset management by selecting investment management companies and monitoring asset allocations. The strategic asset mix issubject to review in response to changes in expected market conditions or funded status. The strategic asset mix is not based on limitations but guidelines, and therefore, the actual allocation may
temporarily exceed or fall below the guidelines. The Company’s
target allocation is 10% equity securities, 40% debt securities,
40% life insurance company general accounts and 10% others.
The Company holds a meeting regularly with the asset management institutions and discusses important issues regarding pension
assets investment.

Special Features

The measurement date used to determine the main benefit obligations is March 31 of each year.
The Company’s funding policy is based on a number of factors
including the tax deductibility of contributions, funded status,
actuarial calculations and other considerations. Contributions areintended to provide not only for benefits attributable to service todate, but also for those expected to be earned in the future. In
addition, the Company may contribute cash to an employee retirement benefit trust for any funding deficits in benefit obligations at
the fiscal year end.
The Company’s investment policy is designed to increase thevalue of plan assets within acceptable risk levels to ensure payments of pension benefits to eligible participants, including future
participants. Taking into account the return and risk on plan assets

Kanematsu’s Progress and Strengths(ii) Reconciliation of ending balances of defined benefit obligation/plan assets and net defined benefit liability/asset presented
on the consolidated statements of financial position

Plan assets with a quoted market price in an
active market

Plan assets without a quoted market price inan active market

JPY

USD

JPY

Equity securities

1,253

11,1770

6Debt securities

4,484

39,971

482

4,304

USD

54,981

Life insurance company general accounts

—

—

6,168

Other

180

1,608

734

6,551

5,918

52,756

7,386

65,843

Total

Review of Operations(iii) Plan assets
The composition of the plan assets as of March 31, 2017.

The composition of the plan assets as of March 31, 2016.
Plan assets without a quoted market price inan active market

JPY

JPY

Equity securities

1,164

1

Debt securities

4,798

403

Life insurance company general accounts

—

4,464

Other

161

2,316

6,124

7,185

Total

CSR and Corporate Governance

Plan assets with a quoted market price in an
active market(iv) Significant actuarial assumptions
Discount rate

2017

2016

0.5%

0.3%
Financial Section and Company Information

The assumptions used for the actuarial calculation include the expected rate of salary increase, the mortality rate and the retirement rateother than the above.

KANEMATSU ANNUAL REPORT 201783

(v) Sensitivity analysis of defined benefit obligations
JPY

USD

2017

2016

2017

Increase in the defined benefit obligation with a 50-basis-point decrease in the
discount rate

845

135

7,536

Decrease in the defined benefit obligation with a 50-basis-point increase in the
discount rate

(994)

(254)

(8,869)This analysis is based on the premise that the actuarial assumptions other than the discount rate do not fluctuate and that only the discount rate
fluctuates. This method of analysis is based on assumptions, and it is possible that the actual calculation could be influenced by fluctuations inother variables. Even if the discount rate falls below 0%, the calculation is performed assuming the lower limit of the discount rate is 0%.
(vi) Information on maturity profile of the defined benefit obligation
The weighted average duration of the defined benefit obligation for both of the fiscal years ended March 31, 2017 and March 31, 2016 was
10.9 years.
(vii) Expected contribution to the plan for the year ending March 31, 2018
The amount of contribution to be made by the Consolidated Group to plan assets for the year ending March 31, 2018 is estimated to be¥907 million ($8,087 thousand).
3) Defined contribution plan
Expenses recognized for the defined contribution plan for the years ended March 31, 2017 and March 31, 2016 were ¥232 million ($2,070
thousand) and ¥177 million, respectively.

(2) Employee benefit expenses
Employee benefit expenses recognized for the years ended March 31, 2017 and March 31, 2016 were ¥1,683 million ($15,008 thousand)and ¥1,559 million, respectively. Employee benefit expenses are included in “Cost of sales” and “Selling, general and administration expenses” in the consolidated statement of income.

84

KANEMATSU ANNUAL REPORT 2017

Kanematsu’s Progress and Strengths

29. Current and Deferred Income Tax(1) Deferred taxes
1) Breakdown of deferred tax assets and deferred tax liabilities
The breakdown of main deferred tax assets and deferred tax liabilities by component is as follows:
JPY

USD

2017

2016

2017

Deferred tax assets
1,872

1,302

16,686

Loss allowance

588

681

5,244

Inventories

477

497

4,259

Impairment loss

500

677

4,457

Other investments

819

857

7,301

Retirement benefits liabilities

195

157

1,746

Tax losses carried forward

3,904

5,628

34,802

173

613

1,545

2,658

—

23,694

Cash flow hedges
Goodwill

4,359

3,547

38,862

Total deferred tax assets

15,54913,963

138,596

Offset against deferred tax liabilities(10,530)(4,879)(93,860)

5,018

9,084

44,737

Other

Total deferred tax assets, net

Special Features

Golf club memberships

Deferred tax liabilities
(267)

(667)

(4,096)(3,085)(36,510)Intangible assets(5,292)(1,095)(47,177)

Other(1,491)(729)(13,291)

Total deferred tax liabilities(10,954)(5,177)(97,645)

Offset against deferred tax assets

10,5304,879

93,860Total deferred tax liabilities, net

(424)

(297)

(3,786)

Net deferred tax assets

4,594

8,786

40,951

2017

2016

2017

Beginning balance of net deferred tax assets

8,786

10,24378,317

Deferred tax expense(2,589)(3,316)(23,081)

Income tax on other comprehensive income(1,381)

1,944(12,312)

Review of Operations(74)

Financial assets measured at fair value through other comprehensive income

Retained earnings in subsidiaries

2) Details of changes in deferred tax assets and deferred tax liabilities
Details of changes in deferred tax assets and deferred tax liabilities are presented as follows:
JPY

USD

(17)

—

(160)

Other

(203)

(85)

(1,813)Ending balance of net deferred tax assets

4,594

8,786

40,951

CSR and Corporate Governance

Acquisition through business combinations3) Deductible temporary differences and unused tax losses carried forward for which deferred tax assets were not recognized
The breakdown of deductible temporary differences and unused tax losses carried forward (by expiry date), for which deferred tax assets
were not recognized in the consolidated statement of financial position are presented as follows:
JPY

Deductible temporary differences

USD

2017

2016

2017

19,466

17,639173,515

Tax losses carried forward
21

1,515

28,172

26,606251,117

Between five and ten years to expiry

13,35011,609118,998

251

186

2,241

41,94438,424

373,872

Over ten years to expiry
Total tax losses carried forward

Financial Section and Company Information

170

Between one and five years to expiry

Within one year to expiry

4) Temporary differences associated with investments in subsidiaries for which deferred tax liabilities were not recognized
The total amounts of temporary differences associated with investments in subsidiaries for which deferred tax liabilities were not recognized asof March 31, 2017 and March 31, 2016 are ¥20,136 million ($179,482 thousand) and ¥16,549 million, respectively. Because the Consolidated
Group is able to control the timing of the reversal of such temporary differences, and it is probable that such temporary differences will not bereversed within the foreseeable future, it did not recognize deferred tax liabilities with respect to such temporary differences.

KANEMATSU ANNUAL REPORT 201785

(2) Income taxes
1) Breakdown of income taxes
The breakdown of income taxes is presented as follows:
JPY

USD

2017

2016

2017

(4,999)(3,997)(44,563)

Origination and reversal of temporary differences(1,754)(1,721)(15,641)

Reassessment of recoverability of deferred tax assets(834)(1,036)(7,440)

—

(558)

—

(2,589)(3,316)(23,081)(7,589)(7,313)(67,645)

Current tax expense (Note 1)
Deferred tax expense (Note 2)

Changes in tax rate
Total deferred tax expense
Total income taxes(Notes) 1.	The amounts of the benefits arising from previously unrecognized tax losses or temporary differences of a prior period that were used to reduce current tax
expenses for the years ended March 31, 2017 and March 31, 2016 were ¥22 million ($196 thousand) and ¥487 million, respectively, and these benefits were
included in the current tax expenses.
2. Major causes for deferred tax expense by type are tax losses carried forward of ¥(1,724) million ($(15,369) thousand) and goodwill of ¥(797) million ($(7,107)
thousand) for the fiscal year ended March 31, 2017, and inventories of ¥(1,209) million and tax losses carried forward of ¥(1,156) million for the fiscal year ended
March 31, 2016.

2) Reconciliation of statutory effective income tax rate in Japan
Reconciliations between the statutory effective tax rate in Japan and the average effective tax rate of the Consolidated Group were as follows:
2017

2016

30.8%

33.1%

Permanent differences—additions
such as entertainment expenses

2.9%

0.7%

Effect of reassessment of recoverability ofdeferred tax assets

4.7%

5.7%

Effect of tax rate differences

2.1%(0.5)%

Share of profit (loss) of investments
accounted for using the equity method

3.3%(1.1)%

Statutory effective tax rate
(Adjustments)

Tax reform
Other
Average effective tax rate
The effective statutory effective tax rate for the fiscal year ended
March 31, 2017 is calculated to be 30.8% based on the
Corporation Tax, Inhabitant Tax and Business Tax in Japan.
On November 18, 2016, “The act for partial amendment of theact and others for partial amendment of the consumption tax act
and others for the drastic reform of the taxation system for ensuring stable financial resources for social security” (Act No.85 of
2016) and “The act for partial amendment of the act and othersfor partial amendment of the local taxation act and local allocation
tax act and others for the drastic reform of the taxation system forensuring stable financial resources for social security” (Act No.86
of 2016) were approved in the Diet. Under these acts, the con-86

KANEMATSU ANNUAL REPORT 2017

—

3.1%

(1.4)%(0.6)%

42.5%

40.4%

sumption tax hike to 10% scheduled on April 1, 2017 was postponed until October 1, 2019.
As a result of this change, the abolition of special local corporatetax, the restoration of corporation enterprise tax, the tax rate
amendments of local corporation tax and corporate residential tax
were also postponed from the fiscal year beginning on or after
April 1, 2017 to the fiscal year beginning on or after October 1,
2019.
Although the statutory effective tax rate being applied in thedeferred tax calculation remains unchanged, there is a reclassification between national and local tax rates. The effects on the consolidated financial statements are immaterial.

Kanematsu’s Progress and Strengths

30. Financial Instruments(1) Classification of financial instruments
The breakdown of financial instruments for each classification is presented as follows:
JPY

USD

2017

2016

2017

77,56687,466

691,387
1,714,621

Financial assets
Cash and cash equivalents
Financial assets measured at amortized cost
164,001

994

1,000

8,864

Other financial assets

6,635

7,657

59,147

199,993

172,658

1,782,631

Total financial assets measured at amortized cost

Special Features

192,363

Other investments

Trade and other receivables

Financial assets measured at fair value through profit or loss
Other investments

5,054

5,637

45,053

Other financial assets

2,365

379

21,088

Total financial assets measured at fair value through profit or loss

7,420

6,016

66,141Other investments

28,06324,897250,140

Total financial assets measured at fair value through other comprehensive
income28,06324,897250,140

313,043

291,0392,790,299

Financial assets measured at fair value through other comprehensive income

Total financial assets
Financial liabilities
Financial liabilities measured at amortized cost

165,011

142,143

1,470,822

133,844

136,867

1,193,021

Other financial liabilities
Total financial liabilities measured at amortized cost

9,477

9,979

84,478308,334

288,9902,748,320

Review of Operations

Trade and other payables
Bonds and borrowings

Financial liabilities measured at fair value through profit or loss
Other financial liabilities

1,896

3,829

16,904

Total financial liabilities measured at fair value through profit or loss

1,896

3,829

16,904

310,230

292,819

2,765,224

Total financial liabilities(2) Basic policies for risk management of financial
instruments(3) Credit risk management

2) Responses to the risk owned by the Company (purpose,
policy and procedure of the risk management and method
used to measure such risks)
The Consolidated Group manages its credit risk to the customers
by defining risk management methods and management systems
for specific risks in accordance with the regulations on risk management. Based on such regulations, the Consolidated Group mitigates credit risk through periodical monitoring of the customer’s
credit status and undertaking the maturity control and account balance control, while detecting promptly any doubtful accounts
caused by deterioration in the financial conditions of customers
and other factors. Expected credit losses are recognized and measured through transactions and financial information related tocustomers available in the course of such credit risk management,
while taking macroeconomic conditions such as the number ofbankruptcies into consideration.

KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

1) Credit risks of financial assets owned by the Company(risk exposure and the occurrence of the relevant risk)
The Consolidated Group extends credit to a large number of customers in Japan and abroad in diverse business transactions, resulting in a number of financial assets such as trade receivables, loans
and other financial assets. These financial assets provide credit
accommodation to the various customers; therefore, theConsolidated Group is mainly exposed to the credit risks related tothose customers.
Moreover, other investments include debt instruments that are
the investments in the customers, which expose the Consolidated
Group to the credit risk arising from deterioration in the financial
position of issuers.

CSR and Corporate Governance

The Consolidated Group is an integrated trading company
engaged in a wide range of business activities on a global basis. Its
headquarters includes business sections that handle merchandising, trading, product manufacturing, services, project planning andmanagement, investments and financing activities, both domestically and internationally. Such businesses are inherently exposed tovarious risks. The Consolidated Group defines and classifies risks
per risk item and manages each of them in accordance with its
nature.

Each department manages credit exposure to each customer byassigning credit ratings on a customer-by-customer basis and setting credit exposure limits within the framework of theConsolidated Group’s credit risk control.

87

With regard to loans, the Consolidated Group determines there
has been a significant increase in credit risk of the financial assets
since initial recognition in cases where the cash collection of thefinancial assets was delayed (as well as the case of request for agrace period) after the trade date. However, even when a late payment or request for grace period occurs, the Consolidated Group
does not determine that there has been a significant increase incredit risk if such late payment or request for grace period would
be attributable to temporary cash shortage, the risk of default
would be low and objective data such as external credit ratings
would reveal their ability to fulfill the obligation of contractual cash
flow in the near future.
However, the Consolidated Group determines that the credit of
the financial assets are impaired, when late payment or request forgrace period do not arise from temporary cash shortage but significant financial difficulty of the debtor and the recoverability of themodified financial assets is significantly doubtful.
The Consolidated Group determines there has been a significant
increase in the credit risk of debt instruments since initial recognition when an “investment grade” at the initial recognition deteriorates to the level below investment grade. For such purpose, rating
information provided by major rating agencies is used.
When guaranteeing the debts of its customers, the Consolidated
Group establishes the guarantee limit amounts based upon thefinancial position and business condition of the customers. The
guarantee limit amounts are periodically reviewed and maintained
at appropriate levels.
When entering into derivative transactions, the Consolidated
Group only deals with major financial institutions with high credit
ratings assigned by independent rating agencies so as to minimize
the credit risks. In addition, the Consolidated Group periodicallyreviews credit limits in accordance with the internal regulations.
The Consolidated Group considers trade receivables, loans
receivable, and debt instruments as default when all or part ofthose financial instruments are not recovered or the recoverabilityof those financial instruments is determined to be extremely difficult.
(i) Measurement of expected credit losses on tradereceivables
As trade receivables do not contain a significant financing component, the Consolidated Group measures loss allowance at an
amount equal to the lifetime expected credit losses until the tradereceivables are recovered. As performing trade receivables comprise a number of customers, the Consolidated Group measures
expected credit loss collectively by grouping those receivables andconsidering historical credit loss experience. When those receivables are affected by a material economic change, the provision
rate calculated based upon the historical credit loss experience isadjusted to reflect current and future economic prospect.
Even when a late payment or request for grace period has
occurred, the Consolidated Group does not regard them as past
due receivables if such late payment or request for grace period
would be attributable to temporary cash shortage as the risk ofdefault would be low, and the debtors are evaluated to have astrong ability to fulfill the obligation of contractual cash flow in thenear future.

88

KANEMATSU ANNUAL REPORT 2017(ii) Measurement of expected credit losses on otherreceivables
When credit risk related to loans has not increased significantly
since the initial recognition at the end of the reporting period, theConsolidated Group calculates the amount of loss allowance of thefinancial instruments by estimating the 12-months expected credit
losses collectively based upon historical credit loss experience.
When those receivables are affected by a material economicchange, the provision rate calculated based upon the historicalcredit loss experience is adjusted to reflect current and future economic prospect.
However, when there has been a significant increase in credit
risk since initial recognition as of the end of the fiscal year, theConsolidated Group estimates the lifetime credit losses on thefinancial instruments individually and measures the amount of loss
allowance based upon historical credit loss experience and future
recoverable amount.
(iii) Measurement of the expected credit losses on the otherinvestments (debt securities)
When credit risk related to debt securities has not increased significantly since initial recognition at the end of the reporting period,
the Consolidated Group calculates the amount of loss allowance ofthe financial instruments by estimating the 12-months expectedcredit losses. However, when there has been a significant increasein credit risk since initial recognition as of the end of the fiscal year,
the Consolidated Group estimates the lifetime credit losses on thefinancial instruments and measures the amount of loss allowanceof the financial instruments. When estimating such expected credit
losses, the Consolidated Group uses the default rate published bymajor rating agencies.
The Consolidated Group directly writes off the gross carrying
amounts of the credit-impaired financial assets when all or part of
the financial assets are evaluated to be uncollectible and determined that it is appropriate to be written off as a result of credit
check.

Kanematsu’s Progress and Strengths3) Quantitative and qualitative information on the amounts arising from expected credit losses(i) Trade and other receivables(JPY)
Loss allowance

Lifetime expected credit losses
Collective assessment

Credit-impaired financial assets

19

1. Reclassification to credit-impaired financial assets

(0)

2,651
79

2. Incurrence or collection

(1)

(97)

3. Direct write-off

—

(249)

4. Changes due to foreign exchange—(7)

5. Increase (decrease) resulting from changes in theprovision rate based on historical credit loss
experience

(10)

—
2,375

As of March 31, 2016

7

1. Reclassification to credit-impaired financial assets

(0)

63

2. Incurrence or collection

0

(138)

3. Direct write-off

—

(166)

4. Changes due to foreign exchange—

1

5. Increase (decrease) resulting from changes in theprovision rate based on historical credit loss
experience(4)—

As of March 31, 2017

3

2,135

Special Features

As of April 1, 2015

(JPY)
Gross carrying amount

1. Financial assets reclassified to credit-impaired
financial assets
2. Incurrence or collection

Collective assessment

Credit-impaired financial assets

186,564

2,981

(159)

159
(145)

—

(249)

4. Changes due to foreign exchange—(7)

163,646

2,737

(63)

63

28,502(219)

3. Direct write-off

—

(166)

4. Changes due to foreign exchange—

1

192,085

2,416

As of March 31, 2016
1. Financial assets reclassified to credit-impaired
financial assets
2. Incurrence or collection

As of March 31, 2017

CSR and Corporate Governance(22,758)

3. Direct write-off

Review of Operations

As of April 1, 2015

Lifetime expected credit losses(USD)
Loss allowance

Lifetime expected credit losses
Collective assessment

Credit-impaired financial assets

As of March 31, 2016

67

1. Reclassification to credit-impaired financial assets(0)21,178567

2. Incurrence or collection

5(1,238)—(1,483)—10

5. Increase (decrease) resulting from changes in theprovision rate based on historical credit loss
experience

(39)

—

As of March 31, 201733

19,033KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

3. Direct write-off
4. Changes due to foreign exchange

89

(USD)
Gross carrying amount

Lifetime expected credit losses
Collective assessment

As of March 31, 2016

24,402(567)

567

1. Financial assets reclassified to credit-impaired
financial assets
2. Incurrence or collection

Credit-impaired financial assets

1,458,657

254,057(1,956)

3. Direct write-off—(1,483)

4. Changes due to foreign exchange—

10

1,712,148

21,539As of March 31, 2017(ii) Other investments (debt instrument securities)(JPY)
Expected credit losses
Loss allowance90

12 months

Lifetime
Individual assessment

Credit-impaired financial assets

As of April 1, 2015

0

—

—

1. Changes in financial instruments recognized at
the beginning of the period

—

—

—

(a) Reclassified to lifetime expected credit losses

—

—

—

(b) Reclassified to credit-impaired financial assets

—

—

—

(c) Individual financial assets reclassified fromcredit-impaired financial assets

—

—

—

2. Incurrence or collection

—

—

—

3. Direct write-off

—

—

—

4. Increase (decrease) due to changes in default rate

0

—

—

As of March 31, 2016

0

—

—

1 Changes in financial instruments recognized at
the beginning of the period

—

—

—

(a) Reclassified to lifetime expected credit losses

—

—

—

(b) Reclassified to credit-impaired financial assets

—

—

—

(c) Individual financial assets reclassified fromcredit-impaired financial assets

—

—

—

2. Incurrence or collection

—

—

—

3. Direct write-off

—

—

—

4. Increase (decrease) due to changes in default rate

5

—

—

As of March 31, 2017

5

—

—

KANEMATSU ANNUAL REPORT 2017

Kanematsu’s Progress and Strengths(JPY)
Expected credit losses
Gross carrying amount

As of April 1, 2015

12 months

Lifetime
Individual assessment

Credit-impaired financial assets——

1. Changes in financial instruments recognized at
the beginning of the period

—

—

—

(a) Reclassified to lifetime expected credit losses

—

—

—

(b) Reclassified to credit-impaired financial assets

—

—

—

(c) Individual financial assets reclassified fromcredit-impaired financial assets

—

—

—

2. Incurrence or collection

—

—

—

3. Direct write-off

—

—

—

4. Other changes

—

—

—

1,000

—

—

1. Changes in financial instruments recognized at
the beginning of the period

—

—

—

(a) Reclassified to lifetime expected credit losses

—

—

—

(b) Reclassified to credit-impaired financial assets

—

—

—

(c) Individual financial assets reclassified fromcredit-impaired financial assets

—

—

—

2. Incurrence or collection

—

—

—

3. Direct write-off

—

—

—

4. Other changes

—

—

—

1,000

—

—

As of March 31, 2016

As of March 31, 2017

Special Features

1,000

Review of Operations(USD)
Expected credit losses
Loss allowance

12 months

Lifetime
Individual assessment

Credit-impaired financial assets

0

—

—

1. Changes in financial instruments recognized at
the beginning of the period

—

—

—

(a) Reclassified to lifetime expected credit losses

—

—

—

(b) Reclassified to credit-impaired financial assets

—

—

—

(c) Individual financial assets reclassified fromcredit-impaired financial assets

—

—

—

2. Incurrence or collection

—

—

—

3. Direct write-off

—

—

—

4. Increase (decrease) due to changes in default rate

50

—

—

As of March 31, 2017

50

—

—

CSR and Corporate Governance

As of March 31, 2016

(USD)
Expected credit losses
Gross carrying amount

As of March 31, 2016

12 months

Lifetime
Individual assessment

Credit-impaired financial assets——

1. Changes in financial instruments recognized at
the beginning of the period

—

—

—

(a) Reclassified to lifetime expected credit losses

—

—

—

(b) Reclassified to credit-impaired financial assets

—

—

—

(c) Individual financial assets reclassified fromcredit-impaired financial assets

—

—

—

2. Incurrence or collection

—

—

—

3. Direct write-off

—

—

—

4. Other changes

—

—

—

8,913

—

—

As of March 31, 2017

Financial Section and Company Information

8,913(iii) There is no contractual, uncollected balance for financial assets written off during the fiscal year ended March 31, 2017, forwhich collecting efforts are still being made.

KANEMATSU ANNUAL REPORT 2017914) Credit risk exposure(i) Trade and other receivables
As of March 31, 2017
Balance of receivables (gross)
JPY

Provision rate based on
historical credit loss
experience

USD

Lifetime expected credit losses
JPY

USD

Performing receivables

192,085

1,712,148

0.00%

3

33

Past due receivables

2,416

21,53988.37%

2,135

19,033

194,502

1,733,687

—

2,139

19,066

Total

Past due receivables include loans receivable of ¥1,876 million ($16,728 thousand), for which a loss allowance of ¥1,595 million ($14,221
thousand) has been already recognized.
As of March 31, 2016
Balance of receivables (gross)

Lifetime expected credit losses

JPY

Provision rate based on historical credit loss
experience

Performing receivables

163,646

0.00%

7

Past due receivables

2,737

86.79%

2,375

166,384

—

2,383

Total

JPY

Past due receivables include loans receivable of ¥1,969 million, for which a loss allowance of ¥1,688 million has been already recognized.
(ii) Other investments (Debt instrument securities)
As of Mach 31, 2017
Gross carrying amount
Debt instrument securities
External rating

Lifetime
JPY

12 months
USD

JPY

USD

AAA-AA

—

—

—

—

A

—

—

—

—

BBB-BB

—

—

1,000

8,913

B

—

—

—

—

Total

—

—

1,000

8,913

As of March 31, 2016
Gross carrying amount
Debt instrument securities
External rating

92

Lifetime

12 months

JPY

JPY

AAA-AA—A——

BBB-BB

—

1,000

B

—

—

Total

—

1,000

KANEMATSU ANNUAL REPORT 2017—

Kanematsu’s Progress and Strengths5) Maximum exposure to credit risks
The Consolidated Group’s maximum exposure to credit risks is as follows:
The Consolidated Group’s maximum credit risk exposure (gross) represents the amount of the maximum exposure with respect to credit
risks without taking into account any collateral held or other credit enhancement. The Consolidated Group’s maximum credit risk exposure(net) represents the amount of the maximum exposure with respect to credit risks reflecting the mitigation effect of the collateral held orother credit enhancement.
As of March 31, 2017
Gross
carrying amount

Cash and cash
equivalents

Lossallowance
JPY

Maximum
credit risk exposure (gross)

JPY

USD

USD

77,566

691,387——

194,502 1,733,687(2,139)(19,066)——

Total collaterals pledged
and credit enhancements

JPY

USD

JPY

USD

77,566

691,387——

192,363 1,714,621(141)(1,265)——

Maximum
credit risk
exposure (net)
JPY

USD

77,566

691,387

Trade and otherreceivables
Other financial
assets6,635

59,147

1,000

8,913

(5)

(50)

279,704 2,493,134(2,144)(19,116)

Other investments
Total

6,635

59,147

994

8,864

—

—

277,560 2,474,018(141)(1,265)Special Features

Financial assets
measured atamortized cost
192,221 1,713,356
6,635

59,147994

8,864

277,418 2,472,753

The amount of loss allowance for credit-impaired financial assets is reduced by ¥141 million ($1,265 thousand) through collateral pledged
and credit enhancements.

Cash and cash equivalents

Grosscarrying amountLossallowance

Maximum
credit risk exposure(gross)Total collaterals
pledged and credit
enhancements

Maximum
credit risk
exposure (net)

JPY

JPY

JPY

JPY

JPY

87,466—87,466—87,466

Review of Operations

As of March 31, 2016

Financial assets measured atamortized cost
166,384(2,383)164,001(290)

163,710

Other financial assets

Trade and other receivables

7,657

—

7,657

—

7,657

Other investments

1,000

(0)

1,000

—

1,000

262,508(2,383)

260,124(290)

259,834

Total

CSR and Corporate Governance

The amount of loss allowance for credit-impaired financial assets is reduced by ¥290 million through collateral pledged and credit enhancements.

Financial Section and Company Information

KANEMATSU ANNUAL REPORT 201793

(4) Liquidity risk management
The Consolidated Group raises funds through borrowings from financial institutions or issuance of bonds. Accordingly, in the event of a disruption to the financial system or financial/capital markets, or a major downgrade of the Consolidated Group’s credit rating by a rating agency, the Consolidated Group’s fundraising becomes constrained and consequently there is a possibility that the Consolidated Group will not beable to carry out the payment on the date of payment.
The Consolidated Group has sufficient levels of cash and cash equivalents and maintains a long-term (unused) commitment line agreementwith a major financial institution in the amount of ¥10.0 billion ($89,135 thousand) to ensure liquidity and stability of funds. The
Consolidated Group makes efforts to maintain good relationships with each financial institution.
1) Non-derivative financial liabilities
The breakdown of non-derivative financial liabilities by due date is presented as follows:
As of March 31, 2017
Between one andfive years

Within one year
JPY

Trade and other payables
Bonds

USD

JPY

Over
five years

USD

Total

JPY

USD

JPY

USD

165,0111,470,822

—

—

—

—

165,0111,470,822

52

463

10,112

90,142——

10,16490,60565,697585,589

55,088491,030

6,052

53,950126,838

1,130,569

Lease obligations

436

3,891

939

8,370

62

554

1,437

12,816

Deposits received

2,707

24,134

—

—

2,916

25,9995,624

50,133

984

8,779

—

—

1,464

13,052

2,449

21,831

Borrowings

Guarantee deposits received
Other
Total

118

1,057

—

—

—

—

118

1,057

235,0082,094,736

66,140589,542

10,49593,555

311,645

2,777,832

The Consolidated Group has guarantee obligations of ¥1,881 million ($16,773 thousand)and ¥1,477 million as of March 31, 2017 andMarch 31, 2016 respectively.
As of March 31, 2016

Trade and other payables
Bonds

Between one andfive years

Overfive years

Total

JPY

JPY

JPY

JPY

142,143——

142,143

52

10,164—

10,21663,08652,942

13,651

129,680

Lease obligations

486

1,108

19

1,613

Deposits received

3,028

—

3,050

6,079

Guarantee deposits received

960

19

1,377

2,357

Other

82

—

—

82

Total

209,839

64,23518,098292,173

Borrowings

94

Within one year

KANEMATSU ANNUAL REPORT 2017

Kanematsu’s Progress and Strengths2) Derivative liabilities
The breakdown of derivative liabilities by due date is presented as follows:
As of March 31, 2017
Within one year

Between one andfive years

Overfive years

JPY

USD

JPY

33,361

297,36364

571

34,098303,937

67

598

737

6,574

3

27

Interest rate-related derivatives

268

2,391

593

5,289

Commodity-related derivatives

317

2,830

—

1,323

11,795

596

USD

JPY

Total
USD

JPY

USD

—

33,425297,934——

34,165

304,534

—

—

740

6,600

15

135

876

7,815

—

—

—

317

2,830

5,316

15

135

1,934

17,246

Currency-related derivatives
Cash inflows
Cash outflows
Sub total

Special Features

Total

—

As of March 31, 2016
Within one year

Between one andfive years

Overfive years

Total

JPY

JPY

JPY

JPY

Cash inflows

45,6172,378—

47,996

Cash outflows

48,013

2,528—

50,542Currency-related derivatives

Sub total

149

—

2,546

264

765

90

1,120

Commodity-related derivatives

77

0

—

77

2,738

915

90

3,744

Total

(5) Market risk management

In principle, the Company and certain subsidiaries enter into forward exchange contracts to hedge against the exchange rate currency fluctuation risk of foreign currency-denominated receivables
and payables that are controlled by currency and by contract
month. The Company and certain subsidiaries also enter into forward exchange contracts to hedge against foreign currencydenominated receivables and payables that are highly probable toarise from export/import-related forecast transactions.
(ii) Sensitivity analysis of foreign currency risk
In regards to financial instruments held by the Consolidated Groupas of the end of the consolidated year, the following chart shows
the amounts affecting profit before tax and other comprehensive
income (before tax effect adjustments), as reported in the consolidated financial statements, that would result from 1% appreciation of Japanese Yen against U.S. dollars.
Such analysis is based on the assumption that other factors areheld constant.

CSR and Corporate Governance

Since the Consolidated Group operates a broad array of businesses
around the world, it is directly and indirectly affected by politicaldevelopments and economic conditions in countries where it has apresence, including changes in supply and demand situations.
Operations of the Consolidated Group are exposed to risks stemming from fluctuations in foreign exchange rate, interest rate,commodity price and share price.
In many cases, the foreign currency risk, interest rate risk andrisk of price fluctuations associated with goods traded incidental tobusiness transactions are transferred to trade partners, etc. in theform of transaction terms. In addition, the Consolidated Group has
established a system under which a limit (position limit) and a loss
limit are set for foreign exchange, funds (interest rates), products
and their derivatives, taking into account the scale of the risk andthe income of each internal unit and company, so that it can quickly reduce its position when the predetermined limit is exceeded.
Also, the price fluctuation risk of these positions is mitigated byusing derivatives as a hedge.

Review of Operations

2,396Interest rate-related derivatives

Financial Section and Company Information

1) Foreign currency risk(i) Nature of foreign currency risk and its management
policyThe Consolidated Group is engaged in foreign currency transactions in various currencies and terms incidental to its export andimport trading. The Consolidated Group not only transfers the riskof currency fluctuations to customers in accordance with transaction terms but also participates in derivatives transactions such as
forward contracts to reduce the risk.
The Company also has local subsidiaries and business corporations overseas. Account balances at these companies are converted
into yen at the exchange rates prevailing at the end of the reporting period, for the purposes of preparing consolidated financial
statements. As a result, net assets may change through exchange
difference of foreign operations associated with exchange rate
fluctuations.
KANEMATSU ANNUAL REPORT 201795

In addition, such analysis does not include the affected amounts based on translations (into Japanese yen) of financial instruments denominated in functional currency, income and expenses denominated in foreign currency and assets and liabilities of foreign operations.
JPY

2017

USD

2016

2017

Profit before tax
U.S. dollar

(26)

1

(237)

(230)

174

(2,052)Other comprehensive income
U.S. dollar
2) Interest rate risk(i) Nature of interest rate risk and its management policy
The Consolidated Group raises most funds needed for operating
and financing activities in the form of borrowings from financial
institutions at variable interest rates, with the exception of certain
loans. Since these borrowings and fund management are exposed
to an interest rate risk, interest expenses for the Consolidated
Group may increase with a rise in interest rates.
The Company and certain consolidated subsidiaries enter into
interest rate swap contracts to avoid the interest rate fluctuation
risk stemming from the borrowings.

(ii) Sensitivity analysis of interest rate risk
In regards to financial instruments held by the Consolidated Groupat the end of the reporting period, the following table shows theamounts affecting profit before tax assuming that the interest rateincreases by 1%.
Under the analysis, the amounts affecting profit before tax are
calculated by multiplying the net balance of floating rate financial
instruments as of March 31, 2017 and 2016 by 1%, without considering future changes in the net balance, currency exchange fluctuations and dispersing effects for floating rate borrowings derived
from the difference in timing of refinancing and resetting of theinterest rate, and based on the assumption that all the other variables are held constant.
JPY

Profit before tax3) Commodity price risk(i) Nature of commodity price risk and its management
policyIn its mainstay commodity trading business in Japan and overseas,
the Consolidated Group deals with grains and petroleum products
as well as electronic parts and information, communications andtechnology (ICT) products. Grains and petroleum products will be
influenced by market conditions, while electronic parts and ICT
products are exposed to the risk of frequent price erosion causedby competition and obsolescence resulting from technologicalinnovation. When the positions in these commodities increase, theConsolidated Group will be exposed to the commodity price fluctuation risk stemming from rapid movements in commodities prices or a decline in demand.

USD

2017

2016

2017

(758)

(749)

(6,761)The Consolidate Group strives to reduce our exposure to pricevolatility by hedge-selling commodities, matching the quantity andtiming of buying and selling, and utilizing commodity-related derivatives for hedging purposes.
(ii) Sensitivity analysis of commodity price risk
In regards to commodity-related derivatives held by theConsolidated Group at the end of the reporting period, the following table shows the amounts affecting profit before tax and othercomprehensive income (before the tax effect) assuming that thecommodity price decreases by 1%.
The analysis is performed based on the assumption that all theother variables are held constant.
JPY

2017

USD

2016

Profit before tax

(88)

(58)

(785)

Foods

(68)

(52)

(612)

Fuels

(19)

(5)

(173)

Other comprehensive income

0

(4)

(4)

Foods

0

(4)

(4)

Fuels

—

—

—

4) Share price risk(i) Nature of share price risk and its management policy
The Consolidated Group holds marketable securities, which areexposed to the market price fluctuation risk.
The Consolidated Group attempts to reduce share price risk by
periodically reviewing its shares held by the Consolidated Groupand selling those shares that it holds without strong rationale.

(ii) Sensitivity analysis of share price risk
In regards to listed shares held by the Consolidated Group at theend of the reporting period, the following table shows theamounts affecting other comprehensive income (before the tax
effect) assuming that the share price decreases by 1%.
The analysis is performed based on the assumption that all theother variables are held constant.
JPY

Other comprehensive income

96

2017

KANEMATSU ANNUAL REPORT 2017

USD

2017

2016

2017

(160)

(140)

(1,427)

Kanematsu’s Progress and Strengths(6) Fair value of financial instruments
1) Fair value measurement
Fair values of financial instruments are presented as follows:
Fair values are categorized into three levels of the fair value hierarchy depending on inputs to valuation techniques; details are described in
Note 2. Basis of Preparing Consolidated Financial Statements: (4) Use of estimates and judgments.
2) Financial instruments measured at amortized cost
Type

2017

2016

Carrying amount

Fair value

Carrying amount

Fair value

JPY

USD

JPY

USD

JPY

1,169

10,425

1,169

10,425

460

460

994

8,864

994

8,864

1,000

1,000

Guarantee deposits

3,679

32,794

3,679

32,794

3,814

3,814

Other financial assets

616

5,495

616

5,495

1,626

1,626

Total

6,459

57,577

6,459

57,577

6,901

6,901

Bonds and borrowings

Financial assets
Trade and other receivablesSpecial Features

Other investments (Debt instrument
securities)

Financial liabilities
69,201

616,824

69,289617,606

74,87775,746Long-term lease obligations

899

8,016

899

8,016

1,025

1,015

Long-term deposits received

2,916

25,9992,916

25,999

3,050

3,050

Long-term guarantee deposits received

1,464

13,052

1,464

13,052

1,396

1,396

Total

74,481

663,891

74,569664,673

80,351

81,209(i) Trade and other receivables
The fair value of trade and other receivables is the present value of
future cash flows discounted by an interest rate that reflects time
to maturity and credit risk.

(iii) Guarantee deposits
The fair value of guarantee deposits is the present value of future
cash flows discounted by an interest rate that reflects time tomaturity and credit risk.
(iv) Other financial assets
The fair value of other financial assets is the present value of future
cash flows discounted by an interest rate that reflects time tomaturity and credit risk.

(vii) Long-term deposits received
The fair value of the long-term deposits received is the present
value of future cash flows discounted by an interest rate thatreflects time to maturity and credit risk.
(viii) Long-term guarantee deposits received
The fair value of long-term guarantee deposits received is the present value of future cash flows discounted by an interest rate thatreflects time to maturity and credit risk.
Financial assets and liabilities measured at amortized cost are
categorized within Level 2 of the fair value hierarchy.
3) Financial instruments measured at fair value(i) Analysis of fair value by hierarchy level
The following tables provide the breakdown by hierarchy level offinancial assets and liabilities that are measured at fair value on arecurring basis. No financial assets and liabilities are measured atfair value on a non-recurring basis. There were no material transfers between different levels for the fiscal years ended March 31,2017 and March 31, 2016.

KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information(v) Bonds and borrowings
The fair value of bonds is determined based on their market price.

(vi) Long-term lease obligations
The fair value of long-term lease obligations is the present value of
future cash flows discounted by an interest rate that reflects time
to maturity and credit risk.

CSR and Corporate Governance(ii) Other investments (Debt instrument securities)
The fair value of other investments is the present value of future
cash flows discounted by an interest rate applicable to similar
financial assets.

The fair value of borrowings is the present value of the sum of
principal and interest payments discounted using an assumed interest rate on equivalent incremental borrowings.

Review of Operations

The carrying amounts of short-term trade and other receivables,
other short-term financial assets, short-term trade and other payables, short-term bonds and borrowings and other short-term
financial liabilities, all of which are measured at amortized cost,
approximate their fair values; therefore, those amounts are notincluded in the table above.
The fair values stated above are calculated as follows:97

As of March 31, 2017
Level 1

Level 2JPY

USD

Level 3

JPY

USD

Total

JPY

USD

JPY

USD

AssetsOther investments
Financial assets measured at fairvalue through profit or loss
Stock

—

—

—

—

5,054

45,053

5,054

45,05316,014

142,742——

12,049107,398

28,063

250,140

—

—

—

—

1,033

9,213

1,033

9,213
9,347

Financial assets measured at fairvalue through other comprehensive
incomeStockOther financial assets
Financial assets measured atfair value through profit orloss
Convertible bonds
Derivative transactions:
Foreign exchange

—

—

1,048

9,347

—

—

1,048

Interest rate

—

—

—

—

—

—

—

—

Commodity

280

2,498

3

29

—

—

283

2,528

Foreign exchange

—

—

(740)

(6,600)

—

—

(740)

(6,600)Interest rate

—

—

(838)

(7,474)

—

—

(838)

(7,474)

Liabilities
Other financial liabilities
Derivative transactions:

Commodity
Total

(317)

(2,830)

—

—

—

—

(317)

(2,830)15,976

142,410(526)(4,697)

18,137

161,665

33,587299,378

As of March 31, 2016
Level 1

Level 2

Level 3

Total

JPY

JPY

JPY

JPY

AssetsOther investments
Financial assets measured at fairvalue through profit or loss
Stock

—

—

5,637

5,637

14,061—

10,83624,897

Foreign exchange

—

200

—

200

Interest rate

—

—

—

—

Commodity

174

4

—

179

Foreign exchange—(2,546)—(2,546)

Interest rate—

(1,205)—(1,205)

Commodity

(63)

(14)

—

(77)

14,172(3,561)

16,47427,084

Financial assets measured at fairvalue through other comprehensive
incomeStockOther financial assets
Derivative transactions:

Liabilities
Other financial liabilities
Derivative transactions:

Total

98

KANEMATSU ANNUAL REPORT 2017

issuer and confirming the data from comparable public companies.

Kanematsu’s Progress and Strengths

The methods of determining the fair value of the above instruments are described as follows:(b) Derivative financial assets and liabilities
Currency-related derivatives
The fair value of forward exchange transactions is calculated basedon the forward exchange rate at the end of the fiscal year.

(a) Other investments and convertible bonds
The fair value of listed shares is the quoted price in an active market, and is categorized within fair value hierarchy Level 1.
The fair value of unlisted shares is calculated using valuation
methods including discounted future cash flows, market prices ofcomparable companies, net asset value, and other valuation methods, and is categorized within fair value hierarchy Level 3.
Measuring the fair value of unlisted shares involves the use ofunobservable inputs such as discount rate and valuation multiples,
as well as any necessary adjustments including discounts for a lackof liquidity.
The fair value of convertible bonds is calculated using valuation
methods including discounted future cash flows and net asset
value, and is categorized within fair value hierarchy Level 3.
The Company determines the policies and procedures for measuring the fair value of unlisted shares and convertible bonds, andreviews the approach to measuring fair value on a recurring basis
including the valuation model, by obtaining the information on
business operations and business plans associated with each equity

Interest rate-related derivatives
The fair value of interest-rate swaps is the present value of future
cash flows discounted by an interest rate that reflects time to settlement, as well as market conditions.

Special Features

Commodity-related derivatives
The fair value of commodity futures transactions is calculated using
final prices on commodities exchanges as of the fiscal year-end.
The fair value of commodity swap transactions is calculated basedon the index prices publicly announced at the end of the fiscal
year.
Commodity futures transactions are categorized within Level 1of fair value hierarchy. All other derivative financial assets and liabilities are categorized within Level 2 of the fair value hierarchy.

2017
Other investments
FVPL

Balance at the beginning of
the year

Review of Operations(ii) Recurring fair value measurements categorized within Level 3 of the fair value hierarchy
The changes in financial assets and liabilities that are measured at fair value on a recurring basis and are categorized within Level 3 of the fairvalue hierarchy are presented as follows. There were no material transfers between different levels for the years ended March 31, 2017 andMarch 31, 2016.
2016

Other financial assets
FVOCI

Total

FVOCI
JPY

USD

Other investments

JPY

USD

Total

FVPL

FVOCI

JPY

JPY

JPY

JPY

USD

JPY

USD

5,637

50,24910,836

96,593——

16,474 146,841

6,425

12,362

18,788(2,000) (17,832)

—

—

—

—

(2,000) (17,832)

(323)

—

(323)

Total gains or losses
Profit or loss (Note1)
Other comprehensive
income (Note 2)

—

1,025

9,138

—

—

1,025

9,138

—

(1,577)(1,577)Purchase

—

—

223

1,992

33

300

257

2,292

—

524

524

Sale

—

—

(36)

(324)

—

—

(36)

(324)

—

(472)

(472)

Foreign currency translationdifference

(79)

(710)

—

—

—

—

(79)

(710)

(375)

—

(375)

Increase (decrease) due tochanges in scope of
consolidation

—

—

—

—

—

—

—

—

(89)

0

(89)

Other

1,497

13,347

—

—

1,000

8,913

2,497

22,261———

Balance at the end of the
year

5,054

45,053

12,049 107,398

1,033

9,213

18,137 161,665

5,637

10,836

16,474

CSR and Corporate Governance—

KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

FVPL: Financial assets measured at fair value through profit or loss.
FVOCI: Financial assets measured at fair value through other comprehensive income.
(Notes) 1. The gains or losses are included in “Other finance costs” in the consolidated statement of income. Of those gains or losses recognized in profit or loss, the amounts
arising from financial instruments that were held at the period end are ¥(2,000) million ($(17,832) thousand) for the fiscal year ended March 31, 2017 and ¥(323)
million for the fiscal year ended March 31, 2016.
2. The gains or losses are included in “Financial assets measured at fair value through other comprehensive income” in the consolidated statement of comprehensive
income.

99

(iii) Quantitative Information about the financial instruments categorized within fair value hierarchy Level 3
The following tables present quantitative information on the material assets categorized within Level 3 of the fair value hierarchy, which were
measured at fair value on a recurring basis.
As of March 31, 2017
Fair value

Significant unobservable inputs

Weighted averageof input values

Discounted cash flow
methodDiscount rate

3.7 %22,261

Net asset value method——

10,984

97,912Market multiple method

P/B ratio
Illiquidity discount

1.1 times
30.0 %

1,064

9,486

Net asset value method——

Category

JPY

USD

Financial assets measured atfair value through profit or
loss

3,590

32,006

Financial assets measured atfair value through profit or
loss

2,497

Financial assets measured atfair value through othercomprehensive income
Financial assets measured atfair value through othercomprehensive income

Valuation technique

As of March 31, 2016
Category

Fair value

Valuation techniqueSignificant unobservable inputs

Weighted averageof input values

Discount rate

3.5%

JPY

Financial assets measured at fair value
through profit or loss

5,637

Discounted cash flow method

Financial assets measured at fair value
through other comprehensive income

9,733

Market multiple method

P/B ratio
Illiquidity discount

1.1 times
30.0%

Financial assets measured at fair value
through other comprehensive income

1,103

Net asset value method——

The significant unobservable inputs used in measuring the fair value of unlisted shares are the discount rate, illiquidity discount and P/B ratio(price-to-book ratio). A substantial increase (or decrease) in the discount rate or illiquidity discount causes the fair value to substantially fall (orrise), while a substantial increase (or decrease) in the P/B ratio causes the fair value to substantially rise (or fall).

100

KANEMATSU ANNUAL REPORT 2017

Kanematsu’s Progress and Strengths(7) Financial assets measured at fair value through other comprehensive income
With respect to investments in equity instruments held for the purpose of maintaining and strengthening relationships with business partners, the Consolidated Group has designated such investments as financial assets to be measured at fair value through other comprehensive
income in view of the holding purpose.
1) Fair value of major items of investment
The following tables present the fair value of major items of investment in equity instruments designated as financial assets measured at fairvalue through other comprehensive income.
As of March 31, 2017
Name of issuer

AmountUSD

MARUDAI FOOD CO., LTD.

2,921

26,041

Tokio Marine Holdings, Inc.

2,815

25,100

Nissin Seifun Group Inc.

1,511

13,473

BOT Lease Co., Ltd.

1,414

12,608SHIN KURUSHIMA DOCKYARD CO., LTD.

1,304

11,627

Sotsu Corporation

1,190

10,614DAIO PAPER CORPORATION

1,093

9,748

The Norinchukin Bank

1,061

9,461

F.C.C. Co., Ltd.

686

6,123

Alpha Group Inc.

634

5,658

13,427

119,687

Other

Special Features

JPY

Review of Operations

As of March 31, 2016
Name of issuer

AmountJPY

MARUDAI FOOD CO., LTD.

2,620

Tokio Marine Holdings, Inc.

2,277

Nissin Seifun Group Inc.

1,628

BOT Lease Co., Ltd.

1,311

Sotsu Corporation

1,258

The Norinchukin Bank

1,100

SHIN KURUSHIMA DOCKYARD CO., LTD.

1,099
728

GUANGZHOU SHOWA AUTOPARTS CO., LTD.

590

F.C.C. Co., Ltd.

588

Other

CSR and Corporate Governance

DAIO PAPER CORPORATION

11,692Financial Section and Company Information

KANEMATSU ANNUAL REPORT 20171012) Dividend income
JPY

2017

USD

2017

2016

Investments derecognized during the year

3

7

32

Investments held at the end of the year

902

772

8,047

Total

906

779

8,080

3) Financial assets measured at fair value through other comprehensive income that were derecognized during the fiscal year
The Consolidated Group periodically reviews its held shares and sells those shares that it holds without a strong rationale with gains or losses
on sale recognized in other comprehensive income. The following table presents the fair value on the date of sale and cumulative gains orlosses on sale.
JPY

USD

2017

2016

2017

Fair value on the date of sale

647

605

5,772

Cumulative gains (losses) on sale

132

393

1,178

4) Reclassification to retained earnings
The Consolidated Group reclassifies to retained earnings cumulative gains or losses arising from changes in the fair value of financial assets
measured at fair value through other comprehensive income in either of the following cases: when an investment is disposed of, or when
there is a significant decline in the fair value. Such cumulative gains or losses in other comprehensive income that were reclassified toretained earnings for the years ended March 31, 2017 and March 31, 2016 were ¥125 million ($1,116 thousand) and ¥275 million, respectively.

(8) Hedge Accounting(Cash Flow Hedge)
A cash flow hedge is a hedge of the exposure to variability in future cash flows arising from a forecast transaction or recognized assets or liabilities. While a hedge is designated as cash flow hedge as long as the hedge is effective, the changes in the fair value of qualifying hedging
instrument should be recorded as other comprehensive income in the Consolidated Statement of Comprehensive Income. The Consolidated
Group continues such accounting treatment until variability in future cash flows arising from unrecognized forecast transactions or recognized assets or liabilities designated as hedged items are recorded in profit or loss. Moreover, portions determined to be ineffective for hedging accounting are recognized in profit or loss.
The Company and certain consolidated subsidiaries designate the following instruments as cash flow hedges: forward exchange contracts
to fix cash flows from foreign currency denominated receivables and payables, foreign currency denominated firm commitments and foreign
currency denominated forecast transactions, interest rate swaps to fix variable interest rate on floating rate financial liabilities, and commodity futures to fix cash flows from forecast transactions of commodity trade.
When applying hedge accounting, the Consolidated Group confirms that there are economic relationships between the hedged items andhedging instruments through qualitative assessments, which show whether the critical terms of the hedging instruments and the hedged
items match exactly or are closely aligned, and quantitative assessments, which show fluctuations of the value of hedged items and hedging
instruments by the same risk offset each other, in order to confirm there are economic relationships that variability in fair value or cash flowsof the hedged items that are attributable to the hedged risk shall be offset by the changes in fair value or cash flows of the hedging instruments. The Consolidated Group also establishes appropriate hedge ratios considering an economic relationship between hedging instruments and hedged items as well as risk management strategy.
The amounts recognized in profit or loss for the ineffective portion of the hedge are not material both for the fiscal years ended March 31,2017 and March 31, 2016. In addition, the amounts reclassified from valuation differences on cash flow hedges to profit or loss are immaterial because the forecast transactions are no longer expected to occur.
Following are the carrying amounts of the hedging instruments as of March 31, 2017 and March 31, 2016. The fair value of financial
assets related to hedging instruments is included in “Other financial assets” while the fair value of financial liabilities related to hedging
instruments is included in “Other financial liabilities (current)” or “Other financial liabilities (non-current)” in the consolidated statements offinancial position.
As of March 31, 2017
Carrying amount

Notional amount

Derivative assets
JPY

Derivative liabilities

JPY

USD

USD

JPY

USD

30,026

267,636

503

4,490

250

2,234

28,600254,925

—

—

838

7,474

435

3,884

16

147

4

43

Foreign currency risk
Forward exchange contracts
Interest rate risk
Interest rate swap contracts
Commodity price risk
Commodity futures contracts

102

KANEMATSU ANNUAL REPORT 2017

Kanematsu’s Progress and Strengths

As of March 31, 2016
Carrying amount

Notional amount

Derivative assets

Derivative liabilities

JPY

JPY

JPY

Foreign currency risk
Forward exchange contracts

20,88358764

29,000

—

1,205

547

16

4

Interest rate risk
Interest rate swap contracts
Commodity price risk
Commodity futures contracts

Special Features

The longest terms of hedging cash flow fluctuation risks by “Forward exchange contracts”, “Interest rate swap contracts” and “Commodity
price risk” are about 2 years, 5 years 6 months and 1 year, respectively.
The following tables present the carrying amount of cash flow hedge reserve as of March 31, 2017 and March 31, 2016.
As of March 31, 2017
Cash flow hedge reservefor continuing hedges(before tax)

Cash flow hedge reservefor discontinuing hedge accounting(before tax)

JPY

USD

JPY

USD

253

2,256

—

—

(838)

(7,474)

—

—

11

104

8

75

Foreign currency risk
Forward exchange contracts
Interest rate risk
Interest rate swap contracts
Commodity price risk
Commodity futures contracts

Review of Operations

As of March 31, 2016
Cash flow hedge reservefor continuing hedges(before tax)

Cash flow hedge reservefor discontinuing hedge accounting(before tax)

JPY

JPY

Foreign currency risk
Forward exchange contracts

(706)

—

(1,205)

—

12

(51)

Interest rate risk
Interest rate swap contracts
Commodity price risk
Commodity futures contracts

CSR and Corporate Governance

The following tables present the carrying amounts of transactions that affected the consolidated statements of comprehensive income as aresult of applying hedge accounting for the fiscal years ended March 31, 2017 and March 31, 2016.
Fiscal year ended March 31, 2017 (from April 1, 2016 to March 31, 2017)
Change in value of hedging instruments
recognized in other comprehensive
incomeReclassification from cash flow hedge
reserve to profit or loss

Line item for which profit or loss wasaffected by reclassification

JPY

USD

JPY

USD

352

3,139

607

5,415

Other income

96

862

270

2,412

Interest expenses

19

170

40

358

Cost of sales

Foreign currency risk
Forward exchange contracts
Interest rate risk
Interest rate swap contracts
Commodity futures contracts

KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

Commodity price risk

103

Fiscal year ended March 31, 2016 (from April 1, 2015 to March 31, 2016)
Change in value of hedging instruments
recognized in other comprehensive
incomeReclassification from cash flow hedge
reserve to profit or loss

JPY

JPY

(745)

(1,102)(396)

5Interest expenses

44

37

Cost of sales

Line item for which profit or loss wasaffected by reclassification

Foreign currency risk
Forward exchange contracts

Other income

Interest rate risk
Interest rate swap contracts
Commodity price risk
Commodity futures contracts(9) Transfer of financial assets
The Consolidated Group liquidates certain trade receivables by discounting notes or the like. However, with respect to some liquidated receivables, the Consolidated Group may be obligated to make payments as recourse for non-payment by the debtor. The Consolidated Group
continues to recognize such liquidated receivables as they do not meet the criteria for derecognition of financial assets.
The Consolidated Group recognized such liquidated assets as “Trade and other receivables” in the amount of ¥7,509 million ($66,939
thousand) and ¥1,771 million as of March 31, 2017 and March 31, 2016, respectively. In addition, liabilities relating to the deposit amounts
which arose upon the transfer of such assets were accounted for as “Bonds and borrowings” in the amount of ¥7,509 million ($66,939
thousand) and ¥1,771 million as of March 31, 2017 and March 31, 2016, respectively. Such liabilities are settled when payments for such liquidated assets are made, and the Consolidated Group may not use such liquidated assets until such settlement occurs.

(10) Offsetting financial assets and financial liabilities
The following tables present the financial assets and financial liabilities recognized for the same counterparties including financial instrumentsthat were not offset even though they were covered by an enforceable master netting arrangement or similar agreement because they did
not meet some or all of the offsetting criteria as of March 31, 2017 and March 31, 2016.
JPY

Amounts of financial assets presented in the consolidated statement of financial
position
Foreign exchange

USD

2017

2016

2017

1,332

379

11,875

1,048

200

9,347

Interest rate

—

—

—

Commodity

283

179

2,528

Amounts that were not offset even though they were covered by an enforceable
master netting arrangement or similar agreement because they did not meet someor all of the offsetting criteria

(695)

(186)

(6,203)

Net amounts

636

192

5,672

2017

2016

2017

1,896

3,829

16,904Foreign exchange

740

2,546

6,600

Interest rate

838

1,205

7,474

Commodity

317

77

2,830

Amounts that were not offset even though they were covered by an enforceable
master netting arrangement or similar agreement because they did not meet someor all of the offsetting criteria

(695)

(186)

(6,203)Financial collateral pledged

(276)

(4)

(2,463)

924

3,638

8,237

JPY

Amounts of financial liabilities presented in the consolidated statements offinancial position

Net amounts

USD

Certain financial assets and financial liabilities have not been offset because they do not meet some or all of the criteria for offsetting financial assets and financial liabilities. The rights to offset such financial assets and financial liabilities become enforceable only under particular
circumstances, such as when the other party fails to discharge an obligation due to its bankruptcy or other such reasons.

104

KANEMATSU ANNUAL REPORT 2017

Kanematsu’s Progress and Strengths

31. Leases(1) Lessee
1) Finance leases
The Consolidated Group leases computer-related equipment for the enterprise system (tools, furniture and fixtures) and other assets forfinance leases.
The carrying amounts of the leased assets, net of accumulated depreciation and accumulated impairment losses, as of March 31, 2017
and March 31, 2016 are as follows:
JPY

Machinery, equipment, vehicle, tools and fixtures
Other
Total

USD

2017

2016

2017

1,002

1,218

8,939

145

58

1,295

1,148

1,276

10,235Special Features

The future minimum lease payments for finance leases as of March 31, 2017 and March 31, 2016 are as follows:
Present value of
future minimum lease payments

Future minimum lease payments
JPY

2017

USD

2016

JPY

2017

2017

USD

2016

2017

Within one year

436

486

3,891

387

433

3,450

Between one and five years

939

1,108

8,370

845

997

7,534

Over five years
Total

62

19

554

52

18

472

1,437

1,613

12,816

1,285

1,449

11,456

Less future finance costs

(152)

(163)

(1,360)Present value of future minimum lease payments

1,285

1,449

11,456
Review of Operations

The future minimum lease payments receivable under the non-cancellable subleases as of March 31, 2017 and March 31, 2016 are ¥12 million ($115 thousand) and ¥54 million, respectively.
2) Operating leases
The Consolidated Group leases office buildings, system equipment and other assets as cancellable or non-cancellable operating leases. The
future minimum lease payments for non-cancellable operating leases as of March 31, 2017 and March 31, 2016 are as follows:
JPY

USD

2017

2016

2017

Within one year

34

10

308

Between one and five years

43

19

387

Over five years

—

—

—

77

30

695

Total

CSR and Corporate Governance

The total lease payments recognized as expenses under the cancellable or non-cancellable operating leases for the fiscal year ended March
31, 2017 and March 31, 2016 are ¥6,980 million ($62,219 thousand) and ¥5,981 million, respectively.
The future minimum lease payments receivable under the non-cancellable subleases as of March 31, 2017 and March 31, 2016 are ¥37
million ($337 thousand) and ¥38 million, respectively.

Financial Section and Company Information

KANEMATSU ANNUAL REPORT 2017105

(2) Lessor
1) Finance leases
The Consolidated Group leases out machinery, equipment and other assets that are classified as finance leases. The future minimum lease
payments receivable for finance leases as of March 31, 2017 and March 31, 2016 are as follows:
Future minimum lease payments receivableand unguaranteed residual value
JPY

2017

Present value of
future minimum lease payments receivable

USD

2016

JPY

2017

2017

USD

2016

2017

Within one year

5

4

51

3

3

34

Between one and five years

22

17

204

15

12

135

Over five years
Total

13

13

124

9

8

82

42

35

379

28

23

251

Unguaranteed residual value

—

—

—

Less future finance income

(14)

(12)

(128)

Present value of future minimum lease payments receivable

28

23

251

32. Pledged Assets(1) Pledged assets and associated secured obligations
Details of pledged assets and associated secured obligations are as follows:
JPY

2017

USD

2016

2017

Pledged assets:
Other financial assets (non-current)

47

23

427

Property, plant and equipment

658

653

5,868

706

676

6,295

1,101

1,806

9,819

732

231

6,526

Total
Associated secured obligations:Short-term borrowings (current)Long-term borrowings (non-current)
Other
Total

—

1

—

1,833

2,039

16,345

Trust receipts issued under customary import financing arrangements give banks a security interest in the goods imported or sales proceeds
resulting from the sales of the goods. However, due to the large volume of transactions, it is impracticable to determine the aggregate
amounts of assets covered by outstanding trust receipts and those transactions were not included in the above amounts.

(2) Assets pledged in lieu of guarantee money
The breakdown of assets pledged in lieu of guarantee money or the like is as follows:
JPY

USD

2017

2016

2017

Other financial assets (current)

36

71

330

Other financial assets (non-current)

—

14

—

3,118

2,692

27,801

3,155

2,779

28,130Assets pledged in lieu of guarantee money or guarantee funds

Other investments
Total

106

KANEMATSU ANNUAL REPORT 2017

Kanematsu’s Progress and Strengths

33. Contingent Liabilities
The Consolidated Group is contingently liable for guarantees on bank borrowings and trade payables owed by entities that do not belong to
the Consolidated Group.
The Group may become responsible for the amounts that are unpayable by the borrower and for losses attached to the unpayableamounts.
JPY

Debt guarantees for equity method investees
Debt guarantees for third parties
Total

USD

2017

2016

2017

537

489

4,793

1,344

988

11,980

1,881

1,477

16,773Special Features(Notes)1. The above amounts include those for quasi-guarantee acts.
2. Debt guarantees for third parties include the debt guarantees covered by the insurance agreements that is limited to ¥1,276 million ($11,381 thousand) for the
fiscal year ended March 31, 2017 and ¥ 939 million for the fiscal year ended March 31, 2016, respectively.

34. Significant Subsidiaries(1) Significant subsidiaries of the Company are as follows:
Trade nameLocation

Details of major operations

Percentage of voting rights (%)

2017

2016

58.32
(0.40)

58.32(0.40)[Electronics & Devices]

Nippon Office Systems Ltd.

Chuo-ku, Tokyo, Japan

Development of software for and sales
and maintenance of computers andcomputer peripherals, etc.

100.00(100.00)

100.00(100.00)

Kanematsu Communications
Ltd. *1

Shibuya-ku, Tokyo, Japan

Sales of mobile communications
devices; Mobile internet systems andservices

100.00100.00Kanematsu Granks, Corp.

Shinjuku-ku, Tokyo, Japan

Mobile contents delivery and mobilerelated solution business

89.05(89.05)89.05(89.05)

Kanematsu BD
Communications Ltd.

Kurume-shi, Fukuoka, Japan

Sales of mobile communication device

100.00(100.00)

100.00(100.00)

Kanematsu Sustech Corp.

Chuo-ku, Tokyo, Japan

Manufacture and sales of homeconstruction materials; Groundinspection services and improvement
work; Sales of security systems

52.96

52.96

Kanematsu Advanced Materials
Chuo-ku, Tokyo, Japan
Corp.

Import, export, storage, sales, andprocessing of materials andcomponents for vehicle equipment,
industrial electronics, andcommunication devices

100.00100.00

Diamondtelecom, Inc. *1

Chuo-ku, Tokyo, Japan

Sales of mobile communication device
and related products

100.00—Tanashin (Europe) GmbH

Duesseldorf, Germany

Sales and maintenance of parts for car
audio systems

100.00(20.00)100.00(20.00)

Kanekoh Electronics (Shanghai)
Shanghai, China
Co., Ltd.

Development, manufacture, and salesof control modules for lithium ion
batteries

70.00

70.00

Kanematsu Industrial andTrading (Dalian F.T.Z.) Co., Ltd.

Manufacture of materials for electronic
precision parts and import, export andsales of electronic components

100.00(100.00)

100.00(100.00)

Dalian, China

KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

System integration of ICT andcommunications equipment

CSR and Corporate GovernanceChuo-ku, Tokyo, Japan

Review of Operations

Kanematsu Electronics Ltd.

107

Trade nameLocation

Details of major operations

Percentage of voting rights (%)

2017

2016

[Foods & Grain]
Kanematsu Shintoa Foods
Corp.

Minato-ku, Tokyo, Japan

Food wholesaling and cold storage

100.00100.00Kanematsu Agritec Co., Ltd.

Matsudo-shi, Chiba, Japan

Manufacture and sales of feed andfertilizer

100.00100.00Kanematsu Soytech Corp.

Chuo-ku, Osaka, Japan

Sales of soybeans, millet, and grain

100.00100.00

North Pet Co., Ltd.

Kuriyama-cho, Yubari-gun,
Hokkaido, Japan

Manufacture of pet snacks (jerky, dried
meat, biscuits)

100.00100.00KG Agri Products, Inc.

Ohio, U.S.A.

Seed development; Contract farming;
Sorting, processing, and sales of foodsoybeans

100.00100.00Kai Enterprises, Inc.

Washington, U.S.A.

Sales of hay and roughage

100.00(15.00)100.00(15.00)P.T. Kanemory Food Service

Serang, Indonesia

Manufacture of processed foods forcentral kitchen and home-meal
replacement

59.90(10.00)59.90(10.00)Kanematsu Trading Corp.

Chuo-ku, Tokyo, Japan

Sales of steel and construction
materials

100.00100.00

Kyowa Steel Co., Ltd.

Kasai-shi, Hyogo, Japan

Cutting and processing of steel sheet;
Sales of construction materials

100.00(100.00)

100.00(100.00)

Kanematsu Chemicals Corp.

Chuo-ku, Tokyo, Japan

Sales of petrochemicals andautomobile-related chemicals

100.00100.00Kanematsu Wellness Corp.

Chuo-ku, Tokyo, Japan

Sales of health foods and provision of
medical information

100.00(100.00)

100.00(100.00)

Kanematsu Petroleum Corp.

Chiyoda-ku, Tokyo, Japan

Sales of petroleum products and LPG

100.00100.00Kanematsu Yuso Co., Ltd.

Chiyoda-ku, Tokyo, Japan

Delivery and storage of petroleum
products and LPG

100.00100.00Kanematsu KGK Corp.

Nerima-ku, Tokyo, Japan

Sales of machine tools and industrial
machinery

97.89

97.89

Benoit Holding Company

Illinois, U.S.A.

Holding company

85.18(85.18)85.18(85.18)

Benoit Premium Threading, LLC Louisiana, U.S.A.

Oil well casing fabrication; Manufactureand sales of oil well-related parts

54.00(54.00)54.00(54.00)

Steel Service
Oilfield Tubular, Inc.

Oklahoma, U.S.A.

Sales of steel materials for oil
excavation

51.00(51.00)51.00(51.00)KGK International Corp.

Illinois, U.S.A.

Sales of machine tools

100.00(100.00)

100.00(100.00)[Steel, Materials & Plants]

108

KANEMATSU ANNUAL REPORT 2017

Location

Percentage of voting rights (%)

Details of major operations

2017

2016

Kanematsu’s Progress and Strengths

Trade name

[Motor Vehicles & Aerospace]
Kanematsu Aerospace Corp.

Minato-ku, Tokyo, Japan

Sales of aircraft, defense, andaerospace-related products

100.00100.00Aries Motor Ltd.

Warsaw, Poland

Sales of automobiles

93.59

93.59

Aries Power Equipment Ltd.

Warsaw, Poland

Sales of engines, generators, and othergeneral-purpose machinery

60.00

60.00

KG Aircraft Rotables Co., Ltd.

Dublin, Ireland

Replacement and maintenance of
aircraft rotable components; Leasing

96.67

96.67

Minato-ku, Tokyo, Japan

Golf course management

100.00100.00

Shintoa Corp.

Chiyoda-ku, Tokyo, Japan

Beverage-vending machine operations;
Imports, exports, and sales of aircraft
engines and feedstuffs

100.00100.00Kanematsu Logistics &Insurance Ltd.

Chuo-ku, Tokyo, Japan

Insurance agency; Consigned freight
forwarding business100.00100.00Kanematsu USA Inc.

Illinois, U.S.A.

Export, import and sales ofmerchandise

100.00100.00Kanematsu (Hong Kong) Ltd.

Hong Kong, China

Export, import and sales ofmerchandise

100.00100.00Kanematsu (China) Co., Ltd.

Shanghai, China

Export, import and sales ofmerchandise

100.00(100.00)

100.00(100.00)

Kanematsu (Thailand) Ltd.

Bangkok, Thailand

Export, import and sales ofmerchandise

100.00(100.00)

100.00(100.00)

Watana Inter-Trade Co., Ltd.

Bangkok, Thailand

Export, import and sales ofmerchandise

49.00(49.00)49.00(49.00)Kanematsu (Singapore) Pte.
Ltd.

Singapore, Singapore

Export, import and sales ofmerchandise

100.00(100.00)

100.00(100.00)

Kanematsu Taiwan Corp.

Taipei, Taiwan

Export, import and sales ofmerchandise

100.00(100.00)

100.00(100.00)

Kanematsu Europe Plc

London, U.K.

Export, import and sales ofmerchandise

100.00(100.00)

100.00(100.00)

Kanematsu GmbH

Duesseldorf, Germany

Export, import and sales ofmerchandise

100.00100.00Kanematsu Australia Ltd.

Sydney, Australia

Export, import and sales ofmerchandise

100.00100.00Kanematsu New Zealand Ltd.

Auckland, New Zealand

Export, import and sales ofmerchandise

100.00100.00[Others]
Aso Kanko Kaihatsu Co., Ltd.

Special Features[Overseas local subsidiaries]

Review of Operations
CSR and Corporate GovernanceNotes: 1 Effective April 1, 2017, Kanematsu Communications Ltd. and Diamondtelecom,Inc. were merged, and Kanematsu Communications Ltd. is the surviving company.
2 The figures in the parentheses in “Percentage of voting rights” indicate the indirect ownership ratio included in the total.

(2) Non-controlling interests
The subsidiary with non-controlling interests that is significant for the Consolidated Group is Kanematsu Electronics Ltd. Its condensed financial information is presented as follows. The amounts presented below are before the elimination of intra-company transactions.
[Condensed statement of financial position]
JPY

USD

2016

2017

Current assets

55,78848,217497,268

Current liabilities

16,866

13,909150,338

Current assets (net)38,92234,307

346,931

Non-current assets

5,875

7,511

52,367

Non-current liabilities

2,687

3,177

23,957

Non-current assets (net)

3,187

4,333

28,410Equity42,10938,641

375,341

Cumulative amounts of non-controlling interests

17,62016,180157,061KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

2017

109

[Condensed statements of income and comprehensive income]
JPY

USD

2017

2016

2017

Revenue

64,17561,305572,027

Profit for the year

5,499

4,310

49,022Other comprehensive income

280

(285)

2,505

Total comprehensive income

5,780

4,025

51,526

Profit for the year attributable to non-controlling interests

2,303

1,807

20,535

954

835

8,508

2017

2016

2017

Cash flows from operating activities

6,223

5,067

55,475

Cash flows from investing activities

1,435

(171)

12,791

Cash flows from financing activities(2,308)(2,479)(20,575)

Increase (decrease) in cash and cash equivalents, net

5,350

2,416

47,691Dividends paid to non-controlling interests[Condensed statement of cash flows]

JPY

USD

(3) Transaction with non-controlling interests
There was no transaction with significant non-controlling interests for the fiscal year ended March 31, 2017 and March 31, 2016.

35. Related Parties(1) Related party transactions
For the fiscal year ended March 31, 2017
Type

Name

Detail of related party
relationshipTransaction amount

Outstanding amount

JPY

USD

JPY

USD

Associate(including subsidiaries of
the associate)

Kantatsu Co., Ltd.

Purchase of merchandise

6,570

58,569804

7,175

Associate

Growth D LTD.

Purchase of merchandise

3,245

28,933535

4,772

Associate

Sage Hill
Northwest, Inc.

Purchase of merchandise

1,011

9,012

111

993

(Notes) 1. The related party transaction amounts are determined through negotiation with consideration given to the prevailing market prices.
2. As described in Note 33 Contingent Liabilities, debt guarantees are provided to the equity method investees.

For the fiscal year ended March 31, 2016
Type

Associate(including subsidiaries of
the associate)

Name

Kantatsu Co., Ltd.

Detail of related party
relationshipTransaction amount

Outstanding amount

JPY

JPY

Purchase of merchandise

8,603

486

(Notes) 1. The related party transaction amounts are determined through negotiation with consideration given to the prevailing market prices.
2. As described in Note 33 Contingent Liabilities, debt guarantees are provided to the equity method investees.

(2) Remuneration to management executives
The amount of remuneration to the Company’s directors for the fiscal years ended March 31, 2017 and March 31, 2016 is ¥277 million($2,472 thousand) and ¥202 million, respectively. The remuneration to the directors consists of base salary and directors’ bonus. The remuneration to the auditors consists of base salary.

110

KANEMATSU ANNUAL REPORT 2017

Kanematsu’s Progress and Strengths

36. Subsequent Events
At the Board of Directors meeting held on May 10, 2017, the Company resolved to submit proposals for share consolidation (from 5 sharesto 1 share) and the change in the share unit (from 1,000 shares to 100 shares) and the total number of authorized shares (from1,016,653,604 shares to 200,000,000 shares) to its 123rd Ordinary General Meeting of Shareholders to be held on June 23, 2017. The proposals were approved at the Ordinary General Meeting of Shareholders.

(1) Reason for the share consolidation and change in share unit
The Japanese Stock Exchanges published the Action Plan for Consolidating Trading Units which seeks to standardize the trading units (share
units) for common shares issued by all listed domestic corporations at 100 shares. As a corporation listed on the Tokyo Stock Exchange, theCompany respects the purport of this plan and decided to change its share unit from 1,000 shares to 100 shares. Moreover, in order toadjust the investment unit to a required level by the Japanese Stock Exchange (more than ¥ 50,000, less than ¥ 500,000) with the change inshare unit, the Company will conduct the share consolidation.

Special Features(2) Details of the share consolidation
1) Class of shares to be consolidated
Common shares
2) Consolidation method and ratio
Every five shares held by shareholders recorded in the register of shareholders as of the end of September 30, 2017 will be consolidated into
one share on October 1, 2017.
3) Decrease in number of shares due to consolidation (as of March 31, 2017)
Number of shares outstanding before share consolidation: 422,501,010 shares
Decrease in number of shares due to share consolidation: 338,000,808 shares
Number of shares outstanding after share consolidation: 84,500,202 shares(Note) “Decrease in number of shares due to share consolidation” and “Number of shares outstanding after share consolidation” are theoretical figures calculated based on
the number of shares outstanding before share consolidation and the consolidation ratio. The Company does not issue stock acquisition rights.

Review of Operations(3) Handling of fractional shares less than one share
If a fraction of less than one share is created due to the share consolidation, all such fractional shares will be sold together in accordance with
Article 235 of the Companies Act. The proceeds will be distributed to shareholders who held the fractional shares in proportion to the number of fractional shares.

(4) Change in share unit
On October 1, 2017, the share unit will change from 1,000 shares to 100 shares.
(Note) As described above, while the effective date of the change in the number of shares per share unit and the share consolidation will be October 1, 2017, the trading unit
will be changed from 1,000 shares to 100 shares at the Tokyo Stock Exchange on September 27, 2017 because of the book-entry procedure following trades ofshares.

(5) Change in total number of authorized shares
On October 1, 2017, the total number of authorized shares will change from 1,016,653,604 shares to 200,000,000 shares.
CSR and Corporate Governance(6) Effect on per share information
Assuming that the share consolidation had taken place at the beginning of the previous fiscal year, per share information for the fiscal years
ended March 31, 2017 and March 31, 2016 would be as follows:
Yen

Equity attributable to owners of the parent per share
Basic earnings per share(Attributable to owners of the parent)

U.S. dollar

2017

2016

2017

1,192.21

1,088.45

10.63

95.64

106.460.85(Note) Diluted earnings per share is not presented as there are no shares with a dilutive effect.

Financial Section and Company Information

KANEMATSU ANNUAL REPORT 2017

111

112

KANEMATSU ANNUAL REPORT 2017

Global Network(As of March 31, 2017)

1

Kanematsu’s Progress and Strengths

Kanematsu supplies products and services through its large network of business bases in Japan and overseas. In addition to theCompany, the Kanematsu Group comprises 116 companies (88 consolidated subsidiaries and 28 equity-method affiliates) operating
global businesses around the world.

6
2

3
4

34
5

33
12

11
25

8

10

24

7

16

31

9
13
14 15
17

19
18

35

21

Special Features

22

30
28 29

32

NORTH AMERICA

20

28 Chicago

23

EUROPE

29 Somerset

1 London2 Dusseldorf
3 Munich

30 Detroit

ASIA & THE MIDDLE EAST

26
27

17 Haiphong

5 Budapest

9 Shanghai

18 Ho Chi Minh City

6 Moscow

10 Chongqing

19 Bangkok

7 Las Palmas

11 Beijing

20 Singapore

26 Sydney

12 Dalian

21 Manila

27 Auckland

13 Shenzhen

22 Yangon

32 Silicon Valley
34 Vancouver

OCEANIA35 Silao
36 Sao PauloDOMESTIC OFFICES

14 Hong Kong 23 Jakarta
15 Taipei

24 New Delhi

16 Hanoi

25 Tehran

CENTRAL &SOUTH AMERICA

33 Portland

Review of Operations

4 Milan

8 SeoulOverseas subsidiaries
and their branches

36

31 Houston

4

1 Tokyo Head Office
2 Osaka

Representative offices
6

Branches
2

3

1

5

Midosuji Office
3 Nagoya
4 Hokkaido
5 Kyushu
6 Sendai

CSR and Corporate Governance

Organization Chart(As of April 1, 2017)
Shareholder’s Meeting
Audit & Supervisory Board
Board of Directors
Management Committee

Marketing Area
Electronics & Devices Division

Support Area
Motor Vehicles & Aerospace Division

Food Dept. No. 1

Iron & Steel Foreign Trade Dept.

Aerospace Dept.

Semiconductor Equipment Dept.

Food Dept. No. 2

Specialty Steel Foreign Trade Dept.

Motor Vehicles & Parts Dept. No. 1

Human Resources &General Affairs Dept.

Components & Material Dept.

Meat Dept. No. 1

Functional Chemicals Dept.

Motor Vehicles & Parts Dept. No. 2

Finance Dept.

System & Module Dept.

Meat Dept. No. 2

Energy Dept.

Accounting Dept.

Electronic Components &Semiconductor Dept. No. 1

Foods and Grain Planning OfficePlant & Ships Dept.

Motor Vehicles &Aerospace Planning Office

Food Safety Management System Office

Steel, Materials & Plant Planning Office

Legal & Compliance Dept.

Grain, Oilseeds & Feedstuff Division

Food Safety Management Office

Traffic & Insurance Dept.

Electronic Components &Semiconductor Dept. No. 2

Foods Division

Electronic Components &Semiconductor Marketing Dept.

Grain & Oilseeds Dept.

Electronics Planning Office

Domestic Sections

Grain and Feedstuff Dept.
Foods and Grain Planning OfficeFinancial Section and Company Information

Steel, Materials & Plant Division

Industrial Electronics Dept.

Business Accounting Dept.

Credit Control Dept.
IT Planning Dept.
Internal Auditing Dept.
Corporate Planning Dept.

Food Safety Management System Office

KANEMATSU ANNUAL REPORT 2017113

Major Group Companies(As of April 1, 2017)* Companies with shares listed on a stock exchangeElectronics & Devices

Japan
Kanematsu Electronics Ltd.*
Nippon Office Systems Ltd.
Kanematsu Sustech Corporation
Kanematsu Communications Ltd.
Kanematsu Advanced Materials Corp.
Kanematsu PWS LTD.
Kantatsu Co., Ltd.
G-Printec, Inc.
China
Kanekoh Electronics (Shanghai) Co., Ltd.

Foods, Grain,
Oilseeds & FeedstuffJapan
Kanematsu Shintoa Foods Corp.
Kanematsu Agritec Co., Ltd.
Kanematsu Soytech Corp.
North Pet Co., Ltd.
GPC Holdings Co., Ltd.
China
Dalian Tiantianli Food Co., Ltd.
Shangdong Lufeng Foods Co., Ltd.
Iwase-Esta Kanematsu Co., Ltd.
ThailandSiam Aloe Vera (2005) Co., Ltd.
Indonesia
P.T. Kanemory Food Service
PT. Aeternit Prima Mandiri
PT. Abadi Tunggal Lestari
PT. Agrapana Niaga Gemilang
U.S.A.
KAI Enterprises, Inc.
Sage Hill Northwest, Inc.
KG Agri Products, Inc.

Steel, Materials & Plants

System integration of ICT and communications equipment
Development of software for and sales and maintenance of computers and computer peripherals, etc.
Manufacture and sales of home-construction materials; Ground inspection services and improvement
work; Sales of security cameras
Sales of mobile communications devices; Mobile internet systems and services
Import, export, storage, sales, and processing of materials and components for vehicle equipment,
industrial electronics, and communication devices
Design, development, and sales of semiconductor production equipment, testing equipment and related
components; Technical services
Development and manufacture of plastic lenses for smartphones, medical equipment, and automobiles
Development, manufacture, and sales (OEM) of card printers and related equipment
Development, manufacture, and sales of control modules for lithium ion batteries
Food wholesaling and cold storage
Manufacture and sales of feed and fertilizer
Sales of soybeans, pulses & peas, and grain; Development and marketing of tofu and other ingredientsfor processed foods
Manufacture of pet snacks (jerky, dried meat, biscuits)
Sales of pet food and other products
Manufacture of dim sum and delicatessens
Production of processed vegetables and fruits
Wholesale of confectionery and baking ingredient
Processing and sales of aloe vera
Manufacture of processed foods; Management of central kitchen
Manufacture and sales of jellies
Operation of Japanese cuisine restaurant chain
Operation of Japanese cuisine restaurant chain
Sales of hay and roughage
Production of hay
Seed development; Contract farming; Sorting, processing, and sales of food soybeansJapan
Kanematsu Trading Corp.
Sales of steel and construction materials
Kyowa Steel Co., Ltd.
Cutting and processing of steel sheet; Sales of construction materials
Eiwa Metal Co., Ltd.
Processing and sales of stainless steel, titanium, and high-alloy steels
Kanematsu Petroleum Corp.
Sales of petroleum products and LPG
Kanematsu Yuso Co., Ltd.
Delivery and storage of petroleum products
Kanematsu Chemicals Corp.
Sales of petrochemicals, automobile-related chemicals, health food ingredients, and pharmaceuticals
Kanematsu Wellness Corp.
Sales of health foods and provision of medical information
Miracool Co., Ltd.
Sales of heat reflective paintKanematsu KGK Corp.
Sales of machine tools and industrial machinery
KGK Engineering Corp.
Repair and sales of machine tools; Sales of paper-manufacturing machinery
China
Kanematsu KGK Trade & Sales (Shanghai) Co., Ltd. Sales of machine tools and industrial machinery
ThailandKGK Engineering (Thai) Co., Ltd.
Sales of machine tools and industrial machinery
U.S.A.
Steel Service Oilfield Tubular, Inc.
Sales of steel materials for oil excavation
Benoit Premium Threading, LLC
Oil well casing fabrication; Manufacture and sales of oil well-related parts
KGK International Corp.
Sales of machine tools

Motor Vehicles & Aerospace Japan
Kanematsu Aerospace Corp.
Ireland
KG Aircraft Rotables Co., Ltd.
PolandAries Motor Ltd.
Aries Power Equipment Ltd.

Others114

Japan
Kaneyo Co., Ltd.*
Hokushin Co., Ltd.*Aso Kanko Kaihatsu Co., Ltd.
Shintoa Corp.
Kanematsu Logistics & Insurance Ltd.
Japan Logistics Co., Ltd.
VietnamVietnam-Japan International Transport Co., Ltd.
Indonesia
PT. Dunia Express Transindo

KANEMATSU ANNUAL REPORT 2017

Sales of aircraft, defense, and aerospace-related products
Replacement and maintenance of aircraft rotable components; Leasing; Sales
Sales and maintenance of automobiles
Sales of engines, generators, lawnmowers, and other general-purpose machinery
Sales of bedding materials and products, general merchandise, and interior goods
Manufacture and sales of medium-density fiberboard
Golf course management
Beverage-vending machine operations; Imports, exports, and sales of aircraft engines
Insurance agency and forwarding business; Consigned freight forwarding business
Warehouse and self-storage operation
Total logistics services
Total logistics services

Network(As of June 30, 2017)

Overseas

Tokyo Head Office

ASIA & THE MIDDLE EAST

2-1, Shibaura 1-chome, Minato-ku,
Tokyo 105-8005, Japan
TEL: 81-3-5440-8111
FAX: 81-3-5440-6500

KOREA

Osaka

Midosuji Office
Midosuji Daiwa Building, 6-8, Kyutaro-machi
3-chome, Chuo-ku, Osaka 541-0056, Japan
TEL: 81-6-6251-7700
FAX: 81-6-6251-7770

NagoyaHokkaido

Kanematsu (China) Co., Ltd.
Shanghai Head Office
Shanghai Branch

18th Floor Raffles City (Office Tower), 268 Xi Zang
Middle Road, Shanghai 200001, P.R. China
TEL: 86-21-6340-3456
FAX: 86-21-6340-4290
Chongqing Liaison Office

Room 6-B-2, Wanyou Conifer Hotel, 77
Changjiang 2nd Road, Daping, Yuzhong District,
Chongqing, P.R. China 400042
TEL: 86-23-6800-7771
FAX: 86-23-6800-7772
Beijing Branch

Beijing Lufthansa Center C610A, 50 Liang Ma
Qiao Road, Chaoyang District,
Beijing 100125, China
TEL: 86-10-8591-1031
FAX: 86-10-8591-1535

The Representative of Kanematsu
Corporation
Hanoi

Room No. 1209, 12th floor, Daeha
Business Center, 360 Kim Ma St., Ba Dinh Dist.,
Hanoi, S.R. Vietnam
TEL: 84-4-3771-5642
FAX: 84-4-3771-5641, 3771-5648
Haiphong

H-Tower 3rd Floor, 195 Van Cao Street,
Haiphong, S.R. Vietnam
TEL: 84-225-368-6371
FAX: 84-225-368-6373
Kanematsu Vietnam Company Limited

Unit 608 Saigon Tower, 29 Le Duan St,
District 1, Ho Chi Minh City, S.R. Vietnam
TEL: 84-28-3910-5536, 5537
FAX: 84-28-3910-5539
THAILAND
Kanematsu (Thailand) Ltd.
Watana Inter-Trade Co., Ltd.

25F Thaniya Plaza Building, 52 Silom Road,
Suriyawongse Bangrak, Bangkok 10500, Thailand
TEL: 66-2-632-8060
FAX: 66-2-632-8083, 8084
SINGAPORE

Dalian Branch

Kanematsu (Singapore) Pte. Ltd.

Room 602, Furama Hotel, 60 Renmin Road,
Dalian 116001, P.R. China
TEL: 86-411-8263-9105, 7481
FAX: 86-411-8280-5534

100 Tras Street, #12-01 100 AM, Singapore 079027
TEL: 65-6320-6000
FAX: 65-6320-6041
PHILIPPINES

KyushuShenzhen Branch

Kanematsu Corporation Manila Branch

Tenjin Twin Building, 6-8, Tenjin 1-chome,
Chuo-ku, Fukuoka 810-0001, Japan
TEL: 81-92-715-7820
FAX: 81-92-715-7830

Room 8, 10/F, Office Tower,
Di Wang Commercial Centre,
5002 Shen Nan Dong Road, Luohu District,
Shenzhen 518001, P.R. China
TEL: 86-755-8235-4850
FAX: 86-755-8223-8980

17th Floor Tower 2, The Enterprise Center 6766,
Ayala Avenue, cor. Paseo de Roxas, Makati City,
Philippines
TEL: 63-2-845-2017
FAX: 63-2-887-0030

Sendai Office

Kanematsu (Hong Kong) Ltd.

Kobe Head Office

TAIWAN
Kanematsu Taiwan Corporation

10F., No. 451, Changchun Rd., Songshan Dist.,
Taipei City 10547, Taiwan
TEL: 886-2-2717-1222
FAX: 886-2-2717-7927

MYANMARThe Representative of Kanematsu
Corporation
YangonUnion Business Center (UBC) Suite 03-08,
Nat Mauk Road, Bo Cho Quarter, Bahan Township,
Yangon, Myanmar
TEL: 95-1-860-4370
FAX: 95-1-860-4380
INDONESIA
P.T. Kanematsu Trading Indonesia

ANZ Tower 15th Floor, Jalan Jend. Sudirman Kav.
33A Jakarta 10220, Indonesia
TEL: 62-21-572-1220, 1225, 1228, 1230, 1238
FAX: 62-21-572-1188, 1237

KANEMATSU ANNUAL REPORT 2017

Financial Section and Company Information

119 Ito-machi, Chuo-ku, Kobe,
Hyogo 650-0032, Japan

Rooms 1806-1807, 18th Floor, Hopewell Centre,
183 Queen’s Road East, Hong Kong
TEL: 852-2821-6200
FAX: 852-2527-0465, 2865-6649

CSR and Corporate Governance

Sapporo-Kokusai Building, 4-1, Kitashijou-nishi,
Chuo-ku, Sapporo 060-0004, Japan
TEL: 81-11-261-5631
FAX: 81-11-261-5630

Verza Sendai Room #405,
7-17, Chuo 4-chome, Aoba-ku, Sendai-shi,
Miyagi 980-0021, Japan
TEL: 81-22-722-2675
FAX: 81-22-267-7351

Review of Operations

9-3, Sakae 2-chome, Naka-ku,
Nagoya 460-0008, Japan
TEL: 81-52-202-5111
Fax: 81-52-202-4605

CHINA

VIETNAM

Special Features

Awaji-machi Dai Building, 1-9, Awaji-machi
3-chome, Chuo-ku, Osaka 541-8560, Japan
TEL: 81-6-6205-3111
FAX: 81-6-6205-3322

Kanematsu Korea Corporation

Koreana Bldg. 602, 135 Sejong-Daero,Jung-Gu, Seoul, 04519, Korea
TEL: 82-2-737-5795
FAX: 82-2-737-5799

Kanematsu’s Progress and Strengths

Japan

115

Overseas
INDIA
Kanematsu India Private Limited

Tower 1, Block-A, Unit No. 2, DLF Corporate Park,
Gurgaon, Haryana - 122 002, India
TEL: 91-124-4001461, 4001462, 4001362
FAX: 91-124-4001371
IRAN
Kanematsu Iran Ltd.

Unit #5, 3rd Floor, Monaco Building, No. 27,
Ordibehesht, Mahmudiyeh St., Parkway,
Tehran, 186645416 Iran
TEL: 98-21-2265-9041
EUROPEUNITED KINGDOM
Kanematsu Europe PLC.

160 Euston Road, London NW1 2DX,
United Kingdom
TEL: 44-20-7529-8120
FAX: 44-20-7387-4582
GERMANY
Kanematsu G.m.b.H.
Duesseldorf Head Office

Oststrasse 34, D-40211 Duesseldorf, Germany
TEL: 49-211-36890
FAX: 49-211-3689-111
Muenchen BranchFrankfurter Ring 193a, D-80807 Muenchen,
Germany
TEL: 49-89-3074-817-12
FAX: 49-89-3074-817-29
ITALY
Kanematsu G.m.b.H.
Milano Liaison Office

Piazza Duca d’Aosta 8, Milano, Italy
TEL: 39-02-6749-3538
FAX: 39-02-6707-7364
HUNGARY

OCEANIA

Silicon Valley Branch2043 Zanker Road, San Jose, California 95131,
U.S.A.
TEL: 1-408-501-1400
FAX: 1-408-501-1499

AUSTRALIA
Kanematsu Australia Ltd.

Suite 1 Level 15, 15 Castlereagh Street,
Sydney, NSW, Australia
TEL: 61-2-8278-7004, 61-2-9993-0748,
61-2-9283-3347
FAX: 61-2-9283-3095

Portland Branch

NEW ZEALAND

4380 SW Macadam Avenue, Suite 170, Portland,
Oregon 97239, U.S.A.
TEL: 1-503-224-7755
FAX: 1-503-228-5067

Kanematsu New Zealand Ltd.

CANADALavender House, 27 Lilburn Street, Warkworth 0910,
P.O. Box 327, Warkworth 0941, New Zealand
TEL: 64-9-302-5660
FAX: 64-9-309-3877
NORTH AMERICA
U.S.A.
Kanematsu USA Inc.
Chicago Head Office

The Representative of Kanematsu
Corporation
Vancouver

205-8988 Fraserton Court, Burnaby, B.C.
V5J 5H8, Canada
TEL: 1-604-689-0550
FAX: 1-604-689-0655
CENTRAL & SOUTH AMERICA

543 West Algonquin Road, Arlington Heights,
Illinois 60005, U.S.A.
TEL: 1-847-981-5600
FAX: 1-847-981-6760

MEXICO
Kanematsu Mexico S. de R.L. de C.V.

Suite C, Multitenant III, Av. Mineral de Valencia,
No. 202 Col. Parque Santa Fe, C.P. 36275,
Guanajuato Puerto Interior Silao, Mexico
TEL: 52-472-748-9187, 9327, 9329
FAX: 52-472-748-9221

Somerset Branch

100 Randolph Road, Somerset,
New Jersey 08873, U.S.A.
TEL: 1-732-271-7300
FAX: 1-732-271-7357

BRAZIL

Detroit Office41700 Gardenbrook Rd., Novi Garden Office B,
Suite 140, Novi, Michigan 48375, U.S.A.
TEL: 1-248-347-3216
FAX: 1-248-347-3219
Houston Branch

Kanematsu America do Sul Importacao e
Exportacao Ltda.

Avenida Paulista, 1337/1343, conjunto 71 Bela
Vista, São Paulo – SP CEP: 01311-200 Brazil
TEL: 55-11-3266-3967
Mobile: 55-11-9-4137-7178

1800 Augusta, Suite 390, Houston,
Texas 77057, U.S.A.
TEL: 1-713-975-7200
FAX: 1-713-975-7966

The Representative of Kanematsu
G.m.b.H.
Budapest Office

H-1034 Budapest Becsi ut 126-128.I.103. Hungary
TEL: 36-1-320-4952
FAX: 36-1-320-4953
RUSSIAN FEDERATIONThe Representative of Kanematsu
Corporation
Moscow

116

Segment Information:
Number of employees and number of Group companies (As of March 31, 2017)
Number of Employees(consolidated basis)

Number of Affiliated Companies

Electronics & Devices

Tverskaya 16/2, Building 1, Business Centre,
125009, Moscow, Russian Federation
TEL: 7-495-935-89-40, 42, 43
FAX: 7-495-935-8948

4,096

23 (Japan:15, Overseas:8)

Foods, Grain,
Oilseeds & Feedstuff

715

27 (Japan:14, Overseas:13)

Steel, Materials & Plant

1,008

26 (Japan:12, Overseas:14)

SPAIN

Motor Vehicles & Aerospace232

8 (Japan:1, Overseas:7)

The Representative of Kanematsu
Corporation
Las Palmas

Others270

16 (Japan:12, Overseas:4)

Companywide (common)

406

Calle Eduardo Benot 51, Edificio Atlansea,
4-izqda, 35008 Las Palmas de Gran Canaria,
Spain
TEL: 34-928-275634, 275680
FAX: 34-928-275632

Total

KANEMATSU ANNUAL REPORT 2017

Overseas subsidiaries

16
6,727

116

Notes:
1. Number of employees on a non-consolidated basis is 711 (including employees seconded from companies other than Kanematsu, excluding employees seconded from Kanematsu).
2. Of affiliated companies, 88 are consolidated subsidiaries and 28 are equity-method affiliates.

Corporate Profile

To Our Stakeholders

Accelerating Business Creation to
Spur Growth

Company Name

KANEMATSU CORPORATION

Paid-in Capital*¥27,781 million

Established

August 15, 1889

Fiscal Year

April 1 to March 31

Foundation

March 18, 1918

June

President

Kaoru Tanigawa

General Meeting of
Shareholders

Head Office2-1, Shibaura 1-chome, Minato-ku,
Tokyo 105-8005, Japan

Number of Offices*

Domestic: Tokyo Head Office, Kobe Head Officeand branches 6
Overseas: 36

Kanematsu’s Progress and Strengths

Corporate Profile

Number of Employees* 835 (Consolidated: 6,727)* As of March 31, 2017

Fusajiro Kanematsu, in our Corporate Principle. Toward our corporate aspiration of“being a ‘Value Creator’ by continuing to build new businesses,” we are implementing

Investor Information(As of March 31, 2017)

Principal Shareholders

Stock Exchange Listings

Tokyo

Stock Code8020

ing with our business partners, we are more deeply developing business domains

Transfer Agentfor Common Stock

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

19,455

4.61

Sumitomo Mitsui Trust Bank, Limited

Japan Trustee Services Bank, Ltd. (trust account)

18,7054.44

where we have strength and aggressively making new investments to spur business

Shares Authorized

1,016,653,604

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

12,2982.91

creation from a long-term perspective.

Shares Outstanding

422,501,010(including 1,245,799 treasury shares)

Mitsui Sumitomo Insurance Co., Ltd.

11,6132.75

Tokio Marine & Nichido Fire Insurance Co., Ltd.

11,6122.75

approaches to value, and by doing so, contribute to international society. To fulﬁll thisMinimum Trading Unit

1,000

The Norinchukin Bank

11,4602.72

role, we will continue working to ensure that we reach the goals of our medium-term

Number of Shareholders 24,306

GOVERNMENT OF NORWAY

8,384

1.99

VISION-130, our medium-term vision. While maintaining ﬁnancial soundness and working to expand revenue through cooperation and mutual development based on trad-

Special Features

At Kanematsu, we have codiﬁed the entrepreneurial spirit of the Company’s founder,

I believe that the true role of a trading company is to create new businesses andNumber of Percentage ofshares held voting rights(thousands)(%)

Japan Trustee Services Bank, Ltd. (trust account 5)

7,709

1.83

developing the human resources that are the driving force by which the future is built.

Trust & Custody Services Bank, Ltd. (Investment trust account)

5,944

1.41

Japan Trustee Services Bank, Ltd. (trust account 1)

5,696

1.35

Going forward, we will redouble our efforts to increase our enterprise value by

Review of Operations

vision while reinforcing our management base, including corporate governance, andNote: Calculated after deduction of treasury shares (1,245,799 shares)

pursuing functions and generating value unique to the Kanematsu Group.
Composition of Shareholders

July 2017

Shareholder Distribution by Number of Shares Held

Individuals and others(including treasury shares) 34.82%
Financial institutions

28.84%

50,000 shares and more

21.31%

Foreign institutions
and individuals

26.53%

10,000 shares and more

10.88%

Other corporations

7.22%

1,000 shares and more

8.89%

Securities firms

2.59%

Less than 1,000 shares

0.36%

CSR and Corporate GovernanceKaoru Tanigawa
PresidentMore than 1 million shares(including treasury shares) 58.56%

Stock Price/Trading Volume
Trading Volume

Stock price(Thousands of shares)

300

500,000250

450,000

200

400,000

150

350,000

100

300,00050

250,0000

200,000

Financial Section and Company Information(¥)

150,000
100,000
50,000
0
12/4

6

8

10

12 13/2

4

6

8

10

12 14/2

4

6

8

10

12 15/2

4

6

8

10

12 16/2

4

6

8

10

12 17/2

KANEMATSU ANNUAL REPORT 2017117

Public & Investor Relations Section, Finance Department,
Kanematsu Corporation
2-1, Shibaura 1-chome, Minato-ku, Tokyo 105-8005, Japan
Tel: 81-3-5440-8000
Fax: 81-3-5440-6503

Kanematsu Corporation Annual Report 2017

For more information on this Annual Report, or to obtain
additional copies, please contact:

GENERATINGNEW VALUEANNUAL REPORT 2017

Kanematsu stock has been selected for inclusion in the JPX-Nikkei Index
400 and the JPX-Nikkei Mid and Small Cap Index for, respectively,
the last four and two consecutive years.

Our Website
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Content includes information about theCompany and its businesses, press releases,
investor relations materials (for shareholders
and investors), and details on its environmental and CSR activities, employment
opportunities and other topics are available.

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