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 2016

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

CREATING
NEW VALUEANNUAL REPORT 2016

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

Printed in Japan

兼松16AR英̲c1c4̲0819入稿̲初.indd C4-C1

2016/08/31 15:24

Creating New Value in Society

Kanematsu takes on new
challenges for further growth
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.
(Net sales/millions of yen)

(Shareholders’ equity*/millions of yen)
120,000

1,200,000

3.8 times

Net D/E ratio

1,000,000

Net sales
100,000

3.2 times

800,000

80,0002.3 times
600,000

400,000

60,0001.6 times

Shareholders’ equity*

40,0000.9 times

0.8 times

200,000

20,0000.5 times
0

0

2010

2013

2016

2014

* JGAAP : Shareholders’ equity (2010–2014)
IFRS : Total equity attributable to owners of the Parent (2015–2016)

VISION-130:“S-Project”—Jump to the next stage—

Building strong business foundations

Shifting to an aggressive management stance• April 2010 – March 2013 Medium-Term Business Plan: “S-Project”• April 2013 – March 2016 Medium-Term Business Plan
—Jump to the next stage—• As a result of restructuring, we enhanced our business 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 position in 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

9.5%

Other 1.8%

Electronics &Devices

35.2%• Semiconductors• Electronic Components and Materials• Industrial Electronics• Semiconductor Equipment• ICT Solutions and Mobile• Motor Vehicles and Parts• Aerospace

Composition of
Revenue

Revenue

Steel, Materials &
Plant

20.2%

• Steel• Materials (Functional Chemicals
and Energy)• Plant¥668,374 million(FY 2016)

Foods, Grain,
Oilseeds & Feedstuff

33.3%• Foods• Meat and Marine Products• Grain, Food Soybeans, Oilseeds• Feedstuffs• Processed Agricultural Products• Pet Products and Groceries

The VISION-130:
Kanematsu takes on new challenges for further growth
April 2016 – March 2019

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

Both maintain financial soundness and expand the earnings baseQuantitative Targets

15.0 billion yen
12%Over 120.0 billion yen
Less than 1.0

Consolidated net income*
ROE
Shareholders’ Equity**
Net D/E ratio* Profit for the year attributable to owners of the Parent** Total equity attributable to owners of the Parent

Qualitative Targets

Stable and sustained payments targeting a consolidated payout ratio of 25%

Kanematsu takes on new challenges for further growth
Growth-Oriented Investment Strategies

Six key strategic business areas

New investments using funds provided
by operating activities

ICT solutions

Improve financial stability throughdiversification of funding vehicles

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

Asian food markets

Shelf registration of ¥30 billion in straight corporate bonds

Investment standards
Establish Companywide investment standards

Formulate standards for market entry and exit
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

North American shale
oil and gas markets
Global motorization

SpecialFeaturep.12

Overseas expansion by
Japanese companies

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

TPP Response
Strengthen functions in the foods and grains
areas ahead of the TPP

Investments shall be monitored at the management level

KANEMATSU ANNUAL REPORT 2016

1

Financial and ESG Highlights(As of March 31, 2016)

JGAAP

2006

2007

2008

2009

2010

¥1,096,409¥1,281,331¥1,244,020¥1,138,755¥861,277

Gross profit

81,732

103,711

90,32786,292

74,104

Operating income/Operating profit

17,982

21,71322,60519,027

12,186

Income (loss) before income taxes
and minority interests/Profit before tax(16,728)

14,61528,97577

8,407

Net income (loss)/Profit for the year attributable to owners of the Parent(21,686)

7,507

19,016(12,787)

3,528

Cash flows from operating activities

19,72020,87414,30817,177

26,441

Cash flows from investing activities

7,822

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

Free cash flow

27,54244,023

53,107

16,807

7,292

Net assets/Total equity

26,004

48,767

62,23942,03545,804

Total assets

556,046

563,176

503,456

414,928

398,629—

32,95945,587

24,93628,916

246,317

204,900

148,944

134,582

109,350¥(52.43)¥17.94¥ 45.44¥(30.56)¥ 8.44

62.12

78.75

108.95

59.61

69.15

—

—

—

—

—

(67.73)

25.46

48.42

(36.26)

13.10

Equity ratio (%)

4.7

5.9

9.1

6.0

7.3

Net D/E ratio (times)

9.5

6.2

3.3

5.4

3.8

For the year:
Net sales4

At year-end:

Shareholders’ equity/Total equity
attributable to owners of the Parent
Net interest-bearing debt
Per share (yen):
Net income (loss)/Earnings per share
attributable to owners of the Parent
Net assets/Total equity
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

4,449

4,545

4,543

4,874

4,871

847 (232)

859 (234)872 (251)

890 (262)

850 (264)

27%

27%

29%

29%

31%

527.40823.59577.95450.29368.25

Directors (Outside directors) 5

12 (0)11(0)11 (0)

10 (0)

10 (0)

Audit & Supervisory Board Members 5(Outside Audit & Supervisory Board Members)

4 (2)

5(3)

4 (3)

4 (3)

4 (3)

CO2 emissions (t-CO2)

Notes 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 ¥112.68 to U.S.$1.00, the exchange rate prevailing on March 31, 2016.
3. For the above items with two titles, the first applies to figures under JGAAP and the second under IFRS.
4. Net sales shown here are based on accounting principles generally accepted in Japan, calculated as the sum of transactions in which the consolidated Group acted as aparty to the contract and transactions in which the consolidated Group acted as agent.
5. The number following the General Meeting of Shareholders, after the year-end.

2

KANEMATSU ANNUAL REPORT 2016

IFRS
Thousands of
U.S. dollars 2

2015

2016

2016

¥936,891¥1,006,365¥1,019,232¥1,114,539¥1,117,096¥1,062,822$9,432,215

76,90580,90080,021

86,402

87,88086,238765,335

18,02921,426

18,262

19,77623,547

18,772

166,596

13,03013,52916,781

19,07522,373

18,122160,827

9,175

6,110

9,564

11,79910,546

8,959

79,508

7,827

15,822

1,355

22,384

6,758

33,024

293,078

17,322

1,291

1,466

(1,111)(6,649)(4,214)(37,398)

25,14917,113

2,821

21,273

109

28,810255,680

49,57655,99275,912

96,204

119,015

120,706

1,071,228

388,676

399,753

399,186

428,459

466,314443,592

3,936,741

33,10139,40854,51971,657

90,244

91,599812,913

104,61290,01286,43968,03873,245

48,813433,200¥21.93¥14.60¥ 22.80¥ 28.09¥ 25.10¥ 21.29

$0.19

79.07

93.16

129.82170.54214.76217.68

1.93

—

—

—

3.00

4.00

5.00

0.04

29.59

16.95

20.45

18.70

12.99

9.85

8.5

9.8

13.7

16.7

19.4

20.6

3.2

2.3

1.6

0.9

0.8

0.5

4,770

4,770

5,522

5,747

6,002

5,832

832 (250)

795 (238)

782 (242)

800 (246)

813 (253)

816 (259)

30%

30%

31%

31%

31%

32%

482.36376.92365.37414.58387.80408.0210 (0)

10 (0)

10 (0)

6 (1)

7 (2)

7 (2)

4 (3)

4 (3)

4 (3)

4 (2)

4 (3)

4 (3)

KANEMATSU ANNUAL REPORT 2016

Financial Section and Company Information

2014

CSR and Corporate Governance2013

Review of Operations

2012

Special Features

2011

Kanematsu’s Progress and Strengths

Millions of yen 1

3

To Our Stakeholders

Steadily Expanding Our Businesses as We Move
Toward The Future
At Kanematsu, we have codified the entrepreneurial spirit of the Company’s founder,
Fusajiro Kanematsu, in our Corporate Principle. In accordance with these principles, we seek tomaintain a pioneering spirit and foster creative imagination and ingenuity in order to contribute to ongoing economic development.
Toward our corporate aspiration of “being a ‘Value Creator’ by continuing to build new
businesses,” we have been implementing our medium-term vision VISION-130 for the past two
years. In light of our progress so far and changes in the economic environment, we have partially revised the targets set under the vision. Fiscal 2017, ending March 31, 2017, is an important year for us to move forward toward achieving the new targets, and the entirety ofmanagement and employees are working together to ensure success. To fulfill our role as a
trading company by creating connections in society, we will continue to maintain financial
soundness and enhance our management base while working in cooperation with our business
partners to create and expand our businesses.
Going forward, we will continue striving to be useful to society and our stakeholders by pursuing functions and creating value unique to the Kanematsu Group. By doing so, we hope toincrease the value of Kanematsu as a company that grows together with its business partners.
July, 2016
Masayuki Shimojima
President & CEO

Corporate Principle“Let us sow and nurture the seeds of global prosperity”“Sow a seed now,” and take action to benefit people around the globe, bade our founder, Fusajiro Kanematsu, setting astandard of public duty that we at Kanematsu continue to uphold through a commitment to ethical business principles andcorporate responsibility.
The beliefs and philosophies that inspired Fusajiro Kanematsu in the late nineteenth century Meiji period, a time
when Japan was striving to build a national economy, were encapsulated in the document Our Beliefs: Kanematsu’s
Guiding Principles in 1967, on the occasion of our merger with The Gosho Company.

Our Beliefs: Kanematsu’s Guiding Principles
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 flourishing business, but to fulfill our responsibilities as acorporate citizen, contributing to society and the security and well-being of all.
3. As members of a corporation, we act not as individuals but as representatives of that organization and as such we arebound by Company rules and attendant loyalties and must work together with a spirit of cooperation while cultivating
mutual understanding and respect for fellow members.
*While the original text is unchanged, the English version of our Corporate Principle was reinterpreted in 2016.

4

KANEMATSU ANNUAL REPORT 2016

Contents
Kanematsu’s Progress andStrengths

Kanematsu’s Progress and Strengths

p.1

1 Creating New Value in Society
Kanematsu takes on new challenges forfurther growth

2 Financial and ESG Highlights
4 To Our Stakeholders
6 Message from the President

Kanematsu Continues to Take on
New Challenges

p.18 Special Feature2:

Strengthening Our Financial Position
for Growth

12 Special Feature 1
12 Six key Strategic Business Areas
Innovation
14 The Future of the Feedstuff Business
16 The Mobile Business18 Special Feature 2
18 Message from the CFO

Review of Operations

p.20 Review of Operations

Special Features

p.12 Special Feature1:

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

Corporate Governance

CSR and Corporate Governancep.30 CSR and

30 CSR (Corporate Social Responsibility)
35 Corporate Governance
38 Messages from Outside Directors
39 Corporate Officers

Company Information

Financial Section and Company Information

p.40 Financial Section and

40 Management’s Discussion and Analysis
42 Business Risks
44 Consolidated Financial Statements
50 Notes to Consolidated Financial
Statements

Forward-Looking Statements
This annual report contains statements regarding the Kanematsu Group’splans, 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 the economic and market environment surrounding the Group’sbusiness areas, such as exchange rate fluctuation.

114 Independent Auditor’s Report
115 Global Network
116 Major Group Companies
117 Network
119 Corporate Profile
KANEMATSU ANNUAL REPORT 20165

Message from the President

The Kanematsu Group is currently implementing its VISION-130 medium-term vision for thefive years ending fiscal 2019. Fiscal 2016 was the final year of our medium-term businessplan. In light of our strong financial standing as well as major changes in the businessenvironment since the formulation of VISION-130, including changes in crude oil prices,
exchange rates, and the Chinese economy, we announced partial revisions to the vision’s
targets in May 2016. Moving forward to the achievement of the new targets and further
growth, we are striving to realize new business creation.
President & CEO

Masayuki Shimojima

6

KANEMATSU ANNUAL REPORT 2016

Kanematsu’s Progress and Strengths

Being a “Value Creator” and Continuing to Build New Businesses
trust with excellent business partners, developed mainly
through trading operations as a trading company overthe 127 years since our founding. Leveraging this base,
we are working to grow and develop alongside our business partners by finding new opportunities in areas where
we have expertise while creating firmly rooted new businesses. This, I believe, is the very essence of theKanematsu Group today.

Special Features

Although we have partially revised the targets of ourmanagement vision, our policy of taking an aggressive
management stance remains unchanged. Our key aspiration is still “being a ‘Value Creator’ and continuing tobuild new businesses,” and we are united as a Group in
our determination to establish a solid growth trajectory.
The Kanematsu Group maintains a sound financial
position and holds almost no risk assets that pose significant impairment risk. We also maintain relationships ofAnalysis of the Market Environment
Review of Operations

In fiscal 2016, ended March 31, 2016, the U.S. economy
saw firm growth, backed by solid domestic demand, but
the global economy remained uncertain, with growing
downside risk due to political instability in the Middle Eastand Europe, the slowdown of the growth in China that
had been driving the global economy, economic deceleration in the rest of Asia and emerging economies, and thelow price of crude oil. In Japan, although recovery in personal consumption was weak, the economy gradually
improved, backed by firm corporate performance and abetter employment market.
In fiscal 2017, we expect steady global economic
recovery led by the firm U.S. economy, despite the possible negative impacts of such factors as the murky economic prospects in China, low prices for crude oil andother commodities, and geopolitical risks. In Japan,
although there are temporary causes for concern due tomonetary policy, including negative interest rates, we
expect the overall economy to remain firm.

CSR and Corporate GovernanceFiscal 2016 Results
In the Steel, Materials & Plant Division, the oilfield tubing
business in the United States faced difficult conditions as
a result of the fall in crude oil prices.
Profit for the year attributable owners of the Parent
remained healthy at ¥9.0 billion, despite an 15.0%
decrease that reflected lower foreign exchange gains anda fall in the share of profit of investments accounted forusing the equity method as well as a decline in net
extraordinary gains and losses. As a result, looking at ourconsolidated financial standing, retained earnings grew,
total equity attributable to owners of the Parent rose to¥91.6 billion, the equity ratio improved to 20.6 %, andthe net D/E ratio came to 0.5.

KANEMATSU ANNUAL REPORT 2016

Financial Section and Company Information

Under these conditions, during fiscal 2016, theKanematsu Group continued to advance initiatives in linewith its VISION-130 medium-term vision. Fiscal 2016 wasalso the final year of our three-year medium-term business plan.
Unfortunately, fiscal 2016 sales and profit were
down compared with the previous year. Revenue dipped
5.1% year on year to ¥668.4 billion, and operating profit
fell 20.3% to ¥18.8 billion, reflecting an increase in selling,
general and administrative expenses. By business, in the
Foods & Grain Segment, animal feedstuff and livestock
prices fell, leading to a significant loss on sales and devaluation of inventories (based on the lower of cost or market).

7

Revisions to VISION-130
The revisions to the VISION-130 targets include the consolidation of income targets to just that for profit for theyear attributable to owners of the Parent. This is a resultof our switch from accounting principles generally accepted in Japan to the International Financial ReportingStandards (IFRS), which do not include ordinary income.
The profit for the year attributable to owners of the
Parent target remains at ¥15 billion. For fiscal 2017, we
expect growth in the Electronics & Devices Division, centered mainly on the mobile business, which has acquired
Diamondtelecom, Inc., and the ICT solutions business,
which is expected to be firm. The Foods & Grain Division,

which saw declining results in fiscal 2016 due to poor
market prices, is also expected to recover. As a result, we
forecast profit for the year of ¥11.5 billion, back up to
the level seen in the first year of VISION-130 (fiscal 2015),
and from there we will steadily progress toward the fiscal
2019 target of ¥15 billion. The main drivers of thisgrowth will be the Electronics & Devices Division andMotor Vehicles & Aerospace Division. In addition, drawing on our market analysis expertise cultivated over the
past 30 years, we anticipate a recovery in the U.S. oilfield
tubing businesses over the medium term.

Changes in Consolidated Net Income/Profit for The Year Attributable to Owners of The Parent

15.0 billion yen
Other

11.8 billion yen

Camera related

9.4 billion yen

Other

Other

Global motorization
North American
shale oil and gas markets

Global motorization
MobileMobileGlobal motorization

Camera related
North American
shale oil and gas
markets

MobileICT solutions

ICT solutions

ICT solutions

FY2014(JGAAP)

FY2016(JGAAP)

FY2019(IFRS)

Total equity attributable to owners of the Parent at
March 31, 2016, was ¥91.6 billion, already approaching
our previous target of ¥100 billion. We have therefore
revised this target upward to ¥120 billion. Reflecting ourachievement of a net D/E ratio of below 1.0 for the past

North American
shale oil and gas
markets

three fiscal years, we revised our target to be less than
1.0. Furthermore, we have now set a numerical target of
25% for our consolidated payout ratio, aiming to implement stable and sustained shareholder returns.

Financial Strategy
While we revised some of the VISION-130 targets, ourmanagement objective remains the same: to both maintainfinancial soundness and expand the earnings base. As I
mentioned before, we will thoroughly strengthen our
financial base, avoid risk assets, more deeply cultivate areasof strength, and, as a Group, keep being a “Value Creator”
that continues to build new business. It is important toachieve the targets that we have set to earn the trust of
not only our business partners, but society at large. That iswhat we believe increasing enterprise value means.

8

KANEMATSU ANNUAL REPORT 2016

We are actively making new investments, seeking toseize opportunities mainly in the six focus areas where wehave expertise as well as two new key areas.1 This approach,of making investments firmly rooted in businesses in ourareas of strength, is unchanged and a key part of our strategy. The Group’s investment strategy is, in principle, to limit
investment to the amount of cash provided by operating
activities. However, to ensure readiness for large corporate
acquisitions or other investments with inflexible timing, weare diversifying our means of capital procurement, and toKanematsu’s Progress and Strengths
Special Featuresthat end we have filed a shelf registration of ¥30 billion instraight corporate bonds. The accuracy of our judgment ofinvestments and expected returns is always a major factor
determining our business performance as a trading company, and we have therefore established our own investment
standards and a system by which top management canmonitor investing. I am sure that this will allow us to quickly adjust course as needed and respond precisely to risk
while accurately grasping opportunities to achieve sustained growth.
1. Please refer to page 1.

Our Efforts in Focus Areas
Review of Operations

that combine its strengths in sales and sourcing with reinforced technological development, quality management,
and logistics functions. In particular, we aim to further
strengthen our exporting of high-performance components
made by Japanese manufacturers, an area in which we havea long history of excellence. Furthermore, in aircraft related
business, we have acquired the sales agency rights for supply to the Japanese government of the best-selling Citation
series produced by Cessna Aircraft Company. Going forward, we expect to see rising replacement demand for both
existing aircraft and components from the various government and official bodies of Japan.
In Overseas Expansion by Japanese Companies,
Kanematsu is leveraging its locations in around 40 cities
overseas, mainly in Asia, to pursue ongoing business expansion with Japanese automakers and other business partners.
Furthermore, in partnership with Aozora Bank, Ltd., theTokyo Star Bank, Limited, and ES Networks Co., Ltd.,
Kanematsu has established AZ-Star Co., Ltd. to operate a
corporate investment fund supporting business expansion
into Asia. This fund made its first investment in fiscal 2016.
Looking at the two new focus areas, in TPP Response,
within Japan, Kanematsu invested in Be Smile Project Co.,
Ltd., a “sixth industry” entity focused on the livestock industry. In the other new area, Technological Support, we arestrengthening our camera-related business. We madeKanematsu-NNK Corp., which handles security equipment,a consolidated subsidiary and are strengthening our camera
related business, for which demand is expected to growin the run-up to the 2020 Tokyo Olympics. Furthermore,
our equity-method affiliate Kantatsu Co., Ltd., is one of
the world’s leading manufacturers of micro-lenses for

Financial Section and Company Information

KANEMATSU ANNUAL REPORT 2016

CSR and Corporate GovernanceIn the six focus areas in which we have expertise, as outlined
under VISION-130, and in our two new focus areas,2 we are
steadily advancing initiatives aimed at horizontal expansion
and the deeper development of businesses.
First, in ICT Solutions, Group subsidiary Kanematsu
Electronics Ltd. is working to strengthen one-stop services
encompassing the design, construction, installation, maintenance, and operation of IT infrastructure. To this end, thecompany made Nippon Office Systems Ltd. a consolidated
subsidiary in fiscal 2015, and is working to share trading
partners and streamline system engineering and maintenance divisions though major organizational changes.
In Mobile, we are working to further increase our market share by acquiring major domestic mobile phone sales
agencies and forming capital alliances. On April 1, 2016, we
acquired Diamondtelecom, Inc., a wholly owned subsidiaryof Mitsubishi Electric Corporation, through an absorptiontype merger, rocketing the Kanematsu Group’s market shareof mobile phone sales to one of the top in the industry.
In Asian Food Markets, in emerging economies,
Kanematsu is building a value chain encompassing everything from upstream areas, such as animal feedstuffs andfeedstuff materials, to one-stop business development in themid- and downstream areas of processed food product proposal, manufacture, and supply. Utilizing expertise built up
in Japan and drawing on Group strengths, we have entered
the dairy cow feed business in Vietnam and invested in franchise businesses with a Japanese restaurant chain inIndonesia.
In Global Motorization, the Kanematsu Group is drawing on a network of more than 20 overseas locations tobuild stronger supply chains in the global automobile market

9smartphones. Kanematsu is involved in such aspects of
Kantatsu’s management as business development and capital expenditure and is working to expand the company’ssales overseas.
In North American Shale Oil and Gas Markets, our oilfield tubing business in North America continues to struggle

as a result of the major fall in crude oil prices, but we areadvancing streamlining efforts through cost cutting andcarefully monitoring the supply-demand environment toensure that we do not pass up any opportunities.
2. Please refer to page 1.

Pursuing Active Investments Centered on The Six Key Strategic Business Areas And for Innovation(Billion yen)

ICT solutions

VISION-130• FY2015: Nippon Office Systems Ltd. (which became a consolidated subsidiary in FY2013)
became a wholly owned subsidiary (total 2.7 billion yen)

Medium Term Business Plan
FY2014FY2015FY2016FY2017

MobileElectronics & Devices

3.0

4.8

2.4

17.4

• FY2014: Acquired BD Holdings, Inc. (3.0 billion yen)

Foods & Grain

0.0

0.4

2.0

—

Steel, Materials & Plant

0.0

0.0

0.0

—

Motor Vehicles &Aerospace

0.0

0.5

0.0

—

• FY2016: Invested in Alpha Group Inc. (0.4 billion yen)

Others

0.0

0.0

0.3

—

Long-term assets
and other

(1.8)

2.5

0.2

—

Cash Flow frominvesting activities

1.2

8.2

4.9

17.4+

• FY2017: Acquired Diamondtelecom, Inc. (17.4 billion yen)Technological support (camera related business)• FY2015: Kanematsu-NNK Corp. became a consolidated subsidiary (1.5 billion yen)
• Underwrote convertible bonds and preferred shares of Kantatsu Co., Ltd. (total 2.5 billion yen)

Asian food markets• Developed franchise business for restaurant chains in Japan and for Indonesia• Strengthened cooperation with stable suppliers to increase sales of feedstuff to Asia

TPP Response• Participated in Be Smile Project Co., Ltd., a sixth-sector business; Invested in FarmnoteCo., Ltd., a company that conducts the computerized management of stock farms

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

Tasks Remaining to Advance to the Next Step
Ongoing tasks for us include avoiding the acquisition of
resource development rights and other risk assets toensure an extremely strong financial position as well as
focusing on highly specialized fields to increase our competitive edge. We have already achieved some success instrengthening our financial position. As we go forward,
we will continue to implement management that balances solid risk control with an aggressive stance, keeping in

mind the need to flexibly respond to medium- and longterm changes in the global economy as well as such trade
structure changes as those caused by the TPP.
Furthermore, I feel that we need to promote understanding of Kanematsu’s growth potential and soundness. To that end, I hope to engage actively incommunication with our stakeholders.

Our Business Foundations
In fiscal 2016, we worked to further strengthen our corporate governance. Specifically, we increased the number ofoutside directors and Outside Audit & Supervisory Board
members as well as the number of each that are
Independent Officers as defined by the Tokyo Stock
Exchange, thus reinforcing management oversight andsupervision functions. Going forward, we will continue towork toward greater transparency to maintain the trust of
all stakeholders. At our listed Group companies, too, we are
10

KANEMATSU ANNUAL REPORT 2016actively promoting the reinforcement of governancethrough such measures as seeking to transition them to thecompany with committees-type governance structure.
As expressed in “Our beliefs: Kanematsu’s Guiding
Principles,” we believe that the foundation of our businessas a trading company lies in continually asking ourselves
what we can do to best serve our business partners andthen doing it. We seek to develop more human resources
who can seriously engage with that foundation and look toKanematsu’s Progress and Strengths
Special Features

responsibility (CSR). We have established a CSR Committeewith a Companywide mandate to formulate and executepolicy on Groupwide CSR initiatives as necessary. To address
CSR issues related to supply and procurement operations
with our business partners’ supply chains, we have created apractical framework that includes the CSR Action Guidelines
for Supply Chains. Furthermore, we are engaged in businessthat contributes to environmental preservation through
REDD+ activities3 that aim to conserve forests, support local
communities, and preserve biodiversity.

Review of Operations

create a brighter future while constantly thinking about how
to provide added value. To that end, we are working to reinforce human resources who have the insight needed to rapidly respond to changes in the global environment and meet
diverse needs. In 2014, we launched a system for sending
employees in their first five years or so with the Company
overseas for on-the-job-training. By sending them to overseas affiliates, representative offices or business companies
for approximately six months, we aim to nurture a sense of
immediacy and connection with other parts of the Group.
We are also creating opportunities for overseas employees
to participate in long-term training in Japan, seeking to foster a shared sense of purpose and corporate culture.
Furthermore, we hold business plan formulation training
every year. As of March 2016, we have implemented thistraining eight times.
The Kanematsu Group defines the pioneering spirit ofour predecessors and the wise use of creative imaginationand ingenuity, conduct abiding by the rules of the organization, and fulfilling our corporate social responsibilities bybuilding a sound, flourishing business as its Corporate
Principle, under which we seek to fulfill our corporate social

3. Please refer to page 31.

The Head Office and the Group Companies Are Strengthening GovernanceEfforts to strengthen governance(Head Office)

The Audit and Supervisory Committee established(Group companies)

2015/6
OutsideDirectors

Executive
Officers

Kanematsu Electronics Ltd.

CSR and Corporate GovernanceDirectors

Directors other than those in the Audit and Supervisory Committee (Full-time: 6/Part-time: 2)
Directors in the Audit and Supervisory Committee (Full-time:1/Part-time: 3)

Kanematsu-NNK Corp.
Directors other than those in the Audit and Supervisory Committee(Full-time: 5)
Directors in the Audit and Supervisory Committee (Full-time: 1/Part-time: 2)

Hokushin Co., Ltd.
Board of Directors

Audit &
Supervisory Board

Executive Officers

Directors other than those in the Audit and Supervisory Committee (Full-time: 4/Part-time: 1)
Directors in the Audit and Supervisory Committee（Part-time: 3）

Financial Section and Company Information

Fiscal 2017 Outlook
We have announced our forecasts for fiscal 2017 consolidated results under IFRS. Net sales (under the Japanesestandard) are expected to reach ¥1,250 billion, up 17.6%
year on year, while we anticipate operating profit of ¥22
billion, and profit for the year attributable to owners of
the Parent of ¥11.5 billion.
The Kanematsu Group regards providing returns toshareholders as one of its most important tasks. For fiscal
2017, we plan to pay annual dividends of ¥6 per share,up ¥1 from the previous fiscal year. 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 remain true to our Corporate
Principle as we continue to work to increase enterprisevalue through growth in order to live up to the trust
placed in us by our stakeholders.

KANEMATSU ANNUAL REPORT 201611

Special Feature 1: Kanematsu Continues to Take on New Challenges
Management objective

Both maintain financial soundness andexpand the earnings base
Six key Strategic Business Areas
ICT solutions

1

Main points:

Promote integration and management efficiency within theGroup through structural reforms

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

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

Mobile2

Main points:

Realize scale expansion and synergies through M&A

Key Region:Japan

Key Business Company: Kanematsu Communications Ltd.
Strengths:

Capturing Domestic Market Share and Pursuing New Growth• Developing a comprehensive mobile & communications business based on
mobile devices• Nationwide sales locations• Providing ASP services for corporations

Asian food markets

3

Main points:

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
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

Innovation

Technological
Support12

KANEMATSU ANNUAL REPORT 2016

Main points:

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

Key Regions:Japan, Asia

Key Business Companies: Kanematsu-NNK Corp., Kantatsu Co., Ltd., Kanematsu Advanced Materials Corp.,
Strengths:

Providing High-Level Technological Capabilities and Products• Kanematsu Advanced Materials Corporation Established• Capital and business alliance with Nippon Manufacturing Service Corporation• Kanematsu-NNK Corporation became a consolidated subsidiary• Micro-lens unit business (Kantatsu Co. Ltd.) expandedBeing a “Value Creator” and continuing to build new businesses
Kanematsu’s Progress and Strengths

In light of changes in the external environment, in May 2016, the Kanematsu Group revised its medium-term vision for theperiod leading up to fiscal 2019, VISION-130: Kanematsu takes on new challenges for further growth, the end of whichcoincides with the 130th anniversary of the Group’s founding. Our key aspiration under the medium-term vision is “beinga ‘Value Creator’ and continuing to build new businesses.” In line with this vision, we are striving to both ensure businessstability by prioritizing the maintenance of financial soundness and expand the earnings base by steadily capturing business opportunities. By more deeply developing business domains where we are already strong and making new investments, we aim to raise corporate value to new levels.

4

Main points:

Expand oilfield tubing value chains

Key Region:

North America

Special Features

North American shale oil and gas markets
Key Business Companies: Kanematsu Corporation, Benoit Premium Threading, LLC,
Steel Service Oilfield Tubular, Inc.
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

5

Main points:

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

Key Regions:

The Americas, Europe, Asia

Review of Operations

Global motorization

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

CSR and Corporate GovernanceOverseas expansion by Japanese companies

6

Support and collaborate with Japanese makers moving into
overseas markets

Key Regions:North America, emerging countries

Key Business Company: Kanematsu Corporation
Strengths:

Support Based on Know-How in Main Fields• Further expanding overseas network from around 40 cities currently andbolstering overseas staff• Providing backup in the areas of machine tools and industrial machinery forJapanese manufacturers expanding into emerging countries• Supporting customers that seek growth opportunities in Asia through the new fundMain points:

Strengthen functions in the foods and grains areas ahead of the TPP

Key Regions:Japan, Asia

Financial Section and Company Information

TPP Response

Main points:

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

Support for Stronger Farms and Expanding Sales of Imported Animal Products• Reinforce animal feedstuff and meat product business and respond to industry reorganization• Entering the smart agriculture field• Participating in businesses aimed at making livestock a “sixth industry”

KANEMATSU ANNUAL REPORT 201613

Special Feature 1: Kanematsu Continues to Take on New Challenges

The Future of the Feedstuff Business
Integrated supply systems centered on safe, reliable food

Masayuki Hamasaki

Global food and grain-related markets are expected to
expand over the long term. As such, in April 2016, to accelerate management decision making and promote more specialized business development, the Foods and Grain division
split into the Foods Division and Grain, Oilseed & Feedstuff
Division, each managed by their own chief officer. The Grain,
Oilseed & Feedstuff Division is involved in areas ranging fromgrain, food soybeans, oilseeds, feedstuff materials, fertilizer,
and processed agricultural products to pet-related products.
In our areas of strength, such as feedstuff materials andnon-genetically modified soybeans, we are particularly working to strengthen our operations in upstream areas of supply
chains. At the same time, we are focusing on stably supplying and expanding overseas sales channels for grains andanimal feedstuffs, and on creating platforms aligned withthe development of food culture in Asia. Furthermore, in thegrain and animal feedstuff business, we are strengthening
efforts to capture opportunities in production regions overseas and expanding into such new areas in the United States,
South America, Australia and elsewhere.

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

Strategies• Under the themes of safety, reliability and stability, build a robust supply chain,from raw material procurement and processing to shipping, and implement
thorough traceability management• Accelerate business investment in Asia, where food markets are expected to growand evolve• Diversify raw material production regions, secure strong supply sources, and expand
the volume of multi-country trading to meet changing global market needs• Build and strengthen pet-related business value chain

Market Environment
The Japanese livestock industry faces a number of challenges, including falling numbers of farming
households and animals as well as the need to reinforce the production base. Based on the signingof the Tran-Pacific Partnership, the Japanese government is working to make Japan’s agriculture,
forestry and fishery industries more aggressive and internationally competitive. Part of this is a drive
to create a “sixth industry” by diversifying operations from production to food processing anddistribution over the medium and long term. Furthermore, with the aim of strengthening theinternational competitiveness of its livestock and dairy farming, Japan is working to reinforce
earnings power and the production base by such means as cutting costs and bolstering quality.

14

KANEMATSU ANNUAL REPORT 2016

Kanematsu’s Progress and Strengths

Strengthening Domestic Agriculture

Seeking to enter the smart agriculture field, in 2015,
Kanematsu and its subsidiary Kanematsu Agritec Co., Ltd.
invested in Farmnote Co., Ltd. This rapidly growing start-up in
the smart agriculture field has developed and provides theFarmnote cloud-based cattle herd management system for
improving dairy and livestock productivity. The Farmnote system allows users to visualize farm management using a smart
device with simple touch controls, facilitating effective management of factors essential to improving productivity, such as
stock breeding, treating ailments, milking, and moving herds.
The Kanematsu Group has long held a leading share of themarket for dairy
cow feed ingredients. We will use
our sales networks
in this area to promote sales of theFarmnote systemand plan to support
the overseas expansion of this knowhow being
developed in Japan.

The business foundations of the Japanese livestock industry havelong been weakening. Today, Kanematsu is advancing new initiatives to make the industry more competitive. In fiscal 2015,
Kanematsu, together with Agriculture, Forestry and Fisheries Fund
Corporation for Innovation, Value-chain and Expansion Japan, theKamichiku group Company Kinko Farm Ltd, five other companies,
and four financial institutions jointly funded the “sixth industry”
entity Be Smile Project Co., Ltd. (BSP). With the aim of establishinga business model for supplying safe, reliable, high-value-added
wagyu beef produced in Japan, BSP is building an integrated value
chain that covers everything from the supply of breeding cattle andanimal feedstuffs to fattening, processing, sales, restaurant operations, and exporting. Kanematsu’s involvement spans a wide rangeof fields within this “sixth industry” business, including assisting at
production sites using smart agriculture technologies, supplying
optimal animal feedstuffs, providing support for the production ofbreeding cattle, and developing business overseas.
BSP aims to expand its business model nationwide and open
200 restaurants within 10 years. At the same time, it is working tostrengthen its competitiveness and considering exporting to establish a market and brand for wagyu beef overseas, including in predominantly Islamic countries. By creating new markets, we areproviding support for dynamic livestock business.

Review of Operations

Jointly Funded Be Smile Project Co., Ltd., a“Sixth Industry” Entity

Special Features

Helping Farmers Take on International
Competition

Accelerating Investment in Asia, Where Food Markets Are Expected to Evolve and Grow
Strategies in the Vietnamese Market

where continued market growth is forecast.
Income levels and the consumer price index in Vietnam arerising. To meet business needs within the country, we established an overseas affiliate in Vietnam in 2014. Beginning withdomestic sales of feedstuff materials, roughage, and processedfood products,
productts, tthis
hiss comphipany’
y s bubusi
sine
ness is gr
g
ow
win
ing
g.
company’s
business
growing.

CSR and Corporate GovernanceIn 2013, Kanematsu contributed funds to Vietnamese dairy
producer Dalat Milk Joint Stock Company, entering a businesstie-up. Together, we operate a total mixed ration (TMR) production
center and manufacture fermented feedstuffs for dairy farming.
Leveraging its many years of experience in the stable supply of
dairy cow feed in Japan, Kanematsu provides Dalat Milk withforage, corn, and soybean meal as feedstuff materials. We also
provide guidance based on Japan’s dairy farming technology,
dispatching dairy farming consultant veterinarians and providing
information about effective feed formulation. Kanematsu is
working to further expand sales of dairy cow feed and production sites for feedstuff materials in Vietnam and the rest of Asia,

Financial Section and Company Information

Grain, Oilseed & Feedstuff Business—Four Business Types
Functions
Complex
Traditional

Strategies aimed at maintaining
and increasing profitability

Digging
DeeperFundamentals

s U.S. food soybean seed development and selection businesss Integrated sales of tofu-related productss Domestic silo business, manufacture, and sale of total mixed rationss Processed agricultural products businessNews Development and sale of functional animal feedstuffs
Development s Participation in a “sixth industry” entitys Establishment of animal feedstuff factories in Asia

s Sales of grain, food soybeans, and oilseedss Integrated manufacture and sales of feedstuff materialss Processed agricultural products business (Italian-made pasta, etc.)
s Sales of pet products and groceries

Horizontal s Development of edible soybean sales in overseas markets
Development s Developing sales of grain and animal feedstuffs in Asian countriess Entering the smart agriculture fields Import and sales of South American agricultural productss Global development of pet product sales, including exports to Asia

Existing

New

Customers

Strategies mainly aimed at volume and scale expansion

KANEMATSU ANNUAL REPORT 201615

Special Feature 1: Kanematsu Continues to Take on New Challenges

The Mobile Business
Strengthening Our Business by Expanding Our Market Share

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

Strategies

Under our VISION-130 medium-term vision, we have defined six
focus areas where we have expertise, one of which is “Mobile.”
Expanding the scale of our business in this area through M&As
and other means is a priority. Currently, this business operates
across Japan, mainly through Kanematsu Communications Ltd.,
as a primary distributor for domestic telecommunications carriers. We are also engaged in a range of other initiatives, such as
sales of bundled service packages that include fiber optic internet services that tap into the mobile phone replacement cycle,
the launch of insurance sales services, the provision of overseas
SIM cards for global companies and domestic SIM cards for visitors to Japan, and the reinforcement of content services throughthe creation of software for mobile devices.
Furthermore, we are aggressively advancing efforts to market comprehensive back-office management tools for businesses, machine-to-machine (M2M) devices, and Internet of Things(IoT)-related solution services while seeking out partnerships
with businesses in other industries. In April 2016, Group subsidiary Kanematsu Telecom Investment Co., Ltd. acquired
Diamondtelecom, Inc., a company that sells mobile phones
across Japan, in an absorption-type merger aimed at further
expanding the Group’s market share. This acquisition is creatingsynergies, helping us to realize a top-notch nationwide store
network, offer more sophisticated services by sharing humanresources and know-how, and streamline management.

• Expand mobile and mobile phone sales businesses and increase market share•Strengthen and enhance nationwide sales network and increase the added value of stores

Market Environment
Based on population, Japan’s adoption rate for mobile phones now
surpasses 100%, with an increasing number of users using both a featurephone and a smartphone or multiple smartphones. Unit sales are reaching
their natural limit, and the consolidation and reorganization of major sales
agencies is accelerating. In particular, we are seeing a growing wave of
reorganizations aimed at increasing market share. At the same time, thesales agencies themselves are showing signs of shifting toward the handlingof overall home infrastructure, including fiber optic communications,electricity sales, and insurance.

Expanding Our Mobile Business Market Share is a Key Strategy(Fiscal 2014 Japan market)

Top 10 companies: Over 60%

16

KANEMATSU ANNUAL REPORT 2016

OthersKanematsu’s Progress and Strengths

Expansion through the Acquisition of Diamondtelecom, Inc.
wholly owned subsidiary of Mitsubishi Electric Corporation. With
approximately 200 stores across Japan, the company’s annual
mobile phone sales volume was over a million units as of 2015.
Kanematsu Communications a core part of the KanematsuGroup, operates about 260 stores nationwide, with an annual
sales volume of approximately 1.3 million mobile phones. By
almost doubling the scale of the Group’s mobile business, thisacquisition made the company a major industry player as a sales
agency for NTT Docomo. Going forward, the two companies willpool expertise and focus efforts on securing and developing
human resources while streamlining management to improve
profitability.
Going forward, sales agencies will need to promote M2Mand IoT-related systems and concepts and shift their businessmodel to encompass the supply of such lifelines as electricity andgas. To accomplish this, they will need to reach a broader rangeof consumers. Over the medium-to-long term, we will seek tofurther expand our market share, not discounting the possibilityof additional M&As.

Special Features

The mobile phone sales agency industry is reorganizing to
expand in scale, and there is demand for improved service fromsales agencies as mobile phones grow more sophisticated andproducts more diverse. In this environment, companies are seeking to survive by embracing next-generation business expansion
aimed at transitioning to integrated service businesses.
The Kanematsu Group’s mobile business boasts a leading
market share of the mobile phone sales agency industry. It is oneof the Electronics & Devices Division’s core businesses, and constitutes a focus area under VISION-130. We have been working
to expand our market share in this business through such means
as acquiring full ownership of BD Holdings, Inc., a mobile phonesales agency operating in the Kyushu region, in 2013.
Furthermore, as mentioned on the previous page, the wholly
owned subsidiary Kanematsu Telecom Investment acquired
Diamondtelecom in an absorption-type merger in April 2016.*
For the more than 20 years since its founding in 1994,
Diamondtelecom operated a mobile phone sales business as a

Review of Operations* Kanematsu Telecom Investment Co., Ltd. was renamed Diamondtelecom,
Inc. as of April 1, 2016.

CSR and Corporate GovernanceCapturing Domestic Market Share and Pursuing New Growth
Recent Initiatives

Overseas services
Content

2013 Kanematsu Communications Ltd. acquired
BD Holdings, Inc. (now Kanematsu BD
Communications Limited), a mobile phonesales company based in the Kyushu region
2014 Concluded a distribution agreement with
NetComm Wireless Limited, an Australiabased supplier of global wireless M2M
devices

Domestic stores

Services for corporations

Financial Section and Company Information• Developing a comprehensive mobile &communications business based on mobile devices• Nationwide sales locations• Providing ASP services for corporations

2016 Kanematsu Telecom Investment Co., Ltd.
acquired Diamondtelecom, Inc. in anabsorption-type merger and was renamed
Diamondtelecom, Inc.

KANEMATSU ANNUAL REPORT 201617

Special Feature 2: Strengthening Our Financial Position for Growth

Message from the CFO

Nobuyoshi Sakuyama

At the same time, to expand the earnings base, wehave been steadily investing in business areas where theKanematsu Group is already strong. We are now better
positioned to undertake sizable investments, such as ouracquisition of mobile phone sales agency Diamondtelecom,
Inc. on April 1, 2016.
To ensure that we are prepared for changes in the market environment and can take advantage of opportunities
for business expansion as they appear, we have revised ourtarget for total equity attributable to owners of the Parent
upward from ¥100 billion to ¥120 billion, aiming to further
reinforce our financial base. While increasing the absoluteamount of our total equity attributable to owners of the
Parent, we will also boost our equity ratio from its current
value of 21.2%, aiming for approximately 25%. By doing
so, we aim for financial management that achieves optimalbalance in terms of risk and capital.

Director, Managing Executive Officer, CFO

More Sophisticated Risk Management

VISION-130 Medium-Term Vision
The Kanematsu Group is implementing various initiatives
under VISION-130, its medium-term vision for the five years
leading up to fiscal 2019, the Company’s 130th anniversary.
The two years since we launched the vision have seen tremendous changes in the external environment, including
deceleration in the Chinese economy, plummeting crude oil
prices, and fluctuations in the stock and currency markets.
With the end of the previous medium-term businessplan, we partially revised VISION-130 to reflect current realities. In lieu of a new medium-term business plan, we will
work directly under VISION-130 toward new targets. Overthe next three years, based on these targets,* we will continue working to both maintain financial soundness andexpand the earnings base, focusing on our original six focus
areas of strength across four segments as well as two newareas. As CFO, I will do my utmost to support the Groupthrough financial management as it aims for further
growth.

Capital Policy
As mentioned above, the external environment haschanged dramatically over the past two years. Due in partto such changes, total equity attributable to owners of the
Parent has grown faster than originally anticipated.

18

KANEMATSU ANNUAL REPORT 2016

In principle, it is our policy to limit new investment to theamount of cash provided by operating activities. We haveestablished business investment criteria* to guide suchbusiness investments and M&As aimed at growth.
Specifically, we have formulated and are strictly enforcing
standards for market entry and exit, and have created aframework for following up on individual investments.
Beginning in the latter half of the 1980s, Kanematsu
rapidly expanded its businesses, aggressively investing evenin areas where it had no expertise, including real estate andcommodities. As a result, due in part to the Asian financial
crisis, the Company fell into financial difficulty, leading to
restructuring in 1999. Having experienced such extreme
hardship, we are now very firmly resolved to ensure that wenever repeat those mistakes.
After restructuring, the Group greatly improved its balance sheets by significantly reducing interest-bearing debt
and reaching final settlements on non-performing assets.
Today, our balance sheets contain almost no risk assets, andare the healthiest they have been in 30 years. In part tokeep our balance sheets sound, we now have in place asystem for vetting investments in which the CFO evaluates
each item, looking at the Company’s business environment,risks, the size of the investment, and other factors, before
giving a red or green light. Going forward, I would like todisclose more specific data about our risk assets and capitalratios to better communicate our stance and standing withregard to these issues to shareholders and investors.
* Please refer to page 1.

Kanematsu’s Progress and Strengths

Net Income/Profit, Equity, ROE(Billions of yen)

(%)

150

25

20.5

120.0

18.7

120

20

16.9

Special Features

91.6

90.2

90

15

13.0
71.7
60

12.0
9.9

54.5

10

39.4
30

5

6.1

9.6

FY2012FY2013

11.8

10.5

15.0

9.0

0

0

FY2014FY2015FY2016

IFRS

Shareholders’ Equity/Total equity attributable to owners of the Parent
Net Income/Profit for the year attributable to owners of the Parent

Shareholder-Focused Management

ROEstrong demand and expectations of our shareholders
and investors. Going forward, as we seek to bolster
profitability, we aim to enhance shareholder returns
while maintaining stable and continuous dividends.

Raising Transparency to Raise Enterprise Value
CSR and Corporate Governance

Beginning with our reporting for fiscal 2016, we
switched from using accounting principles generally
accepted in Japan to International Financial ReportingStandards (IFRS). This will allow a wider range of investors, including overseas institutional investors, to better
understand Kanematsu. As CFO, I am charged withengaging directly with shareholders, investors, andfinancial institutions and will enthusiastically pursue
communication with stakeholders, seeking to raise management transparency and thus, I hope, the number ofpeople rooting for the Kanematsu Group.

Financial Section and Company Information

I also hope to implement balanced shareholder returns.
We resumed paying dividends with the fiscal 2014 interim dividend, the first in 15 years. Since then, we havemade paying stable and continuous dividends our basic
policy and practice. As CFO, in my dialog with shareholders and institutional investors, I have strongly felt
the high degree of expectation and demand for shareholder returns.
Furthermore, with the application of the Corporate
Governance Code in June 2015, companies are now
asked to provide targets for profitability, capital efficiency, and other such factors. This has resulted in a greater
emphasis on ROE as an indicator of corporate profitability and capital efficiency.
Since our restructuring in 1999, we have emphasizedmanagement efficiency, setting numerical targets for
personnel efficiency, the ratio of interest-bearing debt toequity, capital efficiency, and other management indicators. As a result, since fiscal 2014 we have been includedin the JPX-Nikkei Index 400, which is regarded as animportant market benchmark. I hope to ensure that we
maintain this stance going forward.
Furthermore, we have set a concrete target payout
ratio of 25% in light of our progress in building up total
equity attributable to owners of the Parent and the

Review of Operations

JGAAP

FY2019(Target)Lastly, my aspiration as CFO is to maintain financial
soundness into the future by being the guardian of thebalance sheets. At the same time, I will engage in management with a constant awareness of our shareholders
and investors, seeking always to live up to their expectations. I intend to help firmly establish a corporate culture
at Kanematsu in which this posture goes without saying.

KANEMATSU ANNUAL REPORT 2016

19

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 andMobileICT 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

20

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 2016

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;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

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

Main Business

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
Night vision goggles

KANEMATSU ANNUAL REPORT 2016

Financial Section and Company Information

Motor Vehicles & Aerospace21

Electronics & Devices

Division Composition
The Electronics & Devices Division comprises threebusiness areas: 1. electronic devices and materials,
2. semiconductor components and equipment, and
3. ICT solutions and mobile business. We are building
robust sales networks for these business areas in andoutside Japan. In addition to our longstanding
businesses in electronic devices, mainly for consumeruse, and hardware component and material value
chains, we offer services to meet a wide range ofcustomer needs, including in the network solutions
and mobile communications businesses, which havebeen growing in recent years, as well as areas related
to the Internet of Things (IoT).

Kaoru Tanigawa
Director, Senior Managing Executive Officer,
Chief Officer, Electronics & Devices Division

Our operations include the ICT solutions andmobile business 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 new value to contribute to society.

Business Results and Forecasts
FY2016FY2017 (Forecast)

Revenue–External

235.0 billion yen

400.0 billion yen

Segment profit

10.7 billion yen

12.5 billion yen

Segment Profit(¥ billion)
15.0

12.5

12.0

10.7

9.9
9.0

7.8
6.0

3.0

External Environment andStrategies to Achieve VISION-130
In recent years, the ICT solutions and mobile business andelectronics industries have seen intensifying technologicaland price competition, making it increasingly difficult toachieve differentiation. And, as customers further globalize
and develop their overseas businesses, there is greater
demand for fine-tuned services located near customer
operations. Furthermore, with developments in Internet,
WiFi, sensing, and computing technologies, new technological applications, including those related to the IoT, areadvancing across all fields.
In this environment, Kanematsu is working to achievedifferentiation. We are evolving from conventional sales ofindividual components and materials to supply modules
and other such products through electronics manufacturing services (EMS) and offer package solutions. We areadding value through just-in-time supply using advanced
warehouse functions and reinforcing our one-stop ICT
solutions. Overseas, the Electronics & Devices Division isstrengthening 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 IoTtechnologies, we will offer business models with evenhigher added value. At the same time, in each of our current businesses, we will consider business tie-ups andM&As with companies with which we can generate synergies in order to accelerate the achievement of our
VISION-130 goals.

0

FY2014FY2015FY2016JGAAP

FY2017(Forecast)

FY2019(Forecast)Division Medium- and Long Term Vision

IFRS

The Electronics & Devices Division has assumed a policy
aimed at 1. securing added value, 2. scale expansion, and

22

KANEMATSU ANNUAL REPORT 2016

• Semiconductors• Electronic Components andMaterials

well as a robust customer base, allowing us to offer a variety of proposals and solutions. In our electronic devices
business, we are working to develop globally in such areas
as commercial printers, a niche market, and national ID
system projects in Southeast Asia. While these two businessareas 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 for theamusement market.
At the same time, we are facing a variety of challenges,
such as sharply fluctuating foreign exchange rates, rapidchanges in Japan’s major electronics companies, slowing
economic growth in China, and the saturation of smartphone and PC markets.
Going forward, I believe that we can achieve further
expansion by rallying overall Group strengths to advance
new initiatives and create new businesses.

Special Features

Strengths and Tasks to Address

Kanematsu’s Progress and Strengths

3. improving quality. By pursuing business tie-ups, capitalalliances, business acquisitions, and R&D investment, we
will further develop and strengthen our current mainstay
businesses to increase added value and aim for scale
expansion. In the ICT business, we will further expand thesystems business and streamline the service support business while pursuing overseas development. In the mobile
business, we will continue to seek to improve service andexpand our business scale through M&As. Furthermore, by
combining our current businesses with IoT, AI, cloud service, and other cutting-edge technologies, we aim to create new business models, raise customer satisfaction andachieve ongoing business development.

• Industrial Electronics• Semiconductor Equipment• ICT Solutions and Mobile

GROUP
COMPANY’SCOMMENT

Review of Operations

Our ICT solutions and mobile business boasts solid foundations within the industry and is generating stable profits. In
the semiconductor components and equipment as well as
the electronic device and materials fields, we maintain
expansive supply chains, handling items ranging from large
LCD-related equipment to components and materials, as

Kanematsu Communications Ltd.

President and CEO
Kanematsu Communications Ltd.

become the world’s leading IT-oriented
country. In April 2016, Diamondtelecom, Inc.
became part of the Kanematsu Group. As aresult, the Group’s total carrier shop presence has expanded to around 460 stores
boasting net sales of approximately ¥230 billion and around 3,300 employees, making it
one of the top industry players. Furthermore, a company that the Group acquired in
May 2013 and renamed Kanematsu BD
Communications Limited is now the leading
agency in Fukuoka. By effectively utilizing
the strengths of the Kanematsu Group andDiamondtelecom to quickly realize synergies, we hope to contribute to the growthof the overall Group.
In addition to the carrier shop business,
we maintain a business serving businesses
ranging from small companies to major corporations, offering mobile phones and communications-related businesses solutions.
Together with the various companies of theKanematsu Group, we are advancing IoTrelated initiatives and efforts across a wide
range of fields aimed at creating an IT-oriented society.

Financial Section and Company Information

KANEMATSU ANNUAL REPORT 2016

CSR and Corporate GovernanceTakashi Kikuchi

Recently, the Ministry of Internal Affairs andCommunications has led a number of working groups and task forces pushing forchanges in the mobile communicationsindustry, including revisions to offers ofmobile devices at no cost, the introductionof plans for light users and user loyalty
incentives, and better consumer protections.
These changes have made the mobile communications industry the subject of new
attention on many fronts. Moreover, with its
close ties to local communities, the industry
is expected to develop new functions andtake on a new role as a sales channel forelectricity, insurance, and other products.
Going forward, we will continue to leverage
our many years of accumulated retail expertise to achieve continued growth as a company with strong earnings power.
The Cabinet’s June 2013 Japan Revitalization Strategy includes the goal of making
Japan the world’s leading IT-oriented country in the 2020s. As an operator of carrier
shops throughout Japan—the first line ofcontact with mobile phone and device
users—Kanematsu shares the mission of supporting the foundations on which Japan can

23

Foods, Grain, Oilseeds & Feedstuff

Hiroyasu Hirasawa

Masayuki Hamasaki

Executive Officer,
Chief Officer, Foods Division

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

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 feedstuffs, marine products, and other high-value-added items,
through an integrated supply system spanning raw material procurement to finished product processing.

Division Composition

Business Results and Forecasts
FY2016FY2017 (Forecast)

Revenue–External

222.6 billion yen

370.0 billion yen

Segment profit

1.4 billion yen

3.5 billion yen

Segment Profit(¥ billion)
4.0

3.5
3.0

2.0

2.1

External Environment andStrategies to Achieve VISION-130

1.9
1.4

1.0

Foods Division0

FY2014FY2015FY2016JGAAP

24

As of April 1, 2016, to increase specialization, more
effectively implement strategies, and strengthen customer relationships while reinforcing business development, the former Foods & Grain Division was split
into the Grain, Oilseed & Feedstuff Division, whichhandles such products as grain and animal feedstuffs,
and the Foods Division, which handles such products asprocessed foods and animal products. These two divisions provide a wide range of goods and services related to food for people and their pets, spanningeverything from grain, agricultural products, meat andmarine products, ingredients for desserts, alcoholicand non-alcoholic beverages, frozen foods, and processed foods to animal feedstuffs and fertilizer.

KANEMATSU ANNUAL REPORT 2016

FY2017(Forecast)IFRS

FY2019(Forecast)

In Japan, the food market is confronting
slowing economic growth and prolonged deflation.
Expanding Southeast Asian food markets, meanwhile, present the merits of growing populations and peak demographic windows. In this market environment, we areworking to reinforce the earnings base through selection
and concentration in the domestic market while strengthening Group company functions. Overseas, we are creating
new businesses by applying know-how and business models
cultivated in Japanese markets to expand horizontally into
emerging markets, mainly in Southeast Asia. Through thesetwo core strategies, we aim to increase earnings in the
Foods Division and achieve the goals of VISION-130.

• Foods• Meat and Marine Products• Grain, Food Soybeans, Oilseeds

We aim to evolve from mere trading operations by building a global value chain. Moreover, byimproving the functions of the Kanematsu Group in up-,mid- and downstream roles, we will radically strengthen
our earnings power. We are actively considering business
investments and M&As as ways to realize this functional
improvement. We will steadily implement growth strategies, astutely allocating management resources to focus
areas and targeted overseas markets.
Grain, Oilseed & Feedstuff Division

PARTNER’SCOMMENT

Foods Division Kanematsu’s strengths lie in the firm relationships with business partners and customers that it has
cultivated over the years as well as in the steady revenue
generated by its handling of a differentiated product lineup unique to its Foods Division. Leveraging these strengths
to horizontally expand and create new businesses, however, is an urgent task. 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 andachieve robust growth.
Grain, Oilseed & Feedstuff Division From grain, food soybeans, oilseeds, feedstuff materials, fertilizer, and processed agricultural products to pet-related businesses, allof the Grain, Oilseed & Feedstuff Division’s businesses
boast differentiated products and provide added value, aKanematsu hallmark. These are the division’s strengths. In
terms of scale, however, these businesses have considerable room for growth. Through collaboration and allianceswith our partner companies, we will improve the functionsof the Kanematsu Group at every stage of the value chain
to expand business scale and provide useful products andservices to even more customers.

CSR and Corporate Governance

We provide a steadysupply of safe, secure products through our globespanning value chains. To produce safe, secure products,
we are reinforcing ties with farmers and actively investing

Strengths and Tasks to Address

Review of Operations

Foods Divisionin production regions and suppliers. We are working tofurther improve the functions of the Kanematsu Group in
mid-stream areas and, in downstream areas, striving todiscover and develop raw food materials in order to offer
richer, more enjoyable food options.

Special Features

Division Medium- and Long-Term Vision

Kanematsu’s Progress and Strengths

Grain, Oilseed & Feedstuff Division Simultaneous with theongoing TPP negotiations, agricultural policy reform aimed
at increasing the competitiveness of domestic agriculture is
being advanced in Japan. The potential impact of thischange on our business, such as that caused by falling animal feedstuff market prices, is cause for concern. However,
we are working to increase revenues by reinforcing sales ofhigh-value-added forage and functional animal feedstuffs
that help to increase the added value of animal-derived
food products and by moving into the smart agriculture
sector. Furthermore, with regard to our conventional vertically integrated businesses, we are entering new production regions, reinforcing Group companies, and advancing
initiatives with overseas partners to evolve the capabilitiesof the Kanematsu Group and strengthen earnings power.

• Feedstuff• Processed Agricultural Products• Pet Products and Groceries

Be Smile Project Co., Ltd.

(Representative, KamichikuGroup)
President & CEO

in a challenging environment, together wedevised the BSP business concept.
BSP aims to further expand the
Kamichiku Group’s efforts to make agriculture a “sixth industry” and to strengthen andrevitalize agriculture through three key strategies: 1. Expanding its restaurant business(100 locations in three years), 2. Providing
affordable feedstuffs (establishing TMR centers), and 3. Exporting beef overseas (building
a world-leading advanced meat center).
Kanematsu has supported us on every
front, and we look forward to Kanematsu’s
continued cooperation a business partner insupplying feedstuffs and roughage and especially in developing wagyu beef sales and restaurants overseas. Together, we will do ourutmost to contribute to the development of
the Japanese livestock industry.

KANEMATSU ANNUAL REPORT 2016

Financial Section and Company Information

Masashi Kamimura

The Japanese livestock industry faces anextremely challenging environment, as feedstuff and breeding cattle prices rise and consumers move away from high-end beef as lessfatty varieties gain favor. Many producers andmeat wholesalers are currently in danger ofbeing driven out of business.
To reinforce the production base, we
founded Be Smile Project Co., Ltd., (BSP). The
Kamichiku Group, which is working to makebeef an integral part of a “sixth industry” inJapan, took the lead role in creating this newcompany, jointly financing it with Kanematsu,
the public-private Agriculture, Forestry and
Fisheries Fund Corporation for Innovation,
Value-chain and Expansion Japan, and 12
other companies. Digging deep to find ways
to sell the best products at the lowest prices
possible while adding as much value as possible

25

Steel, Materials & Plant

Division Composition

Takashi Gunji
Director, Senior Managing Executive Officer,
Chief Officer, Steel, Materials & Plant DivisionThis 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 eachbusiness area we boast highly specialized staff
who uphold our commitment to supplying anddeveloping high-value-added products.

Business Results and Forecasts
FY2016FY2017 (Forecast)

Revenue–External

135.3 billion yen

380.0 billion yen

Segment profit

3.4 billion yen

3.3 billion yen

Segment Profit(¥ billion)
10.0

8.0

8.1
7.3

6.0

The Steel, Materials & Plant Division was launched in
April 2013, integrating three divisions that, until then,had operated independently. By gathering experts inthe fields of steel, 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 to grow into pillars of
profit. Such businesses include the oilfield tubing business and the specialty steel business for petrochemicalplants, which supplies chimney desulfurization equipment and other products. At the same time, we are
actively working to develop a new generation of businesses for the future.

External Environment andStrategies to Achieve VISION-130
The external environment surrounding this division remained
challenging, with low crude oil prices and a strengthening
yen. With regard to efforts related to North American shale
oil and gas markets, a focus area under VISION-130, ourmain priority is maintaining and stabilizing the market platform we have built thus far while implementing thoroughgoing cost controls and working to improve profitability. At
the same time, however, we are honing new strategies andpreparing for recovery in demand.
In addition, aiming for further growth, we continue tofocus on strong businesses that have served as income pillars in the past. These include the materials business, centered mainly on pharmaceuticals, pharmaceutical andagrichemical intermediates, bunker oil, and gas as well as
machinery, plant, and vessels businesses, such as those related to industrial machinery, machine tools, shipbuilding, andgeothermal and wind-power generation facilities. At thesame time, we are also actively looking into business investments, carefully assessing each opportunity. We are deepening ties with subsidiaries, affiliates, and partners worldwide
and working to enhance the fundamental strengths of theoverall Steel, Materials & Plant Division to achieve the
VISION-130 targets.

4.0

3.4

3.3

Division Medium- and Long-Term Vision

2.0

0

FY2014FY2015FY2016JGAAP

26KANEMATSU ANNUAL REPORT 2016

FY2017(Forecast)IFRS

FY2019(Forecast)

As the domestic market is stagnant, our strategy continues
to focus on overseas markets. We see considerable roomfor growth in overseas markets for steel, chemicals, energy,
plant, and all our business fields. Accordingly, we plan tocontinue actively shifting management resources overseas.

• Steel• Materials (Functional Chemicals and Energy)• Plant
Kanematsu’s Progress and Strengths

organizational optimization, including the interchange ofhuman resources across the boundaries of Kanematsu andits subsidiaries, we are aiming for even greater growth.

Special Features

At the same time, we will continue to focus on thethree key areas of automobiles, the environment, andenergy, turning our attention toward niche markets andproducts as we seek to fill needs and create added value inways that no one else can. In addition, we will put more
effort than ever into environment-related businesses, suchas those related to Official Development Assistance (ODA)
involving grants and yen loans from the Japanese government and the joint crediting mechanism. By doing so, wewill contribute to international society.

Strengths and Tasks to Address

CSR and Corporate Governance

PARTNER’SCOMMENT

Review of Operations

This division has grown to where it is today by finding
unique approaches and strengths in each of its businesses.
For example, we have developed the iron and steel business by forging partnerships with trustworthy partners. In
the plant business, we have created markets by focusing
on remote overseas locations. Our energy business hasrealized highly functional and efficient consolidated operations that bring together Kanematsu and its subsidiaries
and affiliates. And, in our chemicals business, we have cultivated high-value-added businesses in such highly specialized fields as pharmaceuticals. We are now constantly
evolving our shared know-how across all these fields as thefoundation for new business creation.
Going forward, further improving synergies between
our businesses is our greatest task and goal. ThroughBenoit Premium Threading, LLC

A Strong, Winning Partnership in a Challenging EnvironmentCEOand customers, is vital. We are confident
that KG understands this and supports us
in this approach.
Today, the oil and gas industry faces
significant hurdles. The true strength of apartnership, however, is proven by how it
perseveres in both good times and bad.
We know that KG will continue to be a
supportive, wise, and helpful partner tous. We are committed to doing the sameas we work to maximize the mutual valueof our relationship.

KANEMATSU ANNUAL REPORT 2016

Financial Section and Company Information

Mr. Ronald L. Pederson

We are very fortunate to have KanematsuGroup as a partner. Our relationship was
built and tested in difficult market conditions, yet it continues to grow stronger.
The longevity of our partnership is a testament to our shared values and mutual
respect backed by a policy of open communication. The oil and gas business istough. Success requires vision and a boldness to commit to large-scale, long-term
capital investment amid a fast-changing
cyclical environment. At the same time,
maintaining and creating sustainablevalue for all stakeholders, including
shareholders, employees, business partners,

27

Motor Vehicles & Aerospace

Division Composition

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

The Motor Vehicles & Aerospace Division was formed in
April 2013 as a combination of the existing Electronics &IT, Iron & Steel, and Machinery & Plant divisions’ business
units related to automobiles and aerospace, areas ofstrength for the Group. By integrating and concentrating
the Group’s automobile-related businesses, for which
global demand is expected to grow, we aim to connect
the supply chains and customer bases of our motorcycle
and automobile businesses to strengthen sales and sourcing capabilities. Also, by bringing the aerospace-related
business units into this division, we are working to facilitate the sharing of information about cutting-edge aerospace technologies that are being used in the motor
vehicles and parts field to create new businesses in suchareas as new materials and environmentally friendly
products. Since the launch of this division, we have been
improving our global frameworks in line with the advanceof global motorization to reinforce our roles and functions
and better serve our customers and business partners.

External Environment andStrategies to Achieve VISION-130
Business Results and Forecasts
FY2016FY2017 (Forecast)

Revenue–External

63.8 billion yen

80.0 billion yen

Segment profit

3.0 billion yen

2.7 billion yen

Segment Profit(¥ billion)
4.0

3.0

3.0

2.8

2.7

2.0

1.5
1.0

0

FY2014FY2015FY2016JGAAP

28KANEMATSU ANNUAL REPORT 2016

FY2017(Forecast)IFRS

FY2019(Forecast)

The worldwide motorcycle and automobile market is
growing ever more globalized and multipolar. In this market, we are striving to strengthen the earnings base byenhancing our global framework, reinforcing logistics, andbuilding quality management and testing functions to bolster our roles and functions. In 2014, we established sites
in Mexico and Chongqing, China, and in 2015 we opened
an office in Detroit. Linking these with our existing sites,
we aim to expand the area covered by our sales activities
worldwide and grow our business.
In the Aircraft business, we are promoting sales to theJapanese government of Cessna’s Citation series as well as
Bombardier Aerospace’s new C Series airliners for the passenger jet market, which is forecast to see major growth indemand. In the commercial aircraft market, we will expand
our aircraft rotable parts business, which we operate mainlyin Europe and North America, by moving into additional
regions and increasing the range of parts we handle. In
addition to the aviation field, we will focus on business inthe space field, which is expected to grow going forward,
and thus expand our earnings base.

Division Medium- and Long-Term Vision
We continue to pursue the four basic policies laid out
when the VISION-130 medium-term plan was established:
1. Maximize synergies resulting from reorganization,
2. Improve and strengthen our global business structure,• Motor Vehicles and Parts• Aerospace
Kanematsu’s Progress and Strengths

development, and aggressively make necessary investments. By concentrating management resources in specialized fields, we aim to lead the industry and achieve further
growth.

Special Features

3. Maximize the role of logistics transactions, and 4. Buildbusinesses outside of brokerage.
The automobile market is on the verge of major innovation and change, with increasing networking giving rise toso-called connected cars and advances in AI technology
leading toward self-driving cars. In this environment, we willcontinue to gather information about and conduct research
into cutting edge technologies while investigating new business creation and cross-sector business partnerships.
In the aircraft field, we will expand sales of aircraft andparts in the defense-related and commercial aircraft markets, which are expected to grow. At the same time, wewill focus efforts on the space field to advance new business development.

Strengths and Tasks to Address
Review of Operations

In our business with industry-leading customers and partners, we receive high marks for our excellent product andsolution proposals that leverage our extensive informational
resources. Taking a step beyond our existing trading business, we will deepen ties with customers and business
partners around the world, strengthen human resource

The Japanese livestock industry faces an extremely challenging environment, as feedstuff and breeding cattle prices rise and consumKanematsu Becomes the Domestic Sales Agency to the Japanese Government for
ers Tmove
O P I away
C S from high-end beef as less fatty varieties gain favor. Many producers and meat wholesalers are currently in danger of

the Cessna Citation Series

CSR and Corporate GovernanceIn August 2015, Kanematsu’s Aerospace Department
acquired the sales agency rights for supply to the Japanese
government of the best-selling Citation business jet series
produced by U.S.-based Cessna Aircraft Company.
Cessna chose Kanematsu as its partner in Japan due inpart to Kanematsu’s strong two-decade track record ofboth sales and after-sales service covering more than 30
special mission aircraft supplied to the Japan Air SelfDefense Force.
In October 2015, Kanematsu delivered three flightinspection aircraft to the Civil Aviation Bureau of the
Ministry of Land, Infrastructure, Transport and Tourism.

The aircraft were modified Cessna CJ4s equipped withflight inspection systems manufactured by NorwegianSpecial Mission (NSM). Kanematsu has now received acontract for an additional two such aircraft, with delivery
planned for fiscal 2017.
Cessna’s Citation series offers a broad lineup of ninemodels, ranging from small, six-person jets to mid-size
12-person jets. Leveraging Kanematsu’s wealth of experience and know-how, we will continue to provide optimal
aircraft for a wide range of upcoming projects in this market, where growing replacement demand is assured going
forward.

Financial Section and Company Information

KANEMATSU ANNUAL REPORT 2016

29

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)

30

KANEMATSU ANNUAL REPORT 2016

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
Buyer 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
Forest Preservation Initiatives: Participating in REDD+ Businesses
marketing. We aim to continue to work closely with local residents
and food product manufacturers in Japan to market products
made with cacao from this region in both Japan and Indonesia.
* REDD+ (reducing emissions from deforestation and forest degradation)is an initiative aimed at promoting sustainable forest management indeveloping countries. It includes public-private partnerships aimed atbuilding a framework for meeting Japan’s greenhouse gas emissions
reduction targets through the acquisition and trading of emissions credits.
The project described above is a subsidized REDD+ business utilizing
Japan’s joint crediting mechanism (JCM) with support from the Ministryof the Environment. It is aimed at both reducing CO2 emissions
through forest preservation and, through the JCM system, helping
Japan meet its emissions reduction targets.

Special Features

Kanematsu is participating in new high-potential businesses
under the REDD+ program, engaging in environmental businessfrom its unique perspective as a trading company.
One project we are implementing was launched in 2011 in
Boalemo Regency, Gorontalo Province, Indonesia, with support
from the Japanese Ministry of the Environment and the Japan
International Cooperation Agency (JICA). In this region, deforestation due to slash-and-burn corn agriculture is a problem.
The project Kanematsu is part of seeks to promote the plantingof cacao plantations instead. Working with a Japanese chocolate company, Kanematsu provides technical guidance to local
farmers to help them produce high-quality cacao while advancing value chain development, including cacao purchasing andReview of Operations

Environmental Initiatives

CSR and Corporate Governance

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 contributeto the creation of a low-carbon, recycling-oriented society.
Kanematsu Corporation: Certified Since 2004
Tokyo Head Office and All Domestic Branches (Osaka Branch, Midosuji Office,Hokkaido Branch, Nagoya Branch, Kobe Main Office, Kyushu Branch, Sendai Office)Kanematsu-NNKCorp.

Certified since 2006

Kanematsu
Electronics Ltd.

Certified since 2007

Kanematsu
Communications Ltd.
Tokyo Head Office

Certified since 2015

Expanding
ISO 14001-based
environmental
management systems

Foods & Grain
Kanematsu
Agritec Co., Ltd.

Steel, Materials & Plant
Kanematsu
Petroleum Corp.

Certified since 2005

Kanematsu
Wellness Corp.

Certified since 2005

Kanematsu
Chemicals Corp.

Certified since 2005

Kanematsu Yuso Co., Ltd.

Certified since 2005

Kanematsu KGK Corp.

Certified since 2005

Financial Section and Company Information

ISO 14001
Certification in the
Kanematsu GroupElectronics & Devices

Certified since 2013

Other
Hokushin Co., Ltd.

Certified since 2005

KANEMATSU ANNUAL REPORT 201631

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.

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.

Training in Business Plan
Formulation
Trainee’s Perspective

Overseas Dispatch Training
System Trainee’s
Perspective

Yuki Shindo

Yuri Yamaoka

Specialty Steel Foreign Trade
Department Division 2

Food Department No. 1
Beverage and Liquor Section

In this training program, we systematically studied the basic skills
necessary for business creation and then applied what we hadlearned to create a business plan from the ground up. I strongly
feel that the program broadened my perspective and helped me
grow. Our teams were composed of participants with varying levelsof experience and from different organizations within the Group.
During the six-month process of creating a new business plan,
there were many times when opinions clashed and our theories
proved wrong. Nevertheless, through repeated discussion andfieldwork, we gradually strengthened the basic framework of ourbusiness plan, and, when the time came for our final report, wewere able to confidently present the plan to the decision makers.
Using the knowledge and experience I gained through this training, I hope to focus more into new business creation in my current
department.

My overseas training in Brazil was extremely rewarding. I had thechance to be involved in operations related to a wide range of products, most notably coffee, as well as new business projects. I gathereda great deal of knowledge and gained experience that I could not havegotten anywhere else, including living on a coffee plantation for two
weeks and hearing from suppliers in person about market conditions.
This experience and the knowledge I gained have been very useful in
my work in Japan. Moreover, meeting so many new people helped me
broaden both my professional network and perspective, which has
contributed to opportunities to cultivate new businesses. Furthermore,getting involved with new business areas and products other than coffee helped me understand new viewpoints. I learned approaches andtechniques for flexibly adjusting business development when a given
method isn’t working, and have made great use of this knowledge in
my current work. I hope that by drawing on my experience I can contribute to sales growth and thus repay the many people who supported me during my overseas training.

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
Issues theCompany Faces
Targets

1. Although Kanematsu hires a certain number of women every year, the proportion of women in core operations andmanagement positions is low.
2. The Company’s retention rate for female employees is lower than that for male employees.
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, 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.

FY2012FY2013

FY2014FY2015FY2016

Female career-track employees1

46

49

51

55

54

Responsibility band 32

10

11

12

18

17

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.

32

KANEMATSU ANNUAL REPORT 2016

Work-Life BalanceChild Care Support

Number of Employees Taking Childcare Leave
FY2009FY2010FY2011FY2012

4

10

9

3

FY2013

FY2014FY2015FY2016

4

14

10

7*

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

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 are entitled to, improve work-life balance,and create workplaces that are comfortable and rewarding.
The system is expected to raise the rate of vacation days usedfrom around 60% at present to around 70%.

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 yearly clustersof public holidays in Japan popularly known as “Golden
Week” and “Silver Week.”

CSR and Corporate GovernanceBy 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

Review of Operations* Includes two male employees

In December 2010, Kanematsu was awarded the “Kurumin” certification of support
for the nurturing of the next generation by
the Ministry of Health, Labour andWelfare’s Tokyo Labor Bureau.
In October 2013, we formulated our third General
Employer Action Plan. Based on this plan, we are taking measures to fully harness employee potential by encouraging a better balance between work and childcare duties and by creating
a more pleasant workplace for all.
We plan to establish our fourth General Employer Action
Plan in October 2016.

Special Features

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

General Employer Action Plan

Kanematsu’s Progress and Strengths

Kanematsu is proactively committed to ensuring a good worklife balance, and discourages long working hours to foster ahealthy 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 andparticipating in social activities.

COMMENT

Fumiko Miyakado
General Manager, Personnel andGeneral Affairs Department

Financial Section and Company Information

For Kanematsu to grow and develop on the leading edge of global business as a trading company, I believe that work environments that allow human resources, the Group’s core, to express
their individuality and work with vigor are crucial.
Some of our efforts to create such work places include the following.
• Creating various systems to facilitate working styles that accommodate such lifestyle changes
as those associated with childbirth, child care, and family care
• Enhancing systems to promote focused, high-productivity work, including the Refreshment
Day and Bronze Week systems• Promoting the development and promotion of women, who are expected to play an increasingly prominent role in business
The Company’s Corporate Principle, “Our beliefs: Kanematsu’s Guiding Principles,” includes
the passage “Our purpose as a Company is not only to build a sound and flourishing business,but to fulfill our responsibilities as a corporate citizen, contributing to society and the security
and well-being of all.” In line with this principle, I am committed to creating environments thatallow diverse human resources to utilize their abilities to the fullest and excel.

KANEMATSU ANNUAL REPORT 201633

Social Contribution
The Kanematsu Foundation for the Research of Foreign Trade
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 toplevel 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 Administrationof 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.

Reconstruction Support Activities
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, throughits 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 March 2016, we marked the 14th occasion ofengaging in such support activities, which included hearing
from Rikuzentakata’s Mayor Toba about the situation immediately after the earthquake and recovery efforts since then as
well as a visit to Nagahoragenki Village, a community in thedisaster-affected area. Volunteers helped with oyster andwakame seaweed farming and with planting at a vineyard tocontribute to local recovery.
The Kanematsu Group is committed to volunteer activities
in disaster-affected areas that address both immediate needs
and long-term issues and will continue to offer support in
response to the needs of the affected areas and their residents.

Mobile Library Donation
In February 2015, Kanematsu donated a mobile library vehicle
christened Yamabiko-go to the city of Rikuzentakata to contribute to the development of the city’s children. Yamabiko-go
can hold approximately 900 books and is equipped with aretractable awning to provide shade or shelter from rain tofacilitate its use in all weather conditions.

Mobile library Yamabiko-go donated to Rikuzentakata City

Kanematsu Invitational Boys’ Soccer Tournament
Since 2011, Kanematsu has held boys’ 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 the Great
East Japan Earthquake. The 2015 Kanematsu Invitational Boys’
Soccer Tournament, the second held under this name, used fairtrade-certified soccer balls in support of decent working environments in developing countries and education and welfare in
the places where such balls are made. Kanematsu will continue
to host this tournament as part of its social contribution efforts.

34

KANEMATSU ANNUAL REPORT 2016

Corporate Governance
Kanematsu’s Progress and Strengths

Our Basic Stance on Corporate Governance
Kanematsu strives to strengthen corporate governance to increase the transparency of management and to create amore equitable, efficient, and sound company. We work to improve corporate governance with the aim of winning
the support of all our stakeholders, including shareholders, customers, business partners, and employees, andincreasing our enterprise value.

System of Corporate GovernanceSpecial Features

Kanematsu is a company with an Audit & Supervisory Board. The Audit & Supervisory Board and its members act independently to audit the performance of directors’ duties.
Of the four Audit & Supervisory Board members, three are outside members. The outside Audit & Supervisory Board
members draw on their insight and experience to offer recommendations and advice from an objective standpoint, thus providing due outside management oversight and supervision. Furthermore, Kanematsu has appointed multiple highly independent outside directors to strengthen and improve the effectiveness of management supervision and the transparency ofdecision making by the Board. The inclusion of these outside Audit & Supervisory Board members and directors is aimed atincreasing the transparency of Kanematsu’s management and creating a more equitable, efficient, and sound company.
Kanematsu is expanding its executive officer system to improve the flexibility of business execution, speed up management
decision making, and further clarify roles and responsibilities through the separation of supervisory and executive functions.
To reinforce the objectivity, independence, and accountability of the Board of Directors, in April 2016, Kanematsu
established a Nominating Committee and Compensation Committee as advisory bodies under the Board of Directors.
Corporate Governance Structure

Appointment/Dismissal
Consultation

Board of Directors

Advice/Suggestions

Seven directors(including two
outside directors)

Nominating Committee
Compensation Committee

Appointment/Dismissal/
Supervision

Appointment/
Dismissal

Appointment/Dismissal
Audit

Review of Operations

General Meeting of Shareholders

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

Collaboration

Audit

President & CEO

Collaboration

Management Committee

Internal Control and Compliance Committee

Internal Auditing
Department
Internal
controls

CSR Committee

Accounting audit

Accounting Auditor

CSR and Corporate Governance

Project Deliberation Committee

Collaboration

Business Divisions/Administrative Departments, Domestic and Overseas Offices(As of June 24, 2016)

Board of Directors
making and to further reinforce the supervision of businessexecution. In principle, the Board of Directors meets once amonth, with additional meetings held as necessary. Directors
are appointed to the Board for one-year terms to allow the
Board to respond appropriately to changes in the businessenvironment.

Financial Section and Company Information

The Board of Directors is made up of seven 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. Two of the seven directors are outside
directors to ensure that the Board conducts appropriate decision

Advisory Bodies• Nominating Committee: Comprises the president as committee chair and the two 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 two outside directors. The committee provides advice and recommendations to the Board of Directors
based on deliberations regarding such matters as policy regarding the setting of compensation levels and types for individual
directors and executive officers as well as the necessary policy,
rules, and procedures for reaching related resolutions.
KANEMATSU ANNUAL REPORT 201635

Management Committee
To facilitate rapid decision making and flexible management,
Kanematsu has set up a Management Committee composedof certain executive officers, including the President. The
Committee meets at least twice a month in principle. The

Committee establishes basic policies for Companywide generalbusiness execution in accordance with basic policies determined by the Board of Directors and provides instruction andguidance on the execution of business.

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.

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

OutsideDirectors

Outside Audit &Supervisory
Board members

Reasons for selection

Fiscal 2015 Attendance

Yutaka Hirai

So that he can utilize his many years of business experience and wide-ranging insight in Kanematsu’s management and provide management oversight.

21 of 21 Board of Directors meetings

Seiichi Katayama

So that he can utilize his expertise as a professor of economics and wideranging knowledge and insight regarding corporate management in
Kanematsu’s management and provide management oversight.

16 of 17 Board of Directors meetings

Sohei Ogawa

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

17 of 17 Board of Directors meetings
12 of 12 Audit & Supervisory Board meetings

Yonosuke Yamada

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

19 of 21 Board of Directors meetings
13 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.

17 of 17 Board of Directors meetings
12 of 12 Audit & Supervisory Board meetings

Internal Auditing
To ensure that proper accounting records are kept and to monitor appropriate business execution, Kanematsu has established auditing 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 System
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 alsoestablished 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.

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 aCompliance Handbook that covers all Group companies, we

36

KANEMATSU ANNUAL REPORT 2016

work to enhance awareness of and training on sensible behavioral ethics. The Group also maintains a hotline system thatallows employees to directly report to or consult with theInternal Control and Compliance Committee or an outside
lawyer.

Board of Directors

Instructions, Feedback

Management Committee

Kanematsu’s Progress and Strengths

Diagram of the Kanematsu Group Compliance System

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)

Business Divisions/Administrative Departments
Departmental Compliance Officers(Chief officers of business divisions and administrative departments)

Directors of Kanematsu Corporation

Group Companies
Compliance Officer(President of Head of Location)

Directors of Group companies

Special Features*Sub-subsidiaries report through their immediate parent companies(As of June 24, 2016)

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.

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.

Review of Operations

Information Management System
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.

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 established

CSR and Corporate GovernanceRisk Management
the 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.

Financial Section and Company Information

Groupwide Activities
Group company presidents meet twice a year and at other times as necessary to share information on Groupwide businessactivities. 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 regular briefings for institutional investors and analysts and meetings.
KANEMATSU ANNUAL REPORT 201637

Messages from Outside Directors

Maintaining Traditions of Excellence in a Changing Environment

Yutaka Hirai
Outside Director• Former Executive Vice President,
Daifuku Co., Ltd.
• Former Audit & Supervisory
Board Member, Kanematsu
Corporation

Having served first as an outside Audit
and Supervisory Board member and now
as an outside director, I am now in myfifth year of working with Kanematsu.
During this period, I have been impressed
to see Kanematsu establish the
VISION-130 medium-term vision, following extensive internal discussions, andmake a strong start toward the achievement of a new business plan. I think thenext step for Kanematsu is to carve out aclear place among the other trading
companies and strengthen its presence in
the industry. To do this, the Company’s
greatest and most urgent task is toachieve its goals with regard to businesscreation and expansion of the earnings
base. However, given the current economic climate, not only will this not beeasy, a single wrong decision could pose
immeasurable risk. I think that
Kanematsu must, therefore, strive toward

management that is transparent, flexible
and nimble. The open style of theManagement Committee and Board of
Directors meetings is one Kanematsu’s
excellent traditions. While maintaining
this tradition, it is also vital that theCompany act decisively, then carefully
monitor the resulting developments andbe always willing to swiftly adjust course
if necessary. I hope to continue to support and further reinforce this approach.
Kanematsu has now finished building
the basic framework for achieving its
goals for corporate governance and hasentered the stage of strengthening andenhancing the system in more detail. I
think that employee awareness in thisarea is also been steadily increasing, but I
will maintain an awareness of the vast
depth of this issue as I continue to do myutmost to fulfill my duties as an outside
director.

Moving Forward Under VISION-130

Seiichi Katayama
Outside Director• Professor Emeritus, Kobe
University (current position)• Visiting Professor, Aichi Gakuin
University Faculty of Economics(current position)

38

KANEMATSU ANNUAL REPORT 2016

It has been a year since I assumed theposition of outside director at Kanematsu.
Participating in management first-hand,
one of the first things I noticed was that
the Company’s governance mechanisms
are much stronger than I had imagined.
Traditional bank monitoring operates
smoothly, and the ability of outside directors to participate and enter into frank discussions in the meetings of both theBoard of Directors and Management
Committee is a further boon to the effective functioning of corporate governance.
However, while Kanematsu has adequate governance systems in place, there
remain many issues for the Company toconsider, and more will surely continue toemerge. One thing I felt since before
becoming an outside director is that, compared with other trading companies,
Kanematsu needs to strengthen its earnings power. To that end, Kanematsu must,
presumably, improve labor productivity.
Some of Kanematsu’s divisions include
retail operations, so the Group’s overall

number of workers is high. It appears,
however, that even aside from that factor,
improvement in labor productivity has
been generally stagnant, so I hope to lookat ways of addressing this issue.
At the same time, the Company mustalso improve its return on equity (ROE)
and capital efficiency. This is true for any
company, and absolutely fundamental. It
has been suggested that the modern capitalist economy is beginning to sink into
long-term stagnation, and my own view is
not far from this. I expect that, both internationally and domestically, economic
conditions going forward will not permit
unbridled optimism. For Kanematsu, now
approaching its 130th anniversary, to survive and continue growing far into the
future, it is urgently necessary that theGroup lay preparations for further development after VISION-130, the current
management vision. For my part, I intend
to take the long view and work to further
improve capital efficiency.

Corporate Officers(As of June 24, 2016)

Masao Hasegawa

President & CEO

Executive Vice President

Special Features

Masayuki Shimojima

Kanematsu’s Progress and Strengths

Directors and Audit & Supervisory Board Members

Nobuyoshi Sakuyama

Yutaka Hirai

Seiichi Katayama

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

CSR and Corporate GovernanceKaoru Tanigawa

Director

Review of Operations

Takashi Gunji

1. Mr. Yutaka Hirai and Mr. Seiichi Katayama 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. Yonosuke Yamada and Tsukasa Miyachi are Independent Officers, as defined in the Securities Listing Regulations.

Executive Officers
Masayuki Shimojima

Executive Vice President

Masao Hasegawa

Chief Officer, Supporting Area; Chief Officer, Internal Auditing

Senior Managing
Executive Officers

Takashi Gunji

Chief Officer, Steel, Materials & Plant Division, Chief Officer, Personnel & General Affairs,
General Manager, Osaka Branch; General Manager, Nagoya Branch

Kaoru Tanigawa

Chief Officer, Electronics & Devices Division, Corporate PlanningTetsuya Kaneko

Chief Officer, System Planning, Traffic & Insurance

Yoshiya Miyabe

Chief Officer, Motor Vehicles & Aerospace DivisionNobuyoshi Sakuyama

Chief Officer, Finance, Accounting, Business Accounting, Legal & Compliance

Kazuo Shibata

Chief Officer, Credit Control

Eiji Kan

Deputy Chief Officer, Steel, Materials & Plant Division

Katsumi Morita

President, Kanematsu USA Inc.

Masayuki Hamasaki

Chief Officer, Grain, Oilseed & Feedstuff Division; General Manager, Grain and Feedstuff Department

Hiroyasu Hirasawa

Chief Officer, Foods Division

Masahiro Harada

Deputy Chief Officer, Electronics & Devices Division

Managing Executive
Officers

Executive Officers

KANEMATSU ANNUAL REPORT 2016

Financial Section and Company Information

President & CEO

39

Management’s Discussion and Analysis
Foods & Grain

Business Results

Transactions in the food business were stable, mainly inagricultural products. However, the meat product businessand foodstuff business faced challenging conditions as aresult of steeply falling market prices.
As a result, in the Foods & Grain Division, revenue
increased ¥8,857 million year on year to ¥222,577 million.
Profit from operations fell ¥1,938 million to ¥1,427 million.

For the fiscal year ended March 31, 2016, consolidated
revenue fell ¥35,837 million (5.1%) from the previous fiscal
year to ¥668,374 million. Gross profit decreased ¥1,642
million (1.9%) from the previous fiscal year to ¥86,238
million. Profit from operations fell ¥4,775 million (20.3%)
from the previous fiscal year to ¥18,772 million as a result of
an increase in selling, general and administrative expenses
and a worsening of other revenue and expenses. Profit
before taxes decreased ¥4,251 million (19.0%) from theprevious fiscal year to ¥18,122 million, reflecting adeterioration in the share of profit in investments accounted
for using the equity method, despite improvement infinancial income and costs. After deducting income taxes of¥7,313 million from profit before taxes, profit was ¥10,808
million. Net profit attributable to owners of the parent
decreased ¥1,587 million (15.0%) from the previous fiscal
year to ¥8,959 million.

Steel, Materials & Plant

Results for each business segment are described below.

Performance in the energy business was favorable, due to
steady domestic demand for kerosene and heavy oil mainly
attributable to cold winter weather. The functional chemicals
business recovered from the slump in demand that followed
the 2014 consumption tax hike. In the plant business,transactions related to machine tools and industrial
machinery were firm. However, in the iron and steelbusiness, the mainstay oilfield tubing business faced difficult
conditions as a result of the drop in crude oil prices.
As a result, revenue in the Steel, Materials & Plant Division
decreased ¥66,688 million year on year to ¥135,269 million.
Profit from operations decreased ¥2,957 million to ¥3,388
million.

Electronics & Devices

Motor Vehicles & Aerospace

The ICT solutions business saw firm transactions in
manufacturing industries, and performance in the mobile
business was favorable. However, the semiconductor partsand equipment business faced difficult conditions, including
stagnation in the Chinese economy and slowing demand forsmartphones.
As a result, revenue in the Electronics & Devices Divisionrose ¥3,798 million year on year to ¥235,028 million, andprofit from operations increased ¥506 million to ¥10,658
million.

Performance in the motor vehicles and parts business was
solid overall, particularly in motorcycle and automobile parts
trading. In the aerospace business, aircraft part trading wasstrong, and space-related transactions were firm.
As a result, revenue in the Motor Vehicles & Aerospace
Division increased ¥11,396 million year on year to ¥63,792.
Profit from operations rose ¥363 million to ¥2,964 million.

Segment Information

Other
Revenue rose ¥6,800 million year on year to ¥11,706 million.
Profit from operations fell ¥739 million to ¥329 million.

Net Sales

Operating Income /Operating Income Ratio(Millions of yen)

(Millions of yen)(%)

(Millions of yen)

1,200,000

24,000

4.0

12,0003.0

9,000

1,114,539 1,117,096
1,062,822
1,019,232
1,006,365
900,000

Net Income /Net Income per Share

22,125

21,426
19,776

17,2389,391
28.09 27.30

22.80
2.1
12,000600,000

2.0
1.8

1.8

2.0

6,000

1.0

3,000

0

0

40

11,4709,564

18,26218,000(%)

11,799

30

22.32

6,110

20

1.6
14.60
6,000

300,000

0

0

12

13

14

15

Net sales

40

KANEMATSU ANNUAL REPORT 2016

16

12

13

Operating income

14

15

16

Operating income ratio

10

0

12
Net income

13

14

15

16

Net income per share

Kanematsu’s Progress and Strengths

Fundraising

Analysis of Financial Status
Total assets at the end of the fiscal year under review
decreased ¥22,722 million from the end of the previous
fiscal year to ¥443,592 million. This was due largely todecreases in current trade and other receivables andinventories.
Interest-bearing debt declined ¥2,864 million from theend of the previous fiscal year to ¥136,867 million. Net
interest-bearing debt, which is interest-bearing debt minus
cash and cash equivalents, decreased ¥23,845 million fromthe end of the previous fiscal year to ¥49,401 million.
Total equity attributable to owners of the parent increased¥1,355 million to ¥91,599 million. This reflected an increase
in retained earnings as a result of profit recorded, despite adeterioration of other components of equity as a result of aworsening in foreign currency translation adjustments.
As a result, the equity ratio improved 1.2 percentage
points from the end of the previous fiscal year to 20.6%. The
net D/E ratio stood at 0.5.

Special Features

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. To
secure liquidity on hand, the Group maintains ample cash
and cash equivalents and has established commitment lines
with major financial institutions. Surplus funds are flexibly
managed in highly secure short-term financial products in
response to the Company’s funding needs and financial
circumstances.
During the fiscal year under review, the Group issued¥10,000 in straight corporate bonds, raising funds directlyfrom the market for use in corporate acquisitions.
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.

Assets, liabilities and net assets

Review of Operations

Cash flows
In the year under review, net cash provided by operating
activities totaled ¥33,024 million. Net cash used in investing
activities amounted to ¥4,214 million. Net cash used infinancing activities amounted to ¥6,729 million. As a result,after the effect of exchange rate changes, cash and cash
equivalents at the end of the fiscal year under review stoodat ¥87,466 million, down ¥20,981 million from the end of
the previous fiscal year.

(Millions of yen)(Times)120,000

4.0

Net Assets / Net Assets per Share

Shareholders’ Equity / Equity Ratio(Millions of yen)

(Millions of yen)(Yen)

140,000

300

118,73190,0123.0

86,43910,500214.1040

90,101

121,885221.63225

75,000

2.0

2.3
1.6

75,91270,000150

50,00054,51939,008129.8230,000

0.8
0.9

13

14

Net interest-bearing debt

35,000

0

0

19.6

21.2
20

93.16

75

25,000

0

0

13.7

9.8

10

0.5

0

12

1.0

30

16.7

55,992

47,116

93,25671,657

96,204170.54
68,038 67,646

60,000(%)

100,000

Financial Section and Company Information

90,000

CSR and Corporate GovernanceNet Interest-Bearing Debt /Net D/E Ratio

15

16

Net D/E ratio*	Net interest-bearing debt = Interest-bearing debt –Cash and bank deposits*	Net D/E ratio = Net interest-bearing debt /Shareholders’ equity

12
Net assets

13

14

15

16

Net assets per share

0

12

13

Shareholders’ equity

14

15

16

Equity ratio* Shareholders’ equity = Net assets – Minority interests* Equity ratio = Shareholders’ equity / Total assets
KANEMATSU ANNUAL REPORT 201641

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 24, 2016.
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 throughunrealized loss on available-for-sale securities.
Since stocks and other securities are included in theportfolio of the pension assets of the Group for the purposeof making medium-and long-term investments, differencesfrom the required investment yield could have an effect on
the financial position of the Group, given that the investment
yield will fall if the prices of the stocks, etc., fall.

Foreign Currency Risk

Default Risk and Credit Risk

The Group is engaged in foreign currency transactions in a
number of currencies and terms incidental to its export andimport trading. The Group not only transfers the risk ofcurrency fluctuations to customers in accordance withtransaction terms but also participates in derivatives
transactions such as forward contracts to reduce the risk.
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, net assets
may change through translation adjustments associated withexchange rate fluctuations.

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.

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.
Also, since certain companies in the Group adopt a
defined benefit pension plan, the retirement benefit
obligation could increase in the estimation of the Group if
the discount rate used for the calculation of the retirement
benefit obligation falls.

42

KANEMATSU ANNUAL REPORT 2016

Business Investment Risk
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 andresolving them is often very time-consuming when they occur.
Any prediction of the results therefore involves uncertainties.
Any occurrence of such lawsuits or disputes and unexpected
outcomes may affect the Group’s financial position andoperating results.

Country Risk

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.

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 disputes are generally unpredictable, and

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.

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 2016

Financial Section and Company Information

Legal Risk Related to Lawsuits and Disputes

Product and Facility Deterioration Risk due to
Natural Disasters and Accidents

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.

Review of Operations

Legal Risk Related to Changes in Laws

Security Risk Related to Information Systems
and Information Security

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.

Kanematsu’s Progress and Strengths

reviews 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.
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.

43

Consolidated Statement of Financial Position
March 31, 2016 and 2015
JPY

2016

2015

USD (Note 2)2014(Transition Date)

2016(Assets)
I. Current assets
1. Cash and cash equivalents (Note 27)

87,466

66,48573,978776,234

2. Trade and other receivables (Notes 7)

163,540

186,486

182,627

1,451,367

3. Inventories (Note 8)

80,19591,844

66,514

711,706

4. Other financial assets (Note 30)

2,596

6,792

3,675

23,0395. Other current assets (Note 13)

12,776

16,054

14,268113,383

346,574

367,664

341,065

3,075,737

1. Property, plant and equipment (Note 9)26,88328,96624,179238,578

2. Goodwill (Note 10)

4,631

4,493

2,329

41,0993. Intangible assets (Note 10)

8,083

8,641

8,298

71,734

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

7,420

5,385

5,536

65,850

460

388

135

4,082

6. Other investments (Note 12)

31,53533,04926,727

279,863

7. Other financial assets (Note 30)

5,441

5,481

4,484

48,287

8. Deferred tax assets (Note 29)

9,084

10,557

15,70280,6189. Other non-current assets (Note 13)

3,477

1,686

1,764

30,857

Total non-current assets

97,01798,65089,158860,996

Total assets

443,592

466,314430,224

3,936,741

Total current assets

II. Non-current assets

5. Trade and other receivables (Note 7)(Notes) Presentation of fiscal year and amount (Japanese Yen and U.S. dollars)
1. “JPY” means millions of yen and “USD” means thousands of U.S. dollars.
2. “2016” refers to the Company’s consolidated fiscal year ended March 31, 2016 and the other fiscal years are referred to in the corresponding manner.

44

KANEMATSU ANNUAL REPORT 2016

USD (Note 2)

2016

2015

2014
(Transition Date)

1. Trade and other payables (Note 14)

142,143

159,522150,518

1,261,475

2. Bonds and borrowings (Note 15)

61,98965,30579,852550,133

3. Other financial liabilities (Note 30)

7,129

5,828

5,023

63,268

4. Income taxes payable

2,274

2,561

1,962

20,181

5. Provisions (Note 16)

31

300

92

275

6. Other current liabilities (Note 17)

19,46524,736

20,870172,746

Total current liabilities

233,034

258,255

258,319

2,068,104

1. Bonds and borrowings (Note 15)

74,87774,426

61,113

664,510

2. Other financial liabilities (Note 30)

6,679

6,620

6,376

59,274

3. Retirement benefits liabilities (Note 28)

6,024

5,581

5,906

53,461

4. Provisions (Note 16)

2016

Kanematsu’s Progress and Strengths

JPY(Liabilities)
I. Current liabilities

Special Features

II. Non-current liabilities

1,272

1,098

804

11,2895. Deferred tax liabilities (Note 29)

297

313

283

2,636

6. Other non-current liabilities (Note 17)

699

1,002

692

6,203

Total non-current liabilities

89,851

89,04375,177

797,400

Total liabilities

322,885

347,298

333,496

2,865,504

1. Share capital (Note 18)

27,781

27,781

27,781

246,548

2. Capital surplus (Note 18)

26,463

26,621

27,494

234,851

3. Retained earnings (Note 18)

29,103

21,87912,414258,280

(235)

(222)

(321)

(2,086)1) Exchange differences on translation of foreign
operations

2,912

5,258

—

25,8432) Financial assets measured at fair value throughother comprehensive income

6,967

8,784

5,113

61,8303) Cash flow hedges(12,362)(Equity)
Review of Operations

4. Treasury stock (Note 18)
5. Other components of equity (Note 26)

142

(297)

8,486

14,185

4,816

75,311

Total equity attributable to owners of the Parent

91,59990,24472,185

812,913

29,107

28,771

24,541

258,316

Total equity

120,706

119,015

96,727

1,071,228

Total liabilities and equity

443,592

466,314430,224

3,936,741

6. Non-controlling interests

CSR and Corporate Governance(1,393)

Total other components of equity

Financial Section and Company Information

KANEMATSU ANNUAL REPORT 201645

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

For the years ended March 31, 2016 and 2015

USD (Note 2)

2016

2015

2016

I. Revenue (Notes 6 & 19)

668,374

704,211

5,931,612

II. Cost of sales(582,135)(616,331)(5,166,267)

Gross profit

86,23887,880765,335

III. Selling, general and administrative expenses (Note 20)(68,577)(66,245)(608,600)

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

(311)

(63)

(2,760)2. Impairment loss on property, plant and equipment and intangible
assets (Note 22)

(94)

(580)

(834)

IV. Other income (expenses)

3. Other income

2,596

4,146

23,0394. Other expenses(1,078)(1,589)(9,567)

1,111

1,912

9,860

18,772

23,547

166,596

1. Interest income (Note 24)

478

400

4,242

2. Dividend income (Note 24)

927

1,082

8,227

3. Other finance income (Notes 24 & 30)

—

18

—

1,405

1,501

12,469(2,407)(2,910)(21,361)

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

Total finance income
VI. Finance costs
1. Interest expenses (Note 24)

(323)

(908)

(2,867)(2,731)(3,819)(24,237)

675

1,143

5,990

Profit before tax

18,122

22,373160,827

Income tax expense (Note 29)(7,313)(9,238)(64,901)

Profit for the year

10,80813,135

95,918

Owners of the Parent

8,959

10,546

79,508Non-controlling interests

1,848

2,588

16,400Total

10,80813,135

2. Other finance costs (Notes 24 & 30)
Total finance costs
VII. Share of profit (loss) of investments accounted for using theequity method (Note 11)

Profit for the year attributable to:Yen

95,918
U.S. dollars

Earnings per share attributable to owners of the Parent:

46

Basic earnings per share (Note 25)

21.29

25.10

0.19

Diluted earnings per share (Note 25)

21.29

25.10

0.19

KANEMATSU ANNUAL REPORT 2016

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

USD (Note 2)

2016

2015

2016

10,80813,135

95,918(1,580)3,762(14,022)

2. Remeasurement of retirement benefits liabilities, defined benefit
pension plans (Note 26)

(426)

492

(3,781)

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

(14)

7

(124)

(2,021)

4,263(17,936)

1. Exchange differences on translation of foreign operations (Note 26)(2,894)6,564(25,683)

2. Cash flow hedges (Notes 26 & 30)(1,511)

435(13,410)

(127)

106

(1,127)

I. Profit for the year

Kanematsu’s Progress and Strengths

JPY

For the years ended March 31, 2016 and 2015

II. Other comprehensive income
Items that will not be reclassified to profit and loss:
1. Financial assets measured at fair value throughother comprehensive income (Note 26)

Special Features

Total items that will not be reclassified to profit and loss
Items that may be reclassified to profit and loss:

3. Share of other comprehensive income of investments accounted forusing the equity method (Note 26)(4,532)

7,106(40,220)

Other comprehensive income for the year, net of tax(6,554)

11,369(58,165)

Total comprehensive income for the year

4,253

24,50437,744

Owners of the Parent

3,248

20,467

28,825

Non-controlling interests

1,005

4,037

8,919

Total

4,253

24,50437,744

Total items that may be reclassified to profit and loss

Total comprehensive income for the year attributable to:
Review of Operations
CSR and Corporate Governance
Financial Section and Company Information

KANEMATSU ANNUAL REPORT 201647

Consolidated Statement of Changes in Equity:
For the years ended March 31, 2016 and 2015
JPY

Equity1. Share capital (Note 18)
Balance at the beginning of the year
Balance at the end of the year
2. Capital surplus (Note 18)
Balance at the beginning of the year
Acquisition of treasury stock
Disposition of treasury stock
Equity transactions with non-controlling interests
Changes due to business combinations
Balance at the end of the year
3. 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
4. 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
5. Treasury stock (Note 18)
Balance at the beginning of the year
Acquisition of treasury stock
Disposition of treasury stock
Acquisition through business combinations
Balance at the end of the year
Total equity attributable to owners of the Parent
6. Non-controlling interests
Balance at the beginning of the year
Dividends to non-controlling interests
Equity transactions with non-controlling interests
Changes due to business combinations
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

48

KANEMATSU ANNUAL REPORT 2016

USD (Note 2)

2016

2015

2016

27,781
27,781

27,781
27,781

246,548
246,548

26,621—0(158)—
26,46327,494—8(899)
1626,621

236,253—0(1,402)—
234,851

21,879(1,683)
8,959
(11)
(40)
29,103

12,414(1,680)
10,546551
46
21,879194,169(14,936)
79,508(98)(355)
258,280

14,185(2,346)

4,816
5,258

125,887(20,820)(1,542)

3,747(13,685)(1,535)
(286)
11
8,486

439
474
(551)
14,185(13,623)(2,538)98
75,311

(222)
(12)
0
—
(235)
91,599

(321)
(13)
155
(42)
(222)
90,244(1,970)(106)
0—(2,086)
812,91328,771
(891)
222
—
1,848
(843)
(650)

24,541(1,275)(1,119)
2,586
2,588
1,449
1,410

255,334(7,907)1,970—
16,400(7,481)(5,769)

(53)

22

(470)

(0)
(139)
29,107
120,706(2)
17
28,771
119,015(0)(1,234)
258,316
1,071,228

3,248
1,005
4,253

20,467
4,037
24,504

28,825
8,919
37,744

Consolidated Statement of Cash Flows
For the years ended March 31, 2016 and 2015

95,91827,352834
11,768(675)(1,143)(5,990)

311

63

2,760

7,313
19,262
10,664(17,662)
274
3,812
38,613491
1,193(2,414)(4,860)33,024

9,238
6,100(21,048)
3,260
(356)
(2,257)
12,887402
864(2,915)(4,480)6,758

64,901
170,944
94,640(156,745)
2,432
33,830342,678
4,357
10,588(21,424)(43,131)
293,078(1,982)572(496)(5,054)
502
1,178
(165)
(917)
1,005
1,142
(4,214)(3,628)851(651)(1,050)
49
(97)
—
(437)
630
(2,317)(6,649)(17,590)
5,076(4,402)(44,853)
4,455
10,454(1,464)(8,138)
8,919
10,135(37,398)(9,718)18,687(22,231)
9,923(1,678)—4,188
38,511(47,756)—(1,675)355(86,244)
165,841(197,293)
88,064(14,892)—(328)(2,030)(2,911)

(897)
(485)
(6,729)22,081
66,485(1,100)87,466(1,300)(338)(10,046)(9,937)73,9782,444
66,485(7,961)(4,304)(59,718)
195,962590,034(9,762)776,234KANEMATSU ANNUAL REPORT 2016

Financial Section and Company Information

13,135
2,996
580
2,317

CSR and Corporate Governance

10,808
3,082
94
1,326

Review of Operations

2016

Special Features

I. Cash flows from operating activities
Profit for the year
Depreciation and amortization
Impairment loss of 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
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
Proceeds from sale of shares of the Parent held by subsidiaries
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)

2015

Kanematsu’s Progress and Strengths

JPY

2016

49

Notes to Consolidated Financial Statements
For the years ended March 31, 2016 and 2015

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, 2016
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 IFRSThe 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 Group has adopted IFRSs for the
first time in preparing its consolidated financial statements for the
fiscal year ended March 31, 2016 and the date of transition to
IFRSs was April 1, 2014 (the “transition date”). These consolidated
financial statements have been prepared in accordance with IFRSs
for the first time and has also applied IFRS 1 First Time Adoption ofInternational Financial Reporting Standards. An explanation regarding how the transition has affected the Consolidated Group’s
financial position, results of operations and cash flows as reportedby the Company is provided in Note 37 Disclosures regarding transition to IFRSs.
The consolidated financial statements were authorized for issue
by Masayuki Shimojima, President and CEO, on August 10, 2016.

(2) Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis except for the following material items in the consolidated statements of financial position:• Financial assets and liabilities measured at fair value throughprofit 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 ¥112.68 to U.S.$1.00,
the approximate exchange rate prevailing on March 31, 2016. 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.

(4) Use of estimates and judgments
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 Deferred taxes and income tax expenses• 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 far as available. Fair values are categorized into the following three 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; and• 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

3. Significant Accounting Policies
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.

50

KANEMATSU ANNUAL REPORT 2016

(1) Basis of consolidation
1) Subsidiaries
Subsidiaries are entities which are controlled by the Consolidated
Group. The Consolidated Group controls an entity when it is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 amount of
any 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 and 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.

Special Features
Review of Operations

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.
CSR and Corporate Governance(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.

Financial Section and Company Information

2) Associates
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.
Except for those that are classified as assets held for sale inaccordance with IFRS 5 Non-current Assets Held for Sale andDiscontinued Operations, an investment in an associate (an “equity
method investee”) is 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 from the date the Consolidated Group obtains significant influence until the date it loses such significant influence.
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 areadjusted as necessary.

Kanematsu’s Progress and Strengths

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 amount 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.

2) Translation of a foreign operation
The assets and liabilities of a foreign operation, including any
goodwill and fair value adjustments arising on the acquisition of

KANEMATSU ANNUAL REPORT 201651

that foreign operation, 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 the reporting period unless exchange rates fluctuate significantly.
Exchange differences arising from the translation are recognizedin other comprehensive income and the cumulative amount of theexchange differences is included in other components of equity.
When the Consolidated Group’s foreign operation is disposed of,the cumulative amount of the exchange differences related to that
foreign operation is 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 amounts 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
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:			Machinery, vehicles, tools, furniture & fixtures:

3 to 50 years
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.

(6) Goodwill and intangible assets
1) Goodwill
Goodwill is carried at cost less any accumulated impairment losses.
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, expenditure on such an internallygenerated intangible asset is 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 expenditure

52

KANEMATSU ANNUAL REPORT 2016

incurred from the date when it first meets the recognition criteria.
An intangible asset with finite useful life is amortized using thestraight-line method over its estimated useful life. The
Consolidated Group’s intangible assets with finite useful life arecomprised mainly of software whose estimated useful life is 5
years.
The depreciation method, useful life and residual value of an
intangible asset with 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.

(7) Impairment of non-financial assets
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 indefinite useful life are tested for impairment annually and whenever there is an indicationthat such assets may be impaired. If the carrying amount of anindividual asset or a 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.

(8) Financial instruments
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 the cash flows from thefinancial asset expire, or (ii) it transfers the contractual rights to the
cash flows and substantially all the risks and rewards of ownershipof the financial asset.

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.

(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.

Financial Section and Company Information(iv) Financial assets measured at fair value through profit orloss
A financial asset other than those classified as (a), (b) and (c) above
is classified as a financial asset measured at fair value through profit or loss.
The Consolidated Group initially recognizes and measures a3) 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.

CSR and Corporate Governance(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.

Review of Operations(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 flows 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.

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 12months 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.

Special Features

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.

financial 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.

Kanematsu’s Progress and Strengths(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
flows 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.

(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 and

KANEMATSU ANNUAL REPORT 201653

commodity 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.
(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 amountaccumulated in other components of equity is 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 amount accumulated in other components of equity is 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 amount accumulated in other componentsof equity is reclassified immediately from other components ofequity to profit or loss.
(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.
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.

(9) Provisions
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 to

54

KANEMATSU ANNUAL REPORT 2016settle 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.

(10) Equity
Treasury stock
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.

(11) Revenue
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:
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.
(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.
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 an

(13) Employee benefits

2) Other long-term employee benefits
The Consolidated Group recognizes obligations for long-term

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
amount 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
KANEMATSU ANNUAL REPORT 2016

Financial Section and Company Information(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.

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 fiscal year-end.
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.

CSR and Corporate Governance1) 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 amount ofbenefits that employees will have earned in return for their services
provided in the current and prior periods, and discounting suchamount 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.

(14) Income taxes

Review of Operations

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.

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 amount of the obligations can be
estimated reliably.

Special Features(12) Finance income and finance costs

employee benefits other than post-employment benefits as a liability by estimating the amount as of the reporting date that will be
paid to the employees in return for their services without discounting that amount unless it is material.

Kanematsu’s Progress and Strengths

agent 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 amount receivable from the customer; and• whether the amount the Consolidated Group earns is predetermined, being either a fixed fee per transaction or a stated percentage of the amount billed to the customer.

55

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.

(15) Lease
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.
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.

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

Title

fiscal year ended March 31, 2016. The effects of application ofthese standards on the Consolidated Group are currently underassessment and cannot be estimated as of the filing date.

Mandatory application(from fiscal years beginning on or after)

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
The major business combination that occurred during the fiscal
year ended March 31, 2015 is described as follows:

Kanematsu-NNK Corporation
6) Percentage of voting rights

Business combination by means of acquisition

Percentage of voting rights immediately
before the acquisition date:

32.1%

Percentage of voting rights added on
the acquisition date:

18.9%

Percentage of voting rights after theacquisition date:

51.0%(1) Outline of the transaction
1) Name of the acquired company and its lines of business
Name of the acquired company: Kanematsu-NNK CorporationLines of business: Security equipment business, Geo-tech (Ground
improvement) business, wood processing business and petroleum
product business
2) Purpose of the business combination
The Company expected that through strengthening the capital
relationship between Kanematsu-NNK Corporation (“KNN”) andthe Company, it would accelerate decision-making and strategy
execution as well as collaboration of security camera business of
KNN and Electronics & Device Division of the Company. Thus thebusiness combination would contribute to strengthening the business base further and enhancing the corporate value of KNN and
the Consolidated Group.
3) Acquisition date
December 24, 2014 (Date of the acquisition of shares)
4) Legal form of the business combination
Acquisition of shares for cash consideration (through tender offer)5) Company name after the combination

56

KANEMATSU ANNUAL REPORT 2016

7) Basis for deciding the acquiring company
The Company has acquired the shares of KNN for cash consideration.

(2) Earnings since the acquisition date
Revenue:¥2,759 million

Profit:¥69 million(3) Acquisition costs and the details
Consideration for acquisition
Fair value of shares of KNN held before
the date of the business combination:¥2,661 million

Fair value of additional shares of KNN
acquired at the date of the businesscombination:¥1,567 million

Total costs¥4,228 million

(5) Difference between the costs of the acquiredcompany and the sum of the costs of each transactionthat has resulted in the acquisition
Gain on step acquisitions: ¥1,123 million
The above gain is included in “Other income”.

(6) Amount and cause of goodwill(7) Breakdown of assets acquired and liabilities assumedon the acquisition date(8) The carrying amount of non-controlling interests of
the acquiree recognized on the acquisition date is¥(2,586) million. This carrying amount is calculated bymultiplying the identifiable net assets received on theacquisition date with the percentage of the noncontrolling interests’ proportionate share after theacquisition.
(9) The disclosure of pro forma information on the abovebusiness combination assuming that it occurred at the
beginning of the period is omitted because the effect on
the consolidated financial statements is immaterial.
There were no major business combinations that occurred during
the fiscal year ended March 31, 2016.

(JPY)
5,186
1,469
2,232
1,080
403
3,260
2,722
537
8,446

Review of Operations

Current assets
Cash and cash equivalents
Trade receivables
Inventories
Other
Non-current assets
Property, plant and equipment
Other
Total assets

2,427
2,009
417
742
3,169

Special Features

1) Amount of goodwill: ¥1,526 million
2) Cause of goodwill
The excess of acquisition costs over the net of the assets acquired
and liabilities assumed on the acquisition date. Goodwill consists
primarily of future economic benefits and synergies with theConsolidated Group’s existing businesses. Goodwill is not tax
deductible.

Current liabilities
Trade payables
Other
Non-current liabilities
Total liabilities

Kanematsu’s Progress and Strengths(4) The amount of costs directly attributable to theacquisition is ¥74 million, which is expensed andincluded in selling, general and administrative expenses.

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.

Financial Section and Company Information(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.

CSR and Corporate Governance

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.

KANEMATSU ANNUAL REPORT 201657

(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 prevailing market prices or third-party transaction prices.
Fiscal year ended March 31, 2016 (from April 1, 2015 to March 31, 2016)

(JPY)

Reportable segment
Electronics &Devices

Foods & Grain

Steel, Materials Motor Vehicles& Plant& Aerospace

Total

Others(Note 1)

Adjustment(Note 2)

Consolidated

Revenue
235,028

222,577

135,269

63,792656,667

11,706—

668,374

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 expenditure

1,604

439

527

278

2,850

117

258

3,226

External

Other profit or loss:
Depreciation andamortization
Share of profit (loss) ofinvestments accounted forusing the equity method
Segment assets
Other assets:

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

(USD)

Reportable segment
Electronics &Devices

Foods & Grain

Steel, Materials Motor Vehicles& Plant& Aerospace

Total

Others(Note 1)

Adjustment(Note 2)

Consolidated

5,931,612

Revenue
2,085,800

1,975,302

1,200,470

566,134

5,827,716

103,887—

Inter-segment

1,952

18

497

0

2,476

603

(3,080)—Total revenue

2,087,762

1,975,319

1,200,967

566,134

5,830,201

104,491(3,080)5,931,612

Segment profit

94,586

12,66430,06726,305

163,6402,920

35

166,596

Depreciation andamortization

9,194

5,511

8,245

3,230

26,189

1,251

(89)

27,352

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

2,467

683

115

302

3,576

2,405

—

5,990

1,352,041

977,245907,029

223,394

3,459,727

87,922

389,084

3,936,741

Investments accounted forusing the equity method

34,771

10,721444

2,946

48,891

16,977(18)

65,850Capital expenditure

14,235

3,896

4,677

2,467

25,293

1,038

2,290

28,630External

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 of ¥4 million ($35 thousand) for segment profit includes inter-segment elimination of ¥4 million ($35 thousand).
(2) Adjustment for segment assets of ¥43,842 million ($389,084 thousand) includes inter-segment elimination of ¥(11,964) million (($106,177) thousand) andcorporate assets of ¥55,807 million ($495,270 thousand) that are not allocated to any reportable segment. The corporate assets consist mainly of cash and bankdeposits associated with financing activities and assets such as investment securities.
(3) Adjustment for depreciation and amortization of ¥(10) million ($(89) thousand) includes inter-segment elimination of ¥(10) million ($(89) thousand).
(4) Adjustment for investments accounted for using the equity method of ¥(2) million ($(18) thousand) includes inter-segment elimination of ¥(2) million ($(18)thousand).
(5) Adjustment for capital expenditure of ¥258 million ($2,290 thousand) includes inter-segment elimination of ¥(71) million ($(630) thousand) and corporate assets of¥329 million ($2,920 thousand) that are not allocated to any reportable segment. The corporate assets consist mainly of software related to the information systemof the Company.

58

KANEMATSU ANNUAL REPORT 2016

Reportable segment
Electronics &Devices

Foods & Grain

231,230

213,720

Steel, Materials Motor Vehicles& Plant& Aerospace

Others(Note 1)

Total

Adjustment(Note 2)

Consolidated

4,906

—

704,211

Kanematsu’s Progress and Strengths

Fiscal year ended March 31, 2015 (from April 1, 2014 to March 31, 2015)(JPY)

Revenue
External

201,957

52,396699,304

Inter-segment

353

2

5

0

361

57

(419)

—

Total revenue

231,583

213,723

201,963

52,396699,666

4,964

(419)

704,211

Segment profit

10,152

3,365

6,345

2,601

22,4641,068

1423,547

1,058

589

870

403

2,921

79

(4)

2,996

740

40

12

29

823

295

25

1,143

134,780

106,835

127,643

31,249400,508

11,531

54,274

466,314

Investments accounted forusing the equity method

2,166

891

44

300

3,401

1,830

153

5,385

Capital expenditure

1,694

976

1,528

834

5,034

61

730

5,826

Other profit or loss:
Depreciation andamortization

Segment assets

Special Features

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

Transition date (April 1, 2014)

(JPY)
Reportable segment

Segment 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 of ¥14 million for segment profit includes inter-segment elimination of ¥14 million.
(2) Adjustment for segment assets of ¥54,274 million includes inter-segment elimination of ¥(8,507) million and corporate assets of ¥62,781 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 ¥(4) million includes inter-segment elimination of ¥(4) million.
(4) Adjustment for investments accounted for using the equity method of ¥153 million includes inter-segment elimination of ¥(0) million and the corporate assets of¥154 million that are not allocated to any reportable segment.
(5) Adjustment for capital expenditure of ¥730 million includes inter-segment elimination of ¥(32) million and corporate assets of ¥763 million that are not allocated to
any reportable segment. The corporate assets consist mainly of leased equipment related to the information system of the Company.

Steel, Materials Motor Vehicles& Plant& Aerospace

Others(Note 1)

Electronics &Devices

Foods & Grain

130,978

89,173

123,539

26,797

370,489

1,404

560

133

235

2,333

Total

Adjustment(Note 2)

Consolidated

7,395

52,339430,224

3,072

129

5,536

(Other assets)
CSR and Corporate Governance

Investments accounted forusing the equity method(Notes) 1 The “Others” column is a business segment that is not included in the reportable segments and includes the aluminum recycling business and the logistics andinsurance service business.
2. Adjustment for segment assets of ¥52,339 million includes inter-segment elimination of ¥(9,800) million and corporate assets of ¥62,140 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.

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

USD

2015

2016

Segment profit

18,772

23,547

166,596

Finance income and finance costs(1,326)(2,317)(11,768)

675

1,143

5,990

18,122

22,373160,827

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

Financial Section and Company Information

2016(3) Information on products and services
The disclosure is omitted because the classification of products and services is the same as that of reportable segments.

KANEMATSU ANNUAL REPORT 201659

(4) Geographic information
1) External revenue
JPY

USD

2016

2015

2016

Japan

542,333

538,466

4,813,037

Asia

62,18585,093551,873

North America

43,57154,753

386,679

Europe13,598

19,681

120,678

6,685

6,217

59,327668,374

704,211

5,931,612

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

2016

2015

Transition date

2016

305,857

Japan

34,46433,67028,314

Asia

1,046

1,415

1,009

9,283

North America

5,432

6,263

4,941

48,207

Europe

2,092

2,425

2,297

18,566

Others

39

14

9

346

43,07643,78836,571

382,286

Total(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, 2016 and March 31, 2015.

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

USD

2016

2015

Transition date2016

1,412,611

159,173

183,422

179,286

Loans receivable

3,019

2,405

2,623

26,793

Other

4,190

3,718

3,564

37,185

Notes and accounts receivable

Less: loss allowance
Total(2,383)(2,671)(2,710)(21,148)

164,001

186,874

182,763

1,455,458
1,451,367

163,540

186,486

182,627

Non-current assets

460

388

135

4,082

Total

164,001

186,874

182,763

1,455,458

Current assets

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

Merchandise and finished
goods
Real estate for sale
Raw materials and supplies

USD

2016

2015

Transition date

2016

76,89988,747

63,146

682,455

—

61

61

—

2,328

2,134

2,344

20,660Work in progress

967

901

962

8,582

Total

80,19591,844

66,514

711,706

The amounts of inventories that were recognized as expense during the fiscal years ended March 31, 2016 and March 31, 2015 are¥561,989 million ($4,987,478 thousand) and ¥595,079 million, respectively.
The amounts written down on inventories that were recognized as expense during the fiscal years ended March 31, 2016 and March 31,
2015 are ¥820 million ($7,277 thousand) and ¥226 million, respectively.

60

KANEMATSU ANNUAL REPORT 2016

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](JPY)As of the transition date (April 1, 2014)

Buildings andstructures

Machinery, vehicles,
tools, furniture andfixtures

Land

Construction inprogress

Total

24,95911,909190

52,523

655

3,316

155

775

4,903

Acquisitions through business combinations

344

360

2,141

—

2,846

0

71

—

(71)

—

Disposals(424)(2,746)(170)—(3,340)Exchange differences

179

907

77

75

1,239

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

—

(18)

—

—

(18)

Transfers from construction in progress

Other

(68)

—

16

99

26,781

14,114985

58,253

Additions

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
As of March 31, 2016

(112)

60

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

55,466[Accumulated depreciation and accumulated impairment losses]

As of the transition date (April 1, 2014)(JPY)

Buildings andstructures

Machinery, vehicles,
tools, furniture andfixtures

Land

Construction inprogress

Total(18,814)——(28,344)(489)(1,569)——(2,059)Impairment losses

(54)

(27)

(360)

—

(443)

Disposals

371

1,664

—

—

2,036

Exchange differences

(69)

(399)

—

—

(469)

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

—

17

—

—

17

(87)

62

—

—

(24)

(9,860)(19,065)(360)—(29,287)

Depreciation(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

As of March 31, 2015

As of March 31, 2016

98

82

—

—

181

(9,551)(18,605)(425)—(28,582)

KANEMATSU ANNUAL REPORT 2016

Financial Section and Company Information

Other

CSR and Corporate Governance(9,530)Depreciation

Other

Review of Operations

151
16,371

As of March 31, 2015

Special Features

15,464

Additions61

[Carrying amounts]

(JPY)
Buildings andstructures

Machinery, vehicles,
tools, furniture andfixtures

Land

As of the transition date (April 1, 2014)

5,933

6,145

11,909190

24,179As of March 31, 2015

6,511

7,716

13,753985

28,966

As of March 31, 2016

6,924

7,354

12,119484

26,883

Construction inprogress

Total[Costs](USD)

As of March 31, 2015

Buildings andstructures

Machinery, vehicles,
tools, furniture andfixtures

Land

Construction inprogress

Total

145,288237,673

125,257

8,742

516,977

Additions

5,786

12,247—

2,742

20,785Acquisitions through business combinations

3,718

27

2,893

—

6,647

Transfers from construction in progress

3,168

3,275

—

(6,452)—

Disposals(4,615)(17,439)(4,153)—(26,216)(852)(4,047)

(479)

(346)

(5,742)(5,272)(1,899)——(7,171)

(994)

532

(12,176)(382)(13,028)

146,219

230,378

111,333

4,295

492,244

Exchange differences
Increases (decreases) due to a change in thescope of consolidation
Other
As of March 31, 2016

[Accumulated depreciation and accumulated impairment losses]
Buildings andstructures(USD)
Machinery, vehicles,
tools, furniture andfixtures

Construction inprogress

Land

Total

As of March 31, 2015

(87,504)(169,196)(3,195)—(259,913)

Depreciation(4,854)(14,661)——(19,515)

Impairment losses

(133)

(18)

(568)

—

(719)

Disposals

3,798

14,191——

17,998

204

1,988

—

—

2,192

2,849

1,846

—

—

4,695

Exchange differences
Increases (decreases) due to a change in thescope of consolidation
Other
As of March 31, 2016

870

728

—

—

1,606

(84,762)(165,114)(3,772)—(253,656)[Carrying amounts]

As of March 31, 2016

(USD)
Buildings andstructures

Machinery, vehicles,
tools, furniture andfixtures

Land

Construction inprogress

Total

61,44865,264

107,552

4,295

238,578

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 revenues” and “Selling, general and administrative expenses” inthe consolidated statements of income.

62

KANEMATSU ANNUAL REPORT 2016

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

Beginning balance

USD

2016

2015

2016

5,249

3,086

46,583

277

1,817

2,458

Acquisitions through business combinations

(139)

346

(1,234)Ending balance

5,387

5,249

47,808

2016

2015

2016

Beginning balance

(756)

(756)

(6,709)Impairment losses

—

—

—

Exchange differences

—

—

—

(756)

(756)

(6,709)Special Features

Exchange differences[Accumulated impairment losses]
JPY

Ending balance

USD[Carrying amount]Carrying amountThe beginning balance of accumulated impairment losses of ¥(756)million represents an impairment loss recognized on the transition
date on goodwill that arose upon acquisition of the mobile communication terminal distribution business in the Electronics &Devices segment.

USD

2015

Transition date

2016

4,631

4,493

2,329

41,099

Review of Operations

JPY

2016

2) Impairment test
Consolidated Groups of cash-generating units to which goodwill
has been allocated are tested for impairment annually, and whenever there is an indication that the Consolidated Groups may be
impaired. The carrying amounts of significant goodwill allocated to
the Consolidated Groups of cash-generating units were as follows:
JPY

USD

2016

2015

Transition date

2016

1,763

1,763

236

15,646

569

291

—

5,050

2,300

2,433

2,084

20,412

Electronics business of the domestic subsidiaries

CSR and Corporate GovernanceElectronics & Devices segment
Foods & Grain segment
Pet-related businesses of the domestic subsidiaries
Steel, Materials & Plant segment
Oilfield tubing business of the foreign subsidiaries

forecasts of the nominal GDP growth rate or the like of the countries in which such cash-generating unit of the Consolidated
Groups are situated. The ultimate growth rates are determined byconsidering the average long-term growth rates of the markets orcountries to which the cash-generating units belong.
The discount rates before tax which were used in calculating thevalue in use of the Consolidated Groups of cash-generating units
to which significant goodwill has been allocated were as follows:

2016

2015

Transition date

3.4%

4.5%

4.2%

6.3%

6.0%

—

12.0%

12.0%

12.6%

Financial Section and Company Information

The recoverable amount of the cash-generating unit Consolidated
Groups to which significant goodwill has been allocated was 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 rate of gross profits
through such terms, such growth rate being consistent with theElectronics & Devices segment
Electronics business of thedomestic subsidiaries
Foods & Grain segment
Pet-related businesses of thedomestic subsidiaries
Steel, Materials & Plant segment
Oilfield tubing business of theforeign subsidiaries

KANEMATSU ANNUAL REPORT 2016

63

With respect to goodwill that has been allocated to theConsolidated Groups of 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 isunlikely that such changes in major assumptions will reduce therecoverable amounts of the 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:(JPY)[Costs]
Software

Carrier shop operating rights

Other

Total

7,532

3,291

4,299

15,123

Additions

945

—

31

977

Acquisitions throughbusiness combinations

14

—

6

20
(163)

As of the transition date
(April 1, 2014)

Disposals

(159)

—

(3)

55

—

560

616

Other

(214)

—

74

(140)

As of March 31, 2015

8,174

3,291

4,968

16,434

656

—

37

693

4

—

9

14

Exchange differences

Additions
Acquisitions throughbusiness combinations
Disposals

(161)

—

(45)

(207)

Exchange differences

(32)

—

(235)

(267)

Other

(4)

—

(242)

(246)

8,636

3,291

4,492

16,421

Carrier shop operating rights

Other

Total

(234)

(729)

(6,824)(967)

As of March 31, 2016

(JPY)

[Accumulated amortization and accumulated impairment losses]
Software

As of the transition date
(April 1, 2014)(5,860)

Amortization

(618)

—

(348)

Impairment losses

(24)

—

(26)

(50)

Disposals

114

—

1

115

Exchange differences

(48)

—

(93)

(141)

Other

76

—

(0)

75

(6,361)(234)(1,196)(7,792)(944)

As of March 31, 2015

(571)

—

(373)

Impairment losses

Amortization

—

—

(12)

(12)

Disposals

140

—

35

175

Exchange differences

25

—

57

82

Other

(4)

—

158

153

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

As of March 31, 2016

(JPY)

[Carrying amount]
As of the transition date
(April 1, 2014)

Software

Carrier shop operating rights

Other

Total

1,671

3,057

3,569

8,298

As of March 31, 2015

1,812

3,057

3,771

8,641

As of March 31, 2016

1,864

3,057

3,161

8,083

Software

Carrier shop operating rights

Other

Total

As of March 31, 2015

72,542

29,20744,089145,847

Additions

5,822

—

328

6,150

35

—

80

124

(USD)

[Costs]

Acquisitions throughbusiness combinations
Disposals
Exchange differences
Other
As of March 31, 2016

64

KANEMATSU ANNUAL REPORT 2016

(1,429)—(399)(1,837)(284)—(2,086)(2,370)(35)—(2,148)(2,183)76,642

29,20739,865

145,731

Software

Carrier shop operating rights

Other

Total

As of March 31, 2015

(56,452)(2,077)(10,614)(69,152)

Amortization(5,067)—(3,310)(8,378)

—

—

(106)

(106)

1,242

—

311

1,553

Impairment losses
Disposals
Exchange differences

222

—

506

728

Other

(35)

—

1,402

1,358

(60,091)(2,077)(11,812)(73,988)

Software

Carrier shop operating rights

Other

Total

As of March 31, 2016

Kanematsu’s Progress and Strengths(USD)[Accumulated amortization and accumulated impairment losses]

(USD)[Carrying amount]
16,081

27,13033,466

76,686

16,542

27,13028,05371,734

was the growth rate of gross profits through such terms, suchgrowth rate being consistent with the forecasts of the nominal
GDP growth rate or the like of the countries in which such cashgenerating unit Consolidated Groups are situated. The ultimate
growth rates are determined by considering the average long-term
growth rates of the markets or countries to which the cash-generating units belong.
There were no material internally-generated intangible assets asof March 31, 2016, March 31, 2015 and the transition date.
Amortization expenses are included in “Cost of revenues” and“Selling, general and administrative expenses” in the consolidated
statements of income.

Review of Operations

Carrier shop operating rights were recognized as intangible assets
upon acquisition of the mobile communication terminal distribution business by a consolidated subsidiary of the Company. As therights 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 Groups of cashgenerating units including the carrier shop operating rights were
calculated based on its five-year forecast’s value in use that wasapproved by management. The five-year forecast of cash flows isbased on the future plans anticipated based on past performance.
In addition, the main assumption used to determine such forecast

Special Features

As of March 31, 2015
As of March 31, 2016

The discount rates before taxes used to determine the value in use of this cash-generating unit are presented as follows:
2016

2015

Transition date

6.0%

6.4%

6.6%

Electronics & Devices segment
Electronics business of the domestic subsidiaries

With respect to the carrier shop operating rights, the recoverable amount of the cash-generating unit 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 therecoverable amount of the cash-generating units below the carrying amount.
CSR and Corporate Governance

11. Investments in Associates and Joint Ventures
There are no associates or joint ventures that are material to the Consolidated Group.
The aggregate amount 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
Joint ventures

USD

2016

2015

Transition date

2016

7,420

5,385

5,536

65,850————[Profit or loss from continuing business]
Financial Section and Company Information

JPY

USD

2016

2015

2016

Associates

675

1,143

5,990

Joint ventures

—

—

—

2016

2015

2016

(141)

114

(1,251)———[Other comprehensive income]
JPY

Associates
Joint ventures

USD

KANEMATSU ANNUAL REPORT 201665

[Total comprehensive income]
JPY

USD

2016

2015

2016

Associates

533

1,258

4,730

Joint ventures

—

—

—

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

USD

2016

2015

Transition date

2016

Financial assets measured at fair value through profit or loss

5,637

6,425

6,341

50,027

Financial assets measured at fair value through othercomprehensive income

24,89725,623

19,386

220,953

Financial assets measured at amortized cost
Total

1,000

1,000

1,000

8,875

31,53533,04926,727

279,863

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

USD

2016

2015

Transition date

2016

Advance payments

5,739

8,336

7,416

50,932

Prepaid expenses

3,908

3,482

3,255

34,682

Other

6,606

5,922

5,361

58,626

16,253

17,741

16,033

144,240

12,776

16,054

14,268113,383

Total
Current assets

3,477

1,686

1,764

30,857

16,253

17,741

16,033

144,240

2016

2015

Transition date2016

Notes and accounts payable

102,276

116,649

114,694

907,668

Import bills payable

31,03432,53027,610275,417

Accounts payable - commission

8,832

10,342

8,213

78,381

142,143

159,522150,518

1,261,475

142,143

159,522150,518

1,261,475

Non-current assets
Total

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

Total
Current liabilities

—

—

—

—

142,143

159,522150,518

1,261,475

2016

2015

Non-current liabilities
Total

USD

15. Bonds and Borrowings
The breakdown of bonds and borrowings is presented as follows:
Averageinterest rate
(Note)

Maturity date

JPY

USD

JPY

JPY

Short-term borrowings

33,374

296,184

43,43335,446

0.86%—

Current portion of long-term borrowing

28,615

253,949

21,87144,405

1.34%—

Bonds (excluding the current portion)

9,925

88,081——Long-term borrowings (excluding the current portion)

64,952576,429

74,426

61,113

Total

136,867

1,214,652

139,731

140,965

Current liabilities

61,989550,133

65,30579,852

Non-current liabilities

74,877

664,51074,426

61,113

136,867

1,214,652

139,731

140,965

Total

66

Transition
date

KANEMATSU ANNUAL REPORT 2016

—

—

1.47%

July 2017 to
October2029

Kanematsu’s Progress and Strengths(Note) The “average interest rate” is presented as the weighted average interest rate against the borrowings outstanding at the end of the 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 theinterest rate after hedging. The interest rate of bonds is presented in the “Details of bonds” below.

[Details of bonds]
IssuerBond Name

Issue dateKanematsu
Corporation

Unsecured Straight
Bonds No 1
(3-year bonds)

Kanematsu
Corporation

Unsecured Straight
Bonds No 2(5-year bonds)

2016

2015

Coupon rate

Collateral

Maturity date—

0.40% per
annum

None

March 8,2019—

0.64% per
annum

None

March 10,
2021

JPY

USD

JPY

March 10,
2016

4,961

44,027

March 10,
2016

4,964

44,054

Over one year andwithin two years

Corporate bonds

Over two years andwithin three years

Over three years andwithin four years

Special Features(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:
Over four years andwithin five years

JPY

USD

JPY

USD

JPY

USD

JPY

USD

—

—

4,961

44,027

—

—

4,964

44,054

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

Other

Total

811

85

896

Acquisitions through businesscombinations

18

218

237

Provisions made

94

262

357

Provisions used

(4)

(69)

(74)

Provisions reversed

(17)

(16)

(33)

Unwinding of discount

15

—

15

Foreign exchange translationdifferences

—

0

0

—

—

—

As of March 31, 2015

917

482

1,399

Acquisitions through businesscombinations

—

—

—

Provisions made

98

181

279

Provisions used

(108)

(206)

(314)

Provisions reversed

(2)

(7)

(10)

Unwinding of discount

18

—

18

Foreign exchange translationdifferences

—

(0)

(0)

Other

—

(67)

(67)

As of March 31, 2016

922

382

1,304

Asset retirement obligations

Other

Total

8,138

4,278

12,416———

CSR and Corporate Governance

Other

Review of Operations

As of the transition date (April 1,
2014)

(USD)

Acquisitions through businesscombinations
Provisions made

870

1,606

2,476

Provisions used

(958)

(1,828)(2,787)

Provisions reversed

(18)

(62)

(89)

Unwinding of discount

160

—

160

Foreign exchange translationdifferences

—

(0)

(0)

Other

—

(595)

(595)

8,182

3,390

11,573As of March 31, 2016

KANEMATSU ANNUAL REPORT 2016

Financial Section and Company Information

As of March 31, 2015

67

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

2016

Total

USD

2016

Transition date

31

300

92

275

1,272

1,098

804

11,289

1,304

1,399

896

11,573Current liabilities
Non-current liabilities

2015

Asset retirement obligations are the 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 other factors.

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

USD

2016

2015

Transition date

2016

Advances received

6,515

10,991

8,787

57,819Accrued expenses

3,351

3,363

2,625

29,739Unearned revenue

2,958

2,841

2,991

26,251

Other

7,339

8,541

7,158

65,131

20,16425,73921,562

178,949

19,46524,736

20,870172,746

699

1,002

692

6,203

20,16425,73921,562

178,949

Total
Current liabilities
Non-current liabilities
Total

18. Equity(1) 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 time, 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.

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.

(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 the March 31, 2016, March 31, 2015 and transition date are presented as follows:
Net DER

2016

2015

Transition date

0.5 times

0.8 times

0.9 times

The 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

2015

1,016,653,604

1,016,653,604

Issued shares(No-par common stock)
Beginning balance
Changes during the periodEnding balance

422,501,010—
422,501,010

422,501,010—
422,501,010

Treasury stock(No-par common stock)
Beginning balanceEnding balance

2,893,263
2,953,939

5,111,537
2,893,263

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

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.

68

KANEMATSU ANNUAL REPORT 2016

2) Retained earnings
Retained earnings consist of legal retained earnings and otherretained earnings.

Under the Companies Act, the amount available for distribution
is calculated based on the amount of capital surplus and retained
earnings, exclusive of legal capital surplus and legal retained earnings, all of which are recorded in accordance with the accounting
principles generally accepted in Japan.

Kanematsu’s Progress and Strengths

The Companies Act of Japan provides that an amount equal to
10% of distribution of surplus for each fiscal year must be appropriated 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.

(4) Dividends
1) Amount of dividends paid
Resolution

Type of stock

Source ofdividends

Dividends
per share

Total amount of dividends
JPY

USD

Yen

U.S.$

Record date

Effective dateCommonstock

Retainedearnings

  632

5,609

1.50

0.013

Mar. 31, 2015

Jun. 4, 2015

Nov. 5, 2015
Board of Directors
meeting

Commonstock

Retainedearnings

1,053

9,345

2.50

0.022

Sep. 30, 2015

Dec. 4, 2015

Resolution

Type of stock

Source ofdividends

Record date

Effective date

Total amount of dividends

Dividends
per share

JPY

Yen

Commonstock

Retainedearnings

  632

1.50

Mar. 31, 2014

Jun. 5, 2014

Oct. 31, 2014
Board of Directors
meeting

Commonstock

Retainedearnings

1,053

2.50

Sep. 30, 2014

Dec. 2, 2014
Review of Operations

May 26, 2014
Board of Directors
meetingSpecial Features

May 25, 2015
Board of Directors
meeting2) Dividends with record date in the current fiscal year, and effective date in the following fiscal year
Resolution

May 23, 2016
Board of Directors
meetingType of stock

Commonstock

Source ofdividends

Retainedearnings

Dividends
per share

Total amount of dividends
JPY

USD

Yen

U.S.$

1,053

9,345

2.50

0.022

Record date

Effective dateMar. 31, 2016

Jun. 6, 2016

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

Revenue from the sale of goods

USD

2015

2016

646,004

679,743

5,733,085

22,36924,467

198,518

668,374

704,211

5,931,612

2016

2015

2016

Depreciation and amortization

1,883

1,866

16,711

Personnel expenses

37,78237,350335,304

Outsourcing service charges

6,417

6,211

56,949Rent expenses

5,351

5,069

47,488Other

17,143

15,748152,139

68,577

66,245

608,600

Revenue from rendering of services and others
Total

CSR and Corporate Governance

JPY

2016

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

KANEMATSU ANNUAL REPORT 2016

Financial Section and Company Information

Total

USD

69

21. Gain or Loss on Sale and Disposal of Fixed Assets
The breakdown of gain or loss on sale and disposal of fixed assets is presented as follows:
JPY

USD

2016

2015

2016

Gain on sale of property, plant and equipment

25

71

222

Gain on sales of intangible assets

14

0

124

40

71

355

(251)

(2)

(2,228)Loss on sales of intangible assets

(0)

—

(0)

Total loss on sale of fixed assets

(252)

(2)

(2,236)

Loss on disposal of property, plant and equipment

(76)

(87)

(674)

Loss on disposal of intangible assets

(22)

(45)

(195)

Total loss on disposal of fixed assets

(99)

(132)

(879)

Gain (loss) on sale and disposal of fixed assets, net

(311)

(63)

(2,760)Total gain on sale of fixed assets
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 for the fiscal year ended March 31, 2016 and March 31, 2015 for by class of assets is presented as follows. Impairment losses were included in “Impairment loss on fixed assets” in the consolidated statement of income.
JPY

USD

2016

2015

2016

Property, plant and equipment

(81)

(443)

(719)

Intangible assets

(12)

(50)

(106)

Other non-current assets

—

(86)

—

(94)

(580)

(834)

Total

(2) Breakdown by reportable segment
The breakdown of impairment losses for the fiscal year ended March 31, 2016 and March 31, 2015 by reportable segment is presented as follows:
JPY

2015

2016

Electronics & Devices

(13)

(144)

(115)

Foods & Grain

—

(1)

—

Steel, Materials & Plant

(79)

(438)

(701)

Motor Vehicles & Aerospace

—

(0)

—

Other/Adjustment and elimination

(1)

3

(9)

(94)

(580)

(834)

Total
For the fiscal year ended March 31, 2015, the impairment loss of¥299 million was recognized as a result of reducing the carrying
amount of property, plant and equipment related to LPG tanks, forwhich the Company determined to withdraw from the businessdue to deterioration of profitability, to the recoverable amount of¥170 million. In addition, the impairment loss of ¥137 million wasrecognized as a result of reducing the carrying amount of property,
plant and equipment related to several petrol service stations inJapan, for which the Company determined to withdraw from thebusiness, to the recoverable amount of ¥35 million. The recoverable amount is based on fair value less costs of disposal and fairvalue is estimated mainly based on the real estate appraisal. The
assets belong to the Steel, Materials & Plant segment.
Regarding the impairment of other non-current assets, theimpairment loss of ¥86 million was recognized as the assets were
evaluated to have a zero recoverable amount mainly because
future cash flows could no longer be expected primarily due to ter-

70

USD

2016

KANEMATSU ANNUAL REPORT 2016

mination of a license agreement. The assets belong to theElectronics & Devices segment.
For the fiscal year ended March 31, 2016, the impairment lossof ¥79 million ($701 thousand) was recognized as a result of
reducing the carrying amount of property, plant and equipment
related to several petrol service stations in Japan, for which theCompany determined to withdraw from business, to the recoverable amount of ¥4 million ($35 thousand). The recoverable amountis based on fair value less costs of disposal and fair value is estimated mainly based on the real estate appraisal. The assets belong to
the Steel, Materials & Plant 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 “2. Basis of Preparing Consolidated Financial
Statements, (4) Use of estimates and judgments”.

Exchange differences recognized in profit or loss for the fiscal years
ended March 31, 2016 and March 31, 2015 were gains of ¥713
million ($6,328 thousand) and ¥1,713 million, respectively and areincluded in “Other income” in the consolidated statement ofincome. In addition, each amount includes gains or losses arising

Kanematsu’s Progress and Strengths

23. Exchange Differencesfrom currency-related derivative transactions that were enteredinto 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 or from settlingsuch 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

2015

2016

Financial assets measured at amortized cost

478

400

4,242

Total interest income

478

400

4,242

Financial assets measured at fair value through profit or loss

147

372

1,305

Financial assets measured at fair value through other comprehensive income

779

709

6,913

Total dividend income

927

1,082

8,227

Other finance income

—

18

—

Total other finance income

—

18

—

1,405

1,501

12,469(2,167)(2,598)(19,231)

(240)

(312)

(2,130)(2,407)(2,910)(21,361)

Other finance costs

(323)

(908)

(2,867)

Total other finance costs

(323)

(908)

(2,867)

Total finance costs(2,731)(3,819)(24,237)

Special Features

2016

Interest income

Dividend income

Other finance income (Note)

Review of Operations

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

CSR and Corporate Governance

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

Basic earnings per share

U.S. dollar

2016

2015

2016

21.29

25.10

0.19

2016

2015

2016

8,959

10,546

79,508

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

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

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

—

—

—

8,959

10,546

79,508Financial Section and Company Information

Profit attributable to owners of the Parent

USD

Thousand shares

Weighted average number of common shares

420,803420,211KANEMATSU ANNUAL REPORT 201671

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

USD

2016

2015

2016

Amount arising during the year

(2,727)

5,164(24,201)

Amount before deferred tax(2,727)

5,164(24,201)

Deferred tax

1,147(1,401)

10,179Total net unrealized gains (losses), net of tax(1,580)3,762(14,022)

Financial assets measured at fair value through other comprehensive income

Remeasurements of defined benefit plans, net of tax
Amount arising during the year

(578)

393

(5,130)

Amount before deferred tax

(578)

393

(5,130)

Deferred tax

152

99

1,349

Remeasurements of defined benefit plans, net of tax

(426)

492

(3,781)(2,911)

6,564(25,834)

17

—

151

(2,894)6,564(25,683)(9,736)

Exchange differences on translation of foreign operations
Amount arising during the year
Reclassification adjustments
Exchange differences on translation of foreign operations
Cash flow hedges
Amount arising during the year

(1,097)

817

Reclassification adjustments(1,058)(142)(9,389)(2,156)674(19,134)

645

(239)

5,724

(1,511)

435(13,410)Amount arising during the year

(114)

112

(1,012)

Reclassification adjustments

(27)

2

(240)

(141)

114

(1,251)(6,554)

11,369(58,165)

Amount before deferred tax
Deferred tax
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

27. Cash Flow Information(1) Cash and cash equivalents
Cash and cash equivalents for the fiscal years ended March 31, 2016 and March 31, 2015 consist of cash and bank deposits (excluding time
deposits with deposit term exceeding three months).

(2) Net payment for acquisition of subsidiaries
The breakdown of main assets and liabilities of newly acquired subsidiaries at the time control thereof was acquired, and the relationshipbetween considerations paid and net payment for the acquisition are presented as follows:
JPY

USD

2016

2015

2016

Current assets (including cash and cash equivalents)

5,276

5,186

46,823

Non-current assets

1,285

4,786

11,404(5,572)(2,427)(49,450)(742)(6,177)

2016

2015

2016

Considerations paid

(105)

(1,567)(932)

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

1,283

1,469

11,386

Net proceeds from (payment for) acquisition of subsidiaries

1,178

(97)

10,454

Breakdown of assets at the acquisition date

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

(696)
JPY

USD

(3) Net proceeds from sale of subsidiaries
The breakdown of main assets and liabilities of companies that are no longer the subsidiaries of the Company as a result of sale of shares at thetime control thereof was lost, and the relationship between considerations received and net proceeds from the sale are presented as follows:

72

KANEMATSU ANNUAL REPORT 2016

USD

2015

2016

1,833

—

16,267

493

—

4,375

(2,941)—(26,100)

2016

2015

2016

Considerations received

282

—

2,503

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

(447)

—

(3,967)

Net proceeds from (payment for) sale of subsidiaries

(165)

—

(1,464)

Kanematsu’s Progress and Strengths

JPY

2016

Details of assets upon loss of control
Current assets (including cash and cash equivalents)
Non-current assets
Details of liabilities upon loss of control
Current liabilities

JPY

USD

Special Features(4) Significant non-cash transactions
There were no significant non-cash transactions for the fiscal years ended March 31, 2016 and March 31, 2015.

28. Employee Benefits(1) Post-employment benefits

Review of Operations

Matters such as asset management performance, status of theplan and accounting treatment are reported in 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.

1) Outline of retirement benefit plans adopted by theConsolidated GroupThe Company has the 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 laws and regulations.
The pension plan that the Company maintains is a contract-typedefined benefit pension plan.

Present valueof the defined
benefit obligation

Fair value of plan
assetsNet defined benefit
liability (asset)

As of the transition date (April 1, 2014)

18,574(12,841)

5,732

Current service cost

1,265

—

143

(119)

24

Remeasurements

77

(470)

(393)

Foreign exchange translation differences

32

(35)

(2)

Employer contributions to the plan

—

(981)

(981)
(468)

Benefits paid

(1,696)

1,227

Effect of business combinations and disposals

567

(202)

365

Other

(141)

1

(140)

As of March 31, 2015

18,823(13,422)

5,400

Current service cost

1,260
103

—

1,260

(77)

26

Remeasurements

639

(60)

578

Foreign currency translation difference

(60)

14

(46)

Employer contributions to the plan

—

(929)

(929)

(1,577)

1,160

(416)

—

—

—

(106)

4

(102)

19,082(13,309)

5,772

Net interest

Benefits paid
Effect of business combinations and disposals
Other
As of March 31, 2016

KANEMATSU ANNUAL REPORT 2016

Financial Section and Company Information

1,265

Net interest

CSR and Corporate Governance2) 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, 2016 and March 31, 2015 are presented as follows:
(JPY)

73

(USD)
Present valueof the defined
benefit obligation

Fair value of plan
assetsNet defined benefit
liability (asset)

As of March 31, 2015

167,048(119,116)

47,923Current service cost

11,182—

11,182

914

(683)

231

Remeasurements

5,671

(532)

5,130

Foreign currency translation difference

(532)

124

(408)

—

(8,245)(8,245)(13,995)

10,295(3,692)

—

—

—

(941)

35

(905)

169,347(118,113)

51,225

Net interest

Employer contributions to the plan
Benefits paid
Effect of business combinations and disposals
Other
As of March 31, 2016

Remeasurements of the defined benefit obligation for the fiscal years ended March 31, 2016 and March 31, 2015 are the differences arising
primarily from changes in financial assumptions.
(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
JPY

2016

USD

2015

2016

Transition dateDefined benefit obligations of funded plan

15,561

15,137

14,990138,099

Plan assets(13,309)(13,422)(12,841)(118,113)

Net defined benefit liability of funded plan

2,251

1,715

2,148

19,977

Defined benefit obligations of unfunded plan

3,520

3,685

3,584

31,239Net liability or asset presented on the consolidated statementsof financial position

5,772

5,400

5,732

51,225The measurement dates used to determine the benefit obligations
are mainly March 31 of each year.
The Consolidated Group’s funding policy is based on a numberof factors including the tax deductibility of contributions, funded
status, actuarial calculations and other considerations.
Contributions are intended to provide not only for benefits attributable to service to date, but also for those expected to be earnedin 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 Consolidated Group’s investment policy is designed toincrease the value of plan assets within acceptable risk levels toensure payments of pension benefits to eligible participants,
including future participants. Taking into account the return andrisk on plan assets thereon, the Consolidated Group formulate astrategic asset mix which aims at an optimal portfolio on a longterm basis and supervise asset management by selecting investment management companies and monitoring asset allocations.
The strategic asset mix is subject 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, theactual allocation may temporarily exceed or fall below the guidelines. The Company’s target allocation is 10% equity securities,
39% debt securities, 40% life insurance company general accounts
and 11% others.
The Consolidated Group holds a meeting regularly with theasset management institutions and discuss important issues regarding pension assets investment.

(iii) Plan assets
The composition of the plan assets as of March 31, 2016.
Plan assets with a quoted market price in an active market
USD

Equity securities

1,164

10,3301

9Debt securities

4,798

42,581

403

3,576

—

—

4,464

39,617

Life insurance company
general accounts
Other
Total

74

Plan assets without a quoted market price in an active market

JPY

KANEMATSU ANNUAL REPORT 2016

JPY

USD

161

1,429

2,316

20,554

6,124

54,3497,185

63,765

Plan assets with a quoted market pricein an active market

Plan assets without a quoted market pricein an active market

JPY

JPY

Equity securities

1,489

0

Debt securities

4,739

416

Life insurance company general accounts

—

5,834

Other

114

827

6,343

7,078

Total

Kanematsu’s Progress and Strengths

The composition of the plan assets as of March 31, 2015.

The composition of the plan assets as of the transition date are presented as follows:
Plan assets without a quoted market pricein an active market

JPY

JPY

Equity securities

1,382

Debt securities

4,576

337

—

5,681

Life insurance company general accounts
Other
Total

Special Features

Plan assets with a quoted market pricein an active market

0

99

764

6,057

6,783

(iv) Significant actuarial assumptions
Discount rate

2016

2015

Transition date

0.3%

0.7%

0.9%

Review of Operations

The assumptions used for the actuarial calculation include the expected rate of salary increase, the mortality rate and the retirement rateother than the above.
(v) Sensitivity analysis of defined benefit obligations
JPY

USD

2016

2015

2016

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

135

253

1,198

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

(254)

(253)

(2,254)

CSR and Corporate GovernanceThis analysis is based on the premise that the actuarial assumptions other than the discount rate do not fluctuate and that only the discountrate fluctuate. This method of analysis is based on assumptions, and it is possible that the actual calculation could be influenced by fluctuations in other variables. Even if the discount rate falls below 0%, the calculation is performed assuming the lower limit of the discount rate is0%.
(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, 2016 and March 31, 2015 was
10.9 years.
(vii) Expected contribution to the plan for the year ending March 31, 2017
The amount of contribution made by made by the Consolidated Group to plan assets for the year ending March 31, 2017 is estimated to be¥836 million ($7,419 thousand).
3) Defined contribution plan
Expenses recognized for the defined contribution plan for the years ended March 31, 2016 and March 31, 2015 were ¥177 million ($1,571
thousand) and ¥217 million, respectively.

Financial Section and Company Information(2) Employee benefit expenses
Employee benefit expenses recognized for the years ended March 31, 2016 and March 31, 2015 were ¥1,559 million ($13,836 thousand)and ¥1,535 million, respectively. Employee benefit expenses are included in “Cost of revenues” and “Selling, general and administration
expenses” in the consolidated statement of income.

KANEMATSU ANNUAL REPORT 201675

29. Deferred Taxes and Income Taxes(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

2016

2015

Transition date2016

Deferred tax assets
1,302

1,693

1,553

11,555

Loss allowance

681

802

968

6,044

Inventories

497

1,706

1,784

4,411

Impairment loss

677

853

791

6,008

Other investments

857

875

944

7,606

Retirement benefits liabilities

Golf club memberships

157

170

177

1,393

Tax losses carried forward

5,628

6,784

10,33449,947

613

—

216

5,440

3,547

3,938

3,481

31,479Total deferred tax assets

13,963

16,825

20,252

123,917

Offset against deferred tax liabilities(4,879)(6,268)(4,549)(43,300)

Total deferred tax assets, net

9,084

10,557

15,70280,618

(267)

(253)

(260)

(2,370)Cash flow hedges
Other

Deferred tax liabilities
Retained earnings in subsidiaries

—

(12)

—

—

Financial assets measured at fair value through othercomprehensive income(3,085)(4,204)(2,569)(27,378)

Other(1,824)(2,111)(2,003)(16,187)

Total deferred tax liabilities(5,177)(6,582)(4,833)(45,944)

Offset against deferred tax assets

4,879

6,268

4,549

43,300Total deferred tax liabilities, net

(297)

(313)

(283)

(2,636)

Net deferred tax assets

8,786

10,243

15,41877,973

2016

2015

2016

Beginning balance of net deferred tax assets

10,243

15,41890,903

Deferred tax expense(3,316)(4,024)(29,428)

Income tax on other comprehensive income

1,944(1,541)

17,252Acquisition through business combinations

—

413

—

Other

(85)

(23)

(754)

8,786

10,243

77,973

Cash flow hedges2) 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

Ending balance of net deferred tax assets

USD3) 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

2016

2015

Transition date2016

17,63919,054

18,114

156,541

Tax losses carried forward
21

—

115

186

Between one and five years to expiry

26,606

19,172

11,340236,120

Between five and ten years to expiry

11,609

7,747

17,683103,026

186

48

49

1,651

38,42426,967

29,188341,001

Within one year to expiry

Over ten years to expiry
Total tax losses carried forward

76

KANEMATSU ANNUAL REPORT 2016

4) Temporary differences associated with investments in
subsidiaries for which deferred tax liabilities were notrecognized
The total amounts of temporary differences associated with investments in subsidiaries for which deferred tax liabilities were not recognized as of March 31, 2016 and March 31, 2015 and theKanematsu’s Progress and Strengths

transition date are ¥16,549 million ($146,867 thousand), ¥13,616
million and ¥11,771 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 be reversed within the foreseeable future, it did not recognize
deferred tax liabilities with respect to such temporary differences.

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

USD

2015

2016

(3,997)(5,213)(35,472)

Origination and reversal of temporary differences(1,721)(2,752)(15,273)

Reassessment of recoverability of deferred tax assets(1,036)874(9,194)(558)(2,146)(4,952)(3,316)(4,024)(29,428)(7,313)(9,238)(64,901)

Current tax expense (Note 1)

Special Features

2016

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, 2016 and March 31, 2015 were ¥487 million ($4,322 thousand) and nil, respectively, and these benefits were included in
the current tax expenses.
2. Major causes for deferred tax expense by type are inventories of ¥(1,209) million ($(10,729) thousand) and tax loss carried forward of ¥(1,156) million ($(10,259)
thousand) for the fiscal year ended March 31, 2016, and tax loss carried forward of ¥(3,549) million for the fiscal year ended March 31, 2015.

Review of Operations

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:
2016

2015

33.1%

35.6%

Permanent differences—additions
such as entertainment expenses

0.7%

2.2%

Effect of reassessment of recoverability ofdeferred tax assets

5.7%(3.9)%

Effect of tax rate differences(0.5)%

1.8%

Tax reform

3.1%

9.6%

Other

(1.8)%(4.0)%

40.4%

41.3%

Effective statutory tax rate
(Adjustments)

The effective statutory effective tax rate for the fiscal year ended
March 31, 2016 is calculated to be 33.1% based on the
Corporation Tax, Inhabitant Tax and Business Tax in Japan.
On March 29, 2016, “Partial Revision of Income Tax Act, etc.”(Act No.15 of 2016) and “Partial Revision of Local Tax Act, etc.”(Act No.13 of 2016 ) were approved in the Diet. Under these Acts,
the reduction in the corporate tax rate will become effective fromthe fiscal year beginning on or after April 1, 2016. As a result of

CSR and Corporate Governance

Average effective tax rate

this change, the statutory effective tax rate being applied in thedeferred tax calculation reduced from 32.3% to 30.9% for the
temporary differences which will be deducted during the fiscal year
beginning on April 1, 2016 and on April 1, 2017, and to 30.6%
for those which will be deducted during and after the fiscal year
beginning on April 1, 2018.

Financial Section and Company Information

KANEMATSU ANNUAL REPORT 201677

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

USD

2016

2015

Transition date2016

87,466

66,48573,978776,234

164,001

186,874

182,763

1,455,458

Other investments

1,000

1,000

1,000

8,875

Other financial assets

7,657

9,250

6,663

67,953

172,658

197,125

190,426

1,532,286

Other investments

5,637

6,425

6,341

50,027

Other financial assets

379

3,024

1,497

3,364

6,016

9,449

7,838

53,390

Other investments

24,89725,623

19,386

220,953

Total financial assets measured at fair value through othercomprehensive income

24,89725,623

19,386

220,953

Total financial assets

291,039

298,684

291,629

2,582,881

Trade and other payables

142,143

159,522150,518

1,261,475

Bonds and borrowings

136,867

139,731

140,965

1,214,652

Other financial liabilities

9,979

11,027

10,062

88,561

288,990

310,281

301,5462,564,696

Other financial liabilities

3,829

1,421

1,336

33,981

Total financial liabilities measured at fair value through profit or
loss

3,829

1,421

1,336

33,981

Total financial liabilities

292,819

311,703302,8832,598,678

Financial assets
Cash and cash equivalents
Financial assets measured at amortized cost
Trade and other receivables

Total financial assets measured at amortized cost
Financial assets measured at fair value through profit or loss

Total financial assets measured at fair value through profit or
loss
Financial assets measured at fair value through othercomprehensive income

Financial liabilities
Financial liabilities measured at amortized cost

Total financial liabilities measured at amortized cost
Financial liabilities measured at fair value through profit or loss

(2) Basic policies for risk management of financial
instruments
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.

(3) Credit risk management
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.

78

KANEMATSU ANNUAL REPORT 2016

Each department manages credit exposure to each customer byassigning credit ratings on a customer-by-customer basis and setting credit exposure limit within the framework of theConsolidated Group’s credit risk control.
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 condition such as the number ofbankruptcies into consideration.
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 case the cash collection of the financial
assets was delayed (as well as the case of request for grace period)
after the trade date. However, even when late payment or request

On the other hand, when there has been a significant increase incredit risk since initial recognition as of the end of 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.

Kanematsu’s Progress and Strengths(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-month expectedcredit losses. On the other hand, when there has been a significant
increase in credit risk since initial recognition as of the end of fiscal
year, the Consolidated Group estimates the lifetime credit losses on
the financial instruments and measures the amount of loss allowance of the financial instruments. When estimating such expectedcredit losses, the Consolidated Group uses the default rate published by major rating agencies.
The Consolidated Group directly writes off the gross carrying
amount 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.

Special Features
Review of Operations

for grace period occurs, the Consolidated Group does not determine that there has been a significant increase in credit risk if suchlate payment or request for grace period would be attributable totemporary cash shortage and the risk of default would be low.
Objective data such as external credit ratings reveals their ability tofulfil the obligation of contractual cash flow in the near future.
On the other hand, the Consolidated Group determines that thecredit of the financial assets are impaired, when late payment orrequest for grace period do not arise from temporary cash shortage but significant financial difficulty of the debtor and the recoverability of the modified 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 level.
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 the 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.

CSR and Corporate Governance( 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 material economic change, provision rate calculated based upon the historical credit loss experience is adjusted
to reflect current and future economic prospect.
Even when 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 havestrong ability to fulfil the obligation of contractual cash flow in thenear future.

Financial Section and Company Information(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-month expected credit
losses collectively based upon historical credit loss experience.
When those receivables are affected by material economic change,
provision rate calculated based upon the historical credit loss experience is adjusted to reflect current and future economic prospect.

KANEMATSU ANNUAL REPORT 2016793) 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

As of the transition date (April 1, 2014)

32

2,677

1. Reclassification to credit-impaired financial assets

(0)

44

2. Incurrence or collection during the period

067

3. Direct write-off

—

(147)

4. Changes due to foreign exchange—

9

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

(13)

—

As of March 31, 2015

19

2,651

1. Reclassification to credit-impaired financial assets

(0)

79

2. Incurrence or collection during the period

(1)

(97)

3. Direct write-off

—

(249)

4. Changes due to foreign exchange—(7)

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

(10)

—

7

2,375

As of March 31, 2016

(JPY)
Gross carrying amount

As of the transition date (April 1, 2014)
1. Financial assets reclassified to credit-impaired
financial assets
2. Incurrence or collection during the period
3. Direct write-off
4. Changes due to foreign exchange

Lifetime expected credit losses
Collective assessment

Credit-impaired financial assets

182,285

3,188

(44)

44

4,323

(113)

—

(147)

—

9

186,564

2,981

(159)

159

(22,758)(145)

3. Direct write-off

—

(249)

4. Changes due to foreign exchange—(7)

163,646

2,737

As of March 31, 2015
1. Financial assets reclassified to credit-impaired
financial assets
2. Incurrence or collection during the period

As of March 31, 2016

(USD)
Loss allowance

As of March 31, 2015

80

Lifetime expected credit losses
Collective assessment

Credit-impaired financial assets

169

23,527

1. Reclassification to credit-impaired financial assets

(0)

701

2. Incurrence or collection during the period

(9)

(861)

3. Direct write-off—(2,210)4. Changes due to foreign exchange

—

(62)

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

(89)

—

As of March 31, 2016

62

21,077KANEMATSU ANNUAL REPORT 2016

Gross carrying amount

Kanematsu’s Progress and Strengths(USD)
Lifetime expected credit losses
Collective assessment

Credit-impaired financial assets

1,655,698

26,455(1,411)

1,411

As of March 31, 2015
1. Financial assets reclassified to credit-impaired
financial assets
2. Incurrence or collection during the period(201,970)(1,287)

3. Direct write-off—(2,210)4. Changes due to foreign exchange

—

(62)

1,452,307

24,290

As of March 31, 2016(ii) Other investments (debt instrument securities)

Special Features(JPY)
Expected credit losses
Loss allowance

12 months

Lifetime
Individual assessment

Credit-impaired financial assets

—

—

—

—

—

(a) Reclassified to lifetime expected credit losses

—

—

—

(b) Reclassified to credit-impaired financial assets

—

—

—

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

—

—

—

2. Increase (decrease) in loss allowance resulting
from incurrence or collection

—

—

—

3. Direct write-off

—

—

—

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

0

—

—

As of March 31, 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. Increase (decrease) in loss allowance resulting
from incurrence or collection

—

—

—

3. Direct write-off

—

—

—

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

0

—

—

As of March 31, 2016

0

—

—

CSR and Corporate Governance01. Changes in financial instruments recognized at
the beginning of the period

Review of Operations

As of the transition date (April 1, 2014)

There was no change in the gross carrying amount of the debt instrument securities that caused a change in the amount of loss allowance.

Financial Section and Company Information

KANEMATSU ANNUAL REPORT 2016

81

(JPY)
Expected credit losses
Gross carrying amount

12 months

Lifetime
Individual assessment

Credit-impaired financial assets

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

—

—

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 the transition date (April 1, 2014)

As of March 31, 2015

As of March 31, 2016

(USD)
Expected credit losses
Loss allowance

12 months

Lifetime
Individual assessment

Credit-impaired financial assets

As of March 31, 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. Increase (decrease) in loss allowance resulting
from incurrence or collection

—

—

—

3. Direct write-off

—

—

—

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

0

—

—

As of March 31, 2016

0

—

—
(USD)

Expected credit losses
Gross carrying amount

12 months

Lifetime
Individual assessment

Credit-impaired financial assets

8,875

—

—

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

—

—

—

8,875

—

—

As of March 31, 2015

As of March 31, 2016(iii) There is no contractual, uncollected balance for financial assets written off during the fiscal year ended March 31, 2016, for which;however, collecting efforts are still being made.

82

KANEMATSU ANNUAL REPORT 2016

Balance of receivables (gross)

Performing
receivables

Provision rate based on
historical credit loss
experience

Kanematsu’s Progress and Strengths4) Credit risk exposure(i) Trade and other receivables
2016 (March 31, 2016)
Lifetime expected credit losses

JPY

USD

JPY

USD

163,646

1,452,307

0.00%

7

62

Past due receivables

2,737

24,29086.79%

2,375

21,077

Total

166,384

1,476,606

—

2,383

21,148

Past due receivables includes loans receivable of ¥1,969 million ($17,474 thousand), for which loss allowance of ¥1,688 million ($14,980
thousand) is already recognized.

Special Features

2015 (March 31, 2015)
Balance of receivables (gross)

Performing receivables
Past due receivables
Total

Provision rate based on historical credit loss
experience

Lifetime expected credit losses

JPY

186,564

0.01%

19

2,981

88.96%

2,651

189,546

—

2,671

JPY

Past due receivables include loans receivable of ¥2,062 million, for which loss allowance of ¥1,733 million is already recognized.
Transition date (April 1, 2014)
Balance of receivables (gross)

Lifetime expected credit losses

JPY

Provision rate based on historical credit loss
experience

Performing receivables

182,285

0.02%

32

Past due receivables

3,188

84.00%

2,677

185,474—

2,710

Review of Operations

Total

JPY

Past due receivables includes loans receivable of ¥2,156 million, for which loss allowance of ¥1,652 million is already recognized.
(ii) Other investments (Debt instrument securities)
2016 (March 31, 2016)
Gross carrying amount
Debt instrument securities
External rating

Lifetime

12 months
USD

AAA-AA

—

—

—

—

A

—

—

—

—

BBB-BB

—

—

1,000

8,875

—

—

—

—

—

—

1,000

8,875

B
Total

JPY

USD

CSR and Corporate Governance

JPY2015 (March 31, 2015)
Gross carrying amount
Debt instrument securities
External rating

Lifetime

12 months

JPY

JPY

—

—

A

—

—

BBB-BB

—

1,000

B

—

—

—

1,000

Total

KANEMATSU ANNUAL REPORT 2016

Financial Section and Company Information

AAA-AA83

Transition date (April 1, 2014)
Gross carrying amount
Debt instrument securities
External rating

Lifetime

12 months

JPY

JPY

AAA-AA—A——

BBB-BB

—

1,000

B
Total

—

—

—

—

1,000

5) Maximum exposure to credit risks
The Consolidated Group’s maximum exposure to credit risks is asfollows:
The Consolidated Group’s maximum credit risk exposure (gross)represents the amount of the maximum exposure with respect tocredit risks without taking into account any collateral held or othercredit enhancement. On the other hand, 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 or other credit enhancement.

As of March 31, 2016
Gross
carrying amount

Cash and cash
equivalents

Lossallowance
JPY

Maximum credit risk
exposure (gross)

JPY

USD

USD

87,466776,234——

166,384 1,476,606(2,383)(21,148)——

Maximum
credit risk
exposure (net)Total collateral pledged
and credit enhancements

JPY

USD

JPY

USD

87,466776,234——

164,001 1,455,458(290)(2,574)

—

—

JPY

USD

87,466776,234

Financial assets
measured atamortized cost
Trade and otherreceivables
Other financial
assets

7,657

67,953

1,000

8,875

(0)

(0)

262,508 2,329,677(2,383)(21,148)

Other investments
Total

7,657

67,953

1,000

8,875

—

—

260,124 2,308,520(290)(2,574)

163,710 1,452,875
7,657

67,953

1,000

8,875

259,834 2,305,946

The amount of loss allowance for credit-impaired financial assets is reduced by ¥290 million ($2,574 thousand) through collateral pledged
and credit enhancements.
As of March 31, 2015

Cash and cash equivalents

Gross carrying
amountLossallowance

JPY

JPY

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

JPY

JPY

Maximum
credit risk
exposure (net)
JPY

66,485—66,485—66,485

186,651

Financial assets measured atamortized cost
189,546(2,671)

186,874(223)

Other financial assets

Trade and other receivables

9,250

—

9,250

—

9,250

Other investments

1,000

(0)

1,000

—

1,000

Total

266,282(2,671)

263,611(223)

263,388

The amount of loss allowance for credit-impaired financial assets is reduced by ¥223 million through collateral pledged and credit enhancements.
As of the transition date (April 1, 2014)

Cash and cash equivalents

Gross carrying
amountLossallowance

JPY

JPY

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

JPY

JPY

Maximum
credit risk
exposure (net)
JPY

73,978—73,978—73,978

182,548

Financial assets measured atamortized cost
Trade and other receivables

84

185,474(2,710)182,763(214)

Other financial assets

6,663

—

6,663

—

6,663

Other investments

1,000

(0)

1,000

—

1,000

Total

267,115(2,710)264,404(214)

264,190

KANEMATSU ANNUAL REPORT 2016

Kanematsu’s Progress and Strengths

The amount of loss allowance for credit-impaired financial assets is reduced by ¥214 million through collateral pledged and credit enhancements.

(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 a sufficient levels of cash and cash equivalents and maintains a long-term (unused) commitment line agreement with a major financial institution in the amount of ¥12.5 billion ($110,934 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:

Special Features

As of March 31, 2016
Between one andfive years

Within one year

Trade and other payables

JPY

USD

142,143

1,261,475

Bonds
Borrowings

JPY

Over
five years

USD

JPY

—

—

Total
USD

—

—

JPY

USD

142,143

1,261,475

52

461

10,16490,202——

10,216

90,66463,086559,869

52,942469,844

13,651

121,148

129,680

1,150,870

486

4,313

1,108

9,833

19

169

1,613

14,315

3,028

26,873

—

—

3,050

27,0686,079

53,949

Guarantee deposits received

960

8,520

19

169

1,377

12,2202,357

20,918

Other

82

728

—

—

—

—

82

728

209,839

1,862,256

64,235570,066

18,098160,614292,173

2,592,945

Total

Review of Operations

Lease obligations
Deposits received

The Consolidated Group has guarantee obligations of ¥1,477 million ($13,108 thousand), ¥2,716 million and ¥2,279 million as of March 31,
2016, March 31, 2015 and the transition date, respectively.
As of March 31, 2015
Within one year

Between one andfive years

Overfive years

JPY

JPY

JPY

Total
JPY

Trade and other payables

159,522——

159,522

Borrowings

144,345

67,522

9,675

711

1,307

134

2,153

Deposits received

3,153

—

3,206

6,359

Guarantee deposits received

890

19

1,301

2,212

Other

529

—

—

529

231,956

68,84914,317315,123

Within one year

Between one andfive years

Overfive years

Total

JPY

JPY

JPY

Total

CSR and Corporate Governance

67,148

Lease obligations

As of the transition date (April 1, 2014)

JPY

Trade and other payables

150,518——

150,518

Borrowings

145,746

59,173

4,320

813

1,075

23

1,913

Deposits received

2,604

—

3,328

5,933

Guarantee deposits received

927

18

1,282

2,228

Other

107

—

—

107

237,224

60,267

8,955

306,447

Total

KANEMATSU ANNUAL REPORT 2016

Financial Section and Company Information

82,253

Lease obligations852) Derivative liabilities
The breakdown of derivative liabilities by due date is presented as follows:
As of March 31, 2016
Within one year

Between one andfive years

Overfive years

JPY

USD

JPY

USD

45,617

404,8372,378

21,104—48,013426,100

2,528

22,4352,396

21,264149

1,322Interest rate-related derivatives

264

2,343

765

Commodity-related derivatives

77

683

2,738

24,299

JPY

Total
USD

JPY

USD

—

47,996425,950——

50,542448,545

—

—

2,546

22,595

6,789

90

799

1,120

9,940

0

0

—

—

77

683

915

8,120

90

799

3,744

33,227

Current-related derivatives
Cash inflows
Cash outflows
Sub total

Total
As of March 31, 2015

Within one year

Between one andfive years

Over five years

Total

JPY

JPY

JPY

JPY

Current-related derivatives
Cash inflows

17,467

176—

17,644

Cash outflows

17,947

177—

18,124

479

0

—

480

Interest rate-related derivatives

217

691

92

1,001

Commodity-related derivatives

125

0

—

126

823

692

92

1,608

Sub total

Total
As of the transition date (April 1, 2014)

Within one year

Between one andfive years

Over five years

Total

JPY

JPY

JPY

JPY

Current-related derivatives
Cash inflows

27,279416—

27,696

Cash outflows

27,601419—

28,021

322

2

—

324

Interest rate-related derivatives

309

434

40

784

Commodity-related derivatives

299

0

—

299

930

437

40

1,408

Sub total

Total(5) Market risk management
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.
1) Foreign currency risk(i) Nature of foreign currency risk and its management policy
The Consolidated Group is engaged in foreign currency transactions in various currencies and terms incidental to its export and86

KANEMATSU ANNUAL REPORT 2016

import 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.
In principle, the Company and its certain subsidiaries enter into
forward exchange contracts to hedge against the exchange ratecurrency fluctuation risk of foreign currency-denominated receivables and payables that are controlled by currency and by contract
month. The Company and its certain subsidiaries also enter into
forward exchange contracts to hedge against foreign currencydenominated receivables and payables that is 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In addition, such analysis does not include the affected amounts basedon translations (into Japanese yen) of financial instruments denominated in functional currency, income and expenses denominated inforeign currency and assets and liabilities of foreign operations.

JPY

Kanematsu’s Progress and Strengths

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 yen against the U.S. dollar.
Such analysis is based on the assumption that other factors areheld constant.

USD

2016

2015

2016

1

(2)

9

174

262

1,544

Profit before tax
U.S. dollar
Other comprehensive income
U.S. dollar

Special Features

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 by the Consolidated
Group may increase with a rise in interest rates.
The Company and its certain consolidated subsidiaries enter into
the interest rate swap contracts to avoid the interest rate fluctuation risk stemming from the borrowings.

In regards to financial instruments held by the Consolidated Groupat the end of the reporting period, the following table shows theamount affecting profit before tax in the case that the interest rateincreases by 1%.
Under the analysis, the amount affecting profit before tax is calculated by multiplying the net balance of floating rate financial
instruments as of March 31, 2016 and 2015 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 tax

USD

2016

2015

2016

(749)

(897)

(6,647)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 amount affecting profit before tax and othercomprehensive income (before the tax effect) in the case that thecommodity price decreases by 1%.
The analysis is performed based on the assumption that all theother variables are held constant.
JPY

2016

USD

2015

2016

(51)

(515)

(52)

(37)

(461)

Fuels

(5)

(14)

(44)

(4)

(0)

(35)

Foods

(4)

(0)

(35)

Fuels

—

—

—

Other comprehensive income4) 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 hold 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 the amountaffecting other comprehensive income (before the tax effect) in thecase that the share price decreases by 1%. The analysis is performed based on the assumption that all the other variables areheld constant.
JPY

Other comprehensive income

Financial Section and Company Information

(58)

Foods

Profit before tax

CSR and Corporate Governance3) Commodity price risk(i) Nature of commodity price risk and its management policy
In 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 the 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.

Review of Operations(ii) Sensitivity analysis of interest rate risk

USD

2016

2015

2016

(140)

(132)

(1,242)KANEMATSU ANNUAL REPORT 201687

(6) Fair value of financial instruments
1) Fair value measurement
Fair values of financial instruments are presented as follows:
While fair values are categorized into three levels of the fair value hierarchy depending on inputs to valuation techniques, its details aredescribed in “2. Basis of Preparing Consolidated Financial Statements: (4) Use of estimates and judgments”.
2) Financial instruments measured at amortized cost
2016
Type

2015

Carrying amount
JPY

Carrying
amountFair value

USD

JPY

USD

Transition date
Fair value

Carrying
amountJPY

Fair value
JPY

Financial assets
Trade and other receivables

460

4,082

460

4,082

388

388

135

135

Other investments (Debt
instrument securities)

1,000

8,875

1,000

8,875

1,000

1,000

1,000

1,000
3,921

Guarantee deposits

3,814

33,8483,814

33,848

3,893

3,893

3,921

Other financial assets

1,626

14,4301,626

14,430

1,588

1,588

563

563

6,901

61,244

6,901

61,244

6,870

6,870

5,620

5,620
61,222

Total
Financial liabilities
Bonds and borrowings

74,877

664,51075,746672,222

74,426

74,636

61,113Long-term lease obligations

1,025

9,097

1,015

9,008

1,286

1,286

1,032

1,038

Long-term deposits received

3,050

27,0683,050

27,068

3,206

3,206

3,328

3,328

Long-term guarantee deposits
received

1,396

12,3891,396

12,389

1,321

1,321

1,301

1,301

Total

80,351

713,090

81,209720,705

80,24180,451

66,776

66,890The 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:(vi) Long-term lease obligations
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.

(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.

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

(ii) Other investments (Debt securities)
The fair value of other investments is the present value of future
estimated cash flows discounted by an interest rate applicable tosimilar financial assets.

(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.

(iii) Guarantee deposits received
The fair value of guarantee deposits received is the present value of
future cash flows discounted by an interest rate that reflects time
to maturity 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.
(v) Bonds and borrowings
The fair value of bonds is determined based on their market price.

88

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.

KANEMATSU ANNUAL REPORT 2016

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,
2016 and March 31, 2015.

Level 1
JPY

Level 2USD

JPY

Level 3USD

Kanematsu’s Progress and Strengths

As of March 31, 2016
Total

JPY

USD

JPY

USD

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

—

—

—

5,637

50,027

5,637

50,027

14,061

124,787——

10,836

96,16624,897

220,953

Foreign exchange

—

—

200

1,775

—

—

200

1,775

Interest rate

—

—

—

—

—

—

—

—

Commodity

174

1,544

4

35

—

—

179

1,589

Foreign exchange——(2,546)(22,595)——(2,546)(22,595)

Interest rate——

(1,205)(10,694)——(1,205)(10,694)

Commodity

(63)

(559)

(14)

(124)

—

—

(77)

(683)

14,172

125,772(3,561)(31,603)

16,474

146,202

27,084

240,362

Stock
Financial assets measured at fairvalue through other comprehensive
incomeStockSpecial Features

Other financial assets
Derivative transactions:

Liabilities
Other financial liabilities
Derivative transactions:

Review of Operations

Total
As of March 31, 2015

Level 1

Level 2

Level 3

Total

JPY

JPY

JPY

JPY

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

—

—

6,425

6,425

13,260—12,362

25,623Foreign exchange

—

2,845

—

2,845

Interest rate

—

—

—

—

Commodity

157

21

—

178

Foreign exchange

—

(480)

—

(480)

Interest rate

—

(814)

—

(814)

Commodity

(112)

(13)

—

(126)

13,305

1,557

18,78833,651Stock

CSR and Corporate Governance

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

Liabilities
Other financial liabilities
Derivative transactions:

KANEMATSU ANNUAL REPORT 2016

Financial Section and Company Information

Total

89

As of the transition date (April 1, 2014)
Level 1

Level 2

Level 3

Total

JPY

JPY

JPY

JPY

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

—

—

6,341

6,341

9,187

—

10,19819,386

Foreign exchange

—

1,233

—

1,233

Interest rate

—

—

—

—

Commodity

260

3

—

263

(324)

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

Liabilities
Other financial liabilities
Derivative transactions:
Foreign exchange

—

(324)

—

Interest rate

—

(712)

—

(712)

Commodity

(298)

(0)

—

(299)

9,148

199

16,53925,887Total

The methods of determining the fair value of the above instruments are described as follows:(a) Other investments
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 flow, 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 Company determines the policies and procedures for measuring the fair value of unlisted shares, and reviews the approach
to measuring fair value including the valuation model, by obtaining
the information on business operation and business plans associated with each equity issuer and confirming the data from comparable public companies.
(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.

90

KANEMATSU ANNUAL REPORT 2016

Interest rate-related derivatives
The fair value of interest-rate swaps is the present value of future
cash flow discounted by an interest rate that reflects time to settlement, as well as market situations.
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.
(ii) Recurring fair value measurements categorized within
Level 3 of the fair value hierarchy
The Charges in financial assets and liabilities that are measured atfair value on a recurring basis and are categorized within Level 3 ofthe fair value hierarchy are presented as follows. There were nomaterial transfers between different levels for the years ended
March 31, 2016 and March 31, 2015.

2015
Other investments
FVTPL

FVTOCI

Total

JPY

FVTPL
USD

JPY

USD

JPY

USD

JPY

JPY

JPY

6,425

57,02012,362

109,70918,788

166,738

6,341

10,198

16,539Profit or loss (Note 1)(323)(2,867)

—

—

(323)

(2,867)

(889)

—

(889)

Other comprehensive
income (Note 2)——(1,577)(13,995)(1,577)(13,995)

—

2,097

2,097

Beginning balance

FVTOCI

Total

Kanematsu’s Progress and Strengths

2016
Other investments

Total gains or losses

Purchase

—

—

524

4,650

524

4,650

—

24

24

Sale

—

—

(472)

(4,189)(472)(4,189)

—

(8)

(8)

Foreign currencytranslation difference(375)(3,328)

—

—

(375)

(3,328)

974

—

974

Increase (decrease) due tochanges in scope of
consolidation

(89)

(790)

0

0

(89)

(790)

—

50

50

5,637

50,027

10,836

96,166

16,474

146,2026,425

12,362

18,788

Other
Special Features

Ending balance

FVTPL: Financial assets measured at fair value through profit or loss
FVTOCI: Financial assets measured at fair value through other comprehensive income(Notes) 1. The gains or losses are included in “Other finance income” or “Other finance costs” in the consolidated statements of income. Of those gains or losses recognizedin profit or loss, the amounts arising from financial instruments that were held at the period end are ¥(323) million ($(2,867) thousand) for the fiscal year ended
March 31, 2016 and ¥(889) million for the fiscal year ended March 31, 2015.
2. The gains or losses recognized in other comprehensive income are included in “Financial assets measured at fair value through other comprehensive income” in the
consolidated statements of comprehensive income.

Review of Operations(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, 2016
Fair value

Category

Weighted averageof input values

Discounted cash flow
methodDiscount rate

3.5%

86,377

Market multiple method

P/B ratio
Illiquidity discount

1.1 times
30.0%

9,789

Net asset value method

—

—

USD

Financial assets measured atfair value through profit or
loss

5,637

50,027

Financial assets measured atfair value through othercomprehensive income

9,733

Financial assets measured atfair value through othercomprehensive income

1,103Valuation technique

CSR and Corporate GovernanceSignificant unobservable inputs

JPY

As of March 31, 2015
Fair value(JPY)

Valuation techniqueSignificant unobservable inputs

Weighted averageof input values

Financial assets measured at fair value
through profit or loss

6,336

Discounted cash flow method

Discount rate

3.5%

Financial assets measured at fair value
through profit or loss

89

Market multiple method

P/B ratio
Illiquidity discount

1.4 times
30.0%

Financial assets measured at fair value
through other comprehensive income

11,597

Market multiple method

P/B ratio
Illiquidity discount

1.4 times
30.0%

Financial assets measured at fair value
through other comprehensive income

764

Net asset value method——

Category

Fair value(JPY)

Valuation techniqueSignificant unobservable inputs

Weighted averageof input values

Financial assets measured at fair value
through profit or loss

6,276

Discounted cash flow method

Discount rate

4.1%

Financial assets measured at fair value
through profit or loss

64

Market multiple method

P/B ratio
Illiquidity discount

1.3 times
30.0%

Financial assets measured at fair value
through other comprehensive income

9,484

Market multiple method

P/B ratio
Illiquidity discount

1.2 times
30.0%

Financial assets measured at fair value
through other comprehensive income

713

Net asset value method——

Financial Section and Company Information

Category

As of the transition date (April 1, 2014)

KANEMATSU ANNUAL REPORT 201691

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

(7) Financial assets measured at fair value through othercomprehensive 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 fair value through other comprehensive income.

As of March 31, 2016
Name of issue

AmountJPY

USD

MARUDAI FOOD CO., LTD.

2,620

23,252

Tokio Marine Holdings, Inc.

2,277

20,208Nissin Seifun Group Inc.

1,628

14,448

BOT Lease Co., Ltd.

1,311

11,635

Sotsu Corporation

1,258

11,164The Norinchukin Bank

1,100

9,762

SHIN KURUSHIMA DOCKYARD CO., LTD.

1,099

9,753

DAIO PAPER CORPORATION

728

6,461

GUANGZHOU SHOWA AUTOPARTS CO., LTD.

590

5,236

F.C.C. Co., Ltd.
Other

588

5,218

11,692

103,763

As of March 31, 2015
Name of issue

AmountJPY

Tokio Marine Holdings, Inc.

2,714

Sotsu Corporation

1,617

BOT Lease Co., Ltd.

1,491

Nissin Seifun Group Inc.

1,286

SHIN KURUSHIMA DOCKYARD CO., LTD.

1,201

MARUDAI FOOD CO., LTD.

1,132

GUANGZHOU SHOWA AUTOPARTS CO., LTD.

914

DAIO PAPER CORPORATION

791

The Norinchukin Bank

762

Nippon Manufacturing Service Corporation
Other

602
13,107

As of the transition date (April 1, 2014)
Name of issue

JPY

Tokio Marine Holdings, Inc.

1,791

Sotsu Corporation

1,498

BOT Lease Co., Ltd.

1,088

SHIN KURUSHIMA DOCKYARD CO., LTD.

1,046

DAIO PAPER CORPORATION

952

Nissin Seifun Group Inc.

938

MARUDAI FOOD CO., LTD.

848

The Norinchukin Bank

713

GUANGZHOU SHOWA AUTOPARTS CO., LTD.

530

MARUICHI STEEL TUBE LTD.

499

Other

92

AmountKANEMATSU ANNUAL REPORT 2016

9,478

JPY

2016

USD

2016

2015

Investments derecognized during the year

7

0

62

Investments held at the end of the year

772

709

6,851

779

709

6,913

Total

Kanematsu’s Progress and Strengths2) Dividend income

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

USD

2015

2016

Fair value on the date of sale

605

238

5,369

Cumulative gains (losses) on sale

393

106

3,488

(8) Hedge Accounting

CSR and Corporate Governance(Cash Flow Hedge)
A Cash flow hedge is a hedge of the exposure to variability infuture cash flow arising from a forecast transaction or recognizedassets or liabilities. While a hedge is designated as cash flow hedge
as long as the hedge is effective, the changes in the fair value ofqualifying hedging instrument should be recorded as the othercomprehensive income in the Consolidated Statement ofComprehensive Income. The Consolidated Group continues suchaccounting treatment until variability in future cash flow arisingfrom unrecognized forecast transaction or recognized assets or liabilities designated as hedged item are recorded in profit or loss.
Moreover, portions determined to be ineffective as hedging
accounting are recognized in profit or loss.
The Company and its certain consolidated subsidiaries designate
the following instruments as cash flow hedge: forward exchange
contracts to fix cash flows from foreign currency denominatedreceivables and payables, foreign currency denominated firm commitment and foreign currency denominated forecast transactions;interest rate swap to fix variable interest rate on floating rate finan-cial liabilities; and commodity future to fix cash flow from forecast
transactions of commodity trade.
When applying hedge accounting, the Consolidated Group confirms that there are economic relationship between the hedged
items and hedging instruments through qualitative assessments,
which show whether the critical terms of the hedging instruments
and the hedged items match exactly or are closely aligned, andquantitative assessments, which show fluctuations of value ofhedged item and hedging instruments by the same risk offset eachother, in order to confirm there are economic relationship that variability in fair value or cash flows of the hedged items that are
attributable to the hedged risk shall be offset by the changes in fairvalue or cash flows of the hedging instruments . The Consolidated
Group also establish appropriate hedge ratios considering an economic relationship between hedging instruments and hedged item
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, 2016 and March 31, 2015. In addition, the amounts
reclassified from valuation difference on cash flow hedge to profit
or loss are either not material because the forecast transactions are
no longer expected to occur.
Followings are the carrying amount of the hedging instruments
for the years ended March 31, 2016, March 31, 2015 and thetransition date. The fair value of financial assets related to hedging
instruments is included in “Other financial assets” while the fairvalue of financial liabilities related to hedging instruments is included in “Other financial liabilities (current)” or “Other financial liabilities (non-current)” in the consolidated statements of financial
position.

Review of Operations

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 incomethat were reclassified to retained earnings for the years ended
March 31, 2016 and March 31, 2015 were ¥275 million ($2,441
thousand) and ¥76 million, respectively.

Special Features

2016

As of March 31, 2016
Carrying amount

Notional amount

Derivative liabilities

JPY

USD

JPY

USD

JPY

USD

20,883

185,330

58

515

764

6,780

29,000257,366

—

—

1,205

10,694

547

4,854

16

142

4

35

Financial Section and Company Information

Derivative assets

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

KANEMATSU ANNUAL REPORT 201693

As of March 31, 2015
Carrying amount

Notional amount

Derivative assets

Derivative liabilities

JPY

JPY

JPY

28,0371,191

50

28,454

—

814

392

15

54

Foreign currency risk
Forward exchange contracts
Interest rate risk
Interest rate swap contracts
Commodity price risk
Commodity futures contracts
As of the transition date (April 1, 2014)
Carrying amount

Notional amount

Derivative assets

Derivative liabilities

JPY

JPY

JPY

24,154280

30

28,531

—

337

946

92

98

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

The following tables present the carrying amounts of cash flow hedge reserve as of March 31, 2016, March 31, 2015 and the transition date.
As of March 31, 2016
Cash flow hedge reservefor continuing hedges(before tax)

Cash flow hedge reservefor discontinuing hedge accounting(before tax)

JPY

USD

JPY

USD

(706)

(6,266)——(1,205)(10,694)

—

—

12

106

(51)

(453)

Foreign currency risk
Forward exchange contracts
Interest rate risk
Interest rate swap contracts
Commodity price risk
Commodity futures contracts
As of March 31, 2015
Cash flow hedge reservefor continuing hedges(before tax)

Cash flow hedge reservefor discontinuing hedge accounting(before tax)

JPY

JPY

1,141

—

(814)

—

(38)

(82)

Foreign currency risk
Forward exchange contracts
Interest rate risk
Interest rate swap contracts
Commodity price risk
Commodity futures contracts
As of the transition date (April 1, 2014)
Cash flow hedge reservefor continuing hedges(before tax)

Cash flow hedge reservefor discontinuing hedge accounting(before tax)

JPY

JPY

250

—

(337)

(375)

(6)

(0)

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

The following tables present the carrying amounts of transactions that affected the consolidated statements of comprehensive income as aresult of applying the hedge accounting for the fiscal years ended March 31, 2016 and March 31, 2015.

94

KANEMATSU ANNUAL REPORT 2016

Change in value of hedging instruments
recognized in other comprehensive
incomeReclassification from cash flow hedge
reserve to profit or loss

Kanematsu’s Progress and Strengths

Fiscal year ended March 31, 2016 (from April 1, 2015 to March 31, 2016)
Line item for which profit or loss wasaffected by reclassification

JPY

USD

JPY

USD

(745)

(6,612)(1,102)(9,780)

Other income(396)(3,514)5

44Interest expenses

44

390

37

328

Cost of revenues

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

Fiscal year ended March 31, 2015 (from April 1, 2014 to March 31, 2015)
Reclassification from cash flow hedge
reserve to profit or loss

JPY

JPY

1,123

(232)

Other income

(185)

83

Interest expenses

(120)

6

Cost of revenues

Special Features

Change in value of hedging instruments
recognized in other comprehensive
incomeLine item for which profit or loss wasaffected by reclassification

Foreign currency risk
Forward exchange contracts
Interest rate risk
Interest rate swap contracts
Commodity price risk
Commodity futures contracts(9) Transfer of financial assets

Consolidated Group may not use such liquidated assets until such
settlement occurs.
It is noted that due to the exceptions to the retrospective application of IFRS 1 applicable to entities adopting IFRSs for the firsttime, the requirements regarding derecognition of financial assets
and liabilities apply to transactions occurring on and after the transition date (but not before the transition date). Therefore, as of thetransition date, such liquidated assets were derecognized in accordance with accounting principles generally accepted in Japan.

(10) Offsetting financial assets and financial liabilities

JPY

CSR and Corporate Governance

The following tables present the financial assets and financial liabilities recognized for the same counterparties including financial
instruments that were not offset even though they were coveredby an enforceable master netting arrangement or similar agreement because they did not meet some or all of the offsetting criteria as of March 31, 2016, March 31, 2015 and the transition date.
USD

2015

Transition date

2016

379

3,024

1,497

3,364

Foreign exchange

200

2,845

1,233

1,775

Interest rate

—

—

—

—

Commodity

179

178

263

1,589

Amounts that were not offset even though they were coveredby an enforceable master netting arrangement or similar
agreement because they did not meet some or all of theoffsetting criteria

(186)

(352)

(563)

(1,651)

Net amounts

192

2,671

934

1,704

KANEMATSU ANNUAL REPORT 2016

Financial Section and Company Information

2016

Amounts of financial assets presented in the consolidated
statements of financial position

Review of Operations

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 makepayments 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 amounts of ¥1,771 million($15,717 thousand) and ¥2,735 million as of March 31, 2016 andMarch 31, 2015, respectively. In addition, liabilities relating to thedeposit amounts which arose upon the transfer of such assets
were accounted for as “Bonds and borrowings” in the amounts of¥1,771 million ($15,717 thousand) and ¥2,735 million as of March
31, 2016 and March 31, 2015, respectively. Such liabilities are settled when payments for such liquidated assets are made, and the

95

JPY

USD

2016

2015

Transition date

2016

3,829

1,421

1,336

33,981

Foreign exchange

2,546

480

324

22,595Interest rate

1,205

814

712

10,694

Commodity

77

126

299

683

(186)

(352)

(563)

(1,651)

(4)

(30)

(39)

(35)

3,638

1,037

734

32,286

Amounts of financial liabilities presented in the consolidated
statements of financial position

Amounts that were not offset even though they were coveredby an enforceable master netting arrangement or similar
agreement because they did not meet some or all of theoffsetting criteria
Financial collateral pledged
Net amounts
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 suchfinancial 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.

31. Lease(1) Lessee
1) Finance leases
The Consolidated Group leases the computer-related equipment for the enterprise system (tools, furniture and fixtures) and other assets
under the finance leases.
The carrying amounts of the leased assets, net of accumulated depreciation and accumulated impairment losses, as of March 31, 2016,
March 31, 2015 and the transition date are as follows:
JPY

Machinery, equipment, vehicle, tools and fixtures
Other
Total

USD

2016

2015

Transition date

2016

1,218

1,463

1,073

10,809

58

69

39

515

1,276

1,533

1,113

11,324

The future minimum lease payments under the finance lease as of March 31, 2016, March 31, 2015 and the transition date are as follows:
Present value of
future minimum lease payments

Future minimum lease payments
JPY

2016

Within one year
Between one and five
years

2015

USD

Transition date

2016

JPY

2016

USD

Transition
date

2015

2016

486

711

813

4,313

433

638

761

3,843

1,108

1,307

1,075

9,833

997

1,170

1,015

8,848

19

134

23

169

18

115

22

160

Total

1,613

2,153

1,913

14,315

1,449

1,924

1,799

12,859Less future finance costs

(163)

(228)

(113)

(1,447)

Present value of future
minimum lease
payments

1,449

1,924

1,799

12,859Over five years

The future minimum lease payments receivable under the non-cancelable subleases as of March 31, 2016 and March 31, 2015 and the transition date are ¥54 million ($479 thousand), ¥248 million and ¥612 million, respectively.
2) Operating leases
The Consolidated Group leases office buildings and 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, 2016, March 31, 2015 and the transition date areas follows:
JPY

USD

2016

2015

Transition dateWithin one year

10

10

13

89

Between one and five years

19

31

39

169

Over five years
Total

2016

—

—

—

—

30

42

53

266

The total lease payments recognized as expenses under the cancellable or non-cancellable operating leases for the fiscal year ended March
31, 2016 and March 31, 2015 are ¥5,981 million ($53,080 thousand) and ¥5,660 million, respectively.

96

KANEMATSU ANNUAL REPORT 2016

Kanematsu’s Progress and Strengths

The future minimum lease payments receivable under the non-cancelable subleases as of March 31, 2016 and March 31, 2015 and the transition date are ¥38 million ($337 thousand), ¥44 million and ¥50 million, respectively.

(2) Lessor
1) Finance leases
The Consolidated Group leases out machinery, equipment and other assets that are classified as finance lease. The future minimum lease
payments receivable under the finance lease as of March 31, 2016 and March 31, 2015 and the transition date are as follows:
Future minimum lease payments receivableand unguaranteed residual value
JPY

2016

Present value of
future minimum lease payments receivable
USD

Transition
date

2015

JPY

2016

2016

USD

2015

Transition date

2016

4

2

2

35

3

1

1

27

17

9

9

151

12

6

6

106

Over five years

13

6

9

115

8

4

6

71

Total

35

18

21

311

23

12

14

204

Unguaranteed residual
value

—

—

—

—

Less future financeincome

(12)

(6)

(7)

(106)

Present value of future
minimum lease payments
receivable

23

12

14

204

Special Features

Within one year
Between one and five
years

Review of Operations

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

USD

2016

2015

Transition date2016

Trade receivables

—

303

229

—

Other financial assets (non-current)

23

3

6

204

Property, plant and equipment

653

909

907

5,795

676

1,215

1,143

5,999

1,806

1,150

750

16,028

231

—

500

2,050

1

1

3

9

2,039

1,151

1,253

18,095

Pledged assets:

Total
Short-term borrowings (current)Long-term borrowings (non-current)
Other
Total

CSR and Corporate Governance

Associated secured obligations:

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:
Financial Section and Company Information

JPY

2016

USD

2015

Transition date

2016

Assets pledged in lieu of guarantee money or guarantee funds
Other financial assets (current)

71

3

18

Other financial assets (non-current)

14

14

—

124

2,692

3,125

2,134

23,891

2,779

3,143

2,152

24,663

Other investments
Total

630

KANEMATSU ANNUAL REPORT 201697

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 unpayable amounts.
JPY

USD

2016

2015

Transition date

2016

Debt guarantees for equity method investees

489

1,812

1,278

4,340

Debt guarantees for third parties

988

904

1,001

8,768

Total

1,477

2,716

2,279

13,108The above amounts include those for quasi-guarantee acts.

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

Detail of major operations

Percentage of voting rights (%)

2016

2015

58.32
(0.40)

58.32(0.40)

58.32(0.40)

100.00(100.00)

96.55(96.55)54.65(54.65)

Transition date(Consolidated subsidiaries)[Electronics & Devices]98

Kanematsu Electronics
Ltd.

Chuo-ku, Tokyo, Japan

Nippon Office Systems
Ltd.

Development of software for and sales
Chuo-ku, Tokyo, Japan and maintenance of computers andcomputer peripherals, etc.

Kanematsu
Communications Ltd.

Shibuya-ku, Tokyo,
Japan

Sales of mobile communications
devices; Mobile internet systems andservices

100.00100.00100.00Kanematsu Granks,
Corp.

Shinjuku-ku, Tokyo,
Japan

Mobile contents delivery and mobilerelated solution business

89.05(89.05)

82.43(82.43)

82.43(82.43)Kanematsu BD
Communications
LimitedKurume-shi, Fukuoka,
Japan

Sales of mobile communication device

100.00(100.00)

100.00(100.00)

100.00(100.00)

Kanematsu-NNK Corp. Chuo-ku, Tokyo, Japan

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

52.96

52.97

32.17

Kanematsu Advanced
Materials Corp.

Import, export, storage, sales, andprocessing of materials andChuo-ku, Tokyo, Japan components for vehicle equipment,
industrial electronics, andcommunication devices

100.00100.00—Tanashin (Europe)GmbH

Dusseldorf,
Germany

Sales and maintenance of parts for car
audio systems

100.00(20.00)100.00(20.00)100.00(20.00)

Kanekoh Electronics(Shanghai) Co., Ltd.

Shanghai,China

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

70.00

70.00

70.00

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

Dalian, China

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

100.00(100.00)

100.00100.00KANEMATSU ANNUAL REPORT 2016

System integration of ICT andcommunications equipment

Location

Detail of major operations

Percentage of voting rights (%)

2016

2015

Transition dateKanematsu’s Progress and Strengths

Trade name

[Foods & Grain]
Minato-ku, Tokyo,
Japan

Food wholesaling and cold storage

100.00100.00100.00Kanematsu Agritec
Co., Ltd.

Matsudo-shi, Chiba,
Japan

Manufacture and sales of feed andfertilizer

100.00100.00100.00Kanematsu Soytech
Corp.

Chuo-ku, Osaka, Japan

Sales of soybeans, pulses & peas, andgrain; Development and marketing of
tofu and other ingredients forprocessed foods

100.00100.00100.00

North Pet Co., Ltd.

Yubari-gun, Hokkaido,
Japan

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

100.00100.00—KG Agri Products, Inc.

Delaware,
U.S.A.

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

100.00100.00100.00Kai Enterprises, Inc.

Washington,
U.S.A.

Sales of hay and roughage

100.00(15.00)100.00(15.00)100.00(15.00)P.T. Kanemory Food
ServiceSerang,Indonesia

Manufacture of processed foods;
Management of central kitchen

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

Chuo-ku, Tokyo, Japan

Sales of steel and construction
materials

100.00100.00100.00

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)

100.00(100.00)

Kanematsu Chemicals
Corp.

Sales of petrochemicals, automobileChuo-ku, Tokyo, Japan related chemicals, health foodingredients, and pharmaceuticals

100.00100.00100.00Kanematsu Wellness
Corp.

Chuo-ku, Tokyo, Japan

Sales of health foods and provision of
medical information

100.00(100.00)

100.00(100.00)

100.00(100.00)

Kanematsu Petroleum
Corp.

Chiyoda-ku, Tokyo,
Japan

Sales of petroleum products and LPG

100.00100.00100.00Kanematsu Yuso Co.,Ltd.

Chiyoda-ku, Tokyo,
Japan

Delivery and storage of petroleum
products

100.00100.00100.00Kanematsu KGK Corp.

Nerima-ku, Tokyo,
Japan

Sales of machine tools and industrial
machinery

97.89

97.89

97.89

Benoit Holding
Company

Delaware,
U.S.A.

Holding company

85.18(85.18)85.18(85.18)85.18(85.18)

Benoit Premium
Threading, LLC

Delaware,
U.S.A.

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

54.00(54.00)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)51.00(51.00)KGK International
Corp.

Illinois,
U.S.A.

Sales of machine tools

100.00(100.00)

100.00(83.67)100.00(83.67)

Special Features

Kanematsu Shintoa
Foods Corp.

[Steel, Materials & Plants]

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

KANEMATSU ANNUAL REPORT 201699

Trade nameLocation

Percentage of voting rights (%)

Detail of major operations

2016

2015

Transition date

[Motor Vehicles & Aerospace]
Kanematsu Aerospace
Corp.

Minato-ku, Tokyo,
Japan

Sales of aircraft, defense, andaerospace-related products

100.00100.00100.00Aries Motor Ltd.

Warsaw, Poland

Sales of automobiles

93.59

93.59

93.59

Aries Power
Equipment Ltd.

Warsaw, Poland

Sales of engines, generators, water
pumps, and other general-purpose
machinery

60.00

60.00

60.00

KG Aircraft Rotables
Co., Ltd.

Dublin, Ireland

Replacement and maintenance of
aircraft rotable components; Leasing

96.67

86.67

86.67

Aso Kanko Kaihatsu
Co., Ltd.

Minato-ku, Tokyo,
Japan

Golf course management

100.00100.00100.00

Shintoa Corp.

Chiyoda-ku, Tokyo,
Japan

Beverage-vending machine operations;
Imports, exports, and sales of aircraft
engines100.00100.00100.00Kanematsu Logistics &Insurance Ltd.

Insurance agency and forwarding
Chuo-ku, Tokyo, Japan business; Consigned freight forwarding
business

100.00100.00100.00[Others][Overseas local subsidiaries]
Kanematsu USA Inc.

New York,
U.S.A.

Export, import and sales ofmerchandise

100.00100.00100.00Kanematsu (HongKong) Ltd.

Hong Kong,
China

Export, import and sales ofmerchandise

100.00100.00100.00Kanematsu(China) Co.,
Shanghai, China
Ltd.

Export, import and sales ofmerchandise

100.00(100.00)

100.00(100.00)

100.00(100.00)

Kanematsu (Thailand)
Ltd.

Bangkok,ThailandExport, import and sales ofmerchandise

100.00(100.00)

100.00(100.00)

100.00(100.00)

Watana Inter-Trade
Co., Ltd. *1

Bangkok,ThailandExport, import and sales ofmerchandise

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

Export, import and sales ofmerchandise

100.00(100.00)

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)

100.00(100.00)

Kanematsu Europe Plc

London, U.K.

Export, import and sales ofmerchandise

100.00(100.00)

100.00(100.00)

100.00(100.00)

Kanematsu GmbH

Dusseldorf,
Germany

Export, import and sales ofmerchandise

100.00100.00100.00Kanematsu Australia
Ltd.

Sydney,Australia

Export, import and sales ofmerchandise

100.00100.00100.00Kanematsu New
Zealand Ltd.

Auckland,
New Zealand

Export, import and sales ofmerchandise

100.00100.00100.00Notes: 1 Although the percentage of the Consolidated Group’s voting rights for the company marked with *1 is not more than 50%, it is treated as a subsidiary because theConsolidated Group has a substantial control over the company.
2 The figures in the parenthesis 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 are 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

100

USD

2016

2015

Transition date2016

Current assets

48,21747,96746,366427,911

Current liabilities

13,90915,497

13,626

123,438

Current assets (net)34,30732,47032,740304,464

Non-current assets

7,511

7,333

7,148

66,658Non-current liabilities

3,177

3,033

3,146

28,195

Non-current assets (net)

4,333

4,299

4,001

38,454Equity38,641

36,77036,741

342,927

Cumulative amount of non-controlling interests

16,18015,418

16,203

143,592

KANEMATSU ANNUAL REPORT 2016

JPY

USD

2016

2015

2016

Revenue

61,30561,863544,063

Profit for the year

4,310

3,632

38,250

Other comprehensive income

(285)

158

(2,529)Total comprehensive income

4,025

3,791

35,721

Profit for the year attributable to non-controlling interests

1,807

1,588

16,037

835

715

7,410

Dividends paid to non-controlling interests

Kanematsu’s Progress and Strengths[Condensed statements of income and comprehensive income][Condensed cash flow statement]
JPY

USD

2015

2016

44,968Cash flows from operating activities

5,067

1,909

Cash flows from investing activities(171)(1,168)(1,518)Cash flows from financing activities(2,479)(3,743)(22,000)

Increase (decrease) in cash and cash equivalents, net

2,416(3,002)

21,441

Special Features

2016(3) Transaction with non-controlling interests
On March 26, 2015, Kanematsu Electronics Ltd., a consolidated subsidiary of the Company, acquired the additional shares of Nippon Office
Systems Ltd. through the tender offer, aimed at making it a wholly owned subsidiary.
The summary of transaction with non-controlling interests in conjunction with the purchase of the shares are as follows:
2015

964

Amount paid to non-controlling interests

Review of Operations

Carrying amount of purchased non-controlling interests(1,839)

Excess consideration paid in the transaction with non-controllinginterests that is included in equity(874)

There was no transaction with significant non-controlling interests for the fiscal year ended March 31, 2016.

35. Related Parties(1) Related party transactions
For the fiscal year ended March 31, 2016
Type

Kantatsu Co., Ltd.

Detail of related party
relationshipTransaction amount

Outstanding amount

JPY

USD

JPY

USD

Purchase of merchandise

8,603

76,349486

4,313

CSR and Corporate Governance

Associate(including subsidiaries of
the associate)

Name(Notes) 1. The related party transactions are conducted on an arm’s length basis.
2. As described in Note 33 Contingent Liabilities, debt guarantees are provided to the equity method investees.

For the fiscal year ended March 31, 2015
Type

Associate(including subsidiaries of
the associate)

Name

Kantatsu Co., Ltd.

Detail of related party
relationshipTransaction amount

Outstanding amount

JPY

JPY

Purchase of merchandise

5,253

1,985
Financial Section and Company Information(Notes) 1. The related party transactions are conducted on an arm’s length basis.
2. As described in Note 33 Contingent Liabilities, debt guarantees are provided to the equity method investees.

(2) Remuneration to management executives
The amounts of remuneration to the Company’s directors for the fiscal years ended March 31, 2016 and March 31, 2015 are ¥202 million($1,793 thousand) and ¥228 million, respectively. The remuneration to the directors consists of base salary and directors’ bonus.

36. Subsequent Events
On April 1, 2016, Kanematsu Telecom Investment Co., Ltd. (headquartered in Minato-ku, Tokyo, Japan; hereinafter “Kanematsu
Telecom”), a newly established and wholly owned subsidiary of theCompany, acquired Diamondtelecom, Inc. (headquartered in Chuoku, Tokyo, Japan; “Diamond Telecom”), a wholly owned subsidiaryof Mitsubishi Electric Corporation (headquartered in Chiyoda-ku,
Tokyo, Japan; “Mitsubishi Electric”), in accordance with a merger
agreement for the acquisition of Diamond Telecom concluded with
the Company and Mitsubishi Electric concerning an absorptiontype merger on January 18, 2016.

KANEMATSU ANNUAL REPORT 2016101

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

Diamond Telecom

Contents of businessInformation communication business involved with sales of mobile communication device
and system

Date of the business combination

April 1, 2016

Legal form of the business combination

Acquisition the shares of Diamond Telecom by Kanematsu Telcom (Kanematsu Telecomabsorbed the acquired company as of April 1, 2016 and changed its company name to
Diamond Telecom)

Company name after the combination

Diamondtelecom, Inc.

Percentage of the voting rights acquired

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.
Diamond Telecom has been engaging in the mobile phone sales
business for more than 20 years since its foundation in 1994 as awholly owned subsidiary of Mitsubishi Electric, 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
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.

(3) Acquisition costs and those details
Acquisition cost (cash consideration)

JPY

USD

17,400154,420(4) Acquisition-related costs and its line item
Acquisition-related costs for the business combination are ¥168 million ($1,491 thousand), and they are recognized in selling, general andadministrative expenses on the consolidated statement of income of this fiscal year.

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

JPY

USD

17,400154,420

Cash and cash equivalents

4,613

40,939Trade receivable

12,828113,845

Inventories

1,212

10,756

Other current assets

351

3,115

Property, plant and equipment

736

6,532

Goodwill

1,635

14,510Intangible assets

13,930123,624

Other non-current assets
Current liabilities

764

6,780

(17,746)(157,490)

Non-current liabilities
Total

(925)

(8,209)17,400154,420

37. Disclosures Regarding Transition to IFRSs(1) Exemptions under IFRS 1
In principle, IFRSs require an entity applying IFRS for the first time(“first-time adopter of IFRSs”) to retrospectively apply the standards
required in IFRSs. However, IFRS 1 provides for some mandatory
exceptions and voluntary exemptions from the above requirement.
The effects of the application of such provisions are adjusted at thetransition date in retained earnings or other components of equity.
The exemptions adopted by the Consolidated Group at the transition from the Japanese GAAP to IFRS are as follows:

102

KANEMATSU ANNUAL REPORT 2016

・Business combinations
A first-time adopter of IFRSs may elect not to apply IFRS 3 Business
Combinations (“IFRS 3”) retrospectively in regards to business combinations that occurred prior to the transition date. The
Consolidated Group has applied this exemption to elect not toapply IFRS 3 retrospectively to the business combinations occurredprior to the transition date. As such, the Consolidated Group has
not restated any business combinations that occurred prior to theKanematsu’s Progress and Strengths(2) Mandatory exceptions under IFRS 1

transition date. However, goodwill was tested for impairment as of
the transition date regardless of whether there is any indicationthat the goodwill may be impaired.

IFRS 1 prohibits retrospective application of some items of IFRSs
including “estimates”, “derecognition of financial assets and financial liabilities”, “hedge accounting”, “non-controlling interests”
and “classification and measurement of financial assets”. The
Consolidated Group has applied these items prospectively from thetransition date.

・Exchange differences for foreign operations
IFRS 1 allows the entity to elect to deem the cumulative exchange
differences for foreign operations to be zero as of the transition
date. The Consolidated Group has elected to deem the cumulative
exchange differences for foreign operations as of the transition
date to be zero.

(3) Reconciliation

・Designation of financial instruments recognized in the past
According to the facts and status existing at the transition date to
IFRSs, the Consolidated Group has designated the investment inequity instruments as one which shall be measured at fair value
through other comprehensive income.

Special Features

In preparing the consolidated financial statements under IFRSs, theConsolidated Group has adjusted the amounts reported in the consolidated financial statements under the Japanese GAAP. The
effects of the adjustments on the Consolidated Group’s financial
position, results of operations and cash flows are presented as follows:

1) Reconciliation of equity[As of March 31, 2015](JPY)(Japanese GAAP account)

Japanese
GAAP

Change inclosing date

Effect ofReclassification transition to
IFRSs

IFRSs

Notes

AssetsIFRSs account(Assets)

Current assets

Current assets
68,468(891)(1,090)—66,485

1

Cash and cash equivalents

Notes and accounts
receivable

180,319

375

3,080

2,711

186,4862, 26Trade and other receivables

Lease investment assets

227

—

(227)

Short-term investments

3

—

(3)

87,254

4,589

—

—

91,844

297

(1)

(295)

Deferred tax assets

3,250

(59)

(3,191)
6,792

—

6,792

3

Other financial assets

Other27,148(2,679)(8,414)—

16,054

4

Other current assets

(158)

0

158

366,811

1,333(3,191)

2,711

367,664

Inventories
Short-term loans receivable

Allowance for doubtful
accounts

Inventories

CSR and Corporate GovernanceTotal current assets

Review of Operations

Cash and bank deposits

Total current assets

Long-term assets

Non-current assets
Property, plant andequipment

Tangible fixed assets

28,931

49

—

(14)

28,966

Goodwill

6,063

219

—

(1,790)4,493

25, 27

Other

8,661

(73)

—

53

8,641

25

Intangible assets

5,385

—

5,385

5

Investments accounted forusing the equity method

393

(5)

388

6

Trade and other receivables

Goodwill

Investments and other assets
38,3720(6,400)1,076

33,0495, 22

Other investments

6,098

(0)

(616)

—

5,481

7

Other financial assets

Long-term loans receivable(2,134)

2,134—

Doubtful accounts

765

—

(765)

Net defined benefit asset

199

—

(199)

3,643

57

3,191

3,664

1,666

Deferred tax assets

9, 22,
10,557 25, 27, 28,
29, 30

Deferred tax assets

20

1,686

Other non-current assets

Allowance for doubtful
accounts(2,671)—

2,671

Total long-term assets

92,200

253

3,191

3,004

98,650459,011

1,587

—

5,716

466,314

Total assets

8

Financial Section and Company Information

Investments in securities
Other

Total non-current assets
Total assets

KANEMATSU ANNUAL REPORT 2016

103

(JPY)(Japanese GAAP account)

Japanese
GAAP

Change inclosing date

Effect ofReclassification transition to
IFRSs

IFRSs

Notes

IFRSs accountLiabilities and equity
Liabilities

Liabilities

Current liabilities

Current liabilities

Notes and accounts payable

116,56783

42,871

Import bills payable

32,530—(32,530)

Short-term borrowings

61,688

856

—

638

(0)

(638)

2,492

69

Lease obligations
Accrued income taxes
Deferred tax liabilities
Asset retirement obligations
Other

—

159,52210

Trade and other payables

2,760

65,30526

Bonds and borrowings

5,828

—

5,828

11, 30

Other financial liabilities

—

—

2,561

300

—

300

14

12, 28

1

—

(1)

107

—

(107)

Income taxes payable

38,322819(15,725)

1,319

24,736

252,347

1,828

(1)

4,079

258,255

Long-term borrowings

74,426———74,426

Lease obligations

1,286

(0)

(1,286)
5,814

805

6,620

13

Net defined benefit liability

5,137

(0)

—

444

5,581

29

Retirement benefits liabilities

1,098

14

Provisions

313

9, 22,
25, 27,28,29, 30

Total current liabilities

Non-current liabilities

1,098
Deferred tax liabilities

488

(70)

1

Provision for retirement
benefits for directors andstatutory auditors

367

—

(367)

Asset retirement obligations

Other current liabilities
Total current liabilities

Non-current liabilities(105)

Bonds and borrowings
Other financial liabilities

Deferred tax liabilities

810

—

(810)

5,414

11

(4,449)25

1,002

87,931

(59)

1

1,170

89,043

340,279

1,769

5,249

347,298

Capital stock

27,781———

27,781

Capital surplus

27,502

—

—

(881)

26,62125

Capital surplus

Retained earnings

44,845(123)—(22,842)

21,87922, 23, 25,
27, 28, 29

Retained earnings

(222)

—

—

—

(222)

(9,805)(130)—

24,121

Other
Total non-current liabilities
Total liabilities

Other non-current liabilities
Total non-current liabilities
Total liabilities

Net assets

Treasury stock
Accumulated othercomprehensive income

104

Provisions

EquityTreasury stock

14,185 22, 23, 30

Other components of equity

90,244

Total equity attributable toowners of the Parent

Non-controlling interests

28,63071—

68

28,771

Total net assets

118,731

(182)

—

466

119,015

Total liabilities and net assets

459,011

1,587

—

5,716

466,314KANEMATSU ANNUAL REPORT 2016

Share capital

22, 27

Non-controlling interests
Total equity
Total liabilities and equity

Kanematsu’s Progress and Strengths[Transition date (April 1, 2014)](JPY)(Japanese GAAP account)

Japanese
GAAP

Change inclosing date

Effect ofReclassification transition to
IFRSs

IFRSs

Notes

AssetsIFRSs account

AssetsCurrent assets

Current assets

Cash and bank deposits

73,867

429

(318)

—

73,9781

Cash and cash equivalents

Notes and accounts
receivable

178,984

301

3,337

4

182,6272, 26Trade and other receivables

Lease investment assets

541

—

(541)

Short-term investments

16

—

(16)

66,256258——

66,514

825

(0)

(825)

Deferred tax assets

2,660

116

(2,776)
3,675

—

3,675

3

Other financial assets

Other

22,364(2,634)(5,461)—

14,268

4

Other current assets

(149)

0

149

345,366(1,528)(2,776)

4

341,065

Short-term loans receivable

Allowance for doubtful
accounts
Total current assets

Inventories

Special Features

Inventories

Total current assets

Long-term assets

Non-current assets
Property, plant andequipment

Tangible fixed assets

24,218

(11)

—

(27)

24,179Goodwill

3,175

(89)

—

(756)

2,329

25, 27

Other

8,531

(122)

—

(111)

8,298

25

Intangible assets

5,536

—

5,536

5

Investments accounted forusing the equity method

140

(5)

135

6

Trade and other receivables

Goodwill
Review of Operations

Investments and other assets
32,198(0)(5,551)

81

26,7275, 22

Other investments

6,236

2

(1,754)

—

4,484

7

Other financial assets

Long-term loans receivable

1,798

—

(1,798)

Doubtful accounts

902

—

(902)

Deferred tax assets

8,742

(76)

2,776

4,259

1,578

185

Allowance for doubtful
accounts
Total long-term assets
Total assets(2,750)9, 22,
15,702 25, 27, 28,
29, 30

Deferred tax assets

1,764

Other non-current assets

—

2,750

83,053

(297)

2,776

3,626

89,158428,420(1,826)—

3,630

430,224

8

CSR and Corporate Governance

Investments in securities
Other

Total non-current assets
Total assets

Financial Section and Company Information

KANEMATSU ANNUAL REPORT 2016

105

(JPY)(Japanese GAAP account)

Japanese
GAAP

Change inclosing date

Effect ofReclassification transition to
IFRSs

IFRSs

Notes

IFRSs accountLiabilities and equity
Liabilities

Liabilities

Current liabilities

Current liabilities

Notes and accounts payable

115,210(516)

35,824

Import bills payable

27,610—(27,610)

Short-term borrowings

80,792

(940)

—

760

(0)

(760)

1,951

11

Lease obligations
Accrued income taxes

150,518

10

Trade and other payables—

79,85226

Bonds and borrowings

11, 30

Other financial liabilities

5,023

—

5,023

—

—

1,962

92

—

92

Deferred tax liabilities

1

—

(1)

Asset retirement obligations

6

—

(6)

Other

—

32,302(244)(12,562)

1,375

20,870258,635(1,690)

(1)

1,375

258,319

Long-term borrowings

61,113———

61,113

Lease obligations

1,033

(0)

(1,032)

Net defined benefit liability

5,428

(1)

Total current liabilities

Income taxes payable1412, 28Non-current liabilities
Bonds and borrowings

6,039

337

6,376

13

Other financial liabilities

—

480

5,906

29

Retirement benefits liabilities

804

—

804

14

Provisions(21)

9, 22,
283 25, 27, 28,
29, 30

Deferred tax liabilities

Other non-current liabilities

Deferred tax liabilities

368

(63)

1

Provision for retirement
benefits for directors
and statutory auditors

387

—

(387)

804

—

(804)

Other

5,281

2

(4,618)26

692

Total non-current liabilities

74,417

(63)

1

821

75,177333,053(1,753)—

2,197

333,496

Capital stock

27,781———

27,781

Share capital

Capital surplus

27,493——

027,494

Capital surplus

Retained earnings

35,055(138)—(22,501)

12,414

(321)

—

—

—

(321)

Treasury stock(19,033)(18)—

23,8684,816 22, 23, 30

Other components of equity

72,185

Total equity attributable toowners of the Parent

Total liabilities

Total non-current liabilities
Total liabilities

Net assets

Treasury stock
Accumulated othercomprehensive income

Non-controlling interests
Total net assets
Total liabilities and net assets

106

Other current liabilities
Total current liabilities

Non-current liabilities

Asset retirement obligations

Provisions

KANEMATSU ANNUAL REPORT 2016

Equity24,391

84—

66

24,541

95,367

(72)

—

1,433

96,727428,420(1,826)—

3,630

430,224

22, 23, 25,
27, 28, 29

22, 27Retained earnings

Non-controlling interest
Total equity
Total liabilities and equity

Kanematsu’s Progress and Strengths2) Reconciliation of profit or loss and other comprehensive income[Fiscal year ended March 31, 2015 (from April 1, 2014 to March 31, 2015)](JPY)(Japanese GAAP account)

Japanese
GAAP

Change inclosing date

Effect ofReclassification transition to
IFRSs

IFRSs

Notes

Net sales

1,117,096(1,180)—(411,704)

704,21124

Cost of sales(1,025,655)

973(3,353)411,704(616,331)

15, 2491,441(207)(3,353)—

87,880Gross trading profit
Selling, general andadministrative expenses(69,315)

167

3,353

(452)

IFRSs accountRevenue
Cost of sales
Gross profit

Selling, general and(66,245) 25, 28, 29
administrative expenses
Other income (expenses)

0

(63)

Gain (loss) on sale anddisposal of fixed assets, net

(580)

0

(580)

Impairment loss on fixed
assets

4,508

(362)

4,146

16, 22Other income(1,589)17, 22,23, 25

Other expenses(2,422)

833

1,441

471

1,912

Operating income

22,125

(39)

1,441

19

23,547

Non-operating income

5,872

0

(5,873)(5,103)

18

5,085

1,385

0

(1,386)Extraordinary losses

(985)

2

983

Total other income (expenses)
Operating profit

Review of Operations

Non-operating expenses
Extraordinary gains

Special Features(64)

Finance income
415

(15)

400

Interest income

1,118

(35)

1,082

Dividend income

—

18

18

22

1,533

(31)

1,501

18

Other finance income(2,929)18(2,910)

—

(908)

(908)

22

(2,929)(889)(3,819)19

Total finance costs
Share of profit (loss) ofinvestments accounted forusing the equity method

Total finance income
Finance costs

1,145

(2)

1,143

20

(17)

—

(904)

22,37323, 32

Profit before tax(8,925)

191

—

(503)

(9,238)27, 28,29, 30

Income tax expense

Income before noncontrolling interests

14,369174—(1,408)13,135

Profit for the year

Net income

11,470

(44)

—

(879)

10,546

Profit for the year
attributable to owners of
the Parent

Net income attributable tonon-controlling interests

2,898

218

—

(528)

2,588

Profit for the year
attributable to noncontrolling interests

Income taxes

KANEMATSU ANNUAL REPORT 2016

Financial Section and Company Information

23,294

CSR and Corporate Governance

Income before income taxes
and non-controllinginterests

Interest expenses
Other finance costs

107

(JPY)(Japanese GAAP account)

Japanese
GAAP

Change inclosing date

Income before non-controllinginterests

14,369174

Effect ofReclassification transition to
IFRSs

—

(1,408)

IFRSs

Notes

13,135

IFRSs account

Profit for the year

Other comprehensive income

Other comprehensive income
Items that will not bereclassified to profit and loss:

Net unrealized gains (losses)
on securities, net of tax

2,236

0

—

1,525

3,762

22

Financial assets measured
at fair value through othercomprehensive income

Remeasurements of defined
benefit plans

316

—

—

176

492

29

Remeasurement of defined
benefit pension plans

7

0

7

Share of othercomprehensive income ofinvestments accounted forusing the equity method

4,263

Total items that will not bereclassified to profit andloss
Items that may be reclassified
to profit and loss:

7,092

(158)

—

(370)

6,564

Net gains (losses) on deferredhedges, net of tax

569

—

—

(133)

435

Cash flow hedges

117

(10)

106

Share of othercomprehensive income ofinvestments accounted forusing the equity method

7,106

Total items that may bereclassified to profit and
loss

23

Share of othercomprehensive income ofassociates accounted forusing equity method

124

—

(124)

Total other comprehensive
income10,339

(157)

—

1,187

11,369Other comprehensive income
for the year, net of tax

Comprehensive income

24,708

16

—

(220)

24,504

Total comprehensive income
for the year

Comprehensive income
attributable to the owners of
the parent

20,698

120

—

(352)

20,467

Total comprehensive income
for the year attributable toowners of the Parent

Comprehensive income
attributable to noncontrolling interests

4,009

(104)

—

131

4,037

Total comprehensive income
for the year attributable tonon-controlling interests

3) Reconciliation of cash flows
The effect of the transition from Japanese GAAP to IFRSs on the
consolidated statement of cash flows is primarily the effect on achange in closing date, which is not material.
4) Notes on reconciliation
Details on the reconciliation of the difference between theJapanese GAAP and IFRSs as presented in Item 3) Reclassification
above are as follows:(i) Change in closing date
Under the Japanese GAAP, the Consolidated Group had prepared
the consolidated financial statements based on the financial statements of its subsidiaries and equity method investees as of theirclosing dates even if such closing dates differ from that of theCompany. Under IFRSs, however, as it is not acceptable for theCompany, its subsidiaries and its equity method investees to havedifferent closing dates except where impracticable, changes havebeen made to the closing dates.

108

Exchange differences ontranslation of foreign
operations

Foreign currency translation
adjustment

KANEMATSU ANNUAL REPORT 2016(ii) Reclassification
The reclassifications affected presentation of the consolidated
statements of financial position and consolidated statements ofincome only and did not affect retained earnings. The details ofreclassifications are described as follows:(a) Cash and cash equivalents
Under the Japanese GAAP, time deposits with the maturity longer
than three months were included in “Cash and bank deposits”.
Under IFRSs, they are presented as “Other financial assets”.
(b) Trade and other receivables (current)
Under the Japanese GAAP, “Notes and accounts receivable”,“Allowance for doubtful accounts” and “Loans receivable” were
presented separately and accounts receivable – other were included in “Other (current assets)”. Under IFRSs, they are presented as“Trade and other receivables (current)”.

(d) Other current assets
Under the Japanese GAAP, accounts receivable – other were
included in “Other (current assets)”. Under IFRSs, they are presented as “Trade and other receivables”. In addition, derivative assets
and guarantee deposits are presented as “Other financial assets(current assets)”.

(g) Other financial assets (non-current)
Under the Japanese GAAP, guarantee deposits were included in“Other (investments and other assets)” and government and corporate bonds were included in “Investments in securities”. Under
IFRS, they are included in “Other financial assets (non-current)”.

(i) Deferred tax assets / deferred tax liabilities
Under IFRSs, “Deferred tax assets” and “Deferred tax liabilities”
are all reclassified into the “Non-current assets” section and the“Non-current liabilities” section, respectively.
(j) Trade and other payables
Under the Japanese GAAP, “Notes and accounts payable” and“Import bills payable” were presented separately and accounts
payable – other was included in “Other (current liabilities)”. Under
IFRSs, they are presented as “Trade and other payables”.

(l) Other current liabilities
Under the Japanese GAAP, deposits received and others were included in “Other (current liabilities)”. Under IFRSs, it is included in“Other financial liabilities (current)”. In addition, accounts payable –other, which was included in “Other (current liabilities)” under the(p) Other income
Under the Japanese GAAP, “Non-operating income” was presented separately. Under IFRSs, it is presented as “Other income”
except for “Share of profit (loss) of investments accounted forusing the equity method”, “Interest income” and “Dividend
income”, while “Share of profit (loss) of investments accounted forusing the equity method”, “Interest income” and “Dividend
income” are included in “Finance income”.
(q) Other expenses
Under the Japanese GAAP, “Non-operating expenses” was presented separately. Under IFRSs, it is presented as “Other expenses”,
and “Interest expenses” is included in “Finance costs”.
(r) Finance income
Under the Japanese GAAP, “Interest income”, “Dividend income”
and others were presented as “Non-operating income”. Under
IFRSs, they are presented as “Finance income”.
(s) Finance costs
Under the Japanese GAAP, “Interest expenses” and others were
presented as “Non-operating expenses”. Under IFRSs, they are presented as “Finance costs”.
(t) Share of profit (loss) of investments accounted for using theequity method
Under the Japanese GAAP, “Equity in earnings of affiliates” waspresented as “Non-operating income”. Under IFRSs, it is presented
as “Share of profit (loss) of investments accounted for using theequity method.
(iii) Effects from transition to IFRSs(a) Scope of consolidated subsidiaries and equity method investees
The transition to IFRSs has not affected the numbers of consolidated subsidiaries and equity method investees.

Financial Section and Company Information(k) Other financial liabilities (current)
Under the Japanese GAAP, deposits received and derivative liabilities were included in “Other (current liabilities)”. Under IFRSs, they
are included in “Other financial liabilities”.

(o) Cost of revenues
Under the Japanese GAAP, part of freightage related expenses was
included in “Selling, general and administrative expenses”. Under
IFRSs, they are included in “Cost of revenues”.

CSR and Corporate Governance(h) Other non-current assets
Under the Japanese GAAP, long-term prepaid expenses were
included in “Other (investments and other assets)”. Under IFRSs,
they are included in “Other non-current assets”.

(n) Provisions
Under the Japanese GAAP, “Asset retirement obligations” was separately presented. Under IFRSs, it is included in “Provisions”.

Review of Operations(f) Trade and other receivables (non-current)
Under the Japanese GAAP, “Long-term loans receivable”,“Doubtful accounts” and “Allowance for doubtful accounts” were
presented separately. Under IFRSs, they are included in “Trade andother receivables (non-current)”.

(m) Other financial liabilities (non-current)
Under the Japanese GAAP, “Lease obligations (non-current liabilities)” was separately presented and long-term deposits received
were included in “Other (non-current liabilities)”. Under IFRSs, they
are included in “Other financial liabilities (non-current)”.

Special Features(e) Other investments / investments accounted for using the equity
methodUnder the Japanese GAAP, investments accounted for using theequity method were included in “Investments in securities”. Under
IFRSs, they are presented separately as “Investments accounted forusing the equity method”, and investments in securities other thaninvestments accounted for using the equity method are presented
as “Other investments”.

Japanese GAAP, is included in “Trade and other payables”.

Kanematsu’s Progress and Strengths(c) Other financial assets (current)
Under the Japanese GAAP, time deposits with the maturity longer
than three months were included in “Cash and bank deposits”,
and derivative assets and guarantee deposits were included in“Other (current assets)”. Under IFRSs, they are presented as “Other
financial assets (current)”.

(b) Investments in equity instruments without quoted prices
Pursuant to IFRSs, investments in equity instruments without quoted prices are measured at fair value. Under the Japanese GAAP,
investments in equity instruments without quoted prices were
measured at cost. Changes in fair value of financial assets measured at fair value through profit or loss are recorded in “Other
finance costs” or “Other finance income”. The summary of effects
caused by this change is presented as follows:

KANEMATSU ANNUAL REPORT 2016

109

(JPY)
Consolidated statement of financial position

2015

Transition date

Other investments

995

11

Related tax effects(2,259)(1,823)

Other components of equity(4,712)(3,271)

Non-controlling interests
Adjustment to retained earnings

882

7(5,094)(5,075)(JPY)

Consolidated statement of income

2015

Other finance costs(908)

Other expenses

899

Other income(106)

Other finance income

18

Profit before tax

(97)
(JPY)

Consolidated statement of comprehensive income

2015

Financial assets measured at fair value through other comprehensive
income1,441

Other comprehensive income for the year, net of tax

1,441(c) Exchange differences on translation of foreign operations
In accordance with IFRS 1, the Consolidated Group elected todeem the cumulative exchange differences for all the foreign operConsolidated statement of financial position

ations which existed as of the transition date to be zero as of thetransition date. The summary of effects caused by such election ispresented as follows:
(JPY)
2015

Transition date

Transfer from other components of equity(21,012)(21,094)

Adjustment to retained earnings(21,012)(21,094)(JPY)

Consolidated statement of income

2015

Other expenses

81

Profit before tax

81

Under the Japanese GAAP, revenues and expenses of foreign operations were translated using the exchange rate at the end of thereporting period. Under IFRSs, income and expenses of foreign
operations are translated using the average exchange rate of thereporting period unless exchange rates fluctuate significantly. Thischange has caused profit before tax to decrease by ¥338 million.
The summary of effects to the consolidated statements of comprehensive income caused by this change is presented as follows:(JPY)

Consolidated statement of comprehensive income

2015

Exchange differences on translation of foreign operations(81)

Other comprehensive income for the year, net of tax(81)(d) Method of presenting revenue
Under the Japanese GAAP, the amount of net sales is presented as
the sum of the gross amounts for transactions in which theConsolidated Group acted as a principal and also for transactions
in which the Consolidated Group was involved as an agent. Under

IFRSs, however, revenue is presented as the net amount for transactions in which the Consolidated Group is determined to be acting as an agent. The summary of effects caused by this change is
as follows:(JPY)

Consolidated statement of income

Revenue(411,704)

Cost of sales

411,704

Profit before tax(e) Goodwill
While goodwill is amortized over a certain period under theJapanese GAAP, it is not amortized under IFRSs. With respect toimpairment of goodwill, the Japanese GAAP requires an entity totest for impairment only when there is an indication that is may be
impaired. However, IFRSs requires an entity to test for impairment
annually and whenever there is an indication that it may be
impaired.

110

2015

KANEMATSU ANNUAL REPORT 2016—
Impairment losses which arose as of the transition date due to thedifferences between the Japanese GAAP and IFRSs is presented asfollows. The carrying amounts of intangible assets and goodwill
arising from the acquisition of the mobile phone sales businesshave been reduced to their recoverable amounts, and consequently
the Consolidated Group recognized impairment losses of ¥71 million and ¥756 million, respectively. Both of the recoverable
amounts have been determined based on their the amounts ofvalue in use, which were calculated by discounting the future cashdated subsidiary causes adjustment to capital surplus as it is treatedas an equity transaction under IFRSs.

Kanematsu’s Progress and Strengths

flows at the discount rate of 6.75%. These assets belong to theElectronics & Devices segment. A transaction with non-controllinginterests as a result of additional purchase of shares of a consoli-(JPY)
Consolidated statement of financial position

Goodwill
Intangible assets
Related tax effects

2015

Transition date

(1,790)

(756)

53

(111)

—

39

Adjustment to retained earnings

(862)

(828)

Adjustment to capital surplus

(874)

—
(JPY)
2015

Selling, general and administrative expenses(59)

Other expenses

107

Profit before tax

47

There is no effect of this change on the consolidated statements ofcomprehensive income.
(f) Transfer of financial assets
Of liquidated receivables such as discounted notes receivable thatare allowed to be derecognized after transfer under the Japanese
GAAP, the Consolidated Group continues to recognize those forSpecial Features

Consolidated statement of income

which it may be obligated to make payments as recourse for nonpayment by the debtor because such liquidated receivables do notmeet the criteria for derecognition of financial assets under IFRSs.
The summary of effects caused by such difference is presented asfollows:(JPY)

Consolidated statement of financial position

Transition date

Trade and other receivables

2,735

—

Bonds and borrowings(2,735)———Adjustment to retained earnings(g) Review of recoverability of deferred tax assets
With application of IFRSs, except for investments in certain subsidiaries and associated, deferred tax assets are recognized forConsolidated statement of financial position

Deferred tax assets

Review of Operations

2015

deductible temporary differences to the extent that it is probablethat they can be used against future taxable profits. The summaryof effects caused by the change is presented as follows:
(JPY)
2015

Transition date

5,136

5,402
—

(122)
(108)

—

Adjustment to retained earnings

5,367

5,402

CSR and Corporate Governance

Goodwill
Non-controlling interests(JPY)
Consolidated statement of income

2015

Adjustment to income tax expense(h) Accrued paid leave
For the unused paid leaves at the end of the reporting period, theConsolidated Group recognizes a liability as accrued paid leave by
Consolidated statement of financial position(265)
estimating the number of days to be used in the future based on
the historical ratio of paid leave used and other factors. The summary of effects caused by this treatment is presented as follows:(JPY)
Transition date

Accrued paid leave(1,405)(1,375)

Related tax effects

521

515

Adjustment to retained earnings

(884)

(860)

Financial Section and Company Information

2015

(JPY)
Consolidated statement of income

2015

Provision for accrued paid leave(30)

Adjustment to income tax expense

6

KANEMATSU ANNUAL REPORT 2016111

(i) Employee benefits
Upon application of IFRSs, the Consolidated Group has reviewed
the calculation method of retirement benefit obligation and service
cost. Also, the discount rate applicable to pension assets has beenchanged to the market yields of corporate bonds. The summary ofeffects caused by these changes is presented as follows:(JPY)

Consolidated statement of financial position

2015

Transition date

(480)

Retirement benefits liabilities(444)

Related tax effects

158

170

Adjustment to retained earnings

(286)

(309)
(JPY)

Consolidated statement of income

2015

Selling, general and administrative expenses

35

Deferred income tax

(12)
(JPY)

Consolidated statement of comprehensive income

2015

Remeasurement of defined benefit pension plans

176

Other comprehensive income for the year, net of tax

176(j) Hedge accounting
Regarding the interest rate swap transactions for which the exceptional hedge accounting treatment (“tokurei shori”) is applied
under the Japanese GAAP, fair value of the interest swap is recog-

nized in the consolidated statements of financial position under
IFRSs. The summary of effects caused by this treatment is presented as follows:(JPY)

Consolidated statement of financial position

2015

Transition date

Other financial liabilities

(805)

(337)

Related tax effects

260

119

Other components of equity

545

217

Adjustment to retained earnings——(k) Adjustment to deferred tax
The effect of the adjustments above on deferred tax assets (netafter offsetting against deferred tax liabilities) in the consolidated
statements of financial position is presented as follows:(JPY)

Item subject to adjustment

Note

2015

Transition date

Review of recoverability of deferred tax
assets

(27)

5,136

5,402

Investments in equity instruments
without quoted prices(22)(2,259)(1,823)

Accrued paid leave

(28)

521

515

Employee benefits

(29)

158

170

Hedge accounting

(30)

260

119

(47)

(103)

3,769

4,281

Other
Total

The adjustments above have caused income taxes for fiscal year ended March 31, 2015 to decrease by ¥301 million.
(l) Retained earnings
The effect of the adjustments above on retained earnings is presented as follows:(JPY)
Item subject to adjustment

Note

2015

Transition date

Exchange differences on translation offoreign operations(23)(21,012)(21,094)

Review of recoverability of deferred tax
assets

(27)

5,367

5,402

Investments in equity instruments
without quoted prices(22)(5,094)(5,075)

Accrued paid leave

(28)

(884)

(860)

Goodwill

(25)

(862)

(828)

Employee benefits

(29)

(263)

(309)

Other
Total
(m) Profit before tax

112

KANEMATSU ANNUAL REPORT 2016

(92)

263

(22,842)(22,501)

Kanematsu’s Progress and Strengths

The effect of the adjustments above on profit before tax is presented as follows:(JPY)
Item subject to adjustment

Note

2015

Exchange differences on translation offoreign operations

(23)

(256)

Investments in equity instruments
without quoted prices

(22)

(97)

Goodwill

(25)

Other

47
(598)

Total

(904)

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

KANEMATSU ANNUAL REPORT 2016

113

114

KANEMATSU ANNUAL REPORT 2016

Global Network(As of March 31, 2016)

Kanematsu’s Progress and Strengths

Kanematsu supplies products and services through its large network of business bases in Japan and overseas. 92 subsidiaries and 30
affiliates ensure the Group’s global market reach.

1

6
2

3
4

37
5

36
14

13
27

12

26

7

24

19

11
9
15 10
16 17

21
20 20

8

34

Special Features

18

33 30
32 31

35

38

23

NORTH AMERICA

22

30 New York25

EUROPE

31 Somerset

1 London2 Dusseldorf
3 Munich

32 Chicago

ASIA & THE MIDDLE EAST

39

33 Detroit

28
29

18 Hanoi

5 Budapest

9 Shanghai

19 Haiphong

6 Moscow

10 Suzhou

20 20 Ho Chi Minh City

7 Las Palmas

11 Wuxi

21 Bangkok

28 Sydney

12 Chongqing

22 Singapore

29 Auckland

13 Beijing

23 Manila

14 Dalian

24 Yangon

Overseas subsidiaries
and their branches

15 Shenzhen

25 Jakarta

Representative offices

17 Taipei

34 Houston

CENTRAL &SOUTH AMERICA

35 Silicon Valley
36 Portland

OCEANIA38 Silao

37 Vancouver

Review of Operations

4 Milan

8 Seoul

39 Sao PauloDOMESTIC OFFICES
4

16 Hong Kong 26 New Delhi

1 Tokyo Head Office
2 Osaka

27 Tehran6

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, 2016)
Shareholder’s Meeting
Audit & Supervisory Board
Board of Directors
Management Committee

Support Area
Steel, Materials & Plant Division

Motor Vehicles & Aerospace Division

Industrial Electronics Dept.

Food Dept. No. 1

Iron & Steel Foreign Trade Dept.

Aerospace Dept.

Personnel & General Affairs Dept.

Semiconductor Equipment Dept.

Food Dept. No. 2

Specialty Steel Foreign Trade Dept.

Motor Vehicles & Parts Dept. No. 1

Finance Dept.

Components & Material Dept.

Meat Dept.

Functional Chemicals Dept.

Motor Vehicles & Parts Dept. No. 2

Accounting Dept.

System & Module Dept.

Foods and Grain Planning Office

Energy Dept.

Business Accounting Dept.

Electronic Components &Semiconductor Dept. No. 1

Food Safety Management System OfficePlant & Ships Dept.

Motor Vehicles &Aerospace Planning OfficeGrain, Oilseed & Feedstuff Division

Steel, Materials & Plant Planning Office

Traffic & Insurance Dept.

Food Safety Management Office

Credit Control Dept.

Electronics & Devices Division

Electronic Components &Semiconductor Dept. No. 2
Electronic Components &Semiconductor Marketing Dept.
Electronics Planning OfficeFinancial Section and Company Information

Marketing Area
Foods Division

Agricultural Products & Oilseeds Dept.
Grain and Feedstuff Department
Domestic Sections
Foods and Grain Planning Office

Legal & Compliance Dept.

System Planning Dept.
Internal Auditing Dept.
Corporate Planning Dept.

Food Safety Management System Office

KANEMATSU ANNUAL REPORT 2016115

Major Group Companies(As of April 1, 2016)* Companies with shares listed on a stock exchangeElectronics & Devices

Japan
Kanematsu Electronics Ltd.*
Nippon Office Systems Ltd.
Kanematsu-NNK Corp.*
Kanematsu Communications Ltd.
Kanematsu Advanced Materials Corp.
Kanematsu PWS LTD.
Kantatsu Co., Ltd.
Diamondtelecom, 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
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 systems
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, manufacture, and sales of lens units, camera modules, and other optical equipment and parts
Information and communications businesses centered on sales of portable communications devices andother related devices
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
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.

Others116

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 2016

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, 2016)

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
Sapporo-Kokusai Building, 4-1, Kitashijou-nishi,
Chuo-ku, Sapporo 060-0004, Japan
TEL: 81-11-261-5631
FAX: 81-11-261-5630

KyushuSendai Office
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

119 Ito-machi, Chuo-ku, Kobe,
Hyogo 650-0032, Japan

Suzhou Office

12F09, Gold River Tower, No. 35 Shishan Road,
Suzhou New District, Jiansu Province, P.R. China
TEL: 86-512-6809-7379
FAX: 86-512-6803-2295
Wuxi Office

Room 401, Rong Zhi Building E, No. 2 Long Shan Rd.,
Wuxi New District, Wuxi Province 214028 , P.R. China
TEL: 86-510-8522-6426, 6425
FAX: 86-510-8522-6430
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

Haiphong

H-Tower 3rd Floor, 195 Van Cao Street,
Haiphong, S.R. Vietnam
TEL: 84-31-368-6371
FAX: 84-31-368-6373
Hochiminh City

Unit 609 Saigon Tower, 29 Le Duan St,
District 1, Hochiminh City, S.R. Vietnam
TEL: 84-8-3910-5532, 5534, 5535
FAX: 84-8-3910-5538
Kanematsu Vietnam Company Limited

Unit 608 Saigon Tower, 29 Le Duan St,
District 1, Hochiminh City, S.R. Vietnam
TEL: 84-8-3910-5536, 5537
FAX: 84-8-3910-5539
THAILAND
Kanematsu (Thailand) Ltd.
Watana Inter-Trade Co., Ltd.

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

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

Kanematsu (Singapore) Pte. Ltd.

Dalian Branch

Kanematsu Corporation Manila Branch

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

17th Floor Tower 2, The Enterprise Center 6766,
Ayala Avenue, cor. Paseo de Roxas, Makati City,
Philippines
TEL: 63-2-889-1701, 845-2017
FAX: 63-2-887-0030

Shenzhen Branch

Room B-C, 33/F, Bldg B, Hong Long Century Plaza,
4002 Shen Nan Dong Road Luohu District,
Shenzhen 518001, P.R. China
TEL: 86-755-8235-4891
FAX: 86-755-8223-8980
Kanematsu (Hong Kong) Ltd.

Rooms 1806-1807, 18th Floor, Hopewell Centre,
183 Queen’s Road East, Hong Kong
TEL: 852-2821-6200
FAX: 852-2527-0465, 2865-6649
TAIWAN
Kanematsu Taiwan Corporation

11th Floor, No. 61 Chung Shan N.Rd., Sec. 2,
Taipei 104, Taiwan, R.O.C.
TEL: 886-2-2511-7007
FAX: 886-2-2511-2947, 2951, 3554

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

Financial Section and Company Information

Kobe Head Office

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

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

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

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

The Representative of Kanematsu
Corporation
Hanoi

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 Devices Korea Corporation

Koreana Bldg., 6F, 61-1-Ka Tae Pyung Ro,
Chung-Ku, Seoul, Republic of Korea
TEL: 82-2-737-5795
FAX: 82-2-737-5799

Kanematsu’s Progress and Strengths

Japan

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 2016

117

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.

Elahiyeh Commercial Complex, Unit 1201,
12th Floor, No. 244, Africa Ave., Tehran, Iran
TEL: 98-21-2621-2812
FAX: 98-21-2621-3106
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 OfficeFrankfurter 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

Houston Branch

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
NEW ZEALAND

1800 Augusta, Suite 390, Houston,
Texas 77057, U.S.A.
TEL: 1-713-975-7200
FAX: 1-713-975-7966
Silicon Valley Branch2043 Zanker Road, San Jose CA 95131, U.S.A.
TEL: 1-408-501-1400
FAX: 1-408-501-1499
Portland Branch

Kanematsu New Zealand Ltd.

Lavender House, 27 Lilburn Street, Warkworth 0910,
P.O. Box 327, Warkworth 0941, New Zealand
TEL: 64-9-302-5660
FAX: 64-9-309-3877

4380 SW Macadam Avenue, Suite 170, Portland,
Oregon 97239, U.S.A.
TEL: 1-503-224-7755
FAX: 1-503-228-5067
CANADAThe Representative of Kanematsu
Corporation
Vancouver

NORTH AMERICA
U.S.A.

205-8988 Fraserton Court, Burnaby, B.C.
V5J 5H8, Canada
TEL: 1-604-689-0550
FAX: 1-604-689-0655

Kanematsu USA Inc.
New York Head Office

500 Fifth Avenue, 29th Floor,
New York City, New York 10110, U.S.A.
TEL: 1-212-704-9400
FAX: 1-212-704-9401

CENTRAL & SOUTH AMERICA

Somerset Branch

MEXICO

100 Randolph Road, Somerset,
New Jersey 08873, U.S.A.
TEL: 1-732-271-7300
FAX: 1-732-271-7370

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

Chicago Branch

543 West Algonquin Road, Arlington Heights,
Illinois 60005, U.S.A.
TEL: 1-847-981-5600
FAX: 1-847-981-6760

BRAZIL
Kanematsu America do Sul Importacao e
Exportacao Ltda.

Detroit Office41700 Gardenbrook Rd. Novi, Garden Office B,
Suite 140 Novi, MI 48375, U.S.A.
TEL: 1-248-347-3216
FAX: 1-248-347-3219

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

Kanematsu G.m.b.H.
Budapest Office

H-1034 Budapest Becsi ut 126-128.I.103. Hungary
TEL: 36-1-329-3412, 320-4952
FAX: 36-1-320-4953
RUSSIAN FEDERATIONThe Representative of Kanematsu
Corporation
MoscowTverskaya 16/2, Building 1, Business Centre,
125009, Moscow, Russian Federation
TEL: 7-495-935-89-40, 42, 43
FAX: 7-495-935-8948

Electronics & Devices

SPAIN
The Representative of Kanematsu
Corporation
Las Palmas

Calle Eduardo Benot 51, Edificio Atlansea,
4-izqda, 35008 Las Palmas de Gran Canaria,
Spain
TEL: 34-928-275634, 275680
FAX: 34-928-275632

118

Segment Information:
Number of employees and number of Group companies (As of March 31, 2016)

KANEMATSU ANNUAL REPORT 2016

Number of employees(consolidated basis)

Number of affiliated companies

3,330

27 (Japan:18, Overseas:9)696

27 (Japan:14, Overseas:13)

Steel, Materials & Plant

960

27 (Japan:12, Overseas:15)

Motor Vehicles & Aerospace

228

8 (Japan:1, Overseas:7)

Others288

16 (Japan:12, Overseas:4)

Companywide (common)360

Foods & Grain

Overseas subsidiaries
Total

17
5,832

122

Notes:
1. Number of employees on a non-consolidated basis is 690 (including employees seconded from companies other than Kanematsu, excluding employees seconded from Kanematsu).
2. Of affiliated companies, 90 are consolidated subsidiaries and 27 are equity-method affiliates.

Creating New Value in Society

Corporate Profile

Kanematsu takes on new
challenges for further growth(As of March 31, 2016)

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.
(Net sales/millions of yen)

KANEMATSU CORPORATION

Paid-in Capital¥27,781 million

Established

August 15, 1889

Fiscal Year

April 1 to March 31

Foundation

March 18, 1918
Masayuki Shimojima

General Meeting of
Shareholders

June

President & CEO
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: 40

Number of Employees

816 (Consolidated: 5,832)(Shareholders’ equity*/millions of yen)
120,000

1,200,000

3.8 times

Company NameNet D/E ratio

100,000

3.2 times

Investor Information

800,000

80,0002.3 times
600,000

400,000

Special Features

1,000,000

Net sales

Kanematsu’s Progress and Strengths

Corporate Profile

60,0001.6 times

Shareholders’ equity*

40,0000.9 times

Tokyo

Stock Code8020

Transfer Agentfor Common Stock

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

17,782

4.22

Sumitomo Mitsui Trust Bank, Limited

Japan Trustee Services Bank, Ltd. (trust account)

14,519

3.44

Shares Authorized

1,016,653,604

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

13,298

3.15

Shares Outstanding

422,501,010(including 1,217,939 treasury shares)

The Norinchukin Bank

12,4602.95

Mitsui Sumitomo Insurance Co., Ltd.

11,613

2.75

Minimum Trading Unit

1,000

Tokio Marine & Nichido Fire Insurance Co., Ltd.

11,6122.75

0.8 times

200,000

20,0000

Number of Shareholders 25,854

0

2010

2013

2016

2014

* JGAAP : Shareholders’ equity (2010–2014)
IFRS : Total equity attributable to owners of the Parent (2015–2016)

Japan Trustee Services Bank, Ltd. (trust account 9)

7,730

1.83

Trust & Custody Services Bank, Ltd. (Investment trust account)

6,359

1.50

CBNY-GOVERNMENT OF NORWAY

5,310

1.26

Mellon Bank Treaty Clients Omnibus

4,886

1.15

Note: Calculated after deduction of treasury shares (1,217,939 shares)

VISION-130:
Composition of Shareholders“S-Project”—Jump to the next stage—

Building strong business foundations

Shareholder Distribution by Number of Shares Held

Individuals and others(including treasury shares) 35.81%

More than 1 million shares(including treasury shares) 57.72%

Shifting to an aggressive management stance

Financial institutions

30.70%

50,000 shares and more

20.42%s 6)3)/.  MEDIUM TERM VISION UNVEILED IN !PRIL s !IMING FOR FURTHER GROWTH LEADING UP TO lSCAL THE #OMPANYS TH ANNIVERSARY
s %STABLISHMENT OF A CLEAR EDGE IN HIGHLY SPECIALIZED lELDS
2EINFORCING MARKET COMPETITIVENESS IN SIX FOCUS AREAS
s .EW INVESTMENT IN BUSINESS EXPANSION AND -!S
)NVESTMENT CAPACITY OF UP TO c BILLION OVER lVE YEARS

Foreign institutions
and individuals

24.03%

10,000 shares and more

11.92%

Other corporations

7.73%

1,000 shares and more

9.56%

Securities firms

1.73%

Less than 1,000 shares

0.38%

CSR and Corporate Governances !PRIL  n -ARCH  -EDIUM 4ERM "USINESS 0LAN h3 0ROJECTv
s !PRIL  n -ARCH  -EDIUM 4ERM "USINESS 0LAN
*UMP TO THE NEXT STAGE
s As a result of restructuring, we enhanced our business foundations
AND ACHIEVED A NET $% RATIO OF  TIMES IMPROVED THE EQUITY RATIO TO AND PAID DIVIDENDS FOR THE lRST TIME IN  YEARS IN lSCAL s We further strengthened our ﬁnancial position in ﬁscal 2015

Number of Percentage ofshares held voting rights(thousands)(%)

Review of Operations

0.5 times

Principal Shareholders

Stock Exchange Listings

Stock Price/Trading Volume

9.5%

Other 1.8%

Electronics &Devices35.2%

s 3EMICONDUCTORS
s %LECTRONIC #OMPONENTS AND -ATERIALSs )NDUSTRIAL %LECTRONICS
s 3EMICONDUCTOR %QUIPMENTs )#4 3OLUTIONS AND -OBILE

s -OTOR 6EHICLES AND 0ARTS
s !EROSPACE

Composition of
Revenue

Revenue

Steel, Materials &
Plant

20.2%

s 3TEELs -ATERIALS &UNCTIONAL #HEMICALS
AND %NERGY
s 0LANT¥668,374 million(FY 2016)

Foods, Grain,
Oilseeds & Feedstuff

33.3%

s &OODSs -EAT AND -ARINE 0RODUCTS
s 'RAIN &OOD 3OYBEANS /ILSEEDS
s &EEDSTUFFS
s 0ROCESSED !GRICULTURAL 0RODUCTS
s 0ET 0RODUCTS AND 'ROCERIES(¥)(Thousand of shares)

300

500,000250

450,000

200

400,000

150

350,000

100

300,00050

250,0000

200,000
150,000
100,000
50,000
0
11/4

6

8

10

12 12/2

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

KANEMATSU ANNUAL REPORT 2016

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Financial Section and Company Information

Motor Vehicles &Aerospace

Trading Volume

Stock priceBusiness Areas119

2016/08/31 15:24

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 2016

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

CREATING
NEW VALUEANNUAL REPORT 2016

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

兼松16AR英̲c1c4̲0819入稿̲初.indd C4-C1

2016/08/31 15:24