GROWING THROUGH
VALUE CREATION
Integrated Report

2018The Kanematsu Group’s Value Creation Process

Corporate Principle“Let us sow and nurture the seeds of global prosperity”

Five Key Issues

The Kanematsu Group’s Capital

Responding to changes inmarket characteristics andlocation and changes incustomer needs

Organizational
CapitalB

Mutual development withlocal communities

Human andIntellectual
CapitalC

Consideration of the global
environment

A

Financial
CapitalDE• Five divisions, organized by business field, each withspecific expertise• Organizational functions that support businessactivities from specialized perspectives• Locations around the world• Highly specialized Group companies• Wide range of business fields• Expertise and technical capabilities regarding
industries and products• Accumulated know-how• Global professionals/Diverse professionals• Business creation and proposal abilities• Sound financial position (Net D/E ratio of less than 1.0)
• Stable earnings base
• Average annual cash flows of approximately ¥20 billion

Enhancing governance

Promoting respect for humanrights, human resource
development, and diversity

Social and
Relationship
CapitalNaturalCapital• High quality and quantity of business partners• Contribution to local communities• Trust built over a period of almost 130 years• Biodiversity (animals, plants, fungi, etc.)• Sunlight, air, forests, and soil
• Geothermal, wind, and other forms of renewable energy

To address these five key issues, the Kanematsu Group will leverage all forms of its capital to advance business

Contents
Kanematsu’s Progress and Strengths

Review of Operations

Sustainability

1 The Kanematsu Group’s Value Creation Process
2 Kanematsu’s History
4 Message from the President

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

34 Sustainability
44 Corporate Governance
48 Messages from Outside Directors
49 Corporate Officers

Special Features
14 Special Feature
Growth Strategy by Business under the
future 135 Medium-Term Vision
22 Message from the CFO

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 ofcreative 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 a corporate 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 are bound by Company rules andattendant loyalties and must work together with a spirit of cooperation while cultivating mutual understanding and respect for fellow members.

What We Do

Where We Provide ValueW

Businesses in the areas
where we have strength and expertiseElectronics &DevicesCustomers and business
partners

Foods & Grain

Shareholders andinvestors
Steel, Materials &Plant

Motor Vehicles &Aerospace

Employees
Bolstering the management base
• Strengthen governance• Increase sophistication of investment risk management• Develop global professionals

Local communities

Contributing to local communities and the environment• Environmental management system• Social contribution activities

The global environment

activities, thus increasing its enterprise value and providing value unique to Kanematsu to all stakeholders.

Financial Section and Company Information
50 Financial and ESG Highlights
52 Management’s Discussion and Analysis
54 Business Risks
56 Consolidated Financial Statements
62 Notes to Consolidated Financial Statements
119 Independent Auditor’s Report
120 Major Group Companies
121 Network / Organization Chart
122 Network
124 Corporate Profile

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

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

KANEMATSU Integrated Report 20181

Kanematsu’s History

Since its founding, contribution to the public good, domestic and international society, and humanity has been thebasis of Kanematsu’s corporate activities. In line with this stance, Kanematsu has innovated and evolved with thetimes, continually creating and providing value unique to Kanematsu.

1889–1950s

1960s–1980s

1990s–2000s

Guided by Kanematsu’s founder, a pioneer in trade between Japan andAustralia, Kanematsu weathered financial panics and built a solid foundation.
Eventually, the Company expanded to
the United States and other countries.

Kanematsu grows larger,
diversifying functions as a
trading company andexpanding geographically.

Following the expansion and collapse of Japan’s economic
bubble and the Asian Financial Crisis, Kanematsu carried out
decisive business selection and concentration aimed at reinforcing its management framework. The Company also
worked to improve and strengthen its financial base.

1889

1967

1989

2005

Fusajiro Kanematsu Shoten of Australian
Trading founded by Fusajiro Kanematsuin KobeMerged with the Gosho Company toform Kanematsu-Gosho, Ltd.

100th anniversary of theCompany’s founding

Acquired a majority stake in Shintoa
Corp. (100% stake acquired in 2010)

1973

1990

1890
Branch opened in Sydney
Direct importing of Australian wool began

Listed on the first section of theTokyo Stock Exchange

Company name changed toKanematsu Corporation

1999

1918
Company name changed toKanematsu Shoten Company

Implemented large-scale businessselection and concentration

1936
Branches opened in New York andSeattle1943
Company name changed to Kanematsu
Corporation

Net sales* Figures for fiscal 2017 onward are IFRS-basis
profit before tax.

Corporate Principle“Let us sow and nurture the seeds of global prosperity”“Sow a seed now,” and take action to benefit people around theglobe, bade our founder, Fusajiro Kanematsu, setting a standard of
public duty that we at Kanematsu continue to uphold through a commitment to ethical business principles and corporate responsibility.
The beliefs and philosophies that inspired Fusajiro Kanematsuin 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 theoccasion of our merger with The Gosho Company.

April 2004 – March 2007
Medium-TermBusiness Plan:“New KG200”

Our Beliefs: Kanematsu's Guiding Principles
1. Reflecting the pioneering spirit of our predecessors, we believe thatfairness and justice should guide our business dealings and the wiseuse of creative imagination and ingenuity will bring prosperity
2. Our purpose as a Company is not only to build a sound andflourishing business, but to fulfill our responsibilities as a corporate
citizen, contributing to society and the security and well-being of all.
3. As members of a corporation, we act not as individuals but asrepresentatives of that organization and as such we are bound byCompany rules and attendant loyalties and must work together witha spirit of cooperation while cultivating mutual understanding andrespect for fellow members.

2

KANEMATSU Integrated Report 2018

2000

2001

2002

2003

2004

2005

2006

Kanematsu’s Progress and Strengths

Going forward, we will leverage strengths developed through our accumulation of a diverse wealth ofexperience over our long history to continue contributing to the development of international society.

2010–
Kanematsu has enhanced its management base through business selection and concentration.
Implementing M&A in highly specialized fields and business expansion, we are shifting toan aggressive management stance.

2014

2019

Acquired North American oilfield
tubing company Benoit Machine
LLC

Acquired a majority stake in
Kanematsu-NNK Corp. (nowKanematsu Sustech Corporation)

130th anniversary of theCompany’s founding

2013

2016

Paid first dividends in 15 years

Carried out an absorption-type merger with
Diamondtelecom, Inc., aimed at expanding
the mobile businessSpecial Features

2012

Issued first corporate bonds in 20 years

Review of Operations
Sustainability

April 2010 – March 2013

Medium-TermBusiness Plan:“team KG120”

Medium-TermBusiness Plan:“S-Project”

2007

2008

2009

2010

2011

2012

April 2018 – March 2024

Medium-Term Vision“VISION-130”

Medium-Term Vision– future 135 –April 2013 – March 2016
Medium-TermBusiness Plan
—Jump to thenext stage—

2013

2014

2015

2016

2017

2018

Financial Section and Company Information

April 2007 – March 2010

April 2014 – March 20182019

KANEMATSU Integrated Report 20183

Message from the President

Since 1889, the Kanematsu Group hasconstantly stayed ahead of the curve,
continuing to grow through repeatedbusiness creation.
In April 2018, we launched future 135,
our medium-term vision for the coming
six years. Under future 135, we havebegun initiatives aimed at sustained
growth in business areas where we havestrength as well as scale expansion
through business investment. Leveraging
our stable earnings structure and financial
structure, we are accelerating efforts toreach the next stage of growth, with theaspiration of being a unique general
trading company.
President

Kaoru Tanigawa

4

KANEMATSU
KAN
ANEM
EMA
MATS
TSU Integrated Report 2
2018
018

Kanematsu’s Progress and Strengths

Q1

Reflecting on My First Year as President
energy and vigor our employees are. I think that thisis a sign of the Kanematsu Group’s large growthpotential. I was also once again impressed by thedepth of the connections and trust that the Grouphas built with its many business partners and associates over the years. This a major strength, and I feelthat it means the Kanematsu Group is of use to its
business partners and, consequently, to society.
As I see it, my role as president is to lay out thepath to growth and to build efficient business models. A trading company must constantly be creating
new businesses. To that end, by enhancing our educational systems and developing our people, I thinkthat I must lead the way toward the creation ofbusinesses that offer new added value.

Special Features
Review of Operations

Over this past year, I have gained a renewed appreciation of the relationships between the KanematsuGroup and its stakeholders; it has thus been an
extremely valuable time for me. My resolve when I
took office—to make sure that all our employees
and their families can take pride in Kanematsu, toincrease Kanematsu’s enterprise value so that it canbetter contribute to society, and to ensure that theKanematsu Group contributes to the world economy—has not changed. In particular, I think that the
pride each employee of Kanematsu and the Grouphas in being part of the Kanematsu Group will help
each individual take to heart their mission of fulfilling our social responsibilities.
This year, I have seen firsthand how full of

Q2

Where Kanematsu Stands and the Challenges Ahead
group that encompasses numerous highly specialized business areas. The one universal management issue for any trading company is businesscreation. The key is to maintain a keen sensitivity
to product cycles, technological innovation, andmarket shifts in order to find the seeds of growthand continuously create new businesses.
Imagination and ingenuity are crucial.
The long process of rebuilding our management base has somewhat taken the edge off the
speed of Kanematsu’s business creation. This is now
a challenge we face. To create new businesses, weare therefore working to foster passion in order tobring out each and every employee’s imaginationand ingenuity and by doing so reinvigorate
Kanematsu’s corporate culture with an entrepreneurial spirit. This will also help us precisely understand conditions around us, including changes inmarkets and needs.

Financial Section and Company Information

KANEMATSU Integrated Report 2018

Sustainability

As a trading company, Kanematsu carries out corporate activities with the understanding that its mission is to contribute to society by creating
businesses. While we do not invest in natural
resources, we have a unique business portfolio thatspans a wide range of business fields. Leveraging
this strength, I believe that Kanematsu can develop
businesses that no one else can.
Technology is evolving, driving changes in theneeds of society and ways of living, and Japan’s
population and markets are shrinking—it is clearthat traditional trading businesses are at a major
turning point. Kanematsu’s business model is rooted in trading, the foundation of a trading company. Going forward, we will need to carefully readmarket trends while making greater efforts to findnew businesses rooted in advanced technologies,
such as AI and IoT. By expanding its business fields,
I hope that Kanematsu will become a corporate

5Having stabilized our revenues and finances,
we are now switching gears toward greater investment in growth, but we must ensure that neither
management nor employees become complacent orcareless. Political and economic conditions in Japanand around the world are changing at a dizzying
pace, while markets constantly fluctuate, significantly impacting business. We must make sure thatevery individual is alert and vigilant, lest we betripped up. At the same time, enhancing humanresource development is vital, as inadequate

education creates risk.
At the start of fiscal 2019, the year ending
March 31, 2019, we launched future 135, our
medium-term vision for the coming six years. Under
this vision, we aim to increase profit through thesustained growth of core businesses as well as byincreasing business scale and added value throughbusiness investment. We have created future 135 toreflect the Kanematsu Group’s orientation towardand commitment to growth.

Q3

Fiscal 2018 Performance
In fiscal 2018, the year ended March 31, 2018,
many Japanese companies recorded strong results,
bolstered by favorable economic conditions in Japanand abroad. Within the Kanematsu Group, the ICT
solutions business, which maintained its focus on
highly specialized fields, the mobile business, which
saw greater than expected effects from the integration of subsidiaries, and the oilfield tubing business,
which recovered on the back of a rise in crude oil
prices, did especially well. As a result, both revenue
and profit increased year on year, and profit for theyear attributable to owners of the Parent rose
102.7% year on year to ¥16.3 billion.

6

KANEMATSU Integrated Report 2018

Reflecting the recording of retained earnings,
total equity attributable to owners of the Parent
climbed to ¥116.0 billion. As a result, Kanematsu’s
financial position remained sound, with the equity
ratio at 22.3% and the net D/E ratio at 0.5.
I think that these achievements are the resultof the Groupwide strategies we have been implementing. However, we have only just begun down
the path to growth. Political instability overseas isincreasing, and the unexpected could happen at any
time. Looking at our current position the starting
line, we will be even more vigilant as we movesteadily forward.

Kanematsu’s Progress and Strengths

Change of Operating Profit in Main Segments(¥ billion)

Electronics & Devices

Foods & Grain

Steel, Materials & Plant

Motor Vehicles & Aerospace

30.0

25.0

20.0

17.5

Special Features

9.9
17.6

15.0

14.3

10.7
10.0

3.4
4.0

5.0

0

7.3

1.4

2.1

2.5

3.4

3.9

2.8

5.0

2.8

3.0

2.2

2.5

2.5

FY2015FY2016FY2017FY2018FY2019(Forecast)future 135

Review of Operations

VISION-130(Note) 1. For the fiscal years ending March 2014 and 2015, the Japanese standard for operating income plus exchange rate
fluctuations is adopted. For the fiscal years ending March 2016 and thereafter, operating profit in IFRS is adopted.
2. Other segments are not included.

Q4

Looking Back at Our Early Completion of VISION-130
acting as controller and Group companies handlingthe supply chain and front-line business. In this kindof collaboration, Kanematsu supplies the ingredients,
while the Group companies turn the ingredients into
well-crafted dishes and serve them to customers.
In this way, under VISION-130, we made real
progress in the areas that we decided to focus on
and achieved results in fields where we had beenworking to increase revenues. While there will always
be ups and downs in individual businesses, by notinvesting in natural resources, we have achieved astable revenue structure. Furthermore, our financial
structure is also stable, as illustrated by our indicators,
such as an ROE of 15.1%, a net D/E ratio of 0.5, andan equity ratio of 22.3%. We know that a revenue
structure that is even more resilient to fluctuations in
the market environment will be indispensable tomeet the challenges ahead, and we are prepared towork toward its establishment.

Financial Section and Company Information

KANEMATSU Integrated Report 2018

Sustainability

Under VISION-130, our previous medium-term vision,launched in April 2014, we aimed for consolidated
net income of ¥15.0 billion in fiscal 2019, the final
year of vision. However, in fiscal 2018, we recorded
consolidated net income of ¥16.3 billion, reaching
our target ahead of schedule. I think that a key factor
behind this achievement was the impact of consolidated management. In particular, within theElectronics & Devices Division, the ICT solutions business and mobile business have seen marked growthover the past several years while maintaining highprofitability. In the mobile business, we made themajor acquisition of mobile phone sales company
Diamondtelecom, Inc. in 2016 and merged it with
Kanematsu subsidiary Kanematsu Communications
Ltd. in 2017. The results of this integration have beeneven greater than expected. This is an excellent
example of a successful implementation of our consolidated management structure, with Kanematsu

7

Q5

Review by Segment under VISION-130
In the Electronics & Devices segment, Kanematsu
Electronics Ltd. worked to provide services with expert
knowledge, know-how, and added value to further
increase profitability in its ICT solutions business. The
high level of expertise in this business and consolidated
management structure worked well, contributing
greatly to results. Furthermore, in the mobile business,as mentioned above, the merger of Kanematsu
Communications and Diamondtelecom not only contributed to scale expansion, but produced greaterthan-expected synergies, making steady headway
toward increased market share.
The Foods & Grain segment is a stable part of theGroup’s earnings base. In particular, the food business
requires the kind of added value that comes from theapplication of imagination and ingenuity and is a field
where Kanematsu’s unique attributes can really shine.
Meanwhile, the feedstuff business is an area that presents opportunities to steadily increase revenue using
the know-how built up over the Company’s long history, and I can confidently say that it plays an important part in Japan’s food market. Honing one’s market
discernment and know-how to figure out how best to
hedge against the risks of market fluctuation—a key
aspect of business in food commodities and an area
where Kanematsu’s extensive experience is invaluable—

is one of the great pleasures of business. At the sametime, climate change is prompting market locations toshift, so securing new suppliers going forward isimportant.
In the Steel, Materials & Plant segment, consolidated management with affiliates is one of ourstrengths, as is the Division’s business coordination
spanning multiple fields. Performance in the North
American oilfield tubing business improved greatly
thanks to the increase in crude oil prices in fiscal 2018,
and we were able to effectively use our strengths in
the functional chemicals business and other highly
specialized fields, contributing to revenue expansion.
In the Motor Vehicles & Aerospace segment, ourstrength is in our proposal- and problem solving-based
business model that leverages abundant information
resources to address regional characteristics and customer needs. Business expansion in next-generation
automobile markets, such as those related to network
connectivity (so-called connected cars) and self-driving
vehicles, as well as entry into the space business areprogressing smoothly.
In technological support, which was designated as
an area for innovation under the previous vision, we
expect growth in such areas as the security business in
the run up to the 2020 Tokyo Olympics and Paralympics.

Targets and Results
The consolidated profit for the year target for the year of ¥15 billion was achieved one year ahead ofschedule. Return on equity cleared the target, reaching 15.1%.

Consolidated profit for the year
Profit for the year attributable to owners of the Parent

ROE

VISION-130 target

FY2018¥15.0 billion¥16.3 billion

12.0%

15.1%

Regarding shareholder’s equity, it was increased steadily to the target level, despite lower stock prices
and the appreciation of the yen in the second half of the year. The net D/E ratio remained low, in the
0.5 times range.

Shareholder’s equity
Total equity attributable to owners of the Parent

Net D/E ratio

8

KANEMATSU Integrated Report 2018

VISION-130 target

FY2018Over ¥120.0 billion¥116.0 billion

Under 1.0 times

0.5 times

Kanematsu’s Progress and Strengths
Special Features
Review of Operations

Q6

The future 135 Medium-Term Vision—
A Plan for Growthdown, and have I worried that we might lose sightof Kanematsu’s reason for existing as a trading company. Since becoming president last year, however, I
have seen firsthand the fire in our employees andbusiness partners, and I feel strongly that the time
has come for us to reclaim the entrepreneurial spiritof our founding.
While maintaining and strengthening thesound financial base we have established, we will
focus on more deeply developing our areas ofstrength and work to build businesses using innovative new technologies. By doing so, we will aggressively advance business expansion and creation. To
do this, we must realize effective corporate governance to ensure exacting oversight in business management and investment as well as a corporate
culture in which imagination and ingenuity are aconstant while constructing mechanisms to achievebusiness creation.

Financial Section and Company Information

KANEMATSU Integrated Report 2018

Sustainability

Our targets for fiscal 2024, the sixth and final yearof the future 135 medium-term vision, are consolidated net income of ¥25 billion, ROE of 13%–15%,
and a total payout ratio of 25%–30%. Our aim ofachieving sustainable growth is unchanged.
Moreover, we aim to contribute to society by returning increased revenues to our stakeholders. We
want Kanematsu to be a useful, indispensable partof society. With that in mind, we regard the targetsof the medium-term vision not as our ultimate destination, but as milestones along the road of sustained growth.
In the 2000s, as the Kanematsu Group was
advancing business selection and concentration, it
rebuilt its financial foundation by reducing its assets
and interest-bearing debt. However, I think that wehave gone a little too far in paring down our assets
and businesses. At such times, the entrepreneurial
spirit of management and employees gets worn

9Medium-Term
VisionQuantitative
Targets

April 2018 – March 2024

Consolidated profit for FY2024(Profit for the year attributable to owners of the parents)

ROE
Total return ratio
Essentials¥25 billion
13% – 15%25% – 30%

By further enhancing our strong business and achieving sustainable growth in the business segments of ourstable revenue base, pursue the expansion of scale and the acquisition of added value with an effective
investment in our business.
Target a consolidated profit for FY2024 of ¥25 billion.
Based on a stable earnings structure/financial structure, the dividend payout ratio (total payout ratio) is set at
25%–30%, promoting management with the emphasis placed on capital efficiency.
The new Medium-Term Vision is for the six years from the fiscal year ending March 2019 to the fiscal year
ending March 2024.
(Three years after the initiation of the Medium-Term Vision, the direction will be reconfirmed, including the
progress of business investment. )Image ofgrowthInvestment ininnovation(seeds)Fu n cti o n

Added
value

Stable earnings
base

Expansionof scale

Customer • Market • SharePriority
Initiatives

Sustainable growth in fundamental businesses and the expansion of the revenue basethrough business investment• Achieve sustainable growth by maintaining a stable revenue structure• Carry out business investment while achieving a balance between capital and risk assets based on a stablefinancial structure• Promote business investment in areas of strength through two strategies focused on “revenue base expansion”
and “value added”

Response to technical innovation• Promote and expand new businesses with advanced technology (IoT, AI, etc.) (“innovation investment”)

Establishment of management infrastructure for achieving sustainable growth• Build a framework for global strategy• Cultivate management-level human resources• Improve employee satisfaction (ES)10

KANEMATSU Integrated Report 2018

Kanematsu’s Progress and Strengths

Q7

Priority Initiatives under future 135

III. Third is “Establishment of management infrastructure for achieving sustainable growth.” We recognize that people are the foundation of all we do,and, accordingly, there are many things we must
work on. First, we urgently need to cultivate management personnel. To this end, we are creating
new training programs and enhancing other educational measures aimed at raising the quality of ouremployees. At the same time, we are implementing
measures to raise employee satisfaction as well aswork style reforms. Each individual has different values, so it is extremely difficult to create somethingthat everyone will be 100% satisfied with. It is
important, however, that we create frameworks inwhich employees can find meaning in their workand enjoy the use of their imagination and ingenuity and then operate such frameworks while
enhancing communication. Furthermore, as wework toward global business expansion, we are aiming to increase the number of specialized operatingcompanies in key overseas markets. To this end, we
are working to enhance our internal systems. We
plan to complete these initiatives during the firsthalf of the medium-term vision. In addition, we will
implement systems to quantitatively assess our management situation and related risks.*

Review of Operations
Sustainability
Financial Section and Company Information

II. Second, “Response to technical innovation,” asexemplified by such technologies as IoT and AI, will
be indispensable as we build the KanematsuGroup’s future. Across all business fields, the application and integration of IoT and other new technologies are advancing, creating needs for structural
innovation. In this environment, the Electronics &Devices Division is focusing on offering high-valueadded business models using new technologies.
Going forward, trading companies will need to create added value that transcends individual businessareas. We will promote the coordination of businesses
that possess cutting-edge technologies with otherbusinesses and our partners, further reinforcing

business creation through broad-reaching collaboration across business areas. From the current fiscal
year, we have created the position of Chief Officerof Technologies and Business Collaboration, and weare working to accelerate the creation of new businesses and develop them into pillars of growth byharnessing technological innovation. By building
new businesses in step with changes in society, theKanematsu Group aims to fulfill its mission.

Special Features

I. The first priority initiative under future 135 is“Sustainable growth in fundamental businesses andthe expansion of the revenue base through business
investments.” Our existing businesses will remain
the foundation of the Kanematsu Group’s revenue,
and we will continue working toward sustained,
steady growth in these businesses. The feedstuff
business, which plays an important part in food supply in Japan, is a good example. Going forward, as
technologies evolve and needs change, some businesses will fade away, while other, new businesses
emerge; in such an environment, I think that imagination and ingenuity will be particularly crucial toexpansion in existing businesses. Technological innovation may bring more opportunities for investment
in efficiencies and other areas. To make sure we
don’t drop the ball, we will advance collaboration
between businesses and expand our revenue basethrough appropriate investment and M&A in areas
where we have deep insight. The time span of the
new vision, six years, is rather long. Each businessmust therefore set goals, such as, for example, doubling revenue in existing fields, and consider what isnecessary to meet those goals as we move forward.

* For more details, please refer to Message from the CFO on pages 22–23
and Corporate Governance on pages 44–47.

KANEMATSU Integrated Report 2018

11

Q8

Growth Strategy by Business
Under future 135, in addition to the ongoing growthof existing businesses, we will target additional growthby making investments aimed at expanding the revenue base and capturing added value. Expansion of therevenue base through business investments is aimed at
growing our customer base, markets, and market
share. These are Groupwide goals, but at the moment,in addition to investing in the Electronics & Devices
Division, which encompasses numerous highly competitive business areas, I think that the machinery andchemicals businesses in the Steel, Materials & Plant
Division, where we still have underutilized strength,
need a boost. Main areas for achieving growth by capturing added value include such areas as feedstuff,
foods, and steel, where we will add new functions toexisting businesses.
Looking at individual businesses, in the ICT solutions business we will continue aiming for sustained
growth leveraging our strengths. We position this business as a stable revenue base. In the electronic components and semiconductor business and the system
devices business, we will reorganize existing businesses
to capture added value. In the mobile business, having
achieved positive results through M&A under the previous medium-term vision, we will utilize our knowhow to advance scale expansion and work toward
greater efficiency by enhancing the profitability of

12

KANEMATSU Integrated Report 2018

stores. In the Foods & Grain segment, we will work to
expand the revenue base of the meat product businessand identify sources of additional added value that we
can more deeply develop in the value chain infrastructure we have built in Asian food markets. In the Steel,Materials & Plant segment, including the steel,machinery, plant, energy, and chemicals fields, investment in scale expansion will be crucial. We will workwith even greater speed to build up operations in thissegment as a business pillar for the coming era. In theMotor Vehicles & Aerospace segment, we will expand
the earnings base of the aircraft components business
and, in space-related businesses, expand areas inwhich we have strength and cultivate fields where weunderstand customer needs.
Furthermore, we will accelerate investment ininnovation aimed at sowing the seeds of the future,
realizing cross-division collaboration focused on
cutting-edge technologies, such as AI and IoT, tocreate new businesses.
While we aim for ongoing growth, every investment will come be carefully scrutinized to ensure thatno investment becomes a burden down the line. To
this end, we will rigorously apply our investment standards to investment decisions while proactively selecting our fields of specialization and honing the
precision of our aim.

Kanematsu’s Progress and Strengths

Q9

Our Management Baseappropriate. Winning the trust of our business
partners, so that they feel comfortable letting
Kanematsu handle their business management, is a
guidepost to aim for in determining what
Kanematsu should look like as a trading company
going forward.
One of Kanematsu’s Corporate Principles is fulfilling our corporate social responsibilities by building
a sound, flourishing business. We aim to take abroad view of international society and strive to solve
social problems through our businesses, thereby contributing to society. Informed by the United Nations’Sustainable Development Goals (SDGs), we willencourage development in areas rooted in social
issues and problem solving within fields unique toKanematsu, where other trading companies do not
operate. By discovering and meeting needs in theseareas, we will develop businesses, creating employment and impacting our business partners and theconsumers they interface with. Considered in theseterms, our social responsibility is readily apparent.
Going forward, we will continue striving to increase
our enterprise value and contribute to society in waysthat only Kanematsu can.

Special Features
Review of Operations

We are strengthening our corporate governance instages. From fiscal 2019, we have introduced aperformance-linked stock compensation plan for
directors. By more closely linking director compensation with corporate performance and stock price,
we aim to increase directors’ awareness of shareholder and investor value. In addition, Kanematsu
has three outside directors, each with different areasof expertise. Our directors engage in active discussion rooted in their own experience, and I think ourBoard of Directors functions efficiently as a result.
As indicated in the priority initiatives of the
future 135 medium-term vision, the present shortage in management personnel is matter of urgent
concern, and we are working to strategically nurture
the personnel needed fill this need. Respect fordiversity is deeply embedded in the bedrock of theKanematsu Group. I think that the Group has thenecessary resources and conditions, including the
aforementioned respect for diversity, to develop thediverse human resources it needs. We plan to implement management training not just for current
executives, but for young employees early in theircareers, regardless of gender, on varying scales as

Sustainability

Q10

Fiscal 2019 Outlook and Message to Stakeholders
growth trajectory and endeavor to consistently fulfill
our responsibilities to shareholders.
Going forward, the Kanematsu Group will
carve out a path to major growth. We plan to makeinvestments backed by our stable financial base andbased always on thorough risk assessment. From
there, we will boldly move forward and return the
fruits of our endeavors to our stakeholders. I promise to carry out diligent, firmly grounded management while working to increase Kanematsu’s
enterprise value to live up to the expectations of our
stakeholders.

KANEMATSU Integrated Report 2018

Financial Section and Company Information

In fiscal 2019, we are planning for revenues of¥760.0 billion, up 6.3% year on year, operating
profit of ¥30.0 billion, up 14.7%, and profit for theyear attributable to owners of the Parent of ¥16.5
billion, up 1.1%.
The Kanematsu Group regards providing
returns to shareholders as one of its most importanttasks. Since resuming the payment of dividends infiscal 2014, we have increased dividend payments
each year. Under future 135, we have established atarget total payout ratio of 25%–30%. We will continue to balance careful decision making withaggressive investment as we move into a steady13

Special Feature

Growth Strategy by Business under the future 135
Medium-Term Vision
Building on sustained growth in business fields with stable earnings bases, we will move forward
toward further growth through innovation investment, planting the seeds of future businesses along
the two axes of scale expansion and added value.
Strategic expansion of scale
Sustained growth using our strength

Reinforce store revenue

Mobilebusiness

ICT solution
business

Reorganization and enhancementof printer business

Expansion of scale of meatproducts business

Reorganization and enhancementof semiconductor business

Expansion in the food market
in Asia

Stableearnings base

Electronics

Foods &Grain

New business based on
advanced technology
such as AI/loT as a core

Steel, Plant,
Energy andChemicals

Motor Vehicles& Aerospace
Accumulation of assets in theaerospace business

Horizontal development in the machineryand chemicals businesses

Expansion into the space-related area

Acquisition of added value

14

KANEMATSU Integrated Report 2018

Expansion of scale

Investment in innovation (seeds)

Addedvalue

Kanematsu’s Progress and Strengths

1 Electronics
Sales Expansion of Semiconductor and
LCD Equipment

Expansion of the Printer Business
KEY REGIONSJapan, United States, Europe, Asia

KEY REGIONSJapan, China, South Korea, Taiwan

KEY BUSINESSCOMPANY

G-Printec, Inc.

KEY BUSINESSCOMPANY

Kanematsu PWS LTD.

Kanematsu has sold commercial printers overseas since theearly 1990s. From our overseas locations in Europe, theUnited States, and Southeast Asia, we have served mainly
the photo, card, and label industries, providing commercial
printers, consumables, and a wide range of solutions tailored to customer needs. Going forward, we will continue
to work in close partnership with Japanese manufacturers
to develop the global market.

Mainly in Japan and the rest of Asia, Kanematsu supplies
semiconductor equipment, LCD equipment, and components. Semiconductor demand is increasing alongside thedevelopment of such new technologies as IoT, AI, andautonomous driving. Carefully watching the evolution of
display technologies, including LCD and OLED, we willoffer solutions that meet customer needs. While establishing mutually complementary relationships with supply
partners, we will swiftly provide more finely tuned services.

Market Environment

Market Environment

Our strategy is to expand the range of our operations. In
addition to carrying out such functions as sales, marketing,and the provision of services, we will move into upstream
areas handled by manufacturers, such as product planning,
design, and development, as well as downstream areas,such as coordinating and securing overseas sales channels.

Semiconductor Manufacturing Equipment Market by Region

swiftcolor series (a Kanematsu brand)(Billions of U.S. dollars)
60

Review of Operations

Overview and Outlook

Special Features

Overview and Outlook

(%)
40

37%
35
50
30
25

40

20

Sustainability

30

18%
15

13%
20

10
5

10
0

-3%

0

2014

2015

-5

2016

TaiwanSouth Korea
China
Japan
Other Regions
Growth rate（Right）

SCL-4000D

North America(CY)

Europe(Source: SEMI)

Global sales of new semiconductor equipment grew 37%
from US$41.2 billion in 2016 to US$56.6 billion in 2017.
Demand is expected to continue growing, mainly in Asia.

Financial Section and Company Information

SCC-4000D2017

Timeline and Measures Taken to Strengthen Business2016

Established G-Printec, Inc.

2016

Kanematsu PWS LTD. formed an alliance with Germany-based SUSS MicroTec as the latter’s exclusive
distributor in JapanKANEMATSU Integrated Report 201815

2 ICT Solutions
Leverage Kanematsu’s competitive
advantage as a provider of multi-vendor
solutions to bolster sales capabilities

Stableearnings
base

Develop One-Stop IT Infrastructure
Services

KEY REGIONSJapan, Asia (China, Southeast Asia)

KEY REGIONJapan

KEY BUSINESSCOMPANIES

Kanematsu Electronics Ltd.,
Nippon Office Systems Ltd.

KEY BUSINESSCOMPANY

KEL Technical Service Ltd.

Overview and Outlook
As a provider of multi-vendor solutions not bound to any specific manufacturer, Kanematsu operates businesses in virtualization solutions and infrastructure development, areas inwhich it has a strong track record, as well as a security business serving mainly large corporations as end users.
Furthermore, by providing services ranging from the designand construction of corporate information services to theirmaintenance and operation through a one-stop framework,
even at customers’ overseas locations, we are working to differentiate our business and secure a competitive advantage.
Recently, customer requirements for IT investment havebeen diversifying. Having an understanding of customers‘
businesses and the ability to suggest usage options (such as
on-premises or cloud-based systems) tailored to each system’s
purpose are now essential skills for IT vendors.
While leveraging our strengths as a provider of multi-vendor

solutions, we will strive to secure and develop humanresources who can flexibly respond to customer needs andfurther bolster sales capabilities and comprehensive Group
strength in order to carry out our role as a strategic IT partner.

Market Environment
Domestic Information Security Market Sales Forecast by
Product Segment• In addition to demand for strategic IT investment aimed
at securing competitive advantage, demand is increasing
for IT investment aimed at improving corporate productivity and efficiency and saving labor to meet corporateneeds, including those related to work style reforms andpersonnel shortages.

(Millions of yen)
400,000
350,000
300,000
250,000• As customer needs diversify, demand for IT investment in
information security is expanding in response to the rising risk of information leaks and need to strengthen governance while protecting companies against such threats
as cyber attacks.

200,000
150,000
100,000
50,000
0

2015

2016

2017

2018

2019

Security appliance market
SaaS security software market
On-premises security software market

2020

2021

2022
(CY)

(Source: IDC Japan)

Timeline and Measures Taken to Strengthen Business

16

2014

Established an affiliate in Thailand

2015

Nippon Office Systems Ltd. became a wholly owned subsidiary

2017

Formed a capital and business tie-up with GLOBAL SECURITY EXPERTS Inc.

KANEMATSU Integrated Report 2018

3 Mobile

Expansionof scaleKEY BUSINESSCOMPANY

Kanematsu’s Progress and Strengths

Strategic Scale Expansion

Reinforce Sales Outlet Revenue
KEY BUSINESSCOMPANY

Kanematsu Communications Ltd.

• Nationwide network of mobile phone sales outlets• Directly operated stores: 156
Secondary agency stores: 278 (As of June 30, 2018)

Kanematsu Communications Ltd.

• Human resource development and skill enhancement• Improving store efficiency and customer satisfaction

Special Features

Overview and Outlook
provide diversified products and services.
Furthermore, the next-generation communications fieldpresents opportunities to leverage coordination and synergies spanning the Kanematsu Group.

Review of Operations

As a primary distributor for domestic telecommunications
carriers, we are one of Japan’s major sales agencies andmaintain a nationwide network of sales outlets. Going forward, while the mobile market will continue to see thereplacement of phones, including switches from featurephones to smartphones, the arrival of 5G (high-speed, highvolume data transmission) is expected to drive the introduction of a wider range of devices to the market. Our networkof brick-and-mortar stores, where we interface with customers, is a significant strength, and we will continue working
to expand and reinforce said store network.
For corporate customers, we offer not just mobile
phones, but a wide range of services in the mobile solutions
field. As smartphone performance improves and the IoT
market matures, the mobile communications market is
expected to see ever-greater development. Expanding fromthe mobile phone-related services we currently offer, we will

Market Environment(Millions)
25,00020,00015,00010,0005,000

1997.3

2000.32005.3

BWA devices
3.9 G mobile phones (LTE)2010.32015.32018.3

3G mobile phones
2G mobile phones

The Japanese mobile phone market has long been said tobe saturated and approaching its ceiling, but the total
number of active lines continues to increase each year.
Going forward, various telecommunications standards
such as 5G (large capacity communication) and LPWA (lowpower wide area) come onto the market, we expect toenter an era in which, rather than just one, individuals will
have two or three lines. In addition to communications,mobile phone-related services are diversifying, and theeconomic sphere surrounding the mobile industry is
expected to see accelerating expansion.

Financial Section and Company Information0

Sustainability

Mobile Contracts by Generation of Mobile Communications
Standard* The graph at left was prepared based on “Quarterly Data on
Telecommunications Service Contract Numbers and Market Share”
published by the Ministry of Internal Affairs and Communications

Timeline and Measures Taken to Strengthen Business2013

Acquired BD Holdings, Inc., a mobile phone sales company based in the Kyushu region

2014Concluded a global wireless device distribution agreement with Australia-based NetComm Wireless
Limited2017

Kanematsu Communications Ltd. and Diamondtelecom, Inc. merged

KANEMATSU Integrated Report 201817

Addedvalue

4 Foods & Grain
Scale expansion of the meat products
business

Expansionof scaleDeveloping Food Markets in Asia

KEY REGIONSJapan, Asia (China, Southeast Asia)

KEY REGIONAsia

KEY BUSINESSCOMPANIES

Kanematsu Corporation,
Kanematsu Shintoa Foods Corp.

KEY BUSINESSCOMPANIES

Kanematsu Corporation, PT. Kanemory Food Service,
PT. Abadi Tunggal Lestari

Overview and Outlook

Overview and Outlook

The Kanematsu Group is diversifying the production areas fromwhich it procures meat product ingredients, helping to stabilize
procurement. Leveraging strong partnerships with our suppliers,
we carry out rigorous, detail-oriented ingredient procurement tomeet diverse customer needs. Furthermore, at our factories in andoutside Japan, we are expanding services that provide high-valueadded products, including primary product processing. In distribution, Group company Kanematsu Shintoa Foods Corp. operates
refrigerated warehouses and is building an integrated distribution
system linking cargo collection, ancillary work, and storage in orderto provide a high-quality distribution service.
Going forward, we expect the Trans-Pacific Partnership (TPP)and other factors to bring about an increase in the market shareof imported meat products in the Japanese market and aim tofurther increase our sales volumes. At the same time, we will
work toward global businessdevelopment leveraging thestrength of our business functions in the rapidly growing
Chinese market. We will pursue
scale expansion, aiming for thenumber one spot in Asia in terms
of product handling volume.

Culinary habits are rapidly evolving alongside economic growth inemerging Asian nations. In these markets, Kanematsu is building avalue chain encompassing one-stop businesses that handle operations ranging from upstream feedstuff materials to mid-stream
processed food development, manufacturing and sales, as well as
downstream restaurant business.
First, in the animal feedstuff area, leveraging know-how developed in the dairy cow feed market, Kanematsu is contributing to
the development of Vietnam’s dairy farming sector. Furthermore, in
the area of processed foods, drawing on the Group’s R&D andcontent provision functions developed in the domestic food service
sector, we are operating a central kitchen company in Indonesia, a
rapidly growing market. Using our thorough knowledge of thehalal standards of MUI, a major halal certification body inIndonesia, we offer products that Muslim customers can choosewith confidence and are favoredby a wide range of users.
Going forward, we aim to
expand horizontally, bringing
Japanese-quality foods to thetables of the Asia’s four billion
residents, and we are considering
expanding exports to markets inother parts of the Muslim world.

Market Environment• The share of imported meat in the Japanese market isincreasing due to trade agreements, including the TPP and
Economic Partnership Agreement (EPA)• Increasing added value by leveraging functions to expand
globally• Kanematsu’s strengths as a group (refrigerated warehousing,domestic sales companies, overseas sales network)

Kanematsu’s
overseasbranchess 0RODUCTION AREA
development
s 1UALITY
managements 0RODUCTdevelopment

18

Building value-chain infrastructure• Enter upstream areas, such as animal feedstuff and feedstuff
materials• One-stop framework for product proposal, production and supply• Kanematsu’s strengths as a group (logistics, facilities machinery,sales companies)
The Kanematsu Group’s Initiatives in Indonesia

Kanematsu Group Functions and Roles
Overseas
suppliers

Market Environment

Kanematsu Shintoa
Foods Corp.
Kanematsu’s overseas
sales agencies
s 0URCHASING
s Saless Imports 3UPPLY ADJUSTMENTs Business building

Logistics/
storage

End users

Kanematsu

s Receiving orders
s Saless 0ROCESSING
s Distribution*
Raw ingredientprocurement

Foodprocessing

Restaurant
management

Import/maintenanceof industrial
food machinery* P.T. Kanematsu Trading Indonesia

Timeline and Measures Taken to Strengthen Business

Timeline and Measures Taken to Strengthen Business2014 Began full-scale handling of meat products at
Kanematsu Shintoa Foods Corp.
2018 Recommenced operations at the Heiwajima refrigerated warehouse following the completion of
the redevelopment plan for Heiwajima in Tokyo
2018 Established a meat product processing joint venture in China

2012 Established PT. Kanemory Food Service, a food processing joint venture company
2013 Invested in a dairy producer in Vietnam and entered
the dairy cow feed business via a business tie-up
2014 Established a confectionery and baking ingredients
wholesaling joint venture in Shanghai
Established a subsidiary in Vietnam

KANEMATSU Integrated Report 2018

Steel, Plant, Energy andChemicals

Expansionof scaleKanematsu’s Progress and Strengths

5Improve and expand the production framework of the North American oilfield tubing business
KEY REGION

North America

KEY BUSINESSCOMPANIES

Kanematsu Corporation, Benoit Premium Threading, LLC., Steel Service Oilfield Tubular, Inc.

Special Features

Overview and Outlook
We expect shale resource development and oilfield tubing demand to continue growing over the medium andlong terms and will continue focusing on expanding thesebusinesses.

Review of Operations

In 2014, we finalized plans for the construction of a second factory for oilfield tubing processing company Benoit
Premium Threading, LLC (BPT). However, due to a rapid
decline in crude oil prices, oilfield tubing demand fell, andin light of business conditions, we temporarily suspended
construction.
Since then, crude oil prices have risen, and, as a result,North American crude oil production has recovered. Dueto the improvement in demand for oilfield tubing, mainlyin the area of shale oil, Kanematsu’s business companies in
the oilfield tubing value chain are seeing increases in processing and sales volumes.
In 2017, we decided to build an R&D center at BPT toreinforce threaded connection research and development
functions. We are also considering resuming construction
on the second factory.

Market Environment
Since bottoming out in 2016, the North American oilfield tubing market has been steadily recovering alongside crude oil prices
and the rig count.

Sustainability(US$/b)120

3,000

108.31WTI Prices (Right)

2,500

100

1,925

2,000

80

67.92
1,500

60

51.68

Rig Count Avg. (Left)
1,000

40

1,046
597
29.42

500

20

Financial Section and Company Information

404
0

0

2013
1

2013
4

2013
7

2013
10

2014
1

2014
4

2014
7

2014
10

2015
1

2015
4

2015
7

2015
10

2016
1

2016
4

2016
7

2016
10

2017
1

2017
4

2017
7

2017
10

2018
1

2018
4

Timeline and Measures Taken to Strengthen Business2013

Acquired a North American oilfield tubing processing company

2014

Finalized plans for the construction of a second factory for BPT to expand the oilfield tubing business(later suspended due to drop in oil prices)

2017

Announced the construction of an R&D center for BPT

KANEMATSU Integrated Report 201819

Addedvalue

6 Motor Vehicles & Aerospace
Scale expansion of the aircraft parts
business

Expansionof scale

Expansion of Space-Related Businesses

KEY REGION

EuropeKEY REGIONSJapan, South Korea, Thailand, India

KEY BUSINESSCOMPANYKG Aircraft Rotables Co., Ltd. (KGAR)KEY BUSINESSCOMPANY

Vector Launch., Inc.

Overview and Outlook

Overview and Outlook

In 2002, we embarked on the Boeing 737 component businessthrough sales and leaseback transactions. Since then, we havecatered to demand for parts for the Boeing 737 fleet andexpanded our component exchange business. In 2014, we purchased and disassembled an Airbus A320, fully entering theA320 component business and beginning to handle engine components. In 2016, we purchased and disassembled two Boeing
737-800s, building up a competitive component portfolio.
The aircraft aftermarket is expected to expand further, and weare aiming to become a key player in the largest market segment.

Kanematsu entered the space field in the 2000s when it
began handling satellites and satellite components and hassince enhanced its lineup of products related to satellites andtracking and control ground systems. In January 2017, wemoved into a new business area, the satellite launch service,
which connects theground and space. Goingforward, demand forsmall satellite launches is
expected to see stable
growth. We will meet thisdemand by offering transport services using
Vector’s small launch vehicles in and outside Japan.

Market Environment

Market Environment

Robust passenger demand is expected over the longterm, andthe number of aircraft in service is forecast to steadily
increase. Demand for single-aisle, narrow body aircraft, suchas the Boeing 737 MAX and Airbus A320neo, is expected tobe especially strong, with over 10,000 such aircraft to bedelivered over the coming decade.

Multiple mega-constellations of satellites are currently being
planned, and demand for small satellite launches is expected
to grow. As size reductions and performance improvements toelectronic components and equipment increase the capabilities of small satellites, firm demand for small satellite launches
is expected going forward.

Narrow-Body Deliveries by Aircraft Platform

Nano/Microsatellite Launch History & Market Forecast(Number)
6,000(Number)
700

5,000

600

Full Market Potential
Space Works Forecast
Historical Launches

679
598

500

4,000

515
460

400

411

3,000

361

300
2,000

200

1,000

100

0

0

A320neo

737MAX

737NG

C Series

A320

C919

MC-21

2013

(Source: Oliver Wyman Global Fleet & MRO Market Forecasts)

2015

2016

2017

2018

2019

2020

2021

2022

(Source: SPACE WORKS ENTERPRISE, INC.)

Timeline and Measures Taken to Strengthen Business

Timeline and Measures Taken to Strengthen Business

2002

2017

2014
2016

20

2014

Established KGAR and began Boeing 737
component sales and leaseback business
Began dealing in Airbus A320 components
Purchased and disassembled two Boeing 737-800s
for components

KANEMATSU Integrated Report 2018

2018

Made a strategic investment in Vector
Launch Inc.
Entered an exclusive agreement to represent Vector in Japan, India, Thailand andSouth Korea

Kanematsu’s Progress and Strengths

7

AI/IoT: New Business Basedon Advanced Technologies

Investment ininnovation(seeds)Special Features

The development of such new technologies as AI and IoT
has the potential to significantly impact not just consumers,
but also traditional businesses by transcending existing
business models.
The Kanematsu Group has been proactively launching
initiatives related to new technologies in each of its business areas—such efforts have included smart agriculture
initiatives in the agricultural sector as well as initiatives
related to electric vehicles and connected cars in the

Review of Operations

Overview and Outlook
electronic devices and motor vehicle sector. In the past several years, to further accelerate such initiatives, we haveformed multiple project teams that coordinate across divisions and Group companies, drawing mainly on theElectronic & Devices division and Motor Vehicles &Aerospace division, which have strengths related to ICT.
Through this approach, we are bringing together Group
strengths to accelerate business creation.

The automotive industry is on the verge of a major transformation, and Kanematsu views this as a business opportunity. Even before the launch of the Motor Vehicles &Aerospace Division in 2013, we were exploring new initiatives in the automotive and aerospace fields. Since 2017,
we have had a dedicated officer dispatched to Silicon
Valley in the United States. This officer is stationed at theworld-leading technology accelerator and investment firm
Plug and Play Tech Center, looking for startups in the automotive and aerospace fields with which we can collaborate

Sustainability

Limited Partnership Investment in a Cyber Security Fundand create businesses. In this way, we are working to create new businesses that will be future pillars and build new
business models. At the same time, seeking out promising
startups across a wide range of fields, we are focusing on
cyber security, which will be increasingly crucial for allindustries with the advent of the IoT era. We have made alimited partnership investment in a cyber security investment fund and will continue to advance Groupwide efforts
to build new businesses in this area.

Financial Section and Company Information

KANEMATSU Integrated Report 201821

Message from the CFO

Ensuring that Kanematsu
Appeals to Investors
Tetsuro Tsutano
Director, Senior Executive Officer, CFO

such factors as the recent trade wars and other geopoliticalrisks, and we have built a strong domestic earnings base on
such excellent Group companies as Kanematsu Electronics Ltd.
and Kanematsu Communications Ltd.

Kanematsu’s Unique Characteristics
Kanematsu’s unique characteristics include the stability of its
revenue and finances.
Looking at revenue stability, our operating profit has growneach year since fiscal 2016. For fiscal 2019, we forecast operating profit of ¥30 billion, 1.6 times the level of three years prior(Figure 1). Our revenue stability is supported by the following
factors.

As for financial stability, as of March 31, 2018, our equity ratio
stood at 22.3%, a fairly standard level. However, Kanematsu
has the following unique characteristics.

1. Operating Profit ≈ Profit Before Tax

1. Non-current assets < Shareholders’ equity

Looking at income items, the share of profit and loss of investments accounted for using the equity method, which have a
low cash collection rate, contributes only a small portion of
total income. Also, interest income is low, as we do not invest
in natural resources or real estate, which are susceptible toprice fluctuations. As a result, operating profit and profit
before tax are usually almost the same (Figure 2). The
Kanematsu Group is characterized by a revenue model inwhich operating profit very clearly drives growth in consolidated net income.

At the end of the previous fiscal year, our non-current assets,
including goodwill, intangible assets, and investments accounted
for using the equity method, stood at 0.91 times shareholders’equity, illustrating the stability of our financial structure (Figure3). As a result, our risk-asset ratio, the ratio of maximum possible
losses to shareholder’s equity, was 0.4 times at March 31, 2018,a markedly sound level, even among trading companies.

2. Non-Consolidated Retained Earnings ≈Consolidated Retained Earnings
Under the new medium-term vision, we are targeting a total
payout ratio of 25%–30%. Kanematsu’s consolidated subsidiaries pay it dividends at high payout ratios. Using this consolidated
revenue to increase its non-consolidated capital reserves,

2. Strong, Stable Earnings Base
By region, sales in Japan account for 83% of the Group’s overall revenue. Our revenue structure is relatively insulated from

Figure 1. Operating Profit/Profit for the Year Attributable to Owners of the Parent/ROE(Billions of yen)

(%)

50

25

40

20

15

30

30.0

13〜15

22.6

10

10

18.8

10

8
9.0

16.5

16.3
80

5

8.0

0

0
FY2016

Operating profit

22

15

25.0

26.2
20

13〜15

FY2017FY2018

Profit for the year attributable to owners of the Parent

KANEMATSU Integrated Report 2018

FY2019(planned)

ROE

FY2024(planned)future 135—The New Medium-Term Vision

Figure 2. Consolidated Operating Profit/Profit before Tax/
Consolidated and Non-Consolidated Retained Earnings

We have introduced a performance-linked stock compensation
plan for directors effective from fiscal 2019. This move is aimed atmore closely linking director compensation with corporate performance and stock price and better motivating directors to improve
corporate performance and enterprise value over the medium
term by having directors share with other shareholders the potential benefits and risks of share price changes.
Kanematsu has been selected for inclusion in the JPX-Nikkei
Index 400—which is regarded as an important market benchmark—for four consecutive years beginning in fiscal 2014. Since
fiscal 2017, we have also been selected as one of the 200 companies included in the JPX-Nikkei Mid and Small Cap Index, whichapplies the same indicator concept as the Index 400, with a focus
on companies that offer capital efficiency and investor-oriented
management. ROE is one of the indicators that these indices use
to select companies. As of March 31, 2018, Kanematsu’s ROE wasquite high, at 15.1%, and, under the new medium-term vision,
we aim to maintain a robust ROE of 13%–15%. Previously, wetargeted a shareholder return ratio of 25%. Under the new vision,
we have raised this target to 25%–30%, and we plan to promotemanagement with a focus on capital efficiency.
Going forward, we will strive to maintain active communication
with shareholders and investors and take their views into accountas we work to ensure that Kanematsu continues to appeal toinvestors.

Figure 3. Non-Current Assets ÷ Shareholders’ Equity and
Non-Consolidated Retained Earnings ÷ Annual Dividends(Billions of yen)(Billions of yen)

48.6

50

40

34.6

34.0

29.1
26.6
23.2

20

26.2 26.0

22.6

18.8 18.1

17.9

10

March 31, 2016 March 31, 2017 March 31, 2018

Total assets

443.6

479.7

519.9

Current assets

346.6

371.3

414.7

Non-current assets

97.0

108.4

105.2

Property, plant and equipment

26.9

26.9

21.9

Goodwill and intangible assets

12.7

27.2

26.9

Other investments, etc.

31.5

34.1

38.0

Other

25.9

20.2

18.4

Shareholders’ equity

91.6

100.4

116.0

1.06 times

1.08 times

0.91 times

20.6%

20.9%

Non-consolidated retained earnings

23.2

26.6

Annual dividends paid

1.7

2.3

2.7

14 times

12 times

13 times

Non-current assets ÷ Shareholders’equity(Reference: equity ratio)

0
FY2016

Operating profit

FY2017FY2018

Profit before tax

Retained earnings (consolidated)

Retained earnings (non-consolidated)

Retained earnings ÷ Annual dividends paid

Financial Section and Company Information

30

Sustainability

Kanematsu’s share price almost doubled between January 2017
(when it was ¥940*) and its high point in May 2018.
Our current share price (as of July 2018) is around ¥1,500 per
share. The price-to-earnings ratio is only around eight times, but I
think this is something of a bargain, given that (1) having withdrawn from natural resource and real estate investment, ourReinforcing Shareholder-Focused Management

Review of Operations

Our Share Price*Theoretical value calculated taking the share consolidation into accountSpecial Features

We launched our new medium-term vision, future 135, in thecurrent fiscal year. Achieving the vision’s target of ¥25 billion inconsolidated net income will require operating profit ofapproximately ¥45 billion. We expect to achieve about a third of
the necessary increase in operating profit through business
investment aimed at expanding the revenue base and increasing
added value.
As for where we will make these business investments, ourbasic policy has not changed under the new medium-term
vision. Specifically, we will invest mainly in our areas of strength,
where we have insight and experience, and we will not invest innatural resource development or real estate, engage ininvestment in assets subject to rapid value fluctuations for the
purpose of securing dividends or capital gains, or make equitymethod investments solely for the purpose of securing a share of
profit of investments accounted for using the equity method.
We will make investments aimed at increasing trading revenue
that we can incorporate into consolidated results.
The new medium-term vision covers the six years ending
March 31, 2024. At the halfway point, after the first three years,
we will review our strategy and policies. Depending on how far
investment has progressed, we will consider implementing
additional shareholder returns, including share buybacks.

annual revenues are stable, with little impairment risk, (2) our revenue structure, with its low portion of profits from investments
accounted for using the equity method, makes it easy to returnconsolidated cash flows to shareholders, (3) we have selected certain fields to focus on and are limiting business investments toareas where we have insight and experience, helping to limit risk
(4) a large portion of our total revenue is from domestic businesses, providing insulation from the impact of trade wars and othergeopolitical risks, and (5) we have a solid financial base, as evidenced by our risk-asset ratio of 0.4 times.

Kanematsu’s Progress and Strengths

Kanematsu funds its dividend payments. As a result, the amountof increase in non-consolidated retained earnings and that inconsolidated retained earnings are roughly the same (Figure 2).
Kanematsu’s non-consolidated retained earnings as of March
31, 2018 were more than 10 times the amount of annual dividends paid, allowing a healthy amount of flexibility (Figure 3).

22.3%(Billions of yen)

34.0

KANEMATSU Integrated Report 201823

Review of Operations

Electronics & Devices
Semiconductor
Equipment

Semiconductor/LCD Manufacturing Equipment
Semiconductor manufacturing and testing equipment; LCD
manufacturing and testing equipment; OLED production
equipment

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 andmaterials; Image sensors; Image sensor back-end processing

ICT Solutions

ICT and communications
equipment and devices; ICT andcommunication services; System
integration

MobileMobile communication
terminals; Mobile internet
system and services

Semiconductors/LCD Materials
LED components; OLED materials; Solar cell components;
Battery components; Metal materials for electronic andfunctional components; Surface treatment agents; Functionalfilms; Board assembly; Finished EMS products; IoT solutions

Industrial
Electronics

Ele
ctr
on
ics

Optical Device Materials
Components for display devices and optical devices

Industrial Printers
Industrial printers and related consumables

&

s
ce
vi
e
D

Livingwares
Batteries; Household supplies

Semiconductors

Semiconductors
Semiconductor devices; Sensor devices;
LCD panels; Components for smartphones and tablets;
Control modules for lithium ion batteries

Processed fruits (frozen/canned); Concentrated fruit/
vegetable juices; 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 andseeds; Cooked foods; Others

Meat and Marine
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 ingredientsfor sushi; Others

F
o
od
s&

Foods

n
ai
Gr

Foods & Grain

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; Petproducts; Tropical fish; Raw
ingredients for pet food andsnacks; Products wholesaled to
DIY stores (home improvement
retailers)Grain, Food
Rice; Wheat; Barley; Corn; Soybeans (for food, for oil);Soybeans, Oilseeds Defatted soya-flake for soy sauce production; Buckwheat;
Corn grits; Corn starch; High-fructose corn syrup; Rapeseed;
Cottonseed; Others

Feedstuff

24

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

KANEMATSU Integrated Report 2018

SteelForeign Trade of Iron and Steel
Export of various kinds of steel sheets,
plates, bar products, and pipe andtubing products; Export of porcelain
enamel steel sheets

Materials

Functional Chemicals
Incense materials; Lubricant-related materials;
Fertilizer materials; Papermaking chemicals;
Synthetic rubber; Petrochemical products
Healthcare
Functional food materials; Health supplements

Foreign Trade of Specialty Steel
Export and third-country trade of stainlesssteel sheets and plates, specialty ferrous
wire materials, and bar productsLife Science
Pharmaceuticals and pharmaceutical andagrichemical intermediates; Pharmaceuticalingredients

Domestic and Foreign Trade of a
Full Range of Steel Products
Import and third-country trade offerrous raw materials; Export andimport of steel materials and submaterials

Special Features

Crude Oil, Petroleum Products
Crude oil; Jet fuel oil; Gasoline; Kerosene; Diesel oil;
Fuel oil (bunker A and C); Lubricant oil and additives
for industrial and automobile use
LPG
LPG (propane, butane, autogas)
Development of Environment-RelatedMaterials and New Technologies
Heat reflective paint; Carbon credit trading; Heat
reflective paint; Carbon credit trading; Biomass fuel

s&
al

Ste
el,
M
at
er
i

Kanematsu’s Progress and Strengths

Steel, Materials & Plant

nt
Pla

Plants, Environmental Business
Chemical and petrochemical plants; Industrial plants(papermaking plants, auto-manufacturing plants
and other plants); Utility and process systems for oil
and gas plants; Infrastructure facilities; Scrapprocessing facilities; Environmental facilities

Review of Operations

Plant & Ships

Cargo Vessels
Shipbuilding; Used ships; Equipment package deals
for new ships (including ship design, engineering)
Machine Tools and Industrial Machinery
Machine tools; Industrial machinery and peripheral
equipment

Sustainability

Mo
t
o
rV
eh
i
cle
s

Electric Power Cable Projects
Electric power and communication cable projects;
Power generation plants (including design,
engineering, installation)
ODA
ODA projects (medicine/pharmaceuticals, insurance,broadcasting and communications, power
generation, environment, infrastructure, watersupply, education)

&

e
ac
sp
ro
Ae
Motor Vehicles
and Parts

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

Aerospace

Financial Section and Company Information

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

KANEMATSU Integrated Report 201825

Electronics & Devices
Our operations include the ICT solutions and the mobile businesses
as well as value chains ranging from electronics-related materials tocomponents 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.

Masahiro Harada
Senior Executive Officer,
Chief Officer, Electronics & Devices Division|Business Results and Forecasts

Division Composition

FY2018
Revenue–external¥263.3billionSegment profit¥17.6

billion

FY2019 (Forecast)

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

Revenue–External¥270.0billion• Semiconductor Equipment• Electronic Components andMaterials• Industrial Electronics• Semiconductors• ICT Solutions• Mobile

Segment profit¥17.5

billion|Segment Profit(¥ billion)
20.0

15.0

10.0

17.6

17.5

FY2018FY2019(Forecast)

14.3

10.2

10.7

FY2015FY20165.0

026

FY2017KANEMATSU Integrated Report 2018

External Environment and Strategies to Achieve future 135
Technological innovation in the ICT solutions business, mobile businessand electronics industry is advancing rapidly, while globalized markets
and flatter yield curves are becoming the norm. At the same time, tech
giants wielding powerful IT platforms are increasingly dominating markets. Hardware is being standardized, while the importance of software, including AI, and internet solutions is growing. As marketschange, increasingly global customers are seeking fine-tuned services
and total solutions.
Under VISION-130, thanks to M&A that has yielded effective synergies and judicious investments in major players within niche areas, we
steadily expanded and secured added value. Furthermore, by spinning
off highly specialized sections, we enhanced our flexibility and services
sited near customer locations, leading to steady growth and greater
earnings. We promoted omnidirectional support within the worldwide
Group, achieving increased sales of equipment to rapidly expanding
semiconductor and LCD businesses.
In line with the goals of future 135, Kanematsu will continue toDivision Medium- and Long Term Vision

President & CEO
Kanematsu Futuretech Solutions Corporation
is a new company that began operations
April 1, 2018. It was formed by splitting off
part of Kanematsu Corporation, mainly sections related to the electronic component
and semiconductor businesses. Our ultimate
mission is to offer optimized solutions to customers utilizing our core competencies insemiconductor products and technologies.
These include organically combined solutions
that consist of specifically designed anddeveloped modules as well as a wide rangeof software, hardware, and services. Under
our slogan, “Providing Solutions, Building
your Future,” we are constantly bringing in
new information and technology. Going forward, as a specialized technology trading
company we will provide solutions to diverse
needs that help customers accurately respondto innovations in technology—such as IoT and
AI—and changes in industries and markets.
At our head office in Hatchobori, Tokyo,
we have adopted a free address system—afirst for the Kanematsu Group—and createda cafeteria-like lounge within the workspace,so that employees can work freely, wherever
they like. By helping improve employee performance, we are fostering creativity in order
to offer new solutions and create new businesses.

Financial Section and Company Information

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

Hiroshi Yamashina

Sustainability

Strengths and Tasks to Address

Kanematsu Futuretech Solutions
Corporation

Review of Operations

The Electronics & Devices Division has assumed a policy aimed at coordination with the Group and growth. By pursuing business tie-ups, capital alliances, 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, streamline the service and support business, and enhance
security functions while pursuing overseas development. In the mobile business, we will continue to seek to expand our business scale and improve
service as we prepare for the market explosion that the coming adoption of
5G will bring. Furthermore, by combining our current businesses with AI,
cloud service, cyber security, fintech, blockchain, and other cutting-edge
technologies, we aim to create new business models, raise customer satisfaction, and achieve ongoing business development.

Group Company’s Comment

Special Features

1. An abbreviation for four trends in the automotive industry: connected, autonomous,shared & services, and electric
2. Mobility as a service

Kanematsu’s Progress and Strengths

pursue global M&A and investment in innovation in order to achievebusiness expansion. Meanwhile, we continue to work toward greater
differentiation. Specifically, we are adding value through the supply of
modules using electronics manufacturing services (EMS) and other services, including design and development; package solutions; and just-intime supply backed by advanced warehouse functions. Furthermore, in
ICT, we are reinforcing one-stop solutions and security services.
Overseas, the Electronics & Devices Division continues to create support
structures near customer sites in China, Southeast Asia, North andCentral America, and elsewhere, as we work to establish global value
chains. By actively incorporating such innovations as IoT, M2M, CASE,1
and MaaS2 technologies, we will offer business models with even greater added value.

Free address workspace at the head office

KANEMATSU Integrated Report 201827

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

Masayuki Hamasaki

Senior Executive Officer,
Chief Officer,
Foods Division

Senior Executive Officer,
Chief Officer, Grain,
Oilseeds & Feedstuff Division|Business Results and Forecasts

Division Composition

FY2018
Revenue–external¥231.3billionSegment profit¥2.1

billion

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, Oilseeds & Feedstuff Division,
which handles such products as grain and animal feedstuff, and the
Foods Division, which handles such products as processed foods andanimal 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 and marine products, ingredients for desserts, alcoholic and non-alcoholic beverages,
frozen foods, and processed foods to animal feedstuff and fertilizer.

FY2019 (Forecast)
Revenue–External¥260.0billion• Foods• Meat and Marine Products• Grain, Food Soybeans, Oilseeds• Feedstuff• Processed Agricultural Products• Pet Products and Groceries

Segment profit

External Environment and Strategies to Achieve future 135¥4.0

billion|Segment Profit(¥ billion)
5.0

4.0

4.0
3.4

3.0

2.5
2.1

2.0

1.4
1.0

0

FY201528

FY2016FY2017KANEMATSU Integrated Report 2018

FY2018FY2019(Forecast)

Foods Division Under VISION-130, we positioned Asian food markets as
our principal strategic business area, notably operating a restaurant management business in Indonesia centered on a cooked foods factory thatbegan operations in 2015. We built a value chain that extends fromupstream to downstream areas. Looking at the external environment, inJapan, the food market faces long-term contraction, reflecting the lowbirth rate and a graying and declining population. Expanding Southeast
Asian food markets, meanwhile, present the merits of growing populations and peak demographic windows. To capture demand in these markets, major food companies are aggressively expanding overseas. In thismarket environment, the Foods Division is working toward the goals of
future 135 by expanding its earnings base through selection and concentration in the domestic market while strengthening Group company
functions. In the meat product business, especially, Kanematsu is
strengthening coordination with Group company Kanematsu Shintoa
Foods Corp. to improve logistics, processing, and development functions
in order to increase profit. Overseas, we are creating new businesses byapplying know-how and business models cultivated in Japanese markets
to expand horizontally into emerging markets, mainly in China andSoutheast Asia, seeking business expansion.

Strengths and Tasks to Address

President & CEO
Kanematsu Agritec Co., Ltd. was founded in
November 1954 as a mixed fertilizer manufacturer and began mixed animal feedstuff production and sales in December 1959. Ever since, wehave worked to contribute to agriculture in
Japan through the manufacture and sale of animal feedstuff and fertilizers that are essential tothe production of safe, reliable foods.
The Japanese government is working toincrease national food self-sufficiency. However,agricultural producers face numerous difficulties,
such as increased imports of cheap agricultural
products due to the Trans-Pacific Partnership(TPP) and other trade agreements; fewer agricultural workers due to the graying of the population; and falling consumption due to population
shrinkage. To address these difficulties, nationwide efforts to strengthen Japan’s agriculture areunder way.
While it is true that we produce safe, reliable animal feedstuff and fertilizers for the production of made-in-Japan products that satisfy
consumer preferences for safety, our operations
are much broader. Our animal feedstuff departments pursue feed development aimed atstrengthening the cell walls of livestock and creating meat brands, our fertilizer departments
develop low-cost fertilizers, and in coordination
with Kanematsu we undertake contract farming
initiatives involving such products as rice for animal feed and commercial use. Furthermore, weare developing technologies that use IoT to
improve product handling and agricultural productivity. In all our efforts, we strive to leverage
the Kanematsu Group’s overall strengths to benefit agricultural producers and agriculture in
Japan as a whole.

Financial Section and Company Information

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 inits product manufacturing and development, which go beyond mere trading.
At present, we face the urgent task of leveraging these strengths to horizontally expand and create new businesses. By optimizing roles within the Groupto improve the responsiveness of sales divisions, we will improve the new
business acceleration framework and achieve robust growth.

Isamu Kato

Sustainability

Grain, Oilseeds & Feedstuff Division We are helping Japan’s dairy and otherfarmers improve their productivity and competitiveness, aiming to achieve
global business expansion alongside them. In terms of asset strategy, we
are actively investing in logistics bases at production and consumption
sites, working to ensure the stable supply of grain and feedstuff materials
and expand sales channels in Japan and abroad. Furthermore, using value
chains built through vertical integration, we aim to offer superior, highly
differentiated services in such areas as pet-related businesses and foodsoybeans.

Kanematsu Agritec Co., Ltd.

Review of Operations

Foods Division We aim to evolve from mere trading operations by implementing internal reforms to emphasize specific functions and roles inorder to build value chains. Moreover, we are actively implementing business investments and M&A in order to improve the functions of theKanematsu Group in up-, mid-, and downstream roles. At the same time,
we are steadily implementing growth strategies, astutely allocating management resources to focus areas and targeted overseas markets. In addition, we are working to actively develop the human resources who will
make this implementation possible.

Group Company’s Comment

Special Features

Division Medium- and Long Term Vision

Kanematsu’s Progress and Strengths

Grain, Oilseeds & Feedstuff Division In line with the positioning of Asianfood markets as our principal strategic business area under VISION-130,
we have been investing in dairy producers and entered the dairy cow
feed business in Vietnam. Looking at the external environment, as theglobal population increases, competition to secure food resources isintensifying. In domestic markets, industry reorganization is picking up
steam. In this environment, to carry out its vision of contributing to agriculture, the food supply, and the enjoyment of food around the world aswell as to achieve the goals of future 135, the Grain, Oilseeds & Feedstuff
Division is advancing the following businesses. Upstream, we are establishing logistics bases in raw material producing regions to secure a stablesupply of grain and feedstuff materials and promote sales in both domestic and overseas markets. Midstream, we are reinforcing the sales functions of Group companies to create frameworks to more quickly andprecisely meet customer needs. Downstream, we are actively developing
restaurant and other businesses, focusing mainly on the Be Smile Project,a “sixth industry” business entity. Furthermore, Kanematsu is leveraging
its strengths in business development that crosses industry boundaries toaccelerate business creation in the smart agriculture field, most notably inits business with the dairy farming IT start-up Farmnote.

Grain, Oilseeds & Feedstuff Division From grain, food soybeans, oilseeds,

feedstuff materials, fertilizer, and processed agricultural products to petrelated businesses, all of the Grain, Oilseeds & Feedstuff Division’s businesses
boast differentiated products and provide added value, a Kanematsu hallmark. These are the division’s strengths. In terms of scale, however, thesebusinesses have considerable room for growth. Through collaboration andalliances with our partner companies, we will improve the functions of theKanematsu Group at every stage of the value chain to expand business scale
and provide useful products and services to even more customers.

Corn used as the primary ingredient for animal
feedstuff handled by Kanematsu Agritec
subsidiary Heisei Feed Manufacturing Co.

KANEMATSU Integrated Report 201829

Steel, Materials & Plant
This segment engages in operations covering the full range of ironand steel products, energy solutions, functional chemicals, and industrial plant and infrastructure facilities. While this segment handles awide variety of operations, in each business area we boast highly
specialized staff who uphold our commitment to supplying anddeveloping high-value-added products.

Eiji Kan
Senior Executive Officer,
Chief Officer, Steel, Materials & Plant Division|Business Results and Forecasts

Division Composition

FY2018
Revenue–external¥153.1billionSegment profit¥3.9

billion

FY2019 (Forecast)
Revenue–External¥160.0billionThe Steel, Materials & Plant Division was launched in April 2013,
integrating three divisions that, until then, had operated independently. By gathering experts in the fields of steel, materials (centered mainly on functional chemicals and energy), and plant toshare 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 petrochemical plants, 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.
• Steel• Materials (Functional Chemicals and Energy)• Plant and Ships

Segment profit¥5.0

billion|Segment Profit(¥ billion)
8.0

6.0

6.3
5.0

4.0

3.9
3.4
2.8

2.0

0

FY201530

FY2016FY2017KANEMATSU Integrated Report 2018

FY2018FY2019(Forecast)

External Environment and Strategies to Achieve future 135
During the four years of VISION-130, the external environment was far
from easy for the Steel, Materials & Plant Division. The greatest headwind
was the drop in oil prices. This drop significantly impacted not just theoilfield tubing business, but the energy business and businesses involvedin supplying materials for the petrochemicals industry. However, oil prices
have since rebounded and are now largely holding steady. As a result,the North American oilfield tubing business returned to profitability infiscal 2018 and continues to perform better than planned. In this business, in 2014, we announced plans to build a second factory for Benoit
Premium Threading, LLC, a Group company with a specialty in threaded
connection machining and processing, but these plans were later put on
hold because of the drop in oil prices. Since then, however, we haveworked to improve profitability by such means as inventory improvement
and logistics streamlining, and in 2017 we decided to build a new R&D
center to develop and improve threaded connections. Going forward, we
will strive to reinforce the supply system and steadily capture rapidly
growing drilling demand, mainly in shale gas development. By doing so,
we will once again expand the oilfield tubing business as a pillar of oursteel business. In the domestic steel business, we will strive to provide

Solar Power Generation Business
Developing business centered on renewableenergy sources, such as biomass and solar, isa key measure for the energy business.
Recently, we decided to begin a solar power
generation business, making use of the siteof Kanematsu Yuso Co., Ltd.’s former Kobe
oil depot. We plan to sell the power generated by this business to electric power companies.
The basic characteristics of the new businessare as follows.
• Site area: Approx. 20,000 m2• Power output: Approx. 2,000 kW• Power generation capacity: Approx.
2,000,000 kWh/year(Enough to power about 550 households)• Start of operations: Within fiscal 2019
(tentative)

Review of Operations

Solar power generation is expected to
become an even bigger presence going forward, bolstered by improvements in energy
storage technology and the Japanese government’s plan to introduce net zero energy
houses.
The importance of environmentallyfriendly, safe, and renewable energy is only
growing. Kanematsu will use this business asa foothold to advance initiatives aimed atfurther reducing environmental impact andpromoting sustainable global development.

Sustainability

Under VISION-130, we positioned automobiles, the environment, andenergy as our three key business areas, focusing mainly on overseas
markets as we worked to expand our businesses. Going forward, we
will continue working to maximize revenue by further developing existing trading in these key business areas. At the same time, in the current
fiscal year we are focusing as much effort as possible on business scale
expansion, M&A aimed at enhancing functions that add value, business
investment, and building alliances with business partners. By doing so,
we will broaden the division’s range of businesses. From there, we willdevelop the new opportunities that arise at the edges of this range intobusinesses that will support the division in the future.
To accomplish all this, we will need to change front-line mindsets
within the division. We will therefore aggressively invest in the necessary
education and additional human resources. Furthermore, we will not
focus solely on expanding revenue, but work to deepen initiatives in ourlongstanding environmental businesses with the aim of contributing tolocal communities.

TopicsSpecial Features

Division Medium- and Long Term Vision

Kanematsu’s Progress and Strengths

even greater added value, particularly in the steel processing business,
which we have been working to expand.
In the chemicals business, general chemical product trading is growing. This is a very broad field, but as we work to expand our business, wewill not indiscriminately widen the range of products we handle; rather,
we will focus on profitability and products that allow us to leverage ourexpertise. At the Groupwide level, performance in the life science field,
including pharmaceuticals, remains strong. Under the broad theme ofproviding solutions to the challenges set by Japan’s low birth rate andgraying society, we will further expand our sales network going forward.
In the energy business, while striving to expand trading of bunker oil,
one of our key business areas, we have also begun initiatives related tobiomass energy and other new products. Due to industry reorganizationand other factors, conditions remain challenging for trading companies.
However, by making maximum use of our existing businesses, such astank operations, and keeping a careful eye on market prices, we expect torealize further growth going forward. In the current fiscal year, we plan tocommence a solar power generation business using idle land in Kobe andwill continue to aim for business expansion.
In the plant and ships business, trade in components for petrochemical plants is growing, and we are seeing new business expansion in suchareas as ODA projects and sales of equipment for ships. Going forward,
we will focus efforts on securing more specialized human resources andcollaborating with reliable partners as we strive to expand our areas ofbusiness by leveraging our accumulated know-how and networks.

Financial Section and Company Information

Strengths and Tasks to Address
A full five years have passed since the current Steel, Materials & Plant
Division was formed. The Kanematsu Group boasts strong relationships
with broad-ranging trading and business partners as well as functions
that add value, such as processing, inventory, and storage, in and outside Japan. The sharing and common use of these Groupwide resources
is leading to new business creation. Such cross-industry synergy was oneof the Steel, Materials & Plant Division’s greatest initial goals and purposes, and remains one of its strengths. Going forward, we will focus ondeveloping people who can steadily carry forward our expanding businesses, working to build a foundation for the continued development of
the division.
KANEMATSU Integrated Report 201831

Motor Vehicles & Aerospace
This division comprises the motor vehicles and parts business, whichhandles motorcycle and automobile parts as well as completed built
up vehicles, and the aerospace business, which handles aircraft andparts as well as space-related products. Leveraging its superb expertise and extensive information resources, the division operates thesebusinesses on a global scale.

Yoshiya Miyabe
Director, Senior Managing Executive Officer,
Chief Officer, Motor Vehicles & Aerospace Division|Business Results and Forecasts

Division Composition

FY2018
Revenue–external¥54.5

billionSegment profit¥2.5

billion

FY2019 (Forecast)
Revenue–External¥60.0

billionSegment profit¥2.5

billion

The Motor Vehicles & Aerospace Division was formed in April 2013as an integration and concentration of the highly competitive automobile- and aerospace-related business units that previously existed as part of the Electronics & IT, Iron & Steel, and Machinery &Plant divisions. By integrating and concentrating our motor vehicles
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 and thereby strengthen our sales andsourcing capabilities. Also, bringing the aerospace-related business
units into this division has facilitated the sharing of information
about cutting-edge aerospace technologies that can be used in the
motor vehicles and parts field, and synergies between the aerospace and automotive units are helping create new businesses.
Since the launch of this division, we have been improving ourglobal frameworks to reinforce our roles and functions and better
serve our customers and business partners while constantly making
future-oriented investments to create new businesses.
• Motor Vehicles and Parts• Aerospace|Segment Profit

External Environment and Strategies to Achieve future 135(¥ billion)
4.0

3.0

3.0

2.6

2.5

2.5

FY2018FY2019(Forecast)

2.2

2.0

1.0

0

FY201532

FY2016FY2017KANEMATSU Integrated Report 2018

Under VISION-130, we worked to enhance our global framework, reinforce logistics, and build quality management and testing functions inmotorcycle and automobile businesses, thereby bolstering our roles andfunctions and reinforcing the earnings base. In the aircraft business, we
received orders from the Japanese government for the Cessna Citation
series made by Textron. We also reinforced our commercial aircraft
parts business, which operates mainly in Europe and the United States.
In the space business, we entered the rocket downrange operations
and small launch vehicle businesses, broadening our earnings base.
Under future 135, in our motorcycle and automobile businesses, wewill continue to work toward the realization of the VISION-130 strategies of creating new projects related to safety, the environment, andcomfort; working with key business partners to build new businesses;

Strengths and Tasks to Address

Financial Section and Company Information

Our greatest strength is the customer base and roster of business partners we have built up over the decades by doing business together. We
have a network that includes industry-leading customers and partners,
and we earn high marks for our excellent product and solution proposals, which leverage our expertise and extensive informational resources
gained through our businesses. In recent years, dealings between theaerospace and motor vehicles industries have broadened, expanding
synergies. To take advantage of such changes and use them to create
new businesses, we will aggressively make necessary investments while
focusing on developing entrepreneurial human resources.

As a sales agency for U.S. aircraft maker
Textron Aviation, Kanematsu is focusing
efforts on sales of business jet-based special
mission aircraft to the Japanese government.
In 2017, Kanematsu secured a sales
contract with the Ministry of Defense andJapan Air Self-Defense Force for nextgeneration flight inspection aircraft. Under thiscontract, Kanematsu is undertaking a project
to provide cutting-edge mid-sized Cessna
Citation Latitude jets equipped with flightinspection systems manufactured by a
Norwegian company, to be delivered in2020. Flight inspection aircraft are used toinspect the air navigation facilities and the
air traffic control facilities operated by theJapan Self-Defense Forces. Kanematsu has
already successfully sold and delivered five
Citation CJ4 small-sized jets for similar
duties to the Japan Civil Aviation Bureau of
the Ministry of Land, Infrastructure,
Transport and Tourism. We regard our
involvement in the sale and operational support of aircraft used in the crucial job of protecting air routes as important work thatallows us to help bear the responsibility ofcontributing to Japan’s air safety.
Kanematsu will continue working topropose and sell special mission aircraft for awide range of purposes, including flightinspection, aiming for further businessexpansion.

Sustainability* An abbreviation for four trends in the automotive industry: connected, autonomous,shared & services, and electric.

Promoting Sales of Special Mission
Aircraft to Government Agencies

Review of Operations

Under future-135, we continue to pursue the four basic policies laid out
under VISION-130: 1. maximize synergies resulting from reorganization,
2. improve and strengthen our global business structure, 3. maximize
the role of logistics transactions, and 4. build new businesses besides
the trading business.
In our motorcycle and automobile businesses, to prepare for thearrival of the CASE* era, we are considering such initiatives as collaboration with start-ups and investment in cutting-edge technologies in orderto build new business models.
In the aircraft business, we will expand our businesses in the
defense-related sector, which is expected to see market growth, as wellas in commercial aircraft components. In the space business, in January
2017 we made a strategic investment in Vector, a small launch vehicle
start-up in the United States; leveraging the expanded network provided
by this investment, we are building a foundation for the space business,
including satellite services.

TOPICSSpecial Features

Division Medium- and Long Term Vision

Kanematsu’s Progress and Strengths

and investing in cutting-edge technologies. In addition, in light of rapid
technological innovation in the automotive industry, since 2017 we havestationed employees in Silicon Valley as part of efforts to gather information on the latest technologies and create new businesses. In the aircraft business, we are reinforcing the framework of our commercial
aircraft part business and working toward expansion, with an eye toentering the Asian market outside Japan. Furthermore, we are working
to expand sales of special mission aircraft to the Japanese government.
In the space business, we are working to establish frameworks for microsatellite launch support, small launch vehicle services, and rocket component sales.

Cessna Citation Latitude

KANEMATSU Integrated Report 201833

Sustainability
The Kanematsu Group has codified the entrepreneurial spirit of Kanematsu’s
founder, Fusajiro Kanematsu, in its Corporate Principle. We engage in business inJapan and around the globe based on our mission of contributing to internationalsociety and economic development.
The challenges facing international society today, such as climate change andother increasingly serious social and environmental problems, are growing morediverse and complex. We believe that carrying out corporate activities proactively,
with an awareness of these challenges and a sense of mission, serves to both help
address such challenges and promote the growth of the Kanematsu Group.
With an eye toward cooperation and mutual development with our customers
and business partners, we will continue to leverage the insight and know-how built
up over Kanematsu’s long history to provide goods and services with added value.
Through these corporate activities, we aim to achieve the sustained developmentof the global environment, society, economy, and of the Kanematsu Group.

Our Approach to
Sustainability

Addressing the Five Key Issues

Business activities

Social contribution activities, etc.

A
Responding to changes in market
characteristics and location andchanges in customer needs

Initiatives to introduce ICT tolivestock farming
Business in high-value-added
health foods for healthier living p 37
Security business to guard
p 37
against cyber attacks

B
Mutual developmentwith local communities

Ensure health and safety through our
corporate and social contribution
activities to achieve mutual growth anddevelopment with local communities.

Offering services closely
tailored to local needs atmobile phone shops
Sustainable coffee plantationp 37
related initiatives
Kanematsu Foundation for thep 42
Research of Foreign Trade
Volunteering in areas affectedby the Great East Japanp 43
Earthquake
Supporting Amputee Soccer

p 43

e-Net Caravan activities

p 43

Enhancing the corporate
governance systemp 44

Enhancing internal control andp 46
risk management systems

34

KANEMATSU Integrated Report 2018

D
Enhancing governance

Increase management transparency,
enhance appropriate oversight functions
and systems, and promote sound corporate
management to achieve sustained growth.

Determining Materiality

Kanematsu’s Progress and Strengths

The Kanematsu Group aims to take on social challenges based on a broad view of international society in order to create
new markets and value. In this way we seek to contribute to the global environment, sustainable social development, andthe growth of the Kanematsu Group.
At the start of the future 135 medium-term vision in fiscal 2019, we sought to determine which issues theKanematsu Group should focus on in its corporate activities, taking into account international targets and standards—
such as the Sustainable Development Goals (SDGs)—as well as stakeholder expectations, Kanematsu’s Corporate Principle,
and importance to management. Through these efforts, we established five key issues (issues of high materiality).

• Responding to changes in market characteristics and location and changes incustomer needs• Mutual development with local communities• Consideration of the global environment• Enhancing governance• Promoting respect for human rights, human resource development, and diversity

Special Features

Forest conservation initiatives
in Indonesia (REDD+)
Demonstration project toincrease effective EV range

Review of Operations

Meet the needs of people in many countries
and regions by achieving the stableprocurement and supply of goods andservices to realize richer, comfortable living.

p 37

Solar panel and converter
supply business
Renewable energy power
plant construction businessBusiness supplying highefficiency industrial
machinery employing lowcarbon technologies
Business supplying heatreflective paint to combat
global warming

C

Business selling biomass fuels
to combat global warming
Aircraft rotable parts
business/part-out business

Sustainability

Consideration of the
global environment

Work to address environmental issues,
including mitigating global warming andconserving biodiversity, through our
corporate and social contribution activities.

p 38

Lumber preservation
treatment technology helping
p 38
reduce global warming
Environmentally friendly
ground improvement using
wooden piles

E

Business in implementing
switches to LP gas fuelDevelopment of mealwormbased feedstuff materials

p 38
Financial Section and Company Information

Promoting respect for human rights,
human resource development, and diversity
Developing and utilizing
global professionals in the
IT industry
Promoting work-life balance

Respect human rights, build sustainable value chains, and contribute toemployment in emerging counties in our global corporate activities. Maintainenvironments in which diverse human resources can exercise their individuality and abilities while promoting the development of every employee.

p 38
p 41

Human resource development
p 39
initiatives
Activities to support theindependence of persons
with disabilities

KANEMATSU Integrated Report 201835

Working toward the Sustainable Development Goals
The sustainable development goals (SDGs) are a set of international goals for 2030 laid out in the 2030 Agenda for
Sustainable Development adopted at the UN Sustainable Development Summit in September 2015. The SDGs consist of 17
goals and 169 targets for realizing a sustainable world. UN member countries are working toward the SDGs, carrying out
efforts related to issues including poverty, hunger, energy, technological innovation, and climate change.
In line with its Code of Conduct, the Kanematsu Group is implementing initiatives toward the achievement of theSDGs through its corporate activities.

Kanematsu’s Code of Conduct
1. Origin of corporate
activities

We became involved in corporate activities to serve our various stakeholders by providing socially valuable goods
and services in accordance with the aim of our founder to realize a sustainable society.

2. Fair transactions

Our corporate activities are conducted in compliance with laws and ordinances in Japan and abroad, internationalrules and practices, and internal rules as well as with social common sense.

3. Information management Information is properly managed to protect personal information, customer information, and intellectual property& disclosure
and is disclosed in a timely and proper manner to establish mutual trust between Kanematsu and the community
and maintain 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 the
global environment

We exercise sufficient consideration in our corporate activities to maintain a sound global environment forsustainable growth.

6. Social contribution

We are aware of the importance of our social responsibility as good corporate citizens, and proactively undertakesocial contribution activities. Employee activities to contribute to community development and to comfortable andsafe living are supported.

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

http://www.kanematsu.co.jp/en/csr/environment/environmental_report.html

36

KANEMATSU Integrated Report 2018

Kanematsu Chemicals Corp. and its subsidiary Kanematsu
Wellness Corp. are helping to improve end-users’ quality of life
through the import and export of high-value-added health foodingredients as well as domestic trading operations spanning fromprocurement to the supply and marketing of such goods.
For example, in Japan today, as the population grays, locomotive syndrome due to loss of muscle mass (sarcopenia) as well as
weakness, declines in immune strength, and changes in the gut
environment associated with frailty are becoming increasingly
major problems. Helping to support the health of seniors against
such issues, Kanematsu sells the ingredient HMB and functionalmilk products.
HMB helps to both prevent muscle loss and build new muscle.
Because of this, it is useful in preventing sarcopenia and thus locomotive syndrome in elderly individuals and in preventing muscle
mass loss due to dieting.
Furthermore, functional milk products, created by applying
the beneficial properties of breast milk, contain immunoglobulin
G and physiologically active substances (nutrients) that arethought to help improve the balance of beneficial bacteria in thegut and return the body to a normal, healthy state. Recently, ourproducts for pets have been adopted by veterinary clinics, helping
to support pet health.
Going forward, we will continue to produce products andingredients that help users live life to the fullest.

Kanematsu Electronics Ltd. has entered a capital and businesstie-up with GLOBAL SECURITY EXPERTS Inc., a specialized security vendor that provides security consulting and systematic training services.
In the information security market, demand related to laws,
regulations, and compliance requirements is forecast to expand
from 2018. Furthermore, as Japan prepares to host major
events, namely the 2019 Rugby World Cup and 2020 Tokyo
Olympics and Paralympics, numerous cyber attacks are expectedin the coming three years.
In May 2018, the Ministry of Economy, Trade and Industry
encouraged the addition of items concerning cyber security to
Japan’s Corporate Governance Code, to which listed companies
are subject. With cyber attacks thus coming to the forefront as aserious management risk, countermeasures to such attacks are
increasingly being seen as an essential factor in investment decisions.
Going forward, we will promote cyber security measures forcorporate customers and support the strengthening of their corporate governance.

B

C

Sustainable Coffee Plantation-Related Initiatives

Demonstration Project to Increase Effective EV Range
Sustainability

In Northern California, in the United States, Kanematsu is working
with Nissan Motor Co., Ltd. and Nissan North America, Inc. on ademonstration project commissioned by the New Energy Industrial
Technology and Development Organization (NEDO) aimed at
expanding the effective range of electric vehicles (EVs).
This demonstration project is being implemented in cooperation with the government of California and EVgo Services LLC, a
U.S. EV charging infrastructure operator. Under the project, 55
rapid chargers have been installed at 25 locations in the northernpart of the state, and real-time information services are being provided to EV drivers while various data about EV usage patterns arecollected, analyzed and studied. The project is expected to help
improve the usability of EVs and promote their adoption.
Through projects like this, we will continue to work toward
the creation of a low-carbon society while preventing air pollution and reducing global warming.

KANEMATSU Integrated Report 2018

Financial Section and Company Information

Rainforest Alliance is an NGO known around that world that setsexacting standards for environmental, social, and economic sustainability and promotes sustainability both in terms of the global environment and within local communities. Since 2003,
Kanematsu has been trading with Daterra Coffee of Brazil, theonly coffee producer in the world that clears the Rainforest
Alliance’s strictest standards, on an ongoing basis; 2018 marked
15 years of doing business together.
The Japanese market consumes more coffee produced by
Daterra than any other. Kanematsu trades with beverage makers
who deeply sympathize with Daterra’s operating principles andvision on an ongoing basis.
Environmental and local community sustainability in producing regions can only be achieved with the support of sustainableconsumption in
consuming regions.
Kanematsu
will continue toprovide a bridge
between producers
and consumers,
helping to spreadenvironmentallyfriendly coffee.

Review of Operations

A Security Business to Guard against Cyber Attacks

Special Features

in High-Value-Added Health Foods for
A Business
Healthier Living

Kanematsu’s Progress and Strengths

Addressing the Five Key Issues

37

C

Lumber Preservation Treatment Technology Helping
Reduce Global Warming

Kanematsu Sustech Corporation’s lumber preservation treatment is
an advanced technology that prevents damage to wood, such asthat caused by rot or termites, and improves the durability of lumber while maintaining its desirable qualities. This preservation treatment is used mainly for structural and exterior components ofhousing and other buildings, solidly supporting the literal foundations of people’s lives over the long term. Because the treatment
increases the durability of wood, the carbon contained therein stays
fixed longer, helping to reduce global warming.
Due in part to the Act for Promotion of Use of Wood in Public
Buildings, in recent years the use of wood in the construction of
public and other buildings has been steadily expanding, bringing
new attention to lumber preservation treatment technology. One
notable example is the great quantity of wood being used in the
New National Stadium and other facilities being built for the 2020
Tokyo Olympics and Paralympics, much of which is being treatedwith Kanematsu Sustech’s proprietary preservation technologies.
Going forward, we will continue to support society using
our technologies, putting our best into even the parts that are
not visible.

C

Development of Mealworm-Based Feedstuff Materials

Shintoa Corp. is working to spread the use mealworm feedstuff materials developed jointly with Ehime University in an effort to increase theuse of insect-derived fishmeal alternatives that meet the Aquaculture
Stewardship Council’s ecolabel standards for farmed fish.
Fishmeal made by drying and pulverizing anchovies and otherfish is commonly used as feedstuff for fish farms. However, due inpart to fishing regulations aimed at conserving resources and stabilizing prices, annual fishmeal production has been falling, and supply
stability has become a concern.
As a feedstuff material, mealworms are excellent in terms ofsafety, fish preference, and nutritional value and are expected to see
expanding use as an alternative to fishmeal.
Going forward, we will continue working to help aquaculture
operators develop their businesses while contributing to sustainability.

Hearty Japanese amberjack with brightyellow stripes raised on feed containing
insect-derived ingredients (left)

38

KANEMATSU Integrated Report 2018

C

Aircraft Rotable Parts Business/Part-Out Business

KG Aircraft Rotables Co., Ltd. (headquartered in Dublin, Ireland;“KGAR”) operates a rotable parts business, in which it maintains
an inventory of components so that maintenance and airline
companies do not have to. When a problem with a componentof a customer’s aircraft arises, KGAR quickly delivers the necessary replacement from its inventory. The problem component isthen sent to KGAR, where it is repaired and kept as stock for the
next customer who may need it. With more than 10,000 components stocked at warehouses in Ireland and the United
Kingdom, KGAR boasts a clientele of more than 200 companies,
mainly in Europe and North America. In 2014, KGAR also
entered the part-out business, in which it purchases used aircraft
and disassembles them to sell the components.
Through these businesses, a great many aircraft parts arebeing reused, rather than scrapped. By further expanding theaircraft rotable parts business and part-out business, we willcontinue to contribute to the reuse of natural resources andpreservation of the environment.

E

Developing and Utilizing Global Professionals in
the IT Industry

Kanematsu Electronics Ltd. (KEL) operates a training business using
facilities in Okinawa aimed at developing and utilizing global professionals in the IT industry. Through this business, KEL is working todevelop and provide human resources to operate and maintain its
customers’ systems. As part of these efforts, since 2010, we havepartnered with Knowledge Edge Co., Ltd., which offers its proprietary
Professional Intern Program (PIP) for recruiting, developing, and utilizing excellent specialist human resources. This partnership is aimed atdeveloping global professionals who can meet customer needs.
The PIP program recruits outstanding students from prestigious
universities in China, Thailand, and elsewhere for a Japanese language
and IT education course lasting approximately a year. The first half ofthe program is conducted in the students’ home countries. During thesecond half, students live in dormitories at the Asia IT Training Centerin Okinawa while learning not just Japanese language and IT skills, butalso about Japanese culture and customs. KEL’s highly experienced
engineers and salespeople assist in this training.
Many graduates of the program are now employed with KEL
customers in Hamamatsu,
Yokohama, Bangkok, Shanghai,
Guanzhou, and Dalian. These
employees have been evaluatedfavorably as being highly capable with a low separation rate.
We will continue to develop
outstanding IT and businesshuman resources to meet customer needs.

Kanematsu’s Progress and Strengths

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

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

General Manager, Human Resources &General Affairs Department

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 road maps 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 life- and workstyles foraround six months. This system exposes employees to diverse
values and provides the experiences, insights, and knowledge
that members of a globally operating trading company need.

Business Plan Formulation Trainee’s Perspective

Overseas Dispatch Training System Trainee’s Perspective
Sustainability

My regular division handles thesale of industrial inkjet printers
made by Japanese manufacturers.
Specifically, we set up sales agencies in regions around the world,
including North America, Europe,and Asia, and work closely withthem to consider how to develop
markets and then put our concluTatsuro Yanosions into action. My main misIndustrial Electronics Department,sion during my overseas dispatch
Section 1
training in Dusseldorf, Germany,
was to establish a new sales agency, from the preparation of the printing media onward, thatwould specialize in a particular market in order to achieve differentiation from competing products within said market.
Things frequently went differently than we had projected,
and we were constantly correcting course. I learned that doing
so while quickly and consistently implementing the PDCA cycle
is an important part of moving business forward. Also, I realized that dealing with customers on site, as opposed to communicating from Japan, completely changes the timescale ofbusiness and the intensity of communication, which I feel wasan extremely valuable lesson.

KANEMATSU Integrated Report 2018

Financial Section and Company Information

The training comprised twoparts. First, we learned the basic
skills necessary for creating business plans using instructional
texts. Then, we worked in groups
to actually formulate businessplans related to a set theme. The
training was a great opportunity
to systematically learn and put
Kyoko Yasuoka
into practice a wide range of
Functional Chemicals Department,
knowledge.
Functional Chemicals Section No. 2
In the group portion, throughrepeated discussion and evaluation with groupmates from other departments and Group
companies, I learned a variety of ways of seeing and thinking
about things. I also had a chance to research the businesses
and materials handled by Kanematsu and Group companies,
which gave me a better idea of what the Kanematsu Group
as a whole does. I think that this training was thus extremely
meaningful.
I will challenge myself to apply the things I learned to
my ordinary work, aiming to bring out my imaginationand ingenuity.

Review of Operations

Training in Business Plan Formulation

Special Features

Takashi Nambu

Human resources are Kanematsu’s most valuable assets. As such, future 135 includes priority
initiatives related to human resources. To ensure that employees find their work rewarding
and, as a result, perform better, we must enhance our human resource development programs and create environments where everyone can work with safety and confidence.
Our development programs include level-specific training, practical skills training, foreign language training, training in business plan formulation, and overseas on-the-job training for young career-track employees. Furthermore, in fiscal 2017, we began training aimed
at developing executive management personnel, beginning with general manager-level
employees and gradually expanding to other levels. In addition, we are strengthening training and education for local staff at our overseas sites. By organically combining multiple systems, such as those for personnel rotation and evaluation, we aim to develop true global
professionals. Furthermore, by putting into practical use measures to improve employee satisfaction, we aim to create more comfortable, productive workplaces.

39

Executive Management Training
Kanematsu created a new executive management training system in fiscal 2017 to foster the skills to operate businesses andorganizations from an executive management perspective.
Specifically, the targets of this training are to (1) foster strategy
formulation and human resource management abilities and (2)acquire the basic knowledge necessary to an executive manag-

er. In the first year, we implemented this training for generalmanager-level employees. From fiscal 2018, we are gradually
expanding this training to the division manager level andbelow, planning to eventually include employees who are inapproximately their 10th year with the Company.

Diversity
Promoting Greater Professional Success for Women
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

1.

Targets

1.

2.

2.

Although Kanematsu hires a certain number of women every year, the proportion of women in core operations
and management positions is low.
The Company’s retention rate for female employees is lower than that for male employees.
Increase the number of women working in core operations.
Within job class II, which comprises the main part of employees working in core operations, as of March 31, 2016
increase the number of employees in assistant section manager-level positions by about 1.5 times from thepresent 17 to 25.
Create an employment environment that makes it easier for women to continue working to improve theretention rate.

In fiscal 2017, we adopted new systems aimed at helping women succeed professionally.
1. A system to allow non-career-track employees to take division manager or assistant manager positions
2. A system for rehiring employees who left the Company to accompany a spouse who was transferred to another location
FY2014FY2015FY2016FY2017FY2018

Female career-track employees

51

55

54

56

54

Responsibility band 3

16

21

22

22

22

* Work location is determined according to the Company’s needs and not restricted to any specific area. These employees eventually move into core operations.

Perspective of a Female Employee Working Overseas

Iver Wang
General Manager,
Advanced Materials Department
Kanematsu Taiwan Corporation

40

KANEMATSU Integrated Report 2018

As general manager of the Advanced Materials
Department at Kanematsu Taiwan Corporation,
I work with the dozen or so employees in mydepartment to maintain and expand our existing businesses related to printed circuit boards
while striving to develop new businesses.
Kanematsu Taiwan Corporation is now 66 years
old and is known within the electronics industry
as a trading company with a long history. While
striving to exert an even greater presence in themarket, we are working hard to find ways toeffectively communicate the advantages of a
trading company to customers.
Printed circuit boards, which my department handles, are an essential basic componentof all electronics. Taiwan’s circuit board industry
is directly linked to the global electronics industry; by watching the product shipments of circuitboard manufacturers, it is possible to infer withconsiderable precision the trends of the electronics industry. Our network spanning Taiwan,
China, and Japan is strong, and the overseas
electronics divisions are working together, inline with the policy of the division at
Kanematsu, to help secure added value, expand
the earnings base, and enhance quality.
Many people think that Japanese companies seldom offer opportunities to women, but
Kanematsu has given me opportunities. Somemight imagine that it would be difficult for awoman to work as a general manager, butthere are many upsides; business partners
remember me more easily, and it sometimes
makes negotiations easier. I think that the mostimportant thing in business is to get the otherparty to open up and trust you. To that end, I
strive to enhance both my softness andstrength, which I think together constitute akind of power unique to women.
I have only been with Kanematsu a shortwhile, but I have had the chance to meet many
people, and I feel that it is a rewarding place towork. I hope to bring an even more positive
attitude going forward to work enjoyably withmy colleagues and business partners.

Kanematsu’s Progress and Strengths

Global Professionals
Global Staff Perspective

Grain and Feedstuff Department,
Forage and Dairy Products Section

around the world, visit their countries, anddiscover new perspectives. I also find it
rewarding to be able to provide safe, reliable
products to the market, and I strive to contribute to society in my own capacity.
I think that who you work with is more
important than what your work is, and I havebeen very fortunate to encounter wonderfulpeople, leading to my work at theKanematsu Group. Going forward, I will continue striving to radiate positivity, so that
others will be eager to work with me, too.

Special Features

Pham Gia Kieu Tien

After two years in trading operations at
Kanematsu Vietnam Co., Ltd., I am now
working in sales of animal feed for overseas
dairy farming at Kanematsu in Japan.
Although I was born in Vietnam, I moved toJapan as a small child, and I consider myself
to have two home countries. I hope to communicate the good things about Japan toVietnam and be a bridge between the twonations.
Through my work, I am very fortunate tohave the chance to interact with people from

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

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

Review of Operations

Child Care Support
Number of Employees Taking Childcare Leave
FY2016FY2017FY2018

17*

14

18

* Includes two male employees

Bronze Week
Annual Vacation Usage Rate

Sustainability(%)
80

Introduction of the Bronze Week system
to promote the use of paid vacation
70

65.6%

60

58.8%

60.4%

59.7%

FY2015FY201666.7%

50FY2014FY2017FY2018Financial Section and Company Information

Since fiscal 2016, Kanematsu has maintained a “Bronze Week” system for systematically encouraging the use of annual paid vacation
days. This is intended to make it easier for employees to take off
the time they are entitled to, improve work-life balance, and create
workplaces that are comfortable and rewarding. As shown in thegraph at left, the rate of annual vacation days used in fiscal 2017
was 66.7%, a full 7.0 points higher than fiscal 2015, before thesystem was introduced. Among non-managerial employees, therate was 70.4%, above the system’s target of 70%.
Going forward, we plan to implement a “My Weekend” system to encourage employees to take Mondays or Fridays off tocreate three-day weekends. Through such efforts, including those
aimed at increasing the usage of time off among managerial staff,
we aim to create even more comfortable workplaces.

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 of consecutive 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, each section
designates at least four days in the year as candidate days for paid vacation, and each individual then chooses at least two ofthese 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, is named “Bronze
Week” in reference to the yearly clusters of public holidays in Japan popularly known as “Golden Week” and “Silver Week.”

KANEMATSU Integrated Report 201841

Family Care Support

General Employer Action Plan

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.

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

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

Bring Your Child to Work Day
Since fiscal 2017, we have held an annual Bring Your Child toWork Day. By helping to deepen colleagues’ understanding ofand build support for their workmates balancing work andchildcare while enhancing communication and understanding
among families regarding work and the Company, this event isintended to increase employee motivation and foster a senseof belonging within the Company. We also hope that it will

provide an opportunity for all employees to think about theirown work-life balance. On the day of the fiscal 2018 event,the participating children saw displays of the products handled
by each division, took a tour of the Company, and practiced
exchanging business cards with the company president andexecutives.

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 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.
Kanematsu will continue to support research in the fields

42

KANEMATSU Integrated Report 2018of economics, management, and accounting through theKanematsu Fellowship.

Kanematsu’s Progress and Strengths

Volunteering in Areas Affected by the Great East Japan Earthquake

Special Features

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, Iwate, through its
own volunteer program. In addition to a volunteer leave system, Kanematsu has a system to support employees volunteering in disaster-affected areas that includes reimbursement oftransportation and accommodation expenses for employees
participating in the Company’s volunteer program. Going forward, Kanematsu will continue to provide support in line with
the needs of the area and local residents in order to assist in
the city’s recovery and development.

Supporting Amputee Football

Review of Operations

In fiscal 2018, Kanematsu began supporting the Japan Amputee
Football Association, one of seven disabled soccer organizationsin Japan.* In April 2018, Kanematsu invited Sérgio Echigo, theassociation’s supreme advisor, to speak at a kick-off event forthis support. Talks at the event covered a wide range of important topics, including an explanation of amputee soccer, culturaldifferences between countries, the importance of community,and how able-bodied people should regard people with disabilities. Through its support for the sport, Kanematsu aims to contribute to society as a good corporate citizen.
* Amputee football is a type of soccer with seven players per team forpeople with upper or lower extremity amputations. Because the sport
requires no special equipment and can be played using ordinary crutches,
it is a highly accessible form of disabled soccer.

e-Net Caravan Activities
Activities
Sustainability• Lessons held: Fiscal 2017 55 schools
Fiscal 2018 76 schools (as of July; includes
classes scheduled but not yet held)• Certified instructors: 209 (as of July 1, 2018)
All of the above are among the highest within the National
Association of Mobile-phone Distributors (Full members: 150
companies; Associate members: 393 companies; Supporting
members: 8 companies)

Financial Section and Company Information

Kanematsu Communications Ltd. understands that, in addition
to selling mobile phones, it has the important duty of promoting
the safe use of such devices. Accordingly, we take part in e-Net
Caravan activities, aiming for mutual development with local
communities.
e-Net Caravan is a nationwide initiative being advanced by
the Ministry of Internal Affairs and Communications and theMinistry of Education, Culture, Sports, Science and Technology
targeting elementary through high school students as well as
their parents and teachers to raise awareness and provide guidance regarding safe internet use. As part of the program,
Kanematsu Communications dispatches certified instructors toschools around Japan to conduct special lessons. In June 2018,
these instructors conducted e-Net Caravan lessons at junior highschools in Rikuzentakata as part of Group volunteer activities.
Also in June 2018, the National Association of Mobile-phone
Distributors, of which Kanematsu Communications president
Takashi Kikuchi is a board member, received the 2018 InfoCommunications Promotion Month Minister of Internal Affairs
and Communications Prize. This prize was given in recognitionof the association’s significant contributions to the protection of
consumer interests in the electronic communications field
through such efforts as its work to create frameworks to enablemobile phone users to enter contracts and seek information
with confidence as well as its active cooperation in dispatching
instructors to hold awareness-raising classes to improve theinformation literacy and moral understanding of youth.

e-Net Caravan at a junior high school in Rikuzentakata, Iwate

KANEMATSU Integrated Report 201843

Corporate Governance

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

System of Corporate Governance
Board of Directors
The Board of Directors is made up of eight directors. The Board
decides on matters required of it as set out in law andKanematsu’s Articles of Incorporation as well as business policies
and other important matters and oversees business execution bydirectors. Three of the eight directors are outside directors toensure that the Board conducts appropriate decision making andto further reinforce the supervision of business execution. In
principle, the Board of Directors meets once a month, withadditional 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 business environment.
Kanematsu has adopted an executive officer system toimprove the flexibility of business execution, speed up management decision making, and further clarify roles and responsibilities through the separation of supervisory and executive functions.

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

and dismissal of directors and the necessary policy, rules, andprocedures for reaching related resolutions.
• Compensation Committee: Comprises the president as committee chair and the three outside directors. The committee provides advice and recommendations to the Board of Directors
based on deliberations regarding such matters 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.

Corporate Governance Structure
General Meeting of Shareholders
Appointment/Dismissal
Consultation

Board of Directors

Advice/Suggestions

Eight directors(including threeoutside directors)

Nominating Committee
Compensation Committee

Appointment/Dismissal/
Supervision

President

Appointment/
Dismissal

Appointment/Dismissal
Audit

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

Collaboration

Audit
Collaboration

Management Committee
Project Deliberation Committee
Internal Control and Compliance Committee

Internal Auditing
Department
Internal
controls

CSR Committee

Accounting audit

Accounting Auditor

Collaboration

Marketing Area/Support Area, Domestic and Overseas Offices(As of June 22, 2018)

44

KANEMATSU Integrated Report 2018

To facilitate rapid decision making and flexible management,
Kanematsu has set up a Management Committee composedof executive officers, including the president. In principle, theCommittee meets at least twice a month. The Committee
establishes basic policies for Companywide general business

Kanematsu’s Progress and Strengths

Management Committee
execution in accordance with basic policies determined by the
Board of Directors and provides instruction and guidance on
the execution of business. The Management Committee is also
attended by the outside directors and outside Audit &Supervisory Board members.

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

Special Features

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

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

Yutaka Hirai

22 of 22 Board of Directors meetings

Seiichi Katayama

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

22 of 22 Board of Directors meetings

Tsutomu Yajima

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

17 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.

22 of 22 Board of Directors meetings
14 of 14 Audit & Supervisory Board meetings

Yonosuke Yamada

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

21 of 22 Board of Directors meetings
14 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.

22 of 22 Board of Directors meetings
14 of 14 Audit & Supervisory Board meetings

Sustainability

Outside Audit &Supervisory
Board members

Fiscal 2017 attendance

Review of Operations

OutsideDirectors

Reasons for selection

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

* Because Mr. Yajima was appointed at the June 23, 2017 General Meeting of Shareholders, the number of meetings of the Board of Directors that he waseligible to attend differs from that for the other outside directors and outside Audit & Supervisory Board members.

Director and Audit & Supervisory Board Member Compensation
Breakdown of Director and Audit & Supervisory Board Member Compensation

Basic compensation

Stock options

Bonuses

Retirement benefits

Number of individuals
receivingcompensation

Directors (excluding outside directors)

220

178

—

41

—

6

Audit & Supervisory Board members(excluding outside members)

26

26

—

—

—

1

Outside directors and Audit &Supervisory Board members

60

60

—

—

—

6

Total compensation by type (millions of yen)

Financial Section and Company Information

Total compensation(millions of yen)

1 By resolution of the General Meeting of Shareholders, the total annual compensation for directors is capped at ¥300,000,000 (of which, the total annual compensation for outside directors is capped at ¥30,000,000), and the total annual compensation for Audit & Supervisory Board members is capped at¥84,000,000 (per resolution of the June 24, 2015 General Meeting of Shareholders).
2 The above table includes one director who retired as of the conclusion of the June 23, 2017 General Meeting of Shareholders.

KANEMATSU Integrated Report 201845

Performance-Linked Compensation Plan
To clarify directors’ management responsibilities and enhancetheir incentives to improve corporate performance, Kanematsu
has adopted a performance-linked compensation plan.
Furthermore, the May 9, 2018 Board of Directors meetingand June 22, 2018 General Meeting of Shareholders passed
resolutions to introduce a performance-linked stock compensation plan employing a trust for Kanematsu’s directors (excluding outside directors). The Company also decided to implementa similar performance-linked stock compensation plan for its
executive officers. The new plan is aimed at more closely linking director compensation with corporate performance andstock price and better motivating directors to improve corporate performance and enterprise value over the medium termby having directors share with other shareholders the potential
benefits and risks of share price changes.

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

Internal Control System and Risk Management System
Maintaining the Internal Control 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 a ComplianceHandbook that covers all Group companies, we work toenhance awareness of and training on sensible behavioral ethics.
The Group also maintains a hotline system that allows employees to directly report to or consult with the Internal Control andCompliance Committee or an outside lawyer.

Diagram of the Kanematsu Group Compliance System
Instructions, Feedback
Board of Directors

Management Committee

Reports, Consultation

Audit & Supervisory Board

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

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

Officers & Employees of Kanematsu Corporation

Group Companies
Compliance Officer(President of Head of Location)

Officers & Employees of Group companies*Sub-subsidiaries report through their immediate parent companies(As of June 22, 2018)

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 Human

46

KANEMATSU Integrated Report 2018

Resources & General Affairs Department is designated to coordinate Companywide response and information gathering toaddress any unreasonable demands from antisocial forces, andthe Company maintains a framework for responding in coordination with outside organizations, including the police andattorneys.

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 data and other information in line with compliancerequirements.

Kanematsu’s Progress and Strengths

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.

Special Features

Risk 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 of major
events, such as natural disasters, we have put in place a system,
including specific rules and policies of action, to ensure the appropriate management of the Group at such extraordinary times.

Review of Operations

With respect to business risks that may affect our operations,
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

Quantifying and Monitoring Risk
Risk Assets(Billions of yen)(Times)

120

100

116
0.49

100

92
90

0.48

0.5

0.44
0.40

80

60

40

0.6

0.4

Sustainability

The Kanematsu Group has laid out basic guidelines for controlling and managing risk in its Risk Management Guidelines.
Based on said guidelines, we classify and define risks, thenrespond to each appropriately, aiming to minimize losses to theKanematsu Group and achieve sound business growth anddevelopment.
The Group monitors quantifiable risks (market risk, credit
risk, investment risk, country risk, etc.) by regularly measuring
such risks and reporting the results to management. Specifically,
to measure maximum possible losses (risk assets) we apply a proprietary weighting scheme corresponding to the potential loss
risk to all assets included in the Consolidated Statement of
Financial Position as well as off-balance sheet items.
Recently, to achieve more sophisticated capital management,
we set an upper limit on the risk asset ratio, aiming to ensure asound balance of risk assets and risk buffer (shareholder’s equity)and maintain a sound financial position while increasing enterprise value through business creation and revenue expansion.

0.3

44

44

44

46
0.2

20

0.1

0

0
FY2015

Risk assets

FY2016

Shareholders’ equity

FY2017FY2018Risk-asset ratio

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 business activities.
These meetings are aimed at ensuring mutual understanding and awareness with regard to corporate governance issues.

Disclosure
We promote proper and transparent management by promptly and accurately disclosing important corporate information about
management to shareholders and all other stakeholders, institutional investors, analysts, and the media. In addition to timely disclosure
to financial instruments exchanges, we disclose information through our website and engage actively in IR activities, including regularbriefings for institutional investors and analysts and meetings.
KANEMATSU Integrated Report 201847

Messages from the Outside Directors

Yutaka Hirai
Outside Director

Seiichi Katayama
Outside Director

Tsutomu Yajima
Outside Director

48

KANEMATSU Integrated Report 2018

Having achieved the targets of VISION-130
ahead of schedule, Kanematsu has
launched a new medium-term vision,
future 135, for the six years beginning fiscal 2019. To reach the targets of future
135, securing a stable earnings base andcreating new businesses will be imperative.
In addition, it will be important to aggressively advance business while maintaining
effective governance—an obvious but difficult task—faster than ever.
In terms of nimble management decision making, under the executive officer
system adopted a few years ago,
Kanematsu has shifted greater authority to
its executive officers, who are the driving
force within each business. I think we cansay now that this decision was the rightone, and I hope to see efforts in this direction taken further.
Turning to corporate governance,
based on Kanematsu’s unique corporate
culture, which prizes sincerity, theCompany’s traditional system of transparent, consensus-based decision making has
functioned effectively, and, in the past few
years, Kanematsu has seriously undertaken
the reinforcement of its internal systems.
Going forward, I think that efforts to constantly confirm and measure the efficacy ofsuch systems vis-à-vis concrete businessactivities and revise and improve them as
needed will be crucial.

Kanematsu achieved the goals of
VISION-130 a year early; given this, I thinkthat the Company’s overall management
strategy is moving in a positive direction for
all stakeholders. During the period of
VISION-130, we outside directors took partin discussions not only at meetings of theBoard of Directors, but also theManagement Committee, and sat in on
hearings with the Audit & Supervisory
Board members when deemed necessary.
I hope to support the achievement of thetargets of the new medium-term vision,
future 135, as well. Going forward, while
maintaining Kanematsu’s traditional corporate culture, the outside directors will help

create the conditions for the swift, bolddecision making needed to respond tochanges in the business environment.
We also actively take part in careful
deliberations related to risk taking, particularly those about entering and exiting
major investment projects. To evaluate
profitability and capital efficiency, theBoard now uses quantitative analyses ofmanagement indicators. I think that thishas had the positive effect of clearly
increasing awareness of risk-return relationships. Going forward, Kanematsu
needs to push its businesses one step further, and I intend to support bold decision
making and provide oversight as it does so.

I have now been an outside director at
Kanematsu for a full year.
Looking at governance and management in terms of deliberative organs,
Kanematsu has a system in place that
includes the Project Deliberation Committee,
the Management Committee, the Board of
Directors, and hearings with the Audit &Supervisory Board members. I think this system produces appropriate decision making,restraint, and oversight. At meetings ofthese and other bodies, I offer my experience, knowledge and understanding as an
outside director to the best of my abilities.
Going forward, I will continue striving toprovide advice to management and oversight of business execution.
In terms of corporate governance,
while the Company’s tightly constructed
frameworks are functioning effectively, I
have felt that more thorough governanceof Group companies is needed. Also, I
think that Kanematsu should focus moreon streamlining management.
The targets of the future 135 six-yearplan make sense. Kanematsu analyzed its
recent favorable performance to get a clear
picture of its present position, and fromthere set its next management objectives.
Also, it has in place the frameworks toachieve these objectives.
Among the measures that theCompany will need to take going forward,
building and reinforcing a sound financial
position will, of course, be important.
However, I think that the Company will
also need to put work into further
strengthening internal control and systems.
Lastly, building the necessary supply chainsand management for overseas businessexpansion will also be a key task.

Corporate Officers(As of March 31, 2018)

Kaoru Tanigawa

Masao Hasegawa

Yoshiya Miyabe

ChairmanPresident

Executive Vice President

Director

1974 Joined Kanematsu- Gosho Ltd.
2010 President & CEO
2017 Chairman (incumbent)

1981 Joined Kanematsu- Gosho Ltd.
2015 Director, Senior Managing Executive
Officer
2017 President (incumbent)

1979 Joined The Bank of Tokyo, Ltd.
2012 Deputy President, Mitsubishi UFJ
Research and Consulting Co., Ltd.
2014 Executive Vice President (incumbent)

1983 Joined Kanematsu-Gosho Ltd.
2018 Director, Senior Managing Executive
Officer (incumbent)

Tsutomu Yajima

Seiichi Katayama

Director

Director

Director

1992 Joined Kanematsu Corporation2017 Director, Executive Officer
2018 Director, Senior Executive Officer(incumbent)

1970 Joined Daifuku Machinery Works Co.,Ltd.
2006 Vice-President, Daifuku Co., Ltd.
2011 Corporate Auditor, Kanematsu
Corporation2014 Director (incumbent)

2000 Director, Research Institute for Economics
and Business Administration, Kobe
University
2007 Professor Emeritus, Kobe University(incumbent)
2015 Director, Kanematsu Corporation (incumbent)
2017 Research Fellow, Faculty of Economics,
Aichi Gakuin University (incumbent)

1973 Joined Kawasaki Steel Corporation2013 President and CEO, JFE Shoji Trade
Corporation2017 Director (outside), Kanematsu
Corporation (incumbent)
2018 Adviser, JFE Shoji Trade Corporation(incumbent), Friend of the Company,
JFE Steel Corporation (incumbent)

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

1976 Joined Kanematsu Semiconductor Corporation
1999 President, Kanematsu Semiconductor
Corporation2012 Director, Kanematsu Corporation2012 Audit & Supervisory Board Member (incumbent)

1984 Joined The Norinchukin Bank
2015 Audit & Supervisory Board Member,
Kanematsu Corporation (incumbent)

1989 Registered as an attorney2005 Joined Yamada, Goya & Suzuki(Incumbent)
2006 Audit & Supervisory Board Member,
Kanematsu Corporation (incumbent)

1970 Joined Chuo Audit Corporation2007 Opens Miyachi public accounting firm(incumbent)
2015 Audit & Supervisory Board Member,
Kanematsu Corporation (incumbent)

Sustainability

Yutaka Hirai

Director

Review of Operations

Tetsuro Tsutano

Special Features

Masayuki Shimojima

Kanematsu’s Progress and Strengths

Directors and Audit & Supervisory Board Members

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

Executive Officers
Chief Officer, Supporting Area; Chief Officer, Internal Auditing
Chief Officer, Motor Vehicles & Aerospace Division,
General Manager, Osaka Branch; General Manager, Nagoya Branch, Chief Officer, Technologies and Business Collaboration

Financial Section and Company Information

President
Kaoru Tanigawa
Executive Vice President
Masao Hasegawa
Senior Managing Executive Yoshiya Miyabe
OfficerManaging Executive
Tetsuya Kaneko
Officers
Kazuo Shibata
Senior Executive Officers Eiji Kan
Masayuki Hamasaki
Hiroyasu Hirasawa
Masahiro Harada
Kazuo Tanaka
Tetsuro Tsutano
Executive Officers
Koichi Koizumi
Ryoichi Kidokoro
Osamu Iwata

Chief Officer, IT Planning, Traffic & Insurance
Chief Officer, Credit Control, Legal & Compliance; General Manager of Credit Control Dept.
Chief Officer, Steel, Materials & Plant Division
Chief Officer, Grain, Oilseeds & Feedstuff Division
Chief Officer, Foods Division
Chief Officer, Electronics & Devices Division
Chief Officer, Human Resources & General Affairs, Corporate Planning
Chief Officer, Finance, Accounting, Business Accounting; General Manager of Finance Dept.
Deputy Chief Officer, Motor Vehicles & Aerospace Division, Director, Motor Vehicles & Parts Dept. No. 1
President, Kanematsu USA Inc.
Deputy Chief Officer, Steel, Materials & Plant Division, Director, Iron & Steel Foreign Trade Dept.
KANEMATSU Integrated Report 201849

Financial and ESG Highlights
JGAAP(As of March 31)

2008

2009

2010

2011

2012

Net sales3¥1,244,020¥1,138,755¥861,277¥936,891¥1,006,365

Revenue

—

—

—

—

—

Gross profit

90,32786,292

74,10476,90580,900Operating income/Operating profit

22,60519,027

12,18618,02921,426

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

28,97577

8,407

13,03013,529Net income (loss)/Profit for the year
attributable to owners of the Parent3

19,016(12,787)

3,528

9,175

6,110

Cash flows from operating activities

14,30817,177

26,441

7,827

15,822

Cash flows from investing activities

38,799(370)(19,149)

17,322

1,291

Free cash flow

53,107

16,807

7,292

25,14917,113

Total assets

503,456

414,928

398,629

388,676

399,753

Net assets/Total equity

62,23942,03545,80449,57655,992

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

45,587

24,93628,916

33,10139,008Net interest-bearing debt

148,944

134,582

109,350

104,61290,012

Net income/Basic earnings per share
attributable to owners of the Parent3¥ 45.44¥(30.56)¥ 8.44¥21.93¥14.60Net assets/Equity attributable to owners of
the parent

108.95

59.61

69.15

79.07

93.16

—

—

—

—

—

48.42

(36.26)

13.10

29.59

16.95

Equity ratio (%)

9.1

6.0

7.3

8.5

9.8

Net D/E ratio (times)

3.3

5.4

3.8

3.2

2.3

For the year:

At year-end:

Per share (yen):

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

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

4,543

4,874

4,871

4,770

4,770

872 (251)

890 (262)

850 (264)

832 (250)

795 (238)

29%

29%

31%

30%

30%

CO2 emissions (t-CO2)6, 7

644.69598.15731.92644.76443.83

Total paper use (sheets)79,201,812

8,153,681

7,504,637

6,801,305

7,062,310

External disposal of general waste (t)7

85.39

87.17

87.80

71.50

46.57

Directors (Outside directors)811 (0)

10 (0)

10 (0)

10 (0)

10 (0)

4 (3)

4 (3)

4 (3)

4 (3)

4 (3)

Audit & Supervisory Board Members8(Outside Audit & Supervisory Board Members)

Notes For the above items with two titles, the first applies to figures under JGAAP and the second to figures under IFRS.
1. Figures are rounded down to the nearest million yen. Percentages have been rounded off.
2. The U.S. dollar amounts represent the arithmetical results of translating yen to dollars at the rate of ¥106.24 to U.S.$1.00, the exchange rate prevailing on March 31, 2018.
3. Net sales shown here for fiscal 2015 and after are based on accounting principles generally accepted in Japan, calculated as the sum of transactions in which the Group
acted as a party to the contract and transactions in which the Group acted as agent.
4. Kanematsu executed a share consolidation on October 1, 2017, at a ratio of five common shares to one. The calculation of the above figures assumes that said share consolidation was implemented on April 1, 2014.

50

KANEMATSU Integrated Report 2018

IFRS

—

—

—

—

—

¥704,211¥668,374¥675,579¥714,790$6,728,075

80,021

86,402

87,88086,238100,139

106,371

1,001,239

18,262

19,77623,547

18,772

22,633

26,160246,243

16,781

19,07522,373

18,122

17,87526,043245,135

9,564

11,79910,546

8,959

8,049

16,317

153,588

1,355

22,384

6,758

33,024

11,852

434

4,090

1,466

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

1,103

10,383

2,821

21,273

109

28,810(2,839)1,537

14,467399,186

428,459

466,314443,592

479,717519,8894,893,536

75,912

96,204

119,015

120,706

129,863

147,050

1,384,133

54,51971,657

90,244

91,599100,357

116,012

1,091,988

86,43968,03872,155

48,81355,42959,045555,769¥ 22.80¥ 28.09¥ 125.494¥ 106.464¥

95.644¥ 193.794$ 1.824

129.82170.54

1,072.204

1,088.454

1,192.214

1,377.664

12.964

—

3.00

4.00

5.00

6.00

48.005

0.455

20.45

18.70

12.99

9.85

8.39

15.08

13.7

16.7

19.4

20.6

20.9

22.3

1.6

0.9

0.8

0.5

0.6

0.5

5,522

5,747

6,002

5,832

6,727

6,666

782 (242)

800 (246)

813 (253)

816 (259)

835 (273)

842 (282)

32%

33%

Sustainability—

Review of Operations—

Special Features¥1,114,539

Kanematsu’s Progress and Strengths

2018¥1,019,232

31%

2017

2018

2014

31%

2016

Thousands of
U.S. dollars2

2013

31%

2015

Millions of yen1

34%

456.44377.54392.58398.68400.74

6,874,521

6,648,353

6,645,797

6,087,765

6,256,363

5,920,960

48.95

37.60

33.40

31.90

32.70

29.50

10 (0)

6 (1)

7 (2)

7 (2)

8 (3)

8 (3)

4 (3)

4 (2)

4 (3)

4 (3)

4 (3)

4 (3)

Financial Section and Company Information

471.42

5. Kanematsu executed a share consolidation on October 1, 2017, at a ratio of five common shares to one. The calculation of the above figure assumes
that said share consolidation was implemented on April 1, 2017.
6. The coefficients used to calculate the above figures are the most recent values published by the Japan Foreign Trade Council (originally published by theElectric Power Council for a Low Carbon Society via the Japan Business Federation).
7. The figures above are the totals for Kanematsu’s domestic locations on a non-consolidated basis and are subject to change due to changes in officespace due to the consolidation of branches or sales offices, etc.
8. The number following the General Meeting of Shareholders, after the year-end.
KANEMATSU Integrated Report 201851

Management’s Discussion and Analysis

Business Results
For the fiscal year ended March 31, 2018, revenue rose
¥39,211 million (5.8%) from the previous fiscal year to¥714,790 million. Gross profit increased ¥6,232 million(6.2%) from the previous fiscal year to ¥106,371 million.
Operating profit rose ¥3,527 million (15.6%) from the previous fiscal year to ¥26,160 million, reflecting the increase ingross profit. Profit before tax increased ¥8,168 million(45.7%) from the previous fiscal year to ¥26,043 million,
reflecting a decrease in finance costs and an improvement in
the share of profit (loss) of investments accounted for using
the equity method. Profit for the year attributable to ownersof the Parent increased ¥8,268 million (102.7%) from theprevious fiscal year to ¥16,317 million.

Segment Information
Results for each business segment are described below.

Electronics & Devices
Performance in the ICT solutions business was solid, particularly in transactions in the manufacturing and service industries. Performance in the mobile business was firm, due inpart to the integration of two mobile phone sales subsidiaries.
The semiconductor production equipment business saw
expansion in sales to China, and its performance improved
year on year.
As a result, revenue in the Electronics & Devices segmentrose ¥9,030 million year on year to ¥263,310 million, andoperating profit increased ¥328 million to ¥17,556 million.

As a result, in the Foods & Grain segment, revenue increased¥3,496 million year on year to ¥231,260 million, and operating profit declined ¥340 million to ¥2,149 million.

Steel, Materials & Plant
Performance in the North American oilfield tubing business
improved considerably year on year, supported by a rise in
crude oil prices. Performance in the functional chemicals andplant businesses was firm.
As a result, revenue in the Steel, Materials & Plant segment
increased ¥21,874 million year on year to ¥153,075 million.
Operating profit increased ¥1,110 million to ¥3,930 million.

Motor Vehicles & Aerospace
In the motor vehicles and parts business, shipments to theMiddle East were solid. Performance in the aerospace business, particularly in space-related fields and aircraft part trading, was also firm.
As a result, revenue in the Motor Vehicles & Aerospace segment increased ¥4,034 million year on year to ¥54,453 million.
Operating profit grew ¥318 million to ¥2,541 million.

Other
In other, the Company recorded impairment on property,
plant and equipment and intangible assets associated withthe transfer of the golf business.
As a result, revenue rose ¥777 million year on year to¥12,691 million, while operating profit fell ¥776 million to an
operating loss of ¥20 million.

Analysis of Financial Status

Foods & Grain

Assets, Liabilities and Net Assets

Performance in the food business was firm. Sales in the meatproduct business slowed in the latter half of the fiscal year,
and performance in the feedstuff business was largely
unchanged year on year.

Total assets at the end of the fiscal year under review
increased ¥40,172 million from the end of the previous fiscal
year to ¥519,889 million. This was due largely to increases incurrent trade and other receivables and inventories.

Revenue

Operating Profit

Profit for the Year Attributable to Ownersof the Parent / Basic Earnings per Share*(Millions of yen)

(Millions of yen)

(Millions of yen)

800,000

30,00020,000714,790704,211
668,374

675,579(Yen)

193.79200

26,16025,00016,31723,547600,000

22,63315,00020,000150

125.4918,772106.4615,000400,000

10,000

10,546

95.64

100

8,959
8,049
10,0005,000

200,000

50

5,000

0

0

FY2015 FY2016 FY2017 FY2018

0

FY2015 FY2016 FY2017 FY2018

0

FY2015 FY2016 FY2017 FY2018
Profit for the Year Attributable to Owners of the Parent
Basic Earnings per Share

52

KANEMATSU Integrated Report 2018

* Kanematsu executed a share consolidation on October
1, 2017, at a ratio of five shares to one. The calculationof the above figures assumes that said shareconsolidation was implemented on April 1, 2014.

Fundraising

Net Interest-Bearing Debt*1 /Net D/E Ratio*2(Millions of yen)

Total Equity / Equity Attributable to
Owners of the Parent per Share*(Times)80,0002.0(Millions of yen)

147,050

150,000

72,155

129,863
120,000

59,04560,000Total Equity Attributable to Owners of
the Parent / Ratio of Equity Attributable to
Owners of the Parent(Yen)(Millions of yen)

1,500

120,000(%)

116,01240

1,377.66

119,015 120,706

100,357

1,200

1.5

1,192.21

55,429Sustainability

The management objective of the Kanematsu Group’s medium-term vision, VISION-130, is to both maintain financial
soundness and expand the earnings base. Toward this end, theGroup carried out fundraising in line with a basic policy of stably procuring funds at low cost.
The Group raises funds primarily through indirect financing
based on good relations with its main banks, regional banks,

Review of Operations

In the year under review, net cash provided by operating activities totaled ¥434 million, reflecting the recording of operating
profit, which more than offset outflows due to increases in tradereceivables and inventories. Net cash provided by investing activities amounted to ¥1,103 million, due in part to inflows from thesale of other financial assets and the transfer of the golf business. Net cash used in financing activities amounted to ¥842
million, due in part to dividends paid and the repayment of borrowings, despite income from the issue of corporate bonds.
As a result, after the effect of exchange rate changes oncash and cash equivalents, cash and cash equivalents at theend of the fiscal year under review stood at ¥77,731 million,up ¥165 million from the end of the previous fiscal year.

Special Features

Cash Flows

life and non-life insurers, and other financial institutions.
Kanematsu also raises funds from capital markets by issuingstraight corporate bonds as a means of long-term capital procurement. To secure liquidity on hand, the Group maintains anample balance of 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 as appropriate in response to the Company’s
funding needs and financial circumstances.
To facilitate capital procurement, the Company receives ratings from Japan Credit Rating Agency, Ltd. (JCR) and Rating
and Investment Information, Inc. (R&I). The Company’s longterm ratings as of the end of the fiscal year under review are
BBB+ (stable) from JCR and BBB (stable) from R&I.
In the period under review, Kanematsu issued ¥10,000 million in new straight corporate bonds. At the end of the fiscal
period under review, debt procurement through direct financing accounted for 14% of consolidated interest-bearing debt.
With regard to consolidated capital management, theGroup has adopted a cash management system under whichfundraising for major domestic subsidiaries and affiliates is concentrated at the Company and proceeds are then allocated in
response to capital requirements. At the end of the fiscal period under review, the Company’s interest-bearing debt accounted for 70% of the consolidated Group’s interest-bearing debt.
As a result of the above fundraising activities, at the end of
the fiscal period under review, the balance of interest-bearing
debt stood at ¥137,326 million, an increase of ¥3,482 million
from the end of the previous fiscal year. Net interest-bearing
debt at the end of the fiscal year under review stood at¥59,045 million, an increase of ¥3,616 million from the end of
the previous fiscal year.
Corporate bonds and long-term borrowings (including thecurrent portion of corporate bonds and long-term borrowings)
accounted for 69% of the balance of interest-bearing debt at theend of the fiscal year under review (or 92% on a non-consolidated
basis). As such, Kanematsu’s fundraising was highly stable.

Kanematsu’s Progress and Strengths

Interest-bearing debt increased ¥3,482 million from theend of the previous fiscal year to ¥137,326 million. Net
interest-bearing debt, which is interest-bearing debt minus
cash and bank deposits, increased ¥3,616 million from theend of the previous fiscal year to ¥59,045 million.
Total equity attributable to owners of the Parent increased¥15,655 million to ¥116,012 million, reflecting the recordingof retained earnings as a result of the profit for the year
attributable to owners of the Parent and an increase in financial assets measured at fair value through other comprehensive income as a result of stock price increases.
As a result, the equity ratio at the end of the fiscal year
under review was 22.3%. The net D/E ratio stood at 0.5.

90,00090,24460,00019.4

91,59930

1,072.20 1,088.45

48,81390,0001.0

0.8

60,000600

30,000

300

22.3
20.6

20.9

Financial Section and Company Information

40,000

900

20

0.6
20,000

0.5

0.5

0

0.5

0

FY2015 FY2016 FY2017 FY2018
Net Interest-Bearing Debt

Net D/E Ratio*1 Net interest-bearing debt = Interest-bearing debt
–Cash and cash equivalents*2 Net D/E ratio = Net interest-bearing debt / Total
equity attributable to owners of the Parent

30,0000

0FY2015 FY2016 FY2017 FY2018

10

0

0

FY2015 FY2016 FY2017 FY2018

Total Equity

Total Equity Attributable to Owners of the Parent

Equity Attributable to Owners of the Parent per Share

Ratio of Equity Attributable to Owners of the Parent* Kanematsu executed a share consolidation on October
1, 2017, at a ratio of five shares to one. The calculationof the above figures assumes that said shareconsolidation was implemented on April 1, 2014.

KANEMATSU Integrated Report 201853

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 22, 2018.
The Group takes all risk that it faces on a daily basis in the course of its business very seriously. Risk control
is undertaken through management mechanisms and methods tailored to the nature of each category of risk.

Market Risk Related to Supply and Demand andPrices of Goods Traded

Price Fluctuation Risk of Marketable
Securities, etc.

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

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

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

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

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

54

KANEMATSU Integrated Report 2018

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

Legal Risk Related to Changes in Laws

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 Integrated Report 2018

Financial Section and Company Information

Business operations by the Group, and its assets andliabilities associated with the business operations may
become subject to legal proceedings, including lawsuits, andother disputes, in various ways through the course of thebusiness activities undertaken by the Group in Japan andoverseas. Such lawsuits and other disputes are generally
unpredictable, and resolving them is often very timeconsuming when they occur. Any prediction of the results
therefore involves uncertainties. Any occurrence of suchlawsuits or other disputes and unexpected outcomes may
affect the Group’s financial position and operating results.

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

Sustainability

Legal Risk Related to Lawsuits and Disputes

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

The 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.

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

Special Features

The Group engages in transactions, loans, and investments inother countries. The collection of receivables may be delayedor impossible as a result of political or economic developmentsin each of these countries. To minimize losses that could arise
should these country risks become reality, the Group regularly
sets a limit based on ratings given to each country and region
according to the scale of their respective country risk, andoperates its businesses in such a way that prevents
overexposure to certain countries and regions. The Grouptakes steps such as enrolling in trade insurance programs,
according to the ratings and project details, in an attempt tominimize recovery risks. However, continuing transactions may
become difficult if these risks actualize in certain countries andregions, and this development may affect the future businessresults of the Group.

Security Risk Related to Information Systems
and Information Security

Kanematsu’s Progress and Strengths

Country Risk

55

Consolidated Financial Statements
Consolidated Statement of Financial Position
For the fiscal year ended March 31, 2018 and 2017
JPY

2018

USD (Note 2)

2017

2018

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

77,731

77,566731,662

2. Trade and other receivables (Note 7)

220,583

191,193

2,076,278

3. Inventories (Note 8)

93,95780,662

884,392

4. Other financial assets (Note 30)

2,433

3,705

22,906

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

19,955

18,200187,834

414,662

371,329

3,903,073

21,90026,858206,142

II. Non-current assets
1. Property, plant and equipment (Note 9)
2. Goodwill (Note 10)

6,571

6,304

61,8593. Intangible assets (Note 10)

20,377

20,935

191,808

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

5,169

4,885

48,662

5. Trade and other receivables (Note 7)

1,582

1,169

14,9006. Other investments (Note 12)37,96934,112357,390

7. Other financial assets (Note 30)

4,479

5,295

42,168

8. Deferred tax assets (Note 29)

3,696

5,018

34,793

3,478

3,807

32,740Total non-current assets

9. Other non-current assets (Note 13)

105,226

108,388990,463

Total assets

519,889479,717

4,893,536(Notes) Presentation of fiscal year and amounts (Japanese Yen and U.S. dollars)
1. “2018” refers to the Company’s consolidated fiscal year ended March 31, 2018 and the other fiscal year is referred to in the corresponding manner.
2. “JPY” means millions of Japanese Yen and “USD” means thousands of U.S. dollars.

56

KANEMATSU Integrated Report 2018

JPY

USD (Note 2)

2017

2018

1. Trade and other payables (Note 14)

188,791

165,011

1,777,026

2. Bonds and borrowings (Note 15)

61,21064,643576,151

3. Other financial liabilities (Note 30)

7,009

5,255

65,9794. Income taxes payable

3,773

4,226

35,521

Kanematsu’s Progress and Strengths

2018(Liabilities)
I. Current liabilities

156

28

1,475

6. Other current liabilities (Note 17)

5. Provisions (Note 16)

23,371

26,291

219,989

Total current liabilities

284,313265,455

2,676,140

76,116

69,201

716,460

II. Non-current liabilities
2. Other financial liabilities (Note 30)

2,853

6,118

26,857

3. Retirement benefit liabilities (Note 28)

6,340

6,641

59,685

4. Provisions (Note 16)

1,639

1,397

15,434

641

424

6,042

5. Deferred tax liabilities (Note 29)

933

614

8,784

Total non-current liabilities

6. Other non-current liabilities (Note 17)

88,52584,398833,263

Total liabilities

372,838

349,8543,509,402

1. Share capital (Note 18)

27,781

27,781

261,494

2. Capital surplus (Note 18)

26,81026,797

252,361

3. Retained earnings (Note 18)

48,55934,579457,074

(193)

(217)

(1,826)

1) Exchange differences on translation of foreign operations

1,275

2,349

12,0092) Financial assets measured at fair value through othercomprehensive income

12,684

9,455

119,397

Special Features

1. Bonds and borrowings (Note 15)(Equity)

Review of Operations

4. Treasury stock (Note 18)
5. Other components of equity (Note 26)3) Cash flow hedges(388)(8,521)

11,416

122,884

Total equity attributable to owners of the Parent

116,012100,357

1,091,988

6. Non-controlling interests

31,03729,506292,146

Total equity

147,050

129,863

1,384,133

Total liabilities and equity

519,889479,717

4,893,536

Sustainability(905)
13,055

Total other components of equity

Financial Section and Company Information

KANEMATSU Integrated Report 201857

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

For the fiscal years ended March 31, 2018 and 2017

USD (Note 2)

2018

2017

2018

I. Revenue (Notes 6 & 19)

714,790

675,579

6,728,075

II. Cost of sales(608,419)(575,440)(5,726,835)

Gross profit

106,371

100,139

1,001,239

III. Selling, general and administrative expenses (Note 20)(78,420)(76,163)(738,145)

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

(250)

384

(2,361)

2. Impairment loss on property, plant and equipment and intangible
assets (Note 22)(2,148)(866)(20,226)

3. Other income

1,560

1,400

14,685

4. Other expenses(950)(2,261)(8,949)

IV. Other income (expenses)

Total other income (expenses)(1,790)(1,343)(16,851)

26,16022,633

246,243

1. Interest income (Note 24)

363

421

3,425

2. Dividend income (Note 24)

1,073

1,116

10,104

10

—

94

1,447

1,537

13,623(2,414)(2,304)(22,723)

Operating profit (Note 6)
V. Finance income

3. Other finance income (Notes 24 & 30)
Total finance income
VI. Finance costs
1. Interest expenses (Note 24)
2. Other finance costs (Notes 24 & 30)(730)(2,000)(6,871)

Total finance costs(3,144)(4,304)(29,594)

VII. Share of profit (loss) of investments accounted for using
the equity method (Note 11)

1,579(1,990)14,864

Profit before tax

26,043

17,875245,135

Income tax expense (Note 29)(6,384)(7,589)(60,097)

Profit for the year

19,658

10,286

185,038

Owners of the Parent

16,317

8,049

153,588

Non-controlling interests

3,341

2,237

31,450Total

19,658

10,286

185,038

Profit for the year attributable to:

Yen

U.S. dollars

Earnings per share attributable to owners of the Parent:

58

Basic earnings per share (Note 25)

193.79

95.64

1.82

Diluted earnings per share (Note 25)

193.79

95.64

1.82

KANEMATSU Integrated Report 2018

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

For the fiscal years ended March 31, 2018 and 2017

USD (Note 2)

2017

2018

19,658

10,286

185,038

3,402

2,671

32,022

307

(284)

2,899

0

24

4

3,710

2,412

34,925(1,427)(829)(13,432)

2. Cash flow hedges (Notes 26 & 30)

(485)

984

(4,570)3. Share of other comprehensive income of investments accounted forusing the equity method (Note 26)

(57)

109

(543)
(18,545)

I. Profit for the year

Kanematsu’s Progress and Strengths

2018

II. Other comprehensive income
Items that will not be reclassified to profit or loss:
1. Financial assets measured at fair value throughother comprehensive income (Note 26)
2. Remeasurement of defined benefit pension plans (Note 26)
3. Share of other comprehensive income of investments accounted forusing the equity method (Note 26)
Total items that will not be reclassified to profit or loss
Items that may be reclassified to profit or loss:

Total items that may be reclassified to profit or loss

(1,970)265

Other comprehensive income for the year, net of tax

1,740

2,678

16,380Total comprehensive income for the year

21,398

12,965

201,418

172,766

Special Features

1. Exchange differences on translation of foreign operations (Note 26)

Total comprehensive income for the year attributable to:18,354

10,720

3,044

2,244

28,652

Total

21,398

12,965

201,418

Review of Operations

Owners of the Parent
Non-controlling interests

Sustainability
Financial Section and Company Information

KANEMATSU Integrated Report 201859

Consolidated Statement of Changes in Equity
For the fiscal years ended March 31, 2018 and 2017
JPY

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

60

KANEMATSU Integrated Report 2018

USD (Note 2)

2018

2017

2018

27,781
27,781

27,781
27,781

261,494
261,494

26,79713(0)—26,81026,4633
4
326
26,797

252,234128(1)—
252,361

34,579(2,736)
16,317398
48,55929,103(2,314)
8,049(259)
34,579325,487(25,756)
153,5883,755
457,074

11,416(1,073)

8,486
(562)

107,462(10,107)

3,351

2,613

31,550

(516)
275
(398)
13,055

1,004
(384)
259
11,416(4,861)
2,596(3,755)
122,884

(217)
(6)
30
(193)
116,012

(235)
(5)
22
(217)
100,357(2,051)(61)
285(1,826)
1,091,988

29,506(1,511)
(1)
—
3,341
(297)
(378)

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

277,733(14,227)(12)—
31,450(2,798)(3,567)

50

82

475

(0)
32
31,037147,050

1
100
29,506
129,863(9)303
292,146
1,384,133

18,354
3,044
21,398

10,7202,244
12,965

172,766
28,652
201,418

Consolidated Statement of Cash Flows
For the fiscal years ended March 31, 2018 and 2017
JPY

185,038
29,612
20,226
15,972(1,579)1,990(14,864)

250

(384)

2,361

6,384
(33,261)(13,729)
23,798(297)(1,395)
6,821
358
2,159
(2,381)(6,523)434

7,589(10,613)
200
6,861
(120)
(1,437)
20,890436
1,503(2,291)(8,686)
11,85260,097(313,078)(129,229)
224,007(2,801)(13,132)
64,2103,375
20,328(22,415)(61,407)
4,090(2,136)
1,365
(544)
(117)
292
1,010
(362)
(22)
1,452
(1,522)
1,378
309
1,103

(4,188)
3,424
(605)
(986)
733
—
(12,786)(6)—(1,835)
1,952(392)(14,691)(20,107)12,850(5,126)(1,104)
2,756
9,507(3,417)(209)
13,676(14,334)
12,9792,912
10,3832,510
15,508(24,229)
9,928(2,730)7,044
18,786(28,857)—(2,308)23,627
145,973(228,068)
93,450(25,705)

—

(30)

—

(1,542)
(285)
(842)
694
77,566(529)
77,731(1,277)(262)(6,904)(9,743)87,466(156)
77,566(14,521)(2,689)(7,934)
6,539
730,108(4,985)
731,662

KANEMATSU Integrated Report 2018

Financial Section and Company Information

10,286
2,885
866
2,767

Sustainability

19,658
3,145
2,148
1,696

Review of Operations

2018

Special Features

2017

Kanematsu’s Progress and Strengths

I. Cash flows from operating activities
Profit for the year
Depreciation and amortization
Impairment loss on property, plant and equipment and intangible assets
Finance income and costs
Share of (profit) loss of investments accounted for using
the equity method(Gain) loss on sale or disposal of property, plant and equipment andintangible assets, net
Income tax expense(Increase) decrease in trade and other receivables(Increase) decrease in inventories
Increase (decrease) in trade and other payables
Increase (decrease) in retirement benefits liabilities
Other
Sub totalInterest received
Dividends received
Interest paid
Income taxes paid
Net cash provided by (used in) operating activities
II. Cash flows from investing activities
Payments for property, plant and equipment
Proceeds from sale of property, plant and equipment
Payments for intangible assets
Purchases of other investments
Proceeds from sale of other investments
Proceeds from sale of other financial assets
Proceeds from (payments for) acquisition of subsidiaries (Notes 5 & 27)
Proceeds from (payments for) sale of subsidiaries (Note 27)
Proceeds from transfer of business
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 (Note 27)
Proceeds from long-term borrowings (Note 27)
Repayment of long-term borrowings (Note 27)
Proceeds from issuance of bonds (Note 27)
Dividends paid
Payments for acquisition of subsidiaries’ interests from
non-controlling interests
Dividends paid to non-controlling interests
Other (Note 27)
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)

2018

61

Notes to Consolidated Financial Statements
For the fiscal years ended March 31, 2018 and 2017

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, 2018
comprise the Company and its subsidiaries (collectively, the“Consolidated Group”), and the Consolidated Group’s interests inassociates. The Consolidated Group operates its businesses as anintegrated trading company by providing a broad array of products
and services through the organic integration of domestic and international business networks; expertise acquired in various fields;
and the functions of a trading company, including commodities
trading, information gathering, market exploration, business development and organization, risk management, and distribution.
Detailed information on the business operations for each reportable segment are provided in Note 6 Segment Information.

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

(4) Use of estimates and judgments

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”)
pursuant to the provision of Article 93 of the Ordinance on
Terminology, Forms, and Preparation Methods of Consolidated
Financial Statements (Ordinance of the Ministry of Finance No. 28
of 1976) as all the requirements of the “Specified Company for
Designated IFRSs” set forth in Article 1-2 of said Ordinance havebeen fulfilled.
The consolidated financial statements were authorized by Kaoru
Tanigawa, President and CEO, on June 22, 2018.

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

(3) Functional currency and presentation currency
The consolidated financial statements are presented in Japaneseyen, which is the Company’s functional currency. All financial information presented in Japanese yen has been rounded down to thenearest million.
The U.S. dollar amounts appearing in the consolidated financial
statements and the notes thereto represent the arithmetical resultsof translating yen to dollars at the rate of ¥106.24 to U.S.$1.00,
the approximate exchange rate prevailing on March 31, 2018. 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.

62

KANEMATSU Integrated Report 2018

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

(1) Basis of consolidation

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

Special Features
Review of Operations
Sustainability1) Subsidiaries
Subsidiaries are entities which are controlled by the Consolidated
Group. The Consolidated Group controls an entity when it is
exposed, or has rights, to variable returns from its involvementwith the entity and has the ability to affect those returns throughits power over the entity. When the Consolidated Group holds
more than half of the voting rights of another entity, such entity is
included in the subsidiaries of the Consolidated Group as it isdetermined that control exists, unless it can be clearly demonstrated that such ownership does not constitute control. In addition,even when the Consolidated Group holds only half or less of thevoting rights of another entity, such entity is included in the subsidiaries of the Consolidated Group if it is determined through agreements with other investors that the Consolidated Group has
control over such entity’s financial and operating policies and thus
has the ability to affect returns from such entity.
The financial statements of subsidiaries are included in the consolidated financial statements of the Consolidated Group from thedate the Consolidated Group obtains control of the subsidiaries
until the date it loses such control of the subsidiaries. When theaccounting policies adopted by the subsidiaries are different fromthose adopted by the Consolidated Group and the difference isconsidered material, the financial statements of the subsidiaries areadjusted as necessary.
Changes in the Consolidated Group’s interest in a subsidiary that
do not result in a loss of control are accounted for as equity transactions. The Company recognizes directly in equity any difference
between the amounts by which the non-controlling interests areadjusted and the fair value of the consideration paid or received,
and attribute it to the owners of the Company.
If the Consolidated Group loses control of a subsidiary, theConsolidated Group derecognizes the assets and liabilities of theformer subsidiary, and any non-controlling interests and other components of equity related to the former subsidiary. Any gains orlosses arising from such loss of control are recognized in profit orloss. If the Consolidated Group retains any interest in the former
subsidiary after the control is lost, such interest is measured at fairvalue at the date that control is lost.

Kanematsu’s Progress and Strengths

3. Significant Accounting Policies

Financial Section and Company Information

KANEMATSU Integrated Report 2018633) Business combinations
Business combinations are accounted for using the acquisition
method. The Consolidated Group recognizes goodwill as the sumof the fair value of the consideration transferred, the amounts ofany non-controlling interests in the acquiree and the fair value ofthe acquirer’s previously held equity interest in the acquiree measured at the acquisition date; less the net of the acquisition-dateamounts of the identifiable assets acquired and the liabilities
assumed (generally measured at fair value). When such difference
results in a negative balance, it is immediately recognized in profit
or loss. Non-controlling interests are measured either at fair value
or at the non-controlling interests’ proportionate share in the recognized amounts of the acquiree’s identifiable net assets. The measurement method to be applied at the acquisition date isdetermined on a transaction-by-transaction basis. Acquisitionrelated costs, which are costs that the Consolidated Group incurs
to effect a business combination (excluding costs to issue debt orequity securities), are accounted for as expenses in the periods inwhich the costs are incurred, and thus not included in the cost of
goodwill. In a business combination achieved in stages, theConsolidated Group remeasures its previously held equity interestin the acquiree at its acquisition-date fair value and recognizes any
gains or losses arising from such remeasurement in profit or loss.
Changes in the value of the Consolidated Group’s equity interest in
the acquiree that had been recognized in other comprehensive
income prior to the acquisition date are recognized in profit or loss,or other comprehensive income, on the same basis as would be
required if the Consolidated Group had disposed of the previously
held equity interest.

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

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

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

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

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

64

KANEMATSU Integrated Report 2018

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

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

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

Sustainability
Financial Section and Company Information

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

Review of Operations

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 (a) the contractual rights to cash flows from thefinancial asset expire, or (b) it transfers the contractual rights tocash flows and substantially all the risks and rewards of ownershipof the financial asset.
(i) Financial assets measured at amortized cost
A financial asset that meets both of the following conditions isclassified as a financial asset measured at amortized cost:• The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash
flow and,• The contractual terms of the financial asset give rise on specified
dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
The Consolidated Group initially recognizes and measuresa financial 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.

Special Features(8) Financial instruments

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

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

KANEMATSU Integrated Report 2018

65

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

66

KANEMATSU Integrated Report 2018

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

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

Sustainability

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

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

Review of Operations

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

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

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

(11) Revenue

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

(10) Equity

Financial Section and Company Information

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

KANEMATSU Integrated Report 2018672) Method of presenting revenue
When the Consolidated Group is acting as a principal in a transaction, revenue is presented in the gross amount received from a customer. Conversely, when the Consolidated Group is acting as anagent for a third party in a transaction, revenue is presented in theamount of commission, which is the gross amount received by acustomer less the amount collected on behalf of the third party.
The following features are considered when determining whether the Consolidated Group is acting as a principal or as an agent in
a transaction:• whether the Consolidated Group has the primary responsibility
for providing goods or services to the customer or for fulfillingthe order;• whether the Consolidated Group has inventory risk before orafter receiving the customer order, during shipping or on return;• whether the Consolidated Group has latitude in establishing prices, either directly or indirectly;• whether the Consolidated Group bears the customer’s credit risk
for the amounts receivable from the customer; and,• whether the amounts the Consolidated Group earns are predetermined, being either a fixed fee per transaction or a stated percentage of the amounts billed to the customer.

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

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

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

68

KANEMATSU Integrated Report 2018

(15) Leases

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 receivablefrom or taxes payable to tax authorities, and the tax rates or tax
laws that are used to calculate the tax amount are those that havebeen enacted or substantially enacted by the end of the fiscal year.
The Consolidated Group recognizes deferred tax assets anddeferred tax liabilities for temporary differences between the carrying amount of an asset and liability in the statements of financial
position and its tax base, the unused tax losses carried forward andunused tax credits carried forward. The amounts of deferred tax
assets and deferred tax liabilities are calculated by applying the
expected tax rate or tax law applicable as of the period in whichassets are realized or liabilities are settled in accordance with a statutory tax rate or a substantially enacted statutory tax rate and thetax law as of the fiscal year-end. The Consolidated Group does notrecognize deferred tax assets and deferred tax liabilities in the following cases:• when taxable temporary differences arise from the initial recognition of goodwill;• when they arise from the initial recognition of an asset or a liability in a transaction which is not a business combination; and on
the transaction date, affects neither accounting profit nor taxable
profit (tax loss); or,• with respect to taxable temporary differences associated withinvestments in subsidiaries and associates, when theConsolidated Group is able to control the timing of the reversalof the temporary differences; and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets and deferred tax liabilities are offset only
when the Consolidated Group has a legally enforceable right to set
off the current tax assets against current tax liabilities, and, suchdeferred tax assets and liabilities relate to income taxes levied on
the same taxation entity. However, even in the case of different
taxable entities, the Consolidated Group can set off if the tax taxable entities intend either to settle current tax liabilities and assets
on a net bases, or to realize the assets and settle the liabilities
simultaneously. Deferred tax assets are recognized for deductible
temporary differences, the unused tax losses carried forward andunused tax credits carried forward to the extent that it is probablethat they can be used against future taxable profit. The carrying
amounts of deferred tax assets are reassessed at each fiscal yearend, and such carrying amount will be reduced to the extent it is
no longer probable that related tax benefits from such assets will
be realized. Unrecognized deferred tax assets are also reassessed at
the end of each reporting period and are recognized to the extent
that it is probable that future taxable profit will be available torecover the deferred tax assets.
The Company and its wholly owned domestic subsidiaries apply
the consolidated tax payment system, by which the Company and its
wholly owned domestic subsidiaries are allowed to file a tax returnand pay the corporation tax as a consolidated tax filing group.

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.

Kanematsu’s Progress and Strengths(14) Income taxes

Special Features

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.

Review of Operations

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

Sustainability
Financial Section and Company Information

KANEMATSU Integrated Report 201869

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 the
fiscal year ended March 31, 2018. While the point of revenue

Standard

Mandatory application(from fiscal years
beginning on or after)

Title

recognition will change in accordance with the review of therecognition of performance obligation, the Consolidated Groupassessed the effect of application of IFRS 15 would be negligible. The
effect of application of IFRS 16 on the Consolidated Group is currently
under assessment and cannot be estimated as of the filing date.
Fiscal year in which theConsolidated Group will apply
the standard

Summary of new or amended standard

IFRS 15

Revenue from Contracts
with Customers

January 1, 2018

Fiscal year ending
March 31, 2019

Amendment of accounting treatment forand disclosure on revenue recognition

IFRS 16

LeasesJanuary 1, 2019

Fiscal year ending
March 31, 2020

Amendment of accounting treatment forlease contracts

5. Business Combinations
The major business combination that occurred during the fiscal
year ended March 31, 2017 was described as follows:(1) Contents of the business combination
Name of the acquired company

Diamondtelecom, Inc.

Contents of businessInformation communication
business involved with sales ofmobile communication devices
and systems

Date of the businesscombination

April 1, 2016

(3) Acquisition costs and the detail

Legal form of the businesscombination

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

Acquisition costs (cash consideration)

Company name after the
combination
Percentage of the voting rights
acquired

JPY

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

70

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.

KANEMATSU Integrated Report 2018

17,400(4) Acquisition-related costs and its line item
Acquisition-related costs for the business combination were ¥168
million, and they were recognized in selling, general and administrative expenses in the consolidated statement of income of the
fiscal year ended March 31, 2016.

(5) Assets and liabilities on the day of the businesscombination
JPY

Fair value of the consideration paid

17,400Cash and cash equivalents

4,613

Trade receivables

12,828Inventories

1,212

Other current assets

351

Property, plant and equipment

736

Goodwill (Note)

1,635

Intangible assets

13,930

Other non-current assets
Current liabilities
Non-current liabilities
Total

764
(17,746)(925)
17,400(Note) Goodwill consists primarily of future economic benefits andsynergies with the Consolidated Group’s existing businesses.
The total amount of goodwill that is expected to be
deductible for tax purposes is ¥12,918 million.

(8) Earnings since the acquisition date
JPY

JPY

Payments for acquisition costs (cash consideration)
Cash and cash equivalents on the acquisition date
Payments for acquisition of subsidiaries(17,400)
4,613(12,786)(7) Period of the performance of the acquired company
in the consolidated financial statements

Kanematsu’s Progress and Strengths(6) Effects on cash flows through business combination

Revenue
Profit27,800161

There is no pro forma information presented since the businesscombination occurred at the beginning of the period.
There were no major business combinations that occurred during the fiscal year ended March 31, 2018.

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

Special Features

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.
(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.

Sustainability(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.

Review of Operations

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:

Financial Section and Company Information

KANEMATSU Integrated Report 201871

(2) Information on reportable segments
The accounting methods for the reportable operating segments are largely consistent with those stated in Note 3. Significant Accounting
Policies. Inter-segment revenue and transfers are based on the transaction prices to external customers.
Fiscal year ended March 31, 2018 (from April 1, 2017 to March 31, 2018)(JPY)

Reportable segment

Adjustment(Note 2)

Consolidated

12,691—

714,790

62

(436)

—

702,743

12,753(436)

714,790

26,179(20)

226,160

425

3,032

135

(21)

3,145

19

33

476

1,102

0

1,579

118,829

121,456

42,898477,972

9,112

32,803519,889

873

1,337

83

326

2,620

2,552

(3)

5,169

1,359

600

486

384

2,831

120

153

3,105

Electronics &Devices

Foods & Grain

Steel, Materials Motor Vehicles& Plant& Aerospace

263,310231,260

153,075

54,453702,099

277

4

80

11

374

Total revenue

263,587

231,265

153,155

54,464

Segment profit (loss)

17,556

2,149

3,930

2,541

1,205

562

838

361

62

194,788

Total

Others(Note 1)

Revenue
External
Inter-segment

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

Fiscal year ended March 31, 2018 (from April 1, 2017 to March 31, 2018)(USD)

Reportable segment
Total

Others(Note 1)

Adjustment(Note 2)

Consolidated

512,548

6,608,613

105

3,523

119,461—

6,728,075

586(4,109)1,441,602

512,653—

6,612,136

120,047(4,109)6,728,075

20,23337,001

23,927

246,416(195)

22

246,243

11,346

5,299

7,890

4,005

28,540

1,271

(199)

29,611

3,399

591

180

316

4,486

10,374

3

14,864

1,833,473

1,118,501

1,143,230

403,787

4,498,992

85,772308,772

4,893,536

Investments accounted forusing the equity method

8,220

12,588790

3,069

24,66724,024(29)

48,662

Capital expenditures

12,800

5,655

4,581

3,619

26,654

1,134

1,447

29,235

Electronics &Devices

Foods & Grain

Steel, Materials Motor Vehicles& Plant& Aerospace

2,478,449

2,176,775

1,440,842

2,611

46

760

Total revenue

2,481,060

2,176,821

Segment profit (loss)

165,256

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

Revenue
External
Inter-segment

Other profit or loss:

Segment assets
Other assets:(Notes) 1. The “Others” column is a business segment that is not included in the reportable segments and includes the logistics and insurance service business and thegeotech business.
2. Adjustments are presented as follows:(1) Adjustment for segment profit (loss) of ¥2 million ($22 thousand) includes inter-segment elimination of ¥2 million ($22 thousand).
(2) Adjustment for segment assets of ¥32,803 million ($308,772 thousand) includes inter-segment elimination of ¥(15,610) million ($(146,936) thousand) andcorporate assets of ¥48,414 million ($455,709 thousand) that are not allocated to any reportable segment. The corporate assets consist mainly of cash and bankdeposits associated with financing activities and assets such as investment securities.
(3) Adjustment for depreciation and amortization of ¥(21) million ($(199) thousand) includes inter-segment elimination of ¥(21) million ($(199) thousand).
(4) Adjustment for Share of profit (loss) of investments accounted for using the equity method of ¥0 million ($3thousand) includes inter-segment elimination of ¥0
million ($3 thousand).
(5) Adjustment for investments accounted for using the equity method of ¥(3) million ($(29)thousand) includes inter-segment elimination of ¥(3) million ($(29)thousand).
(6) Adjustment for capital expenditures of ¥153 million ($1,447 thousand) includes inter-segment elimination of ¥(0) million ($(3) thousand) and corporate assets of¥153 million ($1,449 thousand) that are not allocated to any reportable segment. The corporate assets consist mainly of lease equipment related to the information
system of the subsidiary.

72

KANEMATSU Integrated Report 2018

Fiscal year ended March 31, 2017 (from April 1, 2016 to March 31, 2017)(JPY)
Adjustment(Note 2)

Consolidated

11,914—

675,579

62

(481)

—

664,084

11,977(481)

675,579

2,223

21,881756(5)22,633

620

333

2,758

142

(15)

2,885

103

13

31

(2,346)355—(1,990)173,258

106,057

111,957

36,738428,012

10,293

41,412479,717

531

1,354

71

308

2,266

2,233

385

4,885

1,548

376

164

2,537

4,627

129

213

4,970

Steel, Materials Motor Vehicles& Plant& Aerospace

Others(Note 1)

Electronics &Devices

Foods & Grain

254,280

227,764

131,201

50,419663,664

359

4

54

0

419

Total revenue

254,640

227,769

131,256

50,419Segment profit (loss)

14,348

2,489

2,820

Depreciation andamortization

1,202

601

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

Total

Kanematsu’s Progress and Strengths

Reportable segment

Revenue
External
Inter-segment

Other profit or loss:

Special Features

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

Review of Operations(Notes) 1. The “Others” column is a business segment that is not included in the reportable segments and includes the logistics and insurance service business and thegeotech business.
2. Adjustments are presented as follows:(1) Adjustment for segment profit (loss) of ¥(5) million includes inter-segment elimination of ¥(5) million.
(2) Adjustment for segment assets of ¥41,412 million includes inter-segment elimination of ¥(13,794) million and corporate assets of ¥55,206 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 ¥(15) million includes inter-segment elimination of ¥(15) million.
(4) Adjustment for investments accounted for using the equity method of ¥385 million includes inter-segment elimination of ¥(2) million and corporate assets of ¥387
million that are not allocated to any reportable segment.
(5) Adjustment for capital expenditures of ¥213 million includes inter-segment elimination of ¥(22) million and corporate assets of ¥235 million that are not allocatedto any reportable segment. The corporate assets consist mainly of lease equipment related to the information system of the subsidiary.

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

USD

2017

2018

Segment profit

26,16022,633

246,243

Finance income and finance costs(1,696)(2,767)(15,972)

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

1,579(1,990)14,864

Profit before tax

26,043

17,875245,135

Sustainability

2018(3) Information on products and services
This disclosure is omitted because the classification of products and services is the same as that of reportable segments.

Financial Section and Company Information

KANEMATSU Integrated Report 201873

(4) Geographic information
1) External revenue
JPY

USD

2018

2017

2018

Japan

592,687

575,2635,578,759

Asia

51,411

46,620483,920

North America

48,66536,748458,076

Europe17,397

12,771

163,760

Others

4,627

4,176

43,560714,790

675,579

6,728,075

2018

2017

2018

Japan

42,172

48,204

396,955

Asia

991

990

9,329

North America

6,548

4,946

61,637

Europe

2,580

3,731

24,293

Others

35

33

336

52,32857,906

492,550

Total

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

Total

USD

(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, 2018 and March 31, 2017.

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

USD

2018

2017

2018

215,705

186,705

2,030,362

Loans receivable

3,425

3,078

32,242

Other

5,021

4,718

47,267

Less: loss allowance(1,985)(2,139)(18,693)

222,166

192,363

2,091,178

220,583

191,193

2,076,278

1,582

1,169

14,900222,166

192,363

2,091,178

Notes and accounts receivable

Total
Current assets
Non-current assets
Total

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

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

USD

2018

2017

2018

Merchandise and finished goods

91,33477,856

859,701

Raw materials and supplies

2,045

1,972

19,251Work in progress
Total

577

833

5,440

93,95780,662

884,392

The amounts of inventories that were recognized as expense during the fiscal year ended March 31, 2018 and March 31, 2017 are ¥592,212
million ($5,574,288 thousand) and ¥558,429 million, respectively.
The amount of write-downs on inventories that was recognized as expense during the fiscal year ended March 31, 2018 is ¥365 million($3,444 thousand), and the amount of reversal of write-downs on inventories that was recognized as income during the fiscal year ended
March 31, 2017 is ¥164 million.

74

KANEMATSU Integrated Report 2018

Kanematsu’s Progress and Strengths

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

As of April 1, 2016

(JPY)
Buildings andstructures

Machinery, vehicles,
tools, furniture andfixtures

Land

Construction inprogress

Total

25,95912,545484

55,466

467

3,616

—

211

4,295

Acquisitions through business combinations

501

230

—

4

736

Transfers from construction in progress

11

57

—

(68)

—

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

Exchange differences

(36)

(83)

(18)

(1)

(139)

Increases (decreases) due to a change inthe scope of consolidation

(2)

(8)

—

—

(11)

Disposals

Other
As of March 31, 2017
Acquisitions

60

155

—

(41)

175

16,43927,974

10,572588

55,575
2,493

822

1,331

2

336

Acquisitions through business combinations

1

4

—

—

6

Transfers from construction in progress

80

478

25

(591)

(6)

(2,427)(2,676)(2,365)(0)(7,470)Exchange differences

(6)

(289)

(6)

(13)

(316)

Increases (decreases) due to a change inthe scope of consolidation

(12)

(18)

—

—

(31)

Disposals

As of March 31, 2018

500

21

75

(16)

580

15,40026,8258,303

301

50,831[Accumulated depreciation and accumulated impairment losses]
Buildings andstructures

As of April 1, 2016

(JPY)
Machinery, vehicles,
tools, furniture andfixtures

Construction inprogress

Land

Total

(18,605)(425)—(28,582)(355)(1,611)——(1,966)

Impairment losses

(37)

(4)

(132)

—

(173)

Disposals

290

1,117

519

—

1,928

Exchange differences

6

103

—

—

109

Increases (decreases) due to a change inthe scope of consolidation

0

6

—

—

7

(16)

(22)

—

—

(39)

(9,663)(19,016)(37)—(28,717)

Depreciation(630)(1,787)——(2,417)

Impairment losses

(69)

(1)

(2,074)—(2,146)

2,047

1,369

963

—

4,380

Exchange differences

4

91

—

—

96

Increases (decreases) due to a change inthe scope of consolidation

10

15

—

—

26

As of March 31, 2017

Disposals

Other
As of March 31, 2018

(112)

35

(75)

—

(152)

(8,413)(19,293)(1,224)—(28,930)

Sustainability(9,551)

Depreciation

Other

Review of Operations

Other

Special Features

16,476

Acquisitions

Financial Section and Company Information

KANEMATSU Integrated Report 201875

[Carrying amount](JPY)
Buildings andstructures

Machinery, vehicles,
tools, furniture andfixtures

Land

As of March 31, 2017

6,776

8,958

10,534588

26,858

As of March 31, 2018

6,986

7,532

7,079

301

21,900Construction inprogress

Total[Costs](USD)
Buildings andstructures

Machinery, vehicles,
tools, furniture andfixturesLand

154,743

263,317

99,514

5,541

523,114

7,746

12,537

19

3,166

23,469Acquisitions through business combinations

18

40

—

—

59

Transfers from construction in progress

759

4,502

243

(5,569)(64)(22,848)(25,196)(22,261)(9)(70,314)

Exchange differences(62)(2,723)

(65)

(129)

(2,979)

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

(115)

(178)

—

—

(293)

As of March 31, 2017
Acquisitions

Disposals

Other
As of March 31, 2018

Construction inprogress

Total

4,714

201

710

(159)

5,467

144,956

252,501

78,1602,842

478,459[Accumulated depreciation and accumulated impairment losses](USD)

Buildings andstructures

Machinery, vehicles,
tools, furniture andfixtures

As of March 31, 2017

(90,957)(178,995)

(354)

—

(270,306)

Depreciation(5,933)(16,823)——(22,755)

Impairment losses

Construction inprogress

Land

Total

(658)

(12)

(19,531)—(20,202)

19,26812,887

9,073—

41,228Exchange differences

41

864

—

—

905

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

100

149

—

—

249

Disposals

Other(1,055)

330

(710)

—

(1,436)

As of March 31, 2018

(79,194)(181,600)(11,523)—(272,317)

Buildings andstructures

Machinery, vehicles,
tools, furniture andfixturesLand

65,76370,901

66,637[Carrying amount]

As of March 31, 2018

(USD)
Construction inprogress

2,842

Total

206,142

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

76

KANEMATSU Integrated Report 2018

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]JPY2018

Balance at the beginning of the year

USD

2017

2018

67,808

5,387

495

1,842

4,662

Exchange differences

(121)

(25)

(1,140)

Balance at the end of the year

7,578

7,203

71,3302017

2018

Special Features

7,203

Acquisitions through business combinations[Accumulated impairment losses]
JPY

2018

USD

Balance at the beginning of the year

(899)

(756)

(8,464)

Impairment losses

(107)

(143)

(1,007)

Exchange differences
Balance at the end of the year

—

—

—

(1,006)(899)(9,471)

2018

2017

2018

6,571

6,304

61,859[Carrying amount]
JPY2) Impairment test
The Consolidated Group’s 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

Review of Operations

Carrying amountUSD

impaired. The carrying amount of significant goodwill allocated to
the Consolidated Group’s cash-generating units was as follows:
JPY

USD

2018

2017

2018

Electronics business of the domestic subsidiaries

1,763

1,763

16,597

Mobile business of the domestic subsidiaries

2,123

1,635

19,986

319

426

3,003

2,151

2,271

20,250Electronics & Devices segment

Pet-related businesses of the domestic subsidiaries

Sustainability

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

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

Financial Section and Company Information

KANEMATSU Integrated Report 2018

77

The pre-tax discount rates which were used in calculating the value in use of the Consolidated Group’s cash-generating units to which significant goodwill has been allocated were as follows:
2018

2017

Electronics business of the domestic
subsidiaries

2.8%

3.3%

Mobile business of the domestic
subsidiaries

6.6%

7.2%

5.6%

5.7%

13.4%

13.0%

Electronics & Devices segment

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

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

(2) Intangible assets
Changes in costs, accumulated amortization and accumulated impairment losses of intangible assets are presented as follows:[Costs]
As of March 31, 2016

(JPY)
Software

Carrier shop operating rights

Other

Total

8,636

3,291

4,492

16,421

Acquisitions

609

—

4

614

Acquisitions throughbusiness combinations

68

13,849—13,917

Disposals

(728)

—

(55)

(784)

Exchange differences

(3)

—

(18)

(21)

Other

13

—

4

18

8,596

17,1404,427

30,164

322

—

63

386

0

—

1

1

Disposals

(313)

—

(14)

(328)

Exchange differences

(18)

—

(180)

(198)

Other

(19)

—

(1)

(20)

8,568

17,140

4,295

30,004

Carrier shop operating rights

Other

Total

As of March 31, 2017
Acquisitions
Acquisitions throughbusiness combinations

As of March 31, 2018

[Accumulated amortization and accumulated impairment losses]
Software

As of March 31, 2016

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

Amortization

(568)

—

(331)

(899)

Impairment losses

(688)

—

(4)

(692)

Disposals

654

—

55

709

3

—

0

3

(12)

—

(0)

(12)

(7,383)(234)(1,611)(9,228)

(465)

—

(314)

(780)

(1)

—

(1)

(2)

279

—

0

279

Exchange differences
Other
As of March 31, 2017
Amortization
Impairment losses
Disposals
Exchange differences

15

—

61

77

Other

25

—

1

27

(7,528)(234)(1,863)(9,626)

As of March 31, 2018

78

(JPY)

KANEMATSU Integrated Report 2018

[Carrying amount](JPY)
Carrier shop operating rights

Other

Total

As of March 31, 2017

1,213

16,906

2,816

20,935

As of March 31, 2018

1,039

16,906

2,432

20,377

Software

Carrier shop operating rights

Other

Total

As of March 31, 2017

80,915

161,341

41,673283,929

Acquisitions

3,040

—

597

3,636

1

—

10

11

[Costs]Acquisitions throughbusiness combinations
Disposals

(USD)

—

(138)

(3,093)(173)—(1,698)(1,871)

Other

(180)

—

(10)

(190)

80,649161,341

40,434282,424

Software

Carrier shop operating rights

Other

Total

As of March 31, 2017

(69,494)(2,207)(15,166)(86,867)

Amortization(4,383)—(2,959)(7,342)

(12)

—

(13)

(25)

2,632

—

3

2,635

[Accumulated amortization and accumulated impairment losses]

Impairment losses
Disposals

(USD)

145

—

580

725

Other

244

—

13

257

(70,867)(2,207)(17,542)(90,615)

Software

Carrier shop operating rights

Other

Total

9,782

159,134

22,892

191,808[Carrying amount]
As of March 31, 2018

Review of Operations

Exchange differences
As of March 31, 2018

Special Features(2,955)

Exchange differences
As of March 31, 2018

Kanematsu’s Progress and Strengths

Software(USD)

Sustainability

The carrier shop operating rights were recognized as intangible assets upon acquisition of the mobile business by the consolidated subsidiary of the Company. As the rights are expected to exist fundamentally as long as the business continues, they are determined to be classified
as intangible assets with indefinite useful lives.
The recoverable amounts of the Consolidated Group’s cash-generating units including the carrier shop operating rights were calculated
based on its five-year forecast’s value in use that was approved by management. The five-year forecast of cash flows is based on the futureplans anticipated based on past performance. In addition, the main assumption used to determine such forecast was the growth rates ofgross profits through such terms, such growth rates being consistent with the forecasts of the nominal GDP growth rates or the like of thecountries in which such Consolidated Group’s cash-generating units are situated.
The ultimate growth rates are determined by considering the average long-term growth rates of the markets or countries to which theConsolidated Group’s cash-generating units belong.
There were no material internally-generated intangible assets as of March 31, 2018 and March 31, 2017.
Amortization expenses are included in “Cost of sales” and “Selling, general and administrative expenses” in the consolidated statement of income.
The discount rates before tax used to determine the value in use of the Consolidated Group’s cash-generating units are presented as follows:
2018

2017

6.5%

7.0%

Electronics & Devices segment
Financial Section and Company Information

Mobile business of the domestic subsidiaries

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

KANEMATSU Integrated Report 201879

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

Associates

USD

2018

2017

2018

5,057

4,497

47,604

112

387

1,058

2017

2018

Joint ventures[Profit or loss from continuing business]

JPY

2018

USD

Associates

814(1,990)

7,670

Joint ventures

764

(21)

7,193

[Other comprehensive income]
JPY

2018

USD

2017

2018

Associates

(57)

134

(539)

Joint ventures

—

—

—

2017

2018

[Total comprehensive income]
JPY

2018

USD

Associates

757(1,855)

7,131

Joint ventures

764

(21)

7,193

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

2018

USD

2017

2018

Financial assets measured at fair value through profit or loss

4,168

5,054

39,237

Financial assets measured at fair value through other comprehensive income

32,80528,063308,791

Financial assets measured at amortized cost

994

994

9,362

Total

37,96934,112357,390

2018

2017

2018

103,549

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

Advance payments

11,001

10,567

Prepaid expenses

4,766

4,299

44,864

Other

7,666

7,141

72,161

23,43322,008220,574

19,955

18,200187,834

Total
Current assets
Non-current assets
Total

80

USD

KANEMATSU Integrated Report 2018

3,478

3,807

32,74023,43322,008220,574

Kanematsu’s Progress and Strengths

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

USD

2018

2017

2018

Notes and accounts payable

141,292

120,673

1,329,936

Import bills payable

36,46832,992

343,263

Accounts payable - commission
Total
Current liabilities

11,03011,345

103,827

188,791

165,011

1,777,026

188,791

165,011

1,777,026———

188,791

165,011

1,777,026

Non-current liabilities
Total

Special Features

15. Bonds and Borrowings
The breakdown of bonds and borrowings is presented as follows:
2018

2017

JPY

USD

JPY

Averageinterest rate
(Note)

Maturity date

—

—

4,987

46,949—42,653

401,486

40,402

1.17%—

Current portion of long-term borrowings

13,568

127,716

24,2401.04%—

Bonds (excluding the current portion)

14,910140,349

9,945

—

—

1.19%

July 2019
to October
2029

Long-term borrowings (excluding the current portion)
Total

61,205576,11159,255
133,844

137,326

1,292,610

Current liabilities

61,210576,151

64,643

Non-current liabilities

76,116

716,460

69,201

137,326

1,292,610

133,844

Total

Review of Operations

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

[Details of bonds]
Bond Name

Issue dateKanematsu
Corporation

Unsecured Straight
Bonds No 1
(3-year bonds)

Kanematsu
Corporation

2018

2017

Coupon rate

Collateral

Maturity date

4,974

0.40% per
annum

None

March 8,2019

46,861

4,971

0.64% per
annum

None

March 10,
2021

4,965

46,740—0.42% per
annum

None

December
14, 2022

4,966

46,748—

0.57% per
annum

None

December13, 2024

JPY

USD

JPY

March 10,
2016

4,987

46,949Unsecured Straight
Bonds No 2(5-year bonds)

March 10,
2016

4,978

Kanematsu
Corporation

Unsecured Straight
Bonds No 3(5-year bonds)

December
14, 2017

Kanematsu
Corporation

Unsecured Straight
Bonds No 4(7-year bonds)

December
14, 2017

Sustainability

Issuer(Note) The maturity schedule of bonds after the end of the current fiscal year is presented as follows:
Over one year andwithin two years

Over two years andwithin three years

Over three years andwithin four years

Over four years andwithin five years

JPY

USD

JPY

USD

JPY

USD

JPY

USD

JPY

USD

JPY

USD

4,987

46,949

—

—

4,978

46,861

—

—

4,965

46,7404,966

46,748Financial Section and Company Information

Corporate bonds

Within one year

Over five years

KANEMATSU Integrated Report 201881

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

Other

Total

As of April 1, 2017

981

444

1,426

Provisions made

344

117

462

Provisions used

(61)

(5)

(67)

Provisions reversed

—

(55)

(55)

Unwinding of discount

46

—

46

Foreign exchange translationdifferences

—

(14)

(14)

1,310

485

1,796

Asset retirement obligations

Other

Total

As of March 31, 2018

(USD)
As of April 1, 2017

9,240

4,183

13,423

Provisions made

3,244

1,105

4,349

Provisions used

(580)

(54)

(633)

Provisions reversed

—

(526)

(526)

Unwinding of discount

434

—

434

Foreign exchange translationdifferences

—

(137)

(137)

12,338

4,571

16,909As of March 31, 2018

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

2018

Current liabilities
Non-current liabilities
Total

USD

2017

2018

156

28

1,475

1,639

1,397

15,434

1,796

1,426

16,909Asset retirement obligations are obligations for restoring offices and shops in accordance with provisions of the property leasing contracts.
While these expenditures will be made after at least one year has passed, the amounts may be affected by the future business plan and otherfactors.

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

2017

2018

Advances received

8,392

11,85478,992

Accrued expenses

3,337

3,343

31,414

Unearned revenue

3,029

2,918

28,515

Other

9,545

8,788

89,852

24,304

26,905

228,773

23,371

26,291

219,989

Total
Current liabilities
Non-current liabilities
Total

82

USD

2018

KANEMATSU Integrated Report 2018

933

614

8,784

24,304

26,905

228,773

Kanematsu’s Progress and Strengths

18. Equity(1) Capital management
The Consolidated Group has a basic policy of increasing shareholders’ equity (See Note 1) up to a certain level and strengthening its
financial base to enhance its enterprise value through building new
businesses and increasing revenues while maintaining a soundfinancial position.
The Company also sets the maximum ratio of risk assets (SeeNote 2) and examines the appropriateness of scale of shareholders’equity in terms of it being a risk buffer to potential loss that could

result from a deterionation in the companies’ respective businesses,
so that it could manage shareholders’ equity more minutely.
The key indices which the Consolidated Group uses for management of shareholders’ equity are as follows, and these indices are
periodically reported to and monitored by management.
• Ratio of risk assets• Net DER(See Note3)

Special Features(Note 1) Shareholders’ equity is defined as equity attributable to owners of the Parent.
(Note 2) Ratio of risk assets is defined as a ratio of the amount of maximum potential loss to shareholders’ equity. The amount of maximum potential loss is the amount of
all assets and off balance sheet transactions on the consolidated financial statements multiplied by the original risk weight set by our consolidated group according
to the potential risk of loss.
(Note 3) Net DER is defined as a ratio of net interest-bearing debt to shareholders’ equity, while net interest-bearing debt is the total amount of interest-bearing debt lesscash and cash equivalents.

The figures of net DER as of March 31, 2018 and March 31, 2017 are presented as follows:(Unit: times)
Net DER

2018

2017

0.5

0.6

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

Shares authorized to be issued(No-par common stock)2017

200,000,000

200,000,000

84,500,202—
84,500,202

84,500,202—
84,500,202

390,123506,359

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

Review of Operations(Unit: share)
2018(Notes) 1. The number of shares of treasury stock includes treasury stock held by the associates of the Company.
2. The Company consolidated its common shares at a ratio of five shares to one share on the effective date of October 1, 2017. Assuming that the company
consolidated its shares on April 1, 2016, the number of shares after share consolidation is provided.

1) Capital surplus
Capital surplus mainly consists of legal capital surplus.
2) Retained earnings
Retained earnings consist of legal retained earnings and otherretained earnings.
The Companies Act of Japan provides that an amount equal to
10% of distribution of surplus for each fiscal year must be

Sustainability(3) Surplus

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

Financial Section and Company Information

KANEMATSU Integrated Report 201883

(4) Dividends
1) Amounts of dividends paid
Resolution

Type of stock

Source ofdividends

Dividends
per share

Total amounts of dividends
JPY

USD

Yen

U.S.$

Record date

Effective date

May 22, 2017
Board of Directors
meeting

Commonstock

Retainedearnings

1,263

11,895

3.00

0.028

Mar. 31, 2017

Jun. 5, 2017

Oct. 31, 2017
Board of Directors
meeting

Commonstock

Retainedearnings

1,474

13,877

3.50

0.033

Sep. 30, 2017

Dec. 1, 2017

Resolution

Type of stock

Source ofdividends

Record date

Effective date

Total amounts ofdividends

Dividends
per share

JPY

Yen

May 23, 2016
Board of Directors
meeting

Commonstock

Retainedearnings

1,053

2.50

Mar. 31, 2016

Jun. 6, 2016

Nov. 2, 2016
Board of Directors
meeting

Commonstock

Retainedearnings

1,263

3.00

Sep. 30, 2016

Dec. 2, 2016

* The dividends per share resolved by the board of directors meeting on October 31, 2017, with record date on September 30, 2017 are provided as the amounts before
share consolidation as of October 1, 2017.

2) Dividends with record date in the current fiscal year, and effective date in the following fiscal year
Resolution

May 21, 2018
Board of Directors
meetingType of stock

Commonstock

Source ofdividends

Retainedearnings

Dividends
per share

Total amounts of dividends
JPY

USD

Yen

U.S.$

2,569

24,186

30.50

0.287

Record date

Effective dateMar. 31, 2018

Jun. 4, 201819. Revenue
The breakdown of revenue is presented as follows:
JPY

USD

2018

2017

2018

Revenue from the sale of goods

694,337

653,529

6,535,553

Revenue from rendering of services and others

20,45322,050

192,522714,790

675,579

6,728,075

2017

2018

Total

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

2018

Depreciation and amortization

2,027

1,822

19,086

Personnel expenses

43,444

42,834

408,925

Outsourcing service charges

7,264

6,827

68,378Rent expenses

6,742

6,320

63,465

Other

18,941

18,358178,291

78,42076,163

738,145

Total

84

USD

KANEMATSU Integrated Report 2018

Kanematsu’s Progress and Strengths

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

Gain on sale of property, plant and equipment
Total gain on sale of property, plant and equipment and intangible assets
Loss on sale of property, plant and equipment
Total loss on sale of property, plant and equipment and intangible assets
Loss on disposal of property, plant and equipment
Loss on disposal of intangible assets

USD

2018

2017

2018

43

543

413

43

543

413

(68)

(1)

(642)

(68)

(1)

(642)

(192)

(83)

(1,809)

(73)

(324)

(226)

(157)

(2,133)Gain (loss) on sale or disposal of property, plant and equipment and intangible
assets, net

(250)

384

(2,361)

Special Features(34)

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

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

Property, plant and equipment

Total

2017

2018

(2,146)(173)(20,202)

(107)

(143)

(1,007)

(2)

(692)

(25)

(2,255)(1,009)(21,233)

2017

2018

Review of Operations

Goodwill
Intangible assets

USD

2018

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

2018

Electronics & Devices
Foods & Grain
Steel, Materials & Plant
Other/Adjustment and elimination
Total

(2)

(721)

(25)

(107)

(143)

(1,007)

(5)

(13)

(49)

(2,141)(132)(20,153)(2,255)(1,009)(21,233)
Sustainability

recoverable amount of ¥602 million ($5,666 thousand). An impairment loss of ¥975 million ($9,184 thousand) was also recognized
as a result of reducing the carrying amount of assets for transfer ofgolf business to the recoverable amount of ¥1,566 million($14,747 thousand). The recoverable amount is based on fair valueless costs of disposal and the fair value is estimated mainly basedon sale value. The asset belongs to the Other segment.
Regarding the pet-related business of the domestic subsidiary,an impairment loss of ¥107 million ($1,007 thousand) was recognized as a result of reducing the carrying amount of goodwill tothe recoverable amount of ¥359 million ($3,379 thousand)because future cash flows anticipated to be generated was judged
to be lower than originally assumed. The recoverable amount isbased on the value in use and it was estimated by discounting
future cash flows at a pre-tax rate of 6.55%. The asset belongs to
the Foods & Grain segment.
While fair values are categorized into three levels depending on
inputs to valuation techniques used, all the fair values above arecategorized within Level 3 of the fair value hierarchy with its details
described in Note 2. Basis of Preparing Consolidated Financial
Statements, (4) Use of estimates and judgments.

KANEMATSU Integrated Report 2018

Financial Section and Company Information

For the fiscal year ended March 31, 2017, an impairment loss of¥132 million was recognized as a result of reducing the carrying
amount of land owned in Japan, which the Company determined
to sell, to the recoverable amount of ¥589 million. The recoverable
amount was based on fair value less costs of disposal and the fairvalue was estimated mainly based on the real estate appraisal. The
asset belonged to the Other segment.
Regarding the pet-related business of the domestic subsidiary,an impairment loss of ¥143 million was recognized as a result of
reducing the carrying amount of goodwill to the recoverable
amount of ¥1,027 million because future cash flows anticipated tobe generated was judged to be lower than originally assumed. The
recoverable amount was based on the value in use and it was estimated by discounting future cash flows at a pre-tax rate of 4.61%.
The asset belonged to the Foods & Grain segment.
Regarding intangible assets, an impairment loss of ¥656 million wasrecognized as the enterprise system, which had been in process ofdevelopment but was abandoned, was evaluated to have a zero recoverable amount. The recoverable amount was based on the value in
use. The asset belonged to the Electronic & Devices segment.
For the fiscal year ended March 31, 2018, an impairment loss of¥1,161 million ($10,928 thousand) was recognized as a result of
reducing the carrying amount of idle land owned in Japan to the

USD

85

23. Exchange Differences
Exchange differences recognized in profit or loss for the fiscal years
ended March 31, 2018 and March 31, 2017 were ¥521 million($4,913 thousand) and ¥(812) million, respectively and are included in “Other income” and “Other expenses” in the consolidated
statement of income. In addition, each amount includes gains orlosses arising from currency-related derivative transactions thatwere entered into for the purpose of hedging the foreign currency
risk. Gains and losses arising from translating assets and liabilities
denominated in a currency other than the functional currency orfrom settling such items are included in profit or loss as they arise.

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

USD

2018

2017

2018

Interest income
Financial assets measured at amortized cost

352

399

Financial assets measured at fair value through profit or loss

11

22

3,316
109

Total interest income

363

421

3,425

268

209

2,525

Dividend income
Financial assets measured at fair value through profit or loss
Financial assets measured at fair value through other comprehensive income
Total dividend income

805

906

7,580

1,073

1,116

10,104

Other finance income (Note)
Other finance income

10

—

94

Total other finance income

10

—

94

Total finance income

1,447

1,537

13,623(2,144)(2,033)(20,184)

(269)

(270)

(2,539)(2,414)(2,304)(22,723)

Other finance costs(730)(2,000)(6,871)

Total other finance costs(730)(2,000)(6,871)

Total finance costs(3,144)(4,304)(29,594)

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

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

Basic earnings per share

U.S. dollar

2018

2017

2018

193.79

95.64

1.82

Diluted earnings per share is the same as basic earnings per share as there are no shares with a dilutive effect.

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

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

USD

2018

2017

2018

16,317

8,049

153,588———

16,317

8,049

153,588

Thousand shares

Weighted average number of common shares

2018

2017

84,202

84,164(Note) The Company consolidated its common shares at a ratio of five shares to one share on the effective date of October 1, 2017. Assuming that the company consolidated
its shares on April 1, 2016, earnings per share attributable to owners of the parent is provided.

86

KANEMATSU Integrated Report 2018

Kanematsu’s Progress and Strengths

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

USD

2018

2017

2018

Balance at the beginning of the year

2,349

2,912

22,116

Changes during the period(1,073)(562)(10,107)

Balance at the end of the year

1,275

2,349

12,009Balance at the beginning of the year

9,455

6,967

89,005

Changes during the period

3,351

2,613

31,550Reclassification to retained earnings

(123)

(125)

(1,159)12,684

9,455

119,397

Exchange differences on translation of foreign operations

Financial assets measured at fair value through other comprehensive income

Special Features

Balance at the end of the year
Cash flow hedges
Balance at the beginning of the year(388)

(1,393)(3,660)Changes during the period

(516)

1,004

(4,861)

Balance at the end of the year

(905)

(388)

(8,521)Remeasurements of defined benefit pension plans
Balance at the beginning of the year

—

—

—

Changes during the period

275

(384)

2,596

Reclassification to retained earnings

(275)

384

(2,596)———

Balance at the end of the year
Other components of equity

11,416

8,486

107,462

2,037

2,671

19,178

Reclassification to retained earnings

(398)

259

(3,755)

13,055

11,416

122,884

Balance at the end of the year

Review of Operations

Balance at the beginning of the year
Changes during the period

Sustainability
Financial Section and Company Information

KANEMATSU Integrated Report 2018

87

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

USD

2018

2017

2018

4,980

3,690

46,875

Financial assets measured at fair value through other comprehensive income
Amount arising during the year
Amount before deferred tax

4,980

3,690

46,875

Deferred tax(1,577)(1,019)(14,853)

Financial assets measured at fair value through other comprehensive income

3,402

2,671

32,022

Amount arising during the year

322

(323)

3,037

Amount before deferred tax

322

(323)

3,037

Deferred tax

(14)

39

(138)

Remeasurements of defined benefit pension plans

307

(284)

2,899

Amount arising during the year

(1,427)(826)(13,432)

Reclassification adjustments

—

(2)

—

(1,427)(829)(13,432)

(751)

467

(7,073)

49

918

468

(701)

1,386

(6,605)

Deferred tax

216

(401)

2,035

Cash flow hedges

(485)

984

(4,570)

Amount arising during the year

(25)

113

(238)

Reclassification adjustments

(31)

21

(301)

(57)

134

(539)

1,740

2,678

16,380Remeasurements of defined benefit pension plans

Exchange differences on translation of foreign operations

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

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
The breakdown of cash and cash equivalents and its reconciliation to the amounts presented in the consolidated statement of financial
position are as follows:
JPY

Cash and bank deposits except for time deposits with original term of more than
three months
Short-term investments with original maturity of three months or less

USD

2018

2017

2018

77,731

77,230731,662—

336—

Cash and cash equivalentsin the consolidated statement of financial position

77,731

77,566731,662

Cash and cash equivalentsin the consolidated statement of cash flows

77,731

77,566731,662(2) Net payment for acquisition of subsidiaries
The breakdown of the main assets and liabilities of newly acquired subsidiaries at the time control thereof was acquired, and the reconciliation
between consideration paid and net payment for the acquisition are presented as follows:
JPY

USD

2018

2017

2018

1,274

19,005

11,997300

17,066

2,826

Current liabilities(242)(17,746)(2,282)

Non-current liabilities

(232)

(925)

(2,188)

Breakdown of assets at the acquisition dateCurrent assets (including cash and cash equivalents)
Non-current assets
Breakdown of liabilities at the acquisition date

88

KANEMATSU Integrated Report 2018

Consideration paid

USD

2017

2018

(1,099)(17,400)(10,354)

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

737

4,613

6,937

Net proceeds from (payment for) acquisition of subsidiaries(362)(12,786)(3,417)

Kanematsu’s Progress and Strengths

JPY

2018

(3) Net proceeds from sale of subsidiaries and transfer of business
The breakdown of the main assets and liabilities upon loss of control in the subsidiaries or other businesses over which control was lost as aresult of the sale, and the relationship between consideration received and net proceeds from the sale are presented as follows:
JPY

USD

2018

2017

2018

Current assets (including cash and cash equivalents)

505

143

4,758

1,600

61

15,063Current liabilities

(360)

(85)

(3,392)

Non-current liabilities

(105)

(9)

(989)

Non-current assets

Special Features

Breakdown of assets upon loss of control

Breakdown of liabilities upon loss of control

JPY

USD

2018

2017

2018

Consideration received

1,638

66

15,421

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

(207)

(72)

(1,954)

(22)

(6)

(209)

1,452

—

13,676

Review of Operations

Net proceeds from (payment for) sale of subsidiaries
Net proceeds from transfer of business(4) Changes in liabilities for financing activities
Changes in liabilities for financing activities are as follows:(JPY)

Borrowings

2017

Cash flows

Non-cash movements
Exchange differences

Others2018(6,211)(259)—

117,428

9,945

9,928

—

24

19,898

Lease obligations

1,285

(240)

0

125

1,170

135,130

3,476

(258)

150

138,497

Total

Sustainability

123,899

Bonds

(USD)

Borrowings

2017

Cash flows

Non-cash movements
Exchange differences

Others2018

1,166,219(58,468)(2,438)—1,105,313

Bonds

93,61793,450—231

187,298

Lease obligations

12,099(2,261)

1

1,184

11,021

1,271,935

32,720(2,437)1,415

1,303,632

Total(5) Significant non-cash transactions
There were no significant non-cash transactions for the fiscal years ended March 31, 2018 and March 31, 2017.
Financial Section and Company Information

KANEMATSU Integrated Report 201889

28. Employee Benefits(1) Post-employment benefits

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
the Consolidated GroupThe Company has a defined benefit pension plan and lump-sum
retirement benefit plan covering substantially all employees otherthan directors and executive officers. The benefit amounts for thedefined benefit pension plan are determined based on the periodof employees’ enrollment in the plan, contribution granted to
employees and other factors. The Company has a responsibility to
manage pension assets faithfully and has an obligation to makecontributions for the employees enrolled in the plan in compliancewith applicable laws and regulations.
The pension plan that the Company maintains is a contract-typedefined benefit pension plan.
Matters such as asset management performance, status of theplan and accounting treatment are reported to the Management
Committee by the Finance Department and the Personnel &2) Defined benefit plan(i) Net defined benefit liability (asset)
Reconciliation of the beginning and ending balances of net defined
benefit liability (asset) and the components for the years ended
March 31, 2018 and March 31, 2017 are presented as follows:(JPY)

Present valueof the defined
benefit obligation

Fair value of plan
assets

As of March 31, 2016

19,082(13,309)—

5,772

Current service cost

1,350

—

—

1,350

Net interest

54

(40)

—

14

Remeasurements

123

(61)

261

323

(8)

0

—

(7)

Foreign exchange translation difference
Employer contributions to the plan

Effect of the asset
ceiling

Net defined benefit
liability (asset)

—

(877)

—

(877)

(1,625)

976

—

(649)

Effect of business combinations and disposals

706

—

—

706

Other

(56)

6

—

(50)

As of March 31, 201719,625(13,305)

261

6,581

Current service cost

1,439

Benefits paid

1,439

—

—

Net interest

69

(59)

—

9

Remeasurements

98

(159)

(261)

(322)

Foreign currency translation difference

(30)

8

—

(22)

Employer contributions to the plan

—

(959)

—

(959)
(544)

Benefits paid

(1,569)1,024—

Effect of business combinations and disposals

21

—

—

21

Other

5

8

—

13

19,659(13,442)—

6,217

As of March 31, 2018

(USD)
Present valueof the defined
benefit obligation

Fair value of plan
assets

Effect of the asset
ceiling

As of March 31, 2017

184,732(125,240)

2,461

61,953Current service cost

13,548——13,548Net defined benefit
liability (asset)

Net interest

650

(556)

—

94

Remeasurements

930(1,506)(2,461)(3,037)

Foreign currency translation difference

(288)

77

—

(211)

—

(9,028)—(9,028)(5,129)

Employer contributions to the plan
Benefits paid

(14,774)

9,645—

Effect of business combinations and disposals

199

—

—

199

Other

50

82

—

132

185,046(126,526)—

58,520

As of March 31, 2018

Remeasurements of the defined benefit obligation for the fiscal years ended March 31, 2018 and March 31, 2017 are the differences arising
primarily from changes in financial assumptions.

90

KANEMATSU Integrated Report 2018

JPY

2018

USD

2017

2018

Defined benefit obligations of funded plan

16,046

15,379151,038

Plan assets(13,442)(13,305)(126,526)

Net defined benefit liability of funded plan

2,604

2,073

24,512

Defined benefit obligations of unfunded plan

3,613

4,246

34,008Net liability or asset presented on the consolidated statements of financial position(Before the effect of the asset ceiling)

6,217

6,320

58,520

thereon, the Consolidated Group formulates a strategic asset mix
which aims at an optimal portfolio on a long-term basis and supervise asset management by selecting investment management companies and monitoring asset allocations. The strategic asset mix issubject to review in response to changes in expected market conditions or funded status. The strategic asset mix is not based on limitations but guidelines, and therefore, the actual allocation may
temporarily exceed or fall below the guidelines. The Company’s
target allocation is 10% equity securities, 44% debt securities,
36% life insurance company general accounts and 10% others.
The Company holds a meeting regularly with the asset management institutions and discusses important issues regarding pension
assets investment.

Special Features

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

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

Plan assets with a quoted market price in an
active market

Plan assets without a quoted market price inan active market

JPY

USD

JPY

Equity securities

1,382

13,011

(12)

(120)

Debt securities

4,242

39,935

445

4,191

USD

Life insurance company general accounts

—

—

5,965

56,152

Other

96

905

1,323

12,454

5,721

53,851

7,721

72,677

Total

Review of Operations(iii) Plan assets
The composition of the plan assets as of March 31, 2018.

The composition of the plan assets as of March 31, 2017.
Plan assets without a quoted market price inan active market

JPY

JPY

Equity securities

1,253

0

Debt securities

4,484

482

Life insurance company general accounts

—

6,168

Other

180

734

5,918

7,386

Total

Sustainability

Plan assets with a quoted market price in an
active market

Financial Section and Company Information

KANEMATSU Integrated Report 201891

(iv) Significant actuarial assumptions
Discount rate

2018

2017

0.4%

0.5%

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

2018

2017

2018

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

735

845

6,919

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

(969)

(994)

(9,127)This analysis is based on the premise that the actuarial assumptions other than the discount rate do not fluctuate and that only the discount rate
fluctuates. This method of analysis is based on assumptions, and it is possible that the actual calculation could be influenced by fluctuations inother variables. Even if the discount rate falls below 0%, the calculation is performed assuming the lower limit of the discount rate is 0%.
(vi) Information on maturity profile of the defined benefit obligation
The weighted average duration of the defined benefit obligation for both of the fiscal years ended March 31, 2018 and March 31, 2017 was
10.9 years.
(vii) Expected contribution to the plan for the year ending March 31, 2019
The amount of contribution to be made by the Consolidated Group to plan assets for the year ending March 31, 2019 is estimated to be¥1,059 million ($9,977 thousand).
3) Defined contribution plan
Expenses recognized for the defined contribution plan for the years ended March 31, 2018 and March 31, 2017 were ¥172 million ($1,623
thousand) and ¥232 million, respectively.

(2) Employee benefit expenses
Employee benefit expenses recognized for the years ended March 31, 2018 and March 31, 2017 were ¥1,744 million ($16,423 thousand)and ¥1,683 million, respectively. Employee benefit expenses are included in “Cost of sales” and “Selling, general and administration expenses” in the consolidated statement of income.

92

KANEMATSU Integrated Report 2018

Kanematsu’s Progress and Strengths

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

USD

2018

2017

2018

Retirement benefits liabilities

1,643

1,872

15,465

Loss allowance

2,770

588

26,076

Deferred tax assets

Inventories

463

477

4,360

Impairment loss

776

500

7,311

Other investments

649

819

6,118

112

195

1,059

2,188

3,904

20,600Cash flow hedges
Goodwill

383

173

3,609

1,872

2,658

17,627

Other

4,323

4,359

40,696

Total deferred tax assets

15,183

15,549142,921(11,487)(10,530)(108,128)

3,696

5,018

34,793

Offset against deferred tax liabilities
Total deferred tax assets, net

Special Features

Golf club memberships
Tax losses carried forward

Deferred tax liabilities
Retained earnings in subsidiaries(74)(3,991)(5,682)(4,096)(53,489)

Intangible assets(5,287)(5,292)(49,774)(734)(1,491)(6,916)

Total deferred tax liabilities(12,129)(10,954)(114,170)
108,128

Other
Offset against deferred tax assets

11,487

10,530Total deferred tax liabilities, net

(641)

(424)

(6,042)

Net deferred tax assets

3,054

4,594

28,751

20172018

43,244

Review of Operations(423)

Financial assets measured at fair value through other comprehensive income2) 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

2018

USD

4,594

8,786

(330)

(2,589)(3,114)(1,376)(1,381)(12,956)
662

Income tax on other comprehensive income
Acquisition through business combinations

70

(17)

Other

97

(203)

915

3,054

4,594

28,751Ending balance of net deferred tax assets

Sustainability

Beginning balance of net deferred tax assets
Deferred tax expense

Financial Section and Company Information

KANEMATSU Integrated Report 2018933) 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

2018

2017

2018

9,982

19,466

93,966

Tax losses carried forward
Within one year to expiry

19,444170

183,025

Between one and five years to expiry

24,63728,172

231,908

Between five and ten years to expiry

30,665

3,257

13,350Over ten years to expiry

223

251

2,105

Total tax losses carried forward

47,563

41,944

447,702

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, 2018 and March 31, 2017 are ¥24,562

million ($231,203 thousand) and ¥20,136 million, respectively.
Because the Consolidated Group is able to control the timing of
the reversal of such temporary differences, and it is probable thatsuch 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

2018

2017

2018

(6,053)(4,999)(56,983)

Origination and reversal of temporary differences(2,473)(1,754)(23,286)

Reassessment of recoverability of deferred tax assets

2,143

(834)

20,172

Total deferred tax expense(330)(2,589)(3,114)(6,384)(7,589)(60,097)

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

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, 2018 and March 31, 2017 were ¥685 million ($6,448 thousand) and ¥22 million, respectively, and these benefits were
included in the current tax expenses.
2. Major causes for deferred tax expense by type are loss allowance of ¥2,181 million ($20,538 thousand) and tax losses carried forward of ¥(1,715) million ($(16,151)
thousand) for the fiscal year ended March 31, 2018, and tax losses carried forward of ¥(1,724) million and goodwill of ¥(797) million for the fiscal year ended
March 31, 2017.

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:
2018

2017

30.8%

30.8%

Permanent differences—additions
such as entertainment expenses

0.6%

2.9%

Effect of reassessment of recoverability ofdeferred tax assets(8.2)%

4.7%

Effect of tax rate differences

1.0%

2.1%

Share of profit (loss) of investments
accounted for using the equity method(0.8)%

3.3%

1.2%(1.4)%

24.5%

42.5%

Statutory effective tax rate
(Adjustments)

Other
Average effective tax rate

The statutory effective tax rate for the fiscal year ended March 31, 2018 is calculated to be 30.8% based on the Corporation Tax, Inhabitant
Tax and Business Tax in Japan.

94

KANEMATSU Integrated Report 2018

Kanematsu’s Progress and Strengths

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

USD

2018

2017

2018

77,731

77,566731,662
2,091,178

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

192,363

994

994

9,362

Other financial assets

6,531

6,635

61,477

229,692

199,993

2,162,017

Other investments

4,168

5,054

39,237

Other financial assets

382

2,365

3,598

4,550

7,420

42,835

Other investments

32,80528,063308,791

Total financial assets measured at fair value through other comprehensive
income32,80528,063308,791

344,781

313,043

3,245,305

Trade and other payables

188,791

165,011

1,777,026

Bonds and borrowings

137,326

133,844

1,292,610

Other financial liabilities

7,456

9,477

70,183

333,574

308,334

3,139,820

Other financial liabilities

2,406

1,896

22,653

Total financial liabilities measured at fair value through profit or loss

2,406

1,896

22,653335,981

310,230

3,162,472

Total financial assets measured at amortized cost

Special Features

222,166

Other investments

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 other comprehensive income

Total financial assets
Financial liabilities
Financial liabilities measured at amortized cost

Review of Operations

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

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

KANEMATSU Integrated Report 2018

Financial Section and Company Information

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

Sustainability

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 and management, investments and financing activities, both domestically andinternationally. Such businesses are inherently exposed to various
risks. The Consolidated Group defines and classifies risks per risk
item and manages each of them in accordance with its nature.

2) Responses to the risk owned by the Company (purpose,
policy and procedure of the risk management and method
used to measure such risks)
The Consolidated Group manages its credit risk to the customers
by defining risk management methods and management systems
for specific risks in accordance with the regulations on risk management. Based on such regulations, the Consolidated Group mitigates credit risk through periodical monitoring of the customer’s
credit status and undertaking the maturity control and account balance control, while detecting promptly any doubtful accounts
caused by deterioration in the financial conditions of customers
and other factors. Expected credit losses are recognized and measured through transactions and financial information related tocustomers available in the course of such credit risk management,
while taking macroeconomic conditions such as the number ofbankruptcies into consideration.
With regard to loans, the Consolidated Group determines there
has been a significant increase in credit risk of the financial assets
since initial recognition in cases where the cash collection of thefinancial assets was delayed (as well as the case of request for agrace period) after the trade date. However, even when a late payment or request for grace period occurs, the Consolidated Group
does not determine that there has been a significant increase incredit risk if such late payment or request for grace period would
be attributable to temporary cash shortage, the risk of default
would be low and objective data such as external credit ratings
would reveal their ability to fulfill the obligation of contractual cash
flow in the near future.

95

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

96

KANEMATSU Integrated Report 2018(ii) Measurement of expected credit losses on otherreceivables
When credit risk related to loans has not increased significantly
since the initial recognition at the end of the reporting period, theConsolidated Group calculates the amount of loss allowance of thefinancial instruments by estimating the 12-months expected credit
losses collectively based upon historical credit loss experience.
When those receivables are affected by a material economicchange, the provision rate calculated based upon the historicalcredit loss experience is adjusted to reflect current and future economic prospect.
However, when there has been a significant increase in credit
risk since initial recognition as of the end of the fiscal year, theConsolidated Group estimates the lifetime credit losses on thefinancial instruments individually and measures the amount of loss
allowance based upon historical credit loss experience and future
recoverable amount.
(iii) Measurement of the expected credit losses on the otherinvestments (debt securities)
When credit risk related to debt securities has not increased significantly since initial recognition at the end of the reporting period,
the Consolidated Group calculates the amount of loss allowance ofthe financial instruments by estimating the 12-months expectedcredit losses. However, when there has been a significant increasein credit risk since initial recognition as of the end of the fiscal year,
the Consolidated Group estimates the lifetime credit losses on thefinancial instruments and measures the amount of loss allowanceof the financial instruments. When estimating such expected credit
losses, the Consolidated Group uses the default rate published bymajor rating agencies.
The Consolidated Group directly writes off the gross carrying
amounts of the credit-impaired financial assets when all or part of
the financial assets are evaluated to be uncollectible and determinedthat it is appropriate to be written off as a result of credit check.

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

Lifetime expected credit losses
Collective assessment

Credit-impaired financial assets

7

1. Reclassification to credit-impaired financial assets

(0)

2,375
63

2. Incurrence or collection

0

(138)

3. Direct write-off

—

(166)

4. Changes due to foreign exchange—

1

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

As of March 31, 2017

3

2,135

1. Reclassification to credit-impaired financial assets—

37

2. Incurrence or collection

0

(106)

3. Direct write-off

—

(80)

4. Changes due to foreign exchange—(3)

5. Increase (decrease) resulting from changes in theprovision rate based on historical credit loss
experience(0)—

As of March 31, 2018

3

1,981

Special Features

As of March 31, 2016

(JPY)
Gross carrying amount

1. Financial assets reclassified to credit-impaired
financial assets
2. Incurrence or collection
3. Direct write-off
4. Changes due to foreign exchange

Collective assessment

Credit-impaired financial assets

163,646

2,737

(63)

63

28,502

(219)

—

(166)
1
2,416

(42)

42

29,869(134)

3. Direct write-off

—

(80)

4. Changes due to foreign exchange—(3)221,9122,239

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

As of March 31, 2018

Sustainability—
192,085

As of March 31, 2017

Review of Operations

As of April 1, 2016

Lifetime expected credit losses(USD)
Loss allowance

Lifetime expected credit losses
Collective assessment

Credit-impaired financial assets

35

1. Reclassification to credit-impaired financial assets—

20,099349

2. Incurrence or collection

5(1,000)3. Direct write-off

—

(762)

4. Changes due to foreign exchange

—

(31)

5. Increase (decrease) resulting from changes in theprovision rate based on historical credit loss
experience(2)—

As of March 31, 201837

18,656KANEMATSU Integrated Report 2018

Financial Section and Company Information

As of March 31, 201797

(USD)
Gross carrying amount

Lifetime expected credit losses
Collective assessment

Credit-impaired financial assets

1,808,037

22,746(399)

399

As of March 31, 2017
1. Financial assets reclassified to credit-impaired
financial assets
2. Incurrence or collection

281,150(1,268)

3. Direct write-off

—

(762)

4. Changes due to foreign exchange

—

(31)

2,088,788

21,083As of March 31, 2018(ii) Other investments (debt instrument securities)(JPY)
Expected credit losses
Loss allowance98

12 months

Lifetime
Individual assessment

Credit-impaired financial assets

As of April 1, 2016

0

—

—

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

—

—

—

(a) Reclassified to lifetime expected credit losses

—

—

—

(b) Reclassified to credit-impaired financial assets

—

—

—

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

—

—

—

2. Incurrence or collection

—

—

—

3. Direct write-off

—

—

—

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

5

—

—

As of March 31, 2017

5

—

—

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

—

—

—

(a) Reclassified to lifetime expected credit losses

—

—

—

(b) Reclassified to credit-impaired financial assets

—

—

—

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

—

—

—

2. Incurrence or collection

—

—

—

3. Direct write-off

—

—

—

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

(0)

—

—

As of March 31, 2018

5

—

—

KANEMATSU Integrated Report 2018

(JPY)
Kanematsu’s Progress and Strengths

Expected credit losses
Gross carrying amount

As of April 1, 2016
1. Changes in financial instruments recognized at
the beginning of the period

12 months

Lifetime
Individual assessment

Credit-impaired financial assets

1,000

—

—

—

—

—

(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

—

—

—

As of March 31, 2017
1. Changes in financial instruments recognized at
the beginning of the period

—

—

—

1,000

—

—

—

—

—

(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

—

—

—

—

—

—

1,000

—

—

4. Other changes
As of March 31, 2018

Special Features

4. Other changes

Review of Operations(USD)
Expected credit losses
Loss allowance

12 months

Lifetime
Individual assessment

Credit-impaired financial assets

As of March 31, 2017

53

—

—

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

—

—

—

—

—

—

3. Direct write-off

—

—

—

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

(2)

—

—

As of March 31, 2018

51

—

—

Sustainability

2. Incurrence or collection(USD)
Expected credit losses
Gross carrying amount

As of March 31, 2017
1. Changes in financial instruments recognized at
the beginning of the period

12 months

Lifetime
Individual assessment

Credit-impaired financial assets

9,413

—

—

—

—

—

—

—

—

(b) Reclassified to credit-impaired financial assets

—

—

—

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

—

—

—

2. Incurrence or collection

—

—

—

3. Direct write-off

—

—

—

—

—

—

9,413

—

—

4. Other changes
As of March 31, 2018

Financial Section and Company Information(a) Reclassified to lifetime expected credit losses(iii) There is no contractual, uncollected balance for financial assets written off during the fiscal year ended March 31, 2018, forwhich collecting efforts are still being made.

KANEMATSU Integrated Report 2018994) Credit risk exposure(i) Trade and other receivables
As of March 31, 2018
Balance of receivables (gross)

Provision rate based on
historical credit loss
experience

Lifetime expected credit losses

JPY

USD

JPY

USD

Performing receivables

221,9122,088,788

0.00%

3

37

Past due receivables

2,239

21,08388.49%

1,981

18,656

Total

224,152

2,109,871

—

1,985

18,693

Past due receivables include loans receivable of ¥1,760 million ($16,569 thousand), for which a loss allowance of ¥1,502 million ($14,141
thousand) has been already recognized.
As of March 31, 2017
Balance of receivables (gross)

Lifetime expected credit losses

JPY

Provision rate based on historical credit loss
experience

Performing receivables

192,085

0.00%

3

Past due receivables

2,416

88.37%

2,135

194,502

—

2,139

Total

JPY

Past due receivables include loans receivable of ¥1,876 million, for which a loss allowance of ¥1,595 million has been already recognized.
(ii) Other investments (Debt instrument securities)
As of March 31, 2018
Gross carrying amount
Debt instrument securities

External rating

Lifetime

12 months

JPY

USD

AAA-AA

—

—

—

A

—

—

—

—

BBB-BB

—

—

1,000

9,413

—

—

—

—

—

—

1,000

9,413

B
Total

JPY

USD

—

As of March 31, 2017
Gross carrying amountExternal rating

Lifetime

12 months

JPY

JPY

AAA-AA

—

—

A

—

—

BBB-BB

—

1,000

B

—

—

—

1,000

Total

100

Debt instrument securities

KANEMATSU Integrated Report 2018

Kanematsu’s Progress and Strengths5) Maximum exposure to credit risks
The Consolidated Group’s maximum exposure to credit risks is as follows:
The Consolidated Group’s maximum credit risk exposure (gross) represents the amount of the maximum exposure with respect to credit
risks without taking into account any collateral held or other credit enhancement. The Consolidated Group’s maximum credit risk exposure(net) represents the amount of the maximum exposure with respect to credit risks reflecting the mitigation effect of the collateral held orother credit enhancement.
As of March 31, 2018
Gross
carrying amountLossallowance

JPY

USD

77,731

731,662—

Trade and otherreceivables

224,152

2,109,871

Other financial
assets

6,913

65,075

Cash and cash
equivalents

JPY

Maximum
credit risk exposure (gross)

USD

JPY

USD

—

77,731(1,985)(18,693)——

Total collaterals pledged
and credit enhancements
JPY

USD

731,662——

222,166

2,091,178(126)(1,186)

6,913

65,075——

Maximum
credit risk
exposure (net)
JPY

USD

77,731

731,662

Other investments

1,000

9,413

(5)

(51)

994

9,362

—

—

Total

309,798

2,916,021(1,991)(18,744)

307,806

2,897,277(126)(1,186)

Special Features

Financial assets
measured atamortized cost
222,040 2,089,992
6,913

65,075

994

9,362

307,680 2,896,091

The amount of loss allowance for credit-impaired financial assets is reduced by ¥126 million ($1,186 thousand) through collateral pledged
and credit enhancements.

Cash and cash equivalents

Grosscarrying amountLossallowance

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

Maximum
credit risk
exposure (net)

JPY

JPY

JPY

JPY

JPY

77,566—

77,566—

77,566

Review of Operations

As of March 31, 2017

Financial assets measured atamortized cost
Trade and other receivables

194,502(2,139)192,363(141)

192,221

Other financial assets

6,635

—

6,635

—

6,635

Other investments

1,000

(5)

994

—

994

Total

279,704(2,144)

277,560(141)

277,418
Sustainability

The amount of loss allowance for credit-impaired financial assets is reduced by ¥141 million through collateral pledged and credit enhancements.

Financial Section and Company Information

KANEMATSU Integrated Report 2018101

(4) Liquidity risk management
The Consolidated Group raises funds through borrowings from financial institutions or issuance of bonds. Accordingly, in the event of a disruption to the financial system or financial/capital markets, or a major downgrade of the Consolidated Group’s credit rating by a rating agency, the Consolidated Group’s fundraising becomes constrained and consequently there is a possibility that the Consolidated Group will not beable to carry out the payment on the date of payment.
The Consolidated Group has sufficient levels of cash and cash equivalents and maintains a long-term (unused) commitment line agreementwith a major financial institution in the amount of ¥10.0 billion ($94,127 thousand) to ensure liquidity and stability of funds. The
Consolidated Group makes efforts to maintain good relationships with each financial institution.
1) Non-derivative financial liabilities
The breakdown of non-derivative financial liabilities by due date is presented as follows:
As of March 31, 2018
Within one year

Trade and other payables

JPY

USD

Between one andfive years
JPY

Over
five years

USD

Total

JPY

USD

JPY

USD

188,791

1,777,026

—

—

—

—

188,791

1,777,026

Bonds

5,100

48,007

10,25496,5195,048

47,521

20,403

192,047

Borrowings

57,122537,675

61,419578,121

1,283

12,085

119,826

1,127,880

Lease obligations

428

4,032

778

7,324

113

1,066

1,319

12,422

Deposits received

3,728

35,098

—

—

0

3

3,729

35,101

951

8,955

—

—

1,498

14,101

2,449

23,056

Guarantee deposits received
Other
Total

106

1,004

—

—

—

—

106

1,004

256,229

2,411,796

72,451

681,964

7,944

74,776336,625

3,168,537

As of March 31, 2017

Trade and other payables
Bonds
Borrowings

Within one year

Between one andfive years

Overfive years

Total

JPY

JPY

JPY

JPY

165,011——

165,01152

10,112—

10,16465,69755,088

6,052

126,838

Lease obligations

436

939

62

1,437

Deposits received

2,707

—

2,916

5,624

984

—

1,464

2,449

Guarantee deposits received
Other
Total

118

—

—

118

235,008

66,14010,495

311,645

The Consolidated Group has guarantee obligations of ¥1,830 million ($17,226 thousand) and ¥1,881 million as of March 31, 2018 andMarch 31, 2017 respectively

102

KANEMATSU Integrated Report 2018

Kanematsu’s Progress and Strengths2) Derivative liabilities
The breakdown of derivative liabilities by due date is presented as follows:
As of March 31, 2018
Within one year

Between one andfive years

Overfive years

JPY

USD

JPY

USD

44,421

418,1212,496

23,499581

45,983432,831

2,585

24,337

1,562

14,71089

838Interest rate-related derivatives

215

2,026

400

Commodity-related derivatives

128

1,208

1,906

17,944

JPY

Total
USD

JPY

USD

5,475

47,499447,095

627

5,906

49,196

463,074

45

431

1,697

15,979

3,768

—

—

615

5,794

—

—

—

—

128

1,208

489

4,606

45

431

2,441

22,981

Currency-related derivatives
Cash inflows
Cash outflows
Sub total

Special Features

Total

As of March 31, 2017
Within one year

Between one andfive years

Overfive years

Total

JPY

JPY

JPY

JPY

Currency-related derivatives
Cash inflows

33,36164—

33,425

Cash outflows

34,09867—

34,165740

Sub total

3

—

268

593

15

876

Commodity-related derivatives

317

—

—

317

1,323

596

15

1,934

Total

(5) Market risk management(ii) Sensitivity analysis of foreign currency risk
In regards to financial instruments held by the Consolidated Groupas of the end of the consolidated year, the following chart shows
the amounts affecting profit before tax and other comprehensive
income (before tax effect adjustments), as reported in the consolidated financial statements, that would result from 1% appreciation of Japanese Yen against U.S. dollars.
Such analysis is based on the assumption that other factors areheld constant.
In addition, such analysis does not include the affected amounts
based on translations (into Japanese yen) of financial instruments
denominated in functional currency, income and expenses denominated in foreign currency and assets and liabilities of foreign operations.

KANEMATSU Integrated Report 2018

Financial Section and Company Information

1) Foreign currency risk(i) Nature of foreign currency risk and its management
policyThe Consolidated Group is engaged in foreign currency transactions in various currencies and terms incidental to its export andimport trading. The Consolidated Group not only transfers the riskof currency fluctuations to customers in accordance with transaction terms but also participates in derivatives transactions such as
forward contracts to reduce the risk.

The Company also has local subsidiaries and business corporations overseas. Account balances at these companies are converted
into yen at the exchange rates prevailing at the end of the reporting period, for the purposes of preparing consolidated financial
statements. As a result, net assets may change through exchange
difference of foreign operations associated with exchange rate
fluctuations.
In principle, the Consolidated Group enters into forward
exchange contracts to hedge against the exchange rate currency
fluctuation risk of foreign currency-denominated receivables andpayables that are controlled by currency and by contract month.
The Consolidated Group also enters into forward exchange contracts to hedge against foreign currency-denominated receivables
and payables that are highly probable to arise from export/importrelated forecast transactions.

Sustainability

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

Review of Operations

737

Interest rate-related derivatives

103

JPY

USD

2018

2017

2018

(4)

(26)

(44)

(246)

(230)

(2,323)

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

(ii) Sensitivity analysis of interest rate risk
In regards to financial instruments held by the Consolidated Groupat the end of the reporting period, the following table shows theamounts affecting profit before tax assuming that the interest rateincreases by 1%.
Under the analysis, the amounts affecting profit before tax are
calculated by multiplying the net balance of floating rate financial
instruments as of March 31, 2018 and 2017 by 1%, without considering future changes in the net balance, currency exchange fluctuations and dispersing effects for floating rate borrowings derived
from the difference in timing of refinancing and resetting of theinterest rate, and based on the assumption that all the other variables are held constant.
JPY

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

USD

2018

2017

2018

(779)

(758)

(7,340)

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

Profit before tax

USD

2018

2017

2018

(67)

(88)

(634)

Foods

(47)

(68)

(449)

Fuels

(19)

(19)

(185)

(2)

0

(23)

Foods

(2)

0

(23)

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 holds without strong rationale.

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

Other comprehensive income

104

KANEMATSU Integrated Report 2018

USD

2018

2017

2018

(186)

(160)

(1,758)Kanematsu’s Progress and Strengths(6) Fair value of financial instruments
1) Fair value measurement
Fair values of financial instruments are presented as follows:
Fair values are categorized into three levels of the fair value hierarchy depending on inputs to valuation techniques; details are described in
Note 2. Basis of Preparing Consolidated Financial Statements: (4) Use of estimates and judgments.
2) Financial instruments measured at amortized cost
2018
Type

2017

Carrying amount

Fair value

Carrying amount

Fair value

JPY

USD

JPY

USD

JPY

1,582

14,9001,582

14,900

1,169

1,169

994

9,362

994

9,362

994

994

Financial assets
Trade and other receivables

Guarantee deposits

3,867

36,3993,867

36,399

3,679

3,679

Other financial assets

612

5,769

612

5,769

616

616

Total

7,057

66,4307,057

66,430

6,459

6,459

Bonds and borrowings

69,289Special Features

Other investments (Debt instrument
securities)

Financial liabilities
76,116

716,460

76,269717,894

69,201Long-term lease obligations

788

7,419

788

7,419

899

899

Long-term deposits received

0

3

0

3

2,916

2,916

Long-term guarantee deposits received

1,498

14,101

1,498

14,101

1,464

1,464

Total

78,403

737,983

78,555

739,41774,481

74,569(I) Trade and other receivables
The fair value of trade and other receivables is the present value of
future cash flows discounted by an interest rate that reflects time
to maturity and credit risk.

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

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

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

(v) Bonds and borrowings
The fair value of bonds is determined based on their market price.
The fair value of borrowings is the present value of the sum of
principal and interest payments discounted using an assumed interest rate on equivalent incremental borrowings.

Review of Operations

The carrying amounts of trade and other receivables, other financial assets, trade and other payables, bonds and borrowings andother financial liabilities, all of which are categorized into current
assets or current liabilities of financial instruments measured atamortized cost, approximate their fair values; therefore, thoseamounts are not included in the table above.
The fair values stated above are calculated as follows:(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.

(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.
Financial Section and Company Information

KANEMATSU Integrated Report 20181053) Financial instruments measured at fair value(i) Analysis of fair value by hierarchy level
The following tables provide the breakdown by hierarchy level of financial assets and liabilities that are measured at fair value on a recurring
basis. No financial assets and liabilities are measured at fair value on a non-recurring basis. There were no material transfers between
different levels for the fiscal years ended March 31, 2018 and March 31, 2017.
As of March 31, 2018
Level 1

Level 2JPY

USD

Level 3

JPY

USD

Total

JPY

USD

JPY

USD

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

—

—

—

—

4,168

39,237

4,168

39,237

18,672

175,754——

14,133133,038

32,805

308,791

—

—

286

2,693

—

—

286

2,693

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

—

—

—

—

—

—

—

—

Commodity

96

905

—

—

—

—

96

905

Foreign exchange——(1,697)(15,979)——(1,697)(15,979)

Interest rate

—

—

(580)

(5,466)

—

—

(580)

(5,466)

Commodity(128)(1,208)

—

—

—

—

(128)

(1,208)18,639175,451(1,992)(18,752)

18,302

172,275

34,950328,973

Liabilities
Other financial liabilities
Derivative transactions:

Total
As of March 31, 2017

Level 1

Level 2

Level 3

Total

JPY

JPY

JPY

JPY

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

—

—

5,054

5,054

16,014—

12,04928,063

—

—

1,033

1,033

—

1,048

—

1,048

Interest rate

—

—

—

—

Commodity

280

3

—

283

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

Liabilities
Other financial liabilities
Derivative transactions:
Foreign exchange

—

(740)

—

(740)

Interest rate

—

(838)

—

(838)

Commodity
Total

106

KANEMATSU Integrated Report 2018

(317)

—

—

(317)

15,976(526)

18,13733,587

business operations and business plans associated with each equity
issuer and confirming the data from comparable public companies.

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

Kanematsu’s Progress and Strengths

The methods of determining the fair value of the above instruments are described as follows:

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

Special Features

Commodity-related derivatives
The fair value of commodity futures transactions is calculated using
final prices on commodities exchanges as of the fiscal year-end. The
fair value of commodity swap transactions is calculated based on
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 changes in financial assets and liabilities that are measured at fair value on a recurring basis and are categorized within Level 3 of the fairvalue hierarchy are presented as follows. There were no material transfers between different levels for the years ended March 31, 2018 andMarch 31, 2017.

Other investments
FVPL

Balance atthe beginning of
the year2017

Other financial assets
FVOCI

JPY

USD

JPY

5,054

47,577(730)(6,871)

—

—

—

2,106

Other investments

Total

FVPL
USD

JPY

USD

1,033

9,729

—

10

94

19,827

—

—

576

—

—

(1,110) (1,010)(9,507)

12,049 113,413

Otherfinancialassets

Total

FVPL

FVOCI

FVPL

JPY

JPY

JPY

5,637

10,836—

16,474(720)(6,777) (2,000)——(2,000)2,106

19,827

—

1,025

—

1,025

61

576

—

223

33

257

(1,127) (10,616)

—

(36)

—

(36)

JPY

USD

18,137 170,719

Review of Operations

2018

JPY

Total gains or losses
Profit or loss
(Note1)

Purchase

—

—

61

Sale

—

—

(117)

Foreign currencytranslationdifference(158)(1,492)

—

—

—

—

(158)

(1,492)

(79)

—

—

(79)

Increase (decrease)
due to changes
in scope of
consolidation

—

—

0

1

—

—

0

1

—

—

—

—

Other

2

24

35

330

(33)

(317)

3

38

1,497

—

1,000

(2,497)

4,168

39,237

14,133 133,038——

18,302 172,275

5,054

12,0491,033

18,137

Balance at the endof the year

Sustainability

Other
comprehensive
income (Note 2)

KANEMATSU Integrated Report 2018

Financial Section and Company Information

FVPL: Financial assets measured at fair value through profit or loss.
FVOCI: Financial assets measured at fair value through other comprehensive income.
(Notes) 1. The gains or losses are included in “Other finance income” or “Other finance costs” in the consolidated statement 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 ¥(730) million ($(6,871) thousand) for the fiscal year ended
March 31, 2018 and ¥(2,000) million for the fiscal year ended March 31, 2017.
2. The gains or losses are included in “Financial assets measured at fair value through other comprehensive income” in the consolidated statement of comprehensive
income.

107

(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, 2018
Fair value
Significant unobservable inputs

Weighted averageof input values

Discounted cash flow
methodDiscount rate

3.3 %14,119Net asset value method——

13,119123,491

Market multiple method

P/B ratio
Illiquidity discount

1.3 times
30.0 %

1,014

9,547

Net asset value method——

Category

JPY

USD

Financial assets measured atfair value through profit
or loss

2,668

25,118Financial assets measured atfair value through profit
or loss

1,500

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

Valuation technique

As of March 31, 2017
Category

Fair value

Valuation techniqueSignificant unobservable inputs

Weighted averageof input values

Discount rate

3.7%

JPY

Financial assets measured at fair value
through profit or loss

3,590

Discounted cash flow method

Financial assets measured at fair value
through profit or loss

2,497

Net asset value method——

Financial assets measured at fair value
through other comprehensive income

10,984Market multiple method

P/B ratio
Illiquidity discount

1.1 times
30.0%

Financial assets measured at fair value
through other comprehensive income

1,064

Net asset value method——

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

108

KANEMATSU Integrated Report 2018

Kanematsu’s Progress and Strengths(7) Financial assets measured at fair value through other comprehensive income
With respect to investments in equity instruments held for the purpose of maintaining and strengthening relationships with business partners, the Consolidated Group has designated such investments as financial assets to be measured at fair value through other comprehensive
income in view of the holding purpose.
1) Fair value of major items of investment
The following tables present the fair value of major items of investment in equity instruments designated as financial assets measured at fairvalue through other comprehensive income.
As of March 31, 2018
Name of issuer

AmountUSD

MARUDAI FOOD CO., LTD.

3,078

28,975Tokio Marine Holdings, Inc.

2,837

26,704

Nissin Seifun Group Inc.

1,919

18,065nms Holdings Corporation

1,910

17,983

BOT Lease Co., Ltd.

1,701

16,019Sotsu Corporation

1,687

15,885SHIN KURUSHIMA DOCKYARD CO., LTD.

1,299

12,234DAIO PAPER CORPORATION

1,152

10,851The Norinchukin Bank

1,011

9,517

924

8,698

15,283

143,859

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

Special Features

JPY

Review of Operations

As of March 31, 2017
Name of issuer

AmountJPY

2,921

Tokio Marine Holdings, Inc.

2,815

Nissin Seifun Group Inc.

1,511

BOT Lease Co., Ltd.

1,414

SHIN KURUSHIMA DOCKYARD CO., LTD.

1,304

Sotsu Corporation

1,190

DAIO PAPER CORPORATION

1,093

The Norinchukin Bank

1,061

F.C.C. Co., Ltd.

686

Alpha Group Inc.

634

Other

Sustainability

MARUDAI FOOD CO., LTD.

13,427

Financial Section and Company Information

KANEMATSU Integrated Report 2018109

2) Dividend income
JPY

2018

USD

2017

2018

Investments derecognized during the year

0

3

8

Investments held at the end of the year

804

902

7,572

805

906

7,580

Total

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

2018

USD

2017

2018

Fair value on the date of sale

242

647

2,287

Cumulative gains (losses) on sale

130

132

1,224

4) Reclassification to retained earnings
The Consolidated Group reclassifies to retained earnings cumulative gains or losses arising from changes in the fair value of financial assets
measured at fair value through other comprehensive income in either of the following cases: when an investment is disposed of, or when
there is a significant decline in the fair value. Such cumulative gains or losses in other comprehensive income that were reclassified to retained
earnings for the years ended March 31, 2018 and March 31, 2017 were ¥123 million ($1,159 thousand) and ¥125 million, respectively.

(8) Hedge Accounting(Cash Flow Hedge)
A cash flow hedge is a hedge of the exposure to variability in future cash flows arising from a forecast transaction or recognized assets or liabilities. While a hedge is designated as cash flow hedge as long as the hedge is effective, the changes in the fair value of qualifying hedging
instrument should be recorded as other comprehensive income in the Consolidated Statement of Comprehensive Income. The Consolidated
Group continues such accounting treatment until variability in future cash flows arising from unrecognized forecast transactions or recognized assets or liabilities designated as hedged items are recorded in profit or loss. Moreover, portions determined to be ineffective for hedging accounting are recognized in profit or loss.
The Consolidated Group designates the following instruments as cash flow hedges: forward exchange contracts to fix cash flows from foreign currency denominated receivables and payables, foreign currency denominated firm commitments and foreign currency denominatedforecast transactions, interest rate swaps to fix variable interest rate on floating rate financial liabilities, and commodity futures to fix cash
flows from forecast transactions of commodity trade.
When applying hedge accounting, the Consolidated Group confirms that there are economic relationships between the hedged items andhedging instruments through qualitative assessments, which show whether the critical terms of the hedging instruments and the hedged
items match exactly or are closely aligned, and quantitative assessments, which show fluctuations of the value of hedged items and hedging
instruments by the same risk offset each other, in order to confirm there are economic relationships that variability in fair value or cash flowsof the hedged items that are attributable to the hedged risk shall be offset by the changes in fair value or cash flows of the hedging instruments. The Consolidated Group also establishes appropriate hedge ratios considering an economic relationship between hedging instruments and hedged items as well as risk management strategy.
The amounts recognized in profit or loss for the ineffective portion of the hedge are not material both for the fiscal years ended March 31,2018 and March 31, 2017. In addition, the amounts reclassified from valuation differences on cash flow hedges to profit or loss are immaterial because the forecast transactions are no longer expected to occur.
Following are the carrying amounts of the hedging instruments as of March 31, 2018 and March 31, 2017. The fair value of financial
assets related to hedging instruments is included in “Other financial assets” while the fair value of financial liabilities related to hedging
instruments is included in “Other financial liabilities (current)” or “Other financial liabilities (non-current)” in the consolidated statements offinancial position.
As of March 31, 2018
Carrying amount

Notional amount

Derivative assets
JPY

Derivative liabilities

JPY

USD

USD

JPY

USD

30,823

290,128

67

637

720

6,784

23,500221,197

—

—

580

5,466

686

6,466

8

82

38

366

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

110

KANEMATSU Integrated Report 2018

As of March 31, 2017
Kanematsu’s Progress and Strengths

Carrying amount

Notional amount

Derivative assets

Derivative liabilities

JPY

JPY

JPY

30,026503

250

28,600

—

838

435

16

4

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

The longest terms of hedging cash flow fluctuation risks by “Forward exchange contracts”, “Interest rate swap contracts” and “Commodity
price risk” are about 6 years 6 months, 4 years 6 months and 1 year, respectively.
Special Features

The following tables present the carrying amount of cash flow hedge reserve as of March 31, 2018 and March 31, 2017.
As of March 31, 2018
Cash flow hedge reservefor discontinuing hedge accounting(before tax)

Cash flow hedge reservefor continuing hedges(before tax)
JPY

USD

JPY

USD

(653)

(6,147)

—

—

(580)

(5,466)

—

—

(30)

(284)

(3)

(29)

Foreign currency risk
Forward exchange contracts
Interest rate risk
Interest rate swap contracts
Commodity price risk
Review of Operations

Commodity futures contracts

As of March 31, 2017
Cash flow hedge reservefor continuing hedges(before tax)

Cash flow hedge reservefor discontinuing hedge accounting(before tax)

JPY

JPY

Foreign currency risk
Forward exchange contracts

253

—

(838)

—

11

8

Interest rate risk
Interest rate swap contracts
Commodity price risk
Sustainability

Commodity futures contracts

The following tables present the carrying amounts of transactions that affected the consolidated statements of comprehensive income as aresult of applying hedge accounting for the fiscal years ended March 31, 2018 and March 31, 2017.
Fiscal year ended March 31, 2018 (from April 1, 2017 to March 31, 2018)
Change in value of hedging instruments
recognized in other comprehensive
incomeReclassification from cash flow hedge
reserve to profit or loss

Line item for which profit or loss wasaffected by reclassification

JPY

USD

JPY

USD

(706)

(6,647)(199)(1,882)Other income

(11)

(113)

269

2,539

Interest expenses

(33)

(313)

(20)

(189)

Cost of sales

Foreign currency risk
Forward exchange contracts
Interest rate risk
Financial Section and Company Information

Interest rate swap contracts
Commodity price risk
Commodity futures contracts

KANEMATSU Integrated Report 2018111

Fiscal year ended March 31, 2017 (from April 1, 2016 to March 31, 2017)
Change in value of hedging instruments
recognized in other comprehensive
incomeReclassification from cash flow hedge
reserve to profit or loss

JPY

JPY

352

607

Other expenses

96

270

Interest expenses

19

40

Cost of sales

Line 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
The Consolidated Group liquidates certain trade receivables by discounting notes or the like. However, with respect to some liquidated receivables, the Consolidated Group may be obligated to make payments as recourse for non-payment by the debtor. The Consolidated Group
continues to recognize such liquidated receivables as they do not meet the criteria for derecognition of financial assets.
The Consolidated Group recognized such liquidated assets as “Trade and other receivables” in the amount of ¥5,273million ($49,639
thousand) and ¥7,509 million as of March 31, 2018 and March 31, 2017, respectively. In addition, liabilities relating to the deposit amounts
which arose upon the transfer of such assets were accounted for as “Bonds and borrowings” in the amount of ¥5,273 million ($49,639
thousand) and ¥7,509 million as of March 31, 2018 and March 31, 2017, respectively. Such liabilities are settled when payments for such liquidated assets are made, and the Consolidated Group may not use such liquidated assets until such settlement occurs.

(10) Offsetting financial assets and financial liabilities
The following tables present the financial assets and financial liabilities recognized for the same counterparties including financial instrumentsthat were not offset even though they were covered by an enforceable master netting arrangement or similar agreement because they did
not meet some or all of the offsetting criteria as of March 31, 2018 and March 31, 2017.
JPY

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

USD

2018

2017

2018

382

1,332

3,598

286

1,048

2,693

Interest rate

—

—

—

Commodity

96

283

905

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

(247)

(695)

(2,326)

Net amounts

135

636

1,272

2018

2017

2018

2,406

1,896

22,653
15,979JPY

Amounts of financial liabilities presented in the consolidated statements offinancial position
Foreign exchange

USD

1,697

740

Interest rate

580

838

5,466

Commodity

128

317

1,208

(247)

(695)

(2,326)

(56)

(276)

(529)

2,103

924

19,798Amounts that were not offset even though they were covered by an enforceable
master netting arrangement or similar agreement because they did not meet someor all of the offsetting criteria
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 such financial assets and financial liabilities become enforceable only under particular
circumstances, such as when the other party fails to discharge an obligation due to its bankruptcy or other such reasons.

112

KANEMATSU Integrated Report 2018

Kanematsu’s Progress and Strengths

31. Leases(1) Lessee
1) Finance leases
The Consolidated Group leases computer-related equipment for the enterprise system (tools, furniture and fixtures) and other assets forfinance leases.
The carrying amounts of the leased assets, net of accumulated depreciation and accumulated impairment losses, as of March 31, 2018
and March 31, 2017 are as follows:
JPY

USD

2018

2017

Machinery, equipment, vehicle, tools and fixtures

770

1,002

7,254

Other

287

145

2,709

1,058

1,148

9,963

Total

2018

Special Features

The future minimum lease payments for finance leases as of March 31, 2018 and March 31, 2017 are as follows:
Present value of
future minimum lease payments

Future minimum lease payments
JPY

USD

JPY

USD

2018

2017

2018

2018

2017

2018

Within one year

428

436

4,032

382

387

3,602

Between one and five years

778

939

7,324

690

845

6,499

Over five years

113

62

1,066

97

52

920

1,319

1,437

12,422

1,170

1,285

11,021

Total
Less future finance costs

(148)

(152)

(1,401)

Present value of future minimum lease payments

1,170

1,285

11,021
Review of Operations

The future minimum lease payments receivable under the non-cancellable subleases as of March 31, 2018 and March 31, 2017 are ¥8 million ($81 thousand) and ¥12 million, respectively.
2) Operating leases
The Consolidated Group leases office buildings, system equipment and other assets as cancellable or non-cancellable operating leases. The
future minimum lease payments for non-cancellable operating leases as of March 31, 2018 and March 31, 2017 are as follows:
JPY

2018

USD

2017

2018

Within one year

141

34

1,334

Between one and five years

387

43

3,643

Over five years

145

—

1,371

674

77

6,348

Total

Sustainability

The total lease payments recognized as expenses under the cancellable or non-cancellable operating leases for the fiscal year ended March
31, 2018 and March 31, 2017 are ¥7,442 million ($70,052 thousand) and ¥6,980 million, respectively.
The future minimum lease payments receivable under the non-cancellable subleases as of March 31, 2018 and March 31, 2017 are ¥316
million ($2,976 thousand) and ¥37 million, respectively.

Financial Section and Company Information

KANEMATSU Integrated Report 2018113

(2) Lessor
1) Finance leases
The Consolidated Group leases out machinery, equipment and other assets that are classified as finance leases. The future minimum lease
payments receivable for finance leases as of March 31, 2018 and March 31, 2017 are as follows:
Future minimum lease payments receivableand unguaranteed residual value
JPY

2018

Present value of
future minimum lease payments receivable

USD

2017

JPY

2018

2018

USD

2017

2018

Within one year

6

5

63

4

3

41

Between one and five years

26

22

246

16

15

160

13

13

124

8

9

79

45

42

433

29

28

280

Over five years
Total
Unguaranteed residual value

—

—

—

Less future finance income

(16)

(14)

(153)

Present value of future minimum lease payments receivable

29

28

280

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

2018

USD

2017

2018

Pledged assets:
Other financial assets (non-current)

20

47

188

Property, plant and equipment

643

658

6,057

663

706

6,245

1,130

1,101

10,640

747

732

7,040

1,878

1,833

17,680Total
Associated secured obligations:Short-term borrowings (current)Long-term borrowings (non-current)
Total

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

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

USD

2018

2017

2018

Other financial assets (current)

49

36

469

Other financial assets (non-current)

30

—

282

Assets pledged in lieu of guarantee money or guarantee funds

Other investments
Total

114

KANEMATSU Integrated Report 2018

3,216

3,118

30,278

3,296

3,155

31,029Kanematsu’s Progress and Strengths

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

2018

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

USD

2017

2018

156

537

1,476

1,673

1,344

15,750

1,830

1,881

17,226

Special Features(Notes) 1. The above amounts include those for quasi-guarantee acts.
2. Debt guarantees for third parties include the debt guarantees covered by the insurance agreements that is limited to ¥1,609 million ($15,152 thousand) for the
fiscal year ended March 31, 2018 and ¥1,276 million for the fiscal year ended March 31, 2017, respectively.

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

Details of major operations

Percentage of voting rights (%)

2018

2017

58.32
(0.40)

58.32(0.40)[Electronics & Devices]

Nippon Office Systems Ltd.

Koto-ku, Tokyo, Japan

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

100.00(100.00)

100.00(100.00)

Kanematsu Communications
Ltd.

Shibuya-ku, Tokyo, Japan

Sales of mobile communications
devices; Mobile internet systems andservices

100.00100.00Kanematsu Granks, Corp.

Shinjuku-ku, Tokyo, Japan

Mobile contents delivery and mobilerelated solution business100.00(100.00)

100.00(100.00)

Kanematsu BD
Communications Ltd.

Kurume-shi, Fukuoka, Japan

Sales of mobile communication device

100.00(100.00)

100.00(100.00)

Chuo-ku, Tokyo, Japan

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

52.96

52.96

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

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

100.00100.00Tanashin (Europe) GmbH

Sales and maintenance of parts for car
audio systems

100.00(20.00)100.00(20.00)

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

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

70.00

70.00

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

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

100.00(100.00)

100.00(100.00)

Kanematsu Sustech Corp.

Duesseldorf, Germany

Dalian, China

KANEMATSU Integrated Report 2018

Financial Section and Company Information

System integration of ICT andcommunications equipment

Sustainability

Chuo-ku, Tokyo, Japan

Review of Operations

Kanematsu Electronics Ltd.

115

Trade nameLocation

Details of major operations

Percentage of voting rights (%)

2018

2017

[Foods & Grain]
Kanematsu Shintoa Foods
Corp.

Minato-ku, Tokyo, Japan

Food wholesaling and cold storage

100.00100.00Kanematsu Agritec Co., Ltd.

Matsudo-shi, Chiba, Japan

Manufacture and sales of feed andfertilizer

100.00100.00Kanematsu Soytech Corp.

Chuo-ku, Osaka, Japan

Sales of soybeans, millet, and grain

100.00100.00

North Pet Co., Ltd.

Kuriyama-cho, Yubari-gun,
Hokkaido, Japan

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

100.00100.00KG Agri Products, Inc.

Ohio, U.S.A.

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

100.00100.00Kai Enterprises, Inc.

Washington, U.S.A.

Sales of hay and roughage

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

Serang, Indonesia

Manufacture of processed foods forcentral kitchen and home-meal
replacement

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

Chuo-ku, Tokyo, Japan

Sales of steel and construction
materials

100.00100.00

Kyowa Steel Co., Ltd.

Kasai-shi, Hyogo, Japan

Cutting and processing of steel sheet;
Sales of construction materials

100.00(100.00)

100.00(100.00)

Kanematsu Chemicals Corp.

Chuo-ku, Tokyo, Japan

Sales of petrochemicals andautomobile-related chemicals

100.00100.00Kanematsu Wellness Corp.

Chuo-ku, Tokyo, Japan

Sales of health foods and provision of
medical information

100.00(100.00)

100.00(100.00)

Kanematsu Petroleum Corp.

Chiyoda-ku, Tokyo, Japan

Sales of petroleum products and LPG

100.00100.00Kanematsu Yuso Co., Ltd.

Chiyoda-ku, Tokyo, Japan

Delivery and storage of petroleum
products and LPG

100.00100.00Kanematsu KGK Corp.

Nerima-ku, Tokyo, Japan

Sales of machine tools and industrial
machinery

97.89

97.89

Benoit Holding Company

Illinois, U.S.A.

Holding company

85.18(85.18)85.18(85.18)

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

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

54.00(54.00)54.00(54.00)

Steel Service
Oilfield Tubular, Inc.

Oklahoma, U.S.A.

Sales of steel materials for oil
excavation

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

Illinois, U.S.A.

Sales of machine tools

100.00(100.00)

100.00(100.00)

Kanematsu Aerospace Corp.

Minato-ku, Tokyo, Japan

Sales of aircraft, defense, andaerospace-related products

100.00100.00Aries Motor Ltd.

Warsaw, Poland

Sales of automobiles

93.59

93.59

Aries Power Equipment Ltd.

Warsaw, Poland

Sales of engines, generators, and othergeneral-purpose machinery

60.00

60.00

KG Aircraft Rotables Co., Ltd.

Dublin, Ireland

Replacement and maintenance of
aircraft rotable components; Leasing

96.67

96.67

Minato-ku, Tokyo, Japan—

100.00100.00

Shintoa Corp.

Chiyoda-ku, Tokyo, Japan

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

100.00100.00Kanematsu Logistics &Insurance Ltd.

Chuo-ku, Tokyo, Japan

Insurance agency; Consigned freight
forwarding business100.00100.00[Steel, Materials & Plants][Motor Vehicles & Aerospace][Others]
Aso Kanko Kaihatsu Co., Ltd.

116

KANEMATSU Integrated Report 2018

Location

Percentage of voting rights (%)

Details of major operations

2018

2017

Kanematsu’s Progress and Strengths

Trade name

[Overseas local subsidiaries]
Illinois, U.S.A.

Export, import and sales ofmerchandise

100.00100.00Kanematsu (Hong Kong) Ltd.

Hong Kong, China

Export, import and sales ofmerchandise

100.00100.00Kanematsu (China) Co., Ltd.

Shanghai, China

Export, import and sales ofmerchandise

100.00(100.00)

100.00(100.00)

Kanematsu (Thailand) Ltd.

Bangkok, Thailand

Export, import and sales ofmerchandise

100.00(100.00)

100.00(100.00)

Watana Inter-Trade Co., Ltd.

Bangkok, Thailand

Export, import and sales ofmerchandise

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

Singapore, Singapore

Export, import and sales ofmerchandise

100.00(100.00)

100.00(100.00)

Kanematsu Taiwan Corp.

Taipei, Taiwan

Export, import and sales ofmerchandise

100.00(100.00)

100.00(100.00)

Kanematsu Europe Plc

London, U.K.

Export, import and sales ofmerchandise

100.00(100.00)

100.00(100.00)

Kanematsu GmbH

Duesseldorf, Germany

Export, import and sales ofmerchandise

100.00100.00Kanematsu Australia Ltd.

Sydney, Australia

Export, import and sales ofmerchandise

100.00100.00Kanematsu New Zealand Ltd.

Auckland, New Zealand

Export, import and sales ofmerchandise

100.00100.00Special Features

Kanematsu USA Inc.

(Note) The figures in the parentheses in “Percentage of voting rights” indicate the indirect ownership ratio included in the total.

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

2018

USD

2017

2018

Current assets

58,88155,788554,236

Current liabilities

15,81016,866

148,816
405,419

43,071

38,922

5,621

5,875

52,911

Non-current liabilities

2,561

2,687

24,110Non-current assets (net)

3,059

3,187

28,801Equity46,131

42,109434,220

Cumulative amounts of non-controlling interests

19,294

17,620181,613

Sustainability

Current assets (net)Non-current assets

Financial Section and Company Information

KANEMATSU Integrated Report 2018117

[Condensed statements of income and comprehensive income]
JPY

USD

2018

2017

2018

Revenue

62,22264,175585,677

Profit for the year

6,590

5,499

62,037

Other comprehensive income

32

280

308

Total comprehensive income

6,623

5,780

62,345

Profit for the year attributable to non-controlling interests

2,746

2,303

25,848Dividends paid to non-controlling interests

1,133

954

10,669

2018

2017

2018

Cash flows from operating activities

5,822

6,223

54,802

Cash flows from investing activities

(220)

1,435

(2,079)Cash flows from financing activities(2,731)(2,308)(25,714)

Increase (decrease) in cash and cash equivalents, net

2,869

5,350

27,009[Condensed statement of cash flows]
JPY

USD

(3) Transaction with non-controlling interests
There was no transaction with significant non-controlling interests for the fiscal year ended March 31, 2018 and March 31, 2017.

35. Related Parties(1) Related party transactions
For the fiscal year ended March 31, 2018
Name

Detail of related party
relationshipTransaction amount

Outstanding amount

JPY

USD

JPY

USD

Associate

Sage Hill Northwest, Inc.

Purchase of merchandise

1,397

13,154136

1,288

Associate(including subsidiaries of
the associate)

Kantatsu Co., Ltd.

Purchase of merchandise

895

8,430

1,223

11,515

Associate

Shangdong Lufeng Foods
Shanhai Corp.

Purchase of merchandise

1,138

10,7181

17

Associate

Growth D Ltd.

Purchase of merchandise

1,041

9,808

—

—

Type

(Notes) 1. The related party transaction amounts are determined through negotiation with consideration given to the prevailing market prices.
2. As described in Note 33 Contingent Liabilities, debt guarantees are provided to the equity method investees.
3. Growth D Ltd. was excluded from scope of consolidation due to sale of shares for the fiscal year ended March 31, 2018.

For the fiscal year ended March 31, 2017
Detail of related party
relationshipTransaction amount

Outstanding amount

JPY

JPY

Kantatsu Co., Ltd.

Purchase of merchandise

6,570

804

Associate

Growth D Ltd.

Purchase of merchandise

3,245

535

Associate

Sage Hill
Northwest, Inc.

Purchase of merchandise

1,011

111

Type

Associate(including subsidiaries of
the associate)

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

(2) Remuneration to management executives
The amount of remuneration to the Company’s directors for the fiscal years ended March 31, 2018 and March 31, 2017 is ¥307 million($2,895 thousand) and ¥277 million, respectively. The remuneration to the directors consists of base salary and directors’ bonus. The remuneration to the auditors consists of base salary.

36. Subsequent Events
Not applicable.

118

KANEMATSU Integrated Report 2018

Kanematsu’s Progress and Strengths

Special Features

Review of Operations

Sustainability

Financial Section and Company Information

119

KANEMATSU Integrated Report 2018

Major Group Companies (As of April 1, 2018)* Companies with shares listed on a stock exchangeElectronics & Devices

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

Foods & GrainJapan
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. Abadi Tunggal Lestari
PT. Agrapana Niaga Gemilang
U.S.A.
KAI Enterprises, Inc.
Sage Hill Northwest, Inc.
KG Agri Products, Inc.

Steel, Materials & Plants

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

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

Others120

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

KANEMATSU Integrated Report 2018

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
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 March 31, 2018)

Kanematsu’s Progress and Strengths

Kanematsu supplies products and services through its large network of business bases in Japan and overseas. In addition to
the Company, the Kanematsu Group comprises 114 companies (88 consolidated subsidiaries and 26 equity-method affiliates)
operating global businesses around the world.

6
1

2

3
4

34
5

33
12

11
25

8

10

24

7

16

31

9
13
14 15
17

19
18

35

Special Features

22

30
28 29

32

21

NORTH AMERICA

20

28 Chicago

23

EUROPE

29 Somerset

1 London2 Dusseldorf
3 Munich

30 Detroit

ASIA & THE MIDDLE EAST

26
27

4 Milan

8 Seoul17 Haiphong

5 Budapest

9 Shanghai

18 Ho Chi Minh City

6 Moscow

10 Chongqing

19 Bangkok

7 Las Palmas

11 Beijing

20 Singapore

26 Sydney

12 Dalian

21 Manila

27 Auckland

13 Shenzhen

22 Yangon

32 Silicon Valley

34 Vancouver

OCEANIA35 Silao
36 Sao Paulo

24 New Delhi

16 Hanoi

25 TehranReview of Operations

15 Taipei

CENTRAL &SOUTH AMERICA

33 Portland

DOMESTIC OFFICES

14 Hong Kong 23 Jakarta
Overseas subsidiaries
and their branches

36

31 Houston

4

1 Tokyo Head Office
2 Osaka

Representative offices

Midosuji Office

Branches

3 Nagoya
2

3

1

5

4 Hokkaido
5 Kyushu

Sustainability

Organization Chart (As of April 1, 2018)
Shareholder’s Meeting
Audit & Supervisory Board
Board of Directors
Management Committee

Marketing Area
Electronics & Devices Division

Support Area
Foods Division

Steel, Materials & Plant Division

Motor Vehicles & Aerospace Division

Food Dept. No. 1

Iron & Steel Foreign Trade Dept.

Aerospace Dept.

Human Resources & 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. No. 1

Functional Chemicals Dept.

Motor Vehicles & Parts Dept. No. 2

Accounting Dept.

Electronics Planning Office

Meat Dept. No. 2

Energy Dept.

Business Accounting Dept.

Foods and Grain Planning OfficePlant & Ships Dept.

Motor Vehicles &Aerospace Planning Office

Food Safety Management System Office

Steel, Materials & Plant Planning Office

Credit Control Dept.

Grain, Oilseeds & Feedstuff Division

Food Safety Management Office

Traffic & Insurance Dept.

Financial Section and Company Information

Industrial Electronics Dept.

Legal & Compliance Dept.

Grain and Feedstuff Dept.

IT Planning Dept.

Grain & Oilseeds Dept.

Internal Auditing Dept.

Domestic Sections

Corporate Planning Dept.

Foods and Grain Planning Office
Food Safety Management System Office

KANEMATSU Integrated Report 2018

121

Network (As of June 30, 2018)

Japan

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

Osaka
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

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

Nagoya9-3, Sakae 2-chome, Naka-ku,
Nagoya 460-0008, Japan
TEL: 81-52-202-5111
FAX: 81-52-202-4605

Hokkaido

KOREA
Kanematsu Korea Corporation

Koreana Bldg. 602, 135 Sejong-Daero,Jung-Gu, Seoul, 04519, Korea
TEL: 82-2-737-5795
FAX: 82-2-737-5799
CHINA
Kanematsu (China) Co., Ltd.
Shanghai Head Office
Shanghai Branch

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

Room 2106, International Trade Centre, No. 38
Qingnian Road, Yuzhong District, Chongqing
400010, China
TEL: 86-23-63235676
FAX: 86-23-63235650
Beijing Branch

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

The Representative of Kanematsu
Corporation
Hanoi

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

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

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

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

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

Dalian Branch

Kanematsu (Singapore) Pte. Ltd.

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

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

KyushuShenzhen Branch

Kanematsu Corporation Manila Branch

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

Room 8, 10/F, Office Tower,
Di Wang Commercial Centre,
5002 Shen Nan Dong Road, Luohu District,
Shenzhen 518001, P.R. China
TEL: 86-755-8235-4850
FAX: 86-755-8223-8980

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

Kobe Head Office

Kanematsu (Hong Kong) Ltd.

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

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

10F., No. 451, Changchun Rd., Songshan Dist.,
Taipei City 10547, Taiwan
TEL: 886-2-2717-1222
FAX: 886-2-2717-7927

122

VIETNAMKANEMATSU Integrated Report 2018

MYANMARThe Representative of Kanematsu
Corporation
YangonUnion Business Center (UBC) Suite 03-08,
Nat Mauk Road, Bo Cho Quarter, Bahan Township,
Yangon, Myanmar
TEL: 95-1-860-4370
FAX: 95-1-860-4380
INDONESIA
P.T. Kanematsu Trading Indonesia

ANZ Tower 15th Floor, Jalan Jend. Sudirman Kav.
33A Jakarta 10220, Indonesia
TEL: 62-21-572-1220, 1225, 1228, 1230, 1238
FAX: 62-21-572-1188, 1237

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.

EUROPE

Silicon Valley Branch2043 Zanker Road, San Jose, California 95131,
U.S.A.
TEL: 1-408-501-1400
FAX: 1-408-501-1499

AUSTRALIA
Kanematsu Australia Ltd.

Suite 1 Level 15, 15 Castlereagh Street,
Sydney, NSW, Australia
TEL: 61-2-8278-7004, 61-2-9993-0748,
61-2-9283-3347
FAX: 61-2-9283-3095

Portland Branch

NEW ZEALAND

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

Kanematsu New Zealand Ltd.

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

The Representative of Kanematsu
Corporation
Vancouver

UNITED 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 OfficeMuenchen BranchFrankfurter Ring 193a, D-80807 Muenchen,
Germany
TEL: 49-89-3074-817-12
FAX: 49-89-3074-817-29
ITALY
Kanematsu G.m.b.H.
Milano Liaison Office

HUNGARY

Kanematsu USA Inc.
Chicago Head Office

CENTRAL & SOUTH AMERICA

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

MEXICO
Kanematsu Mexico S. de R.L. de C.V.

Suite C, Multitenant III, Av. Mineral de Valencia,
No. 202 Col. Parque Santa Fe, C.P. 36275,
Guanajuato Puerto Interior Silao, Mexico
TEL: 52-472-748-9187, 9327, 9329
FAX: 52-472-748-9221

Somerset Branch

100 Randolph Road, Somerset,
New Jersey 08873, U.S.A.
TEL: 1-732-271-7300
FAX: 1-732-271-7357

BRAZIL

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

Kanematsu America do Sul Importacao e
Exportacao Ltda.

Avenida Paulista, 1337/1343, conjunto 71 Bela
Vista, São Paulo – SP CEP: 01311-200 Brazil
TEL: 55-11-3266-3967
Mobile: 55-11-9-4137-7178

1800 Augusta, Suite 390, Houston,
Texas 77057, U.S.A.
TEL: 1-713-975-7200
FAX: 1-713-975-7966

Sustainability

Piazza Duca d’Aosta 8, Milano, Italy
TEL: 39-02-6749-3538
FAX: 39-02-6707-7364

U.S.A.

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

Review of Operations

Oststrasse 34, D-40211 Duesseldorf, Germany
TEL: 49-211-36890
FAX: 49-211-3689-111

NORTH AMERICA

Special Features

Unit #5, 3rd Floor, Monaco Building, No. 27,
Ordibehesht, Mahmudiyeh St., Parkway, Tehran,1986645416 IRAN
TEL: 98-21-2265-9041

OCEANIA

Kanematsu’s Progress and Strengths

Overseas

The Representative of Kanematsu
G.m.b.H.
Budapest Office

H-1034 Budapest Becsi ut 126-128.I.103. Hungary
TEL: 36-1-320-4952
FAX: 36-1-320-4953
RUSSIAN FEDERATIONThe Representative of Kanematsu
Corporation
Moscow

Number of Employees(consolidated basis)

Electronics & Devices
Foods & Grain
Steel, Materials & Plant

Number of Affiliated Companies

3,981

22 (Japan:15, Overseas:7)752

25 (Japan:13, Overseas:12)

1,054

25 (Japan:13, Overseas:12)

SPAIN

Motor Vehicles & Aerospace250

8 (Japan:1, Overseas:7)

The Representative of Kanematsu
Corporation
Las Palmas

Others216

16 (Japan:12, Overseas:4)

Companywide (common)

413

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

Overseas subsidiaries
Total

Financial Section and Company Information

Tverskaya 16/2, Building 1, Business Centre,
125009, Moscow, Russian Federation
TEL: 7-495-935-89-40, 42, 43
FAX: 7-495-935-8948

Segment Information:
Number of employees and number of Group companies (As of March 31, 2018)

18
6,666

114

Notes:
1. Number of employees on a non-consolidated basis is 842.
2. Of affiliated companies, 88 are consolidated subsidiaries and 26 are equity-method affiliates.

KANEMATSU Integrated Report 2018123

Corporate Profile

Corporate Profile
Company Name
EstablishedFoundation
President
Head OfficePaid-in Capital*
Fiscal Year
General Meeting of
Shareholders
Number of Offices*

KANEMATSU CORPORATION
August 15, 1889
March 18, 1918
Kaoru Tanigawa
2-1, Shibaura 1-chome, Minato-ku,
Tokyo 105-8005, Japan¥27,781 million
April 1 to March 31
June

Domestic: Tokyo Head Office, Kobe Head Officeand branches 5
Overseas: 36
Number of Employees* 842 (Consolidated: 6,666)* As of March 31, 2018

Investor Information(As of March 31, 2018)

Stock Exchange Listings
Stock CodeTransfer Agentfor Common Stock
Shares Authorized
Shares Outstanding
Minimum Trading Unit*
Number of Shareholders

Composition of Shareholders

Tokyo
8020
Sumitomo Mitsui Trust Bank, Limited
200,000,000
84,500,202 (including 254,123 treasury shares)
100
20,035

Financial institutions

40.59%

Foreign institutions
and individuals

31.16%

Individuals and others(including treasury shares) 20.77%* Kanematsu executed a share consolidation on October 1, 2017, at a ratio of fivecommon shares to one. As a result, the number of shares authorized decreased by
816,653,604 shares, and the number of shares outstanding decreased
338,000,808. Accordingly, pursuant to a partial amendment to the Articles ofIncorporation, the minimum trading unit was changed from 1,000 shares to 100
shares, effective October 1, 2007.

Other corporations

5.87%

Securities firms

1.61%

Principal Shareholders

Number of shares held (thousands)

Percentage of voting rights (%)

Japan Trustee Services Bank, Ltd. (trust account)

10,735

12.74

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

4,125

4.89

GOVERNMENT OF NORWAY

2,632

3.12

Mitsui Sumitomo Insurance Co., Ltd.

2,322

2.75

Tokio Marine & Nichido Fire Insurance Co., Ltd.

2,322

2.75

State Street Bank and Trust Company

1,650

1.95

Japan Trustee Services Bank, Ltd. (trust account 5)

1,604

1.90

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

1,417

1.68

The Norinchukin Bank

1,249

1.48

The Bank of New York Mellon

1,192

1.41

1. Calculated after deduction of treasury shares (254,123 shares)
2. The Bank of Tokyo-Mitsubishi UFJ, Ltd. was renamed MUFG Bank, Ltd. on April 1, 2018.

Stock Price/Trading Volume
Trading Volume

Stock price(¥)(Thousands of shares)

1,800

100,000

1,200

80,000600

60,000040,00020,000

13/4

6

8

10

12 14/2

4

6

8

10

12 15/2

4

6

8

10

12 16/2

4

6

8

10

12 17/2

4

6

8

10

12 18/2

Note: Kanematsu executed a share consolidation on October 1, 2017, at a ratio of five shares to one. Figures for all periods in the above graph are calculated based on theassumption that said consolidation had already occurred.

124

KANEMATSU Integrated Report 2018

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

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

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

KANEMATSU Integrated Report 2018125

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

Printed in Japan