ANNUALREPORT2018

For the year ended March 31, 2018

Our Philosophy
Universal Mission
VisionCorporate Group
Creating Future Trends
As a corporate group fostering people and supporting
people’s lives, we contribute to achieve a genuinely
productive global society by continuously challenging
efforts to create new trends in terms of products andservices that shift the future; centering on ourphysical and commercial distribution business.

SloganOur thoughts into a Mission & Vision

Go beyond logistics

Make the world go round

Revolutionize businessCorporate Values

Values that should be shared withall our group employees (IP CReD)

Integrity

PassionCommitment

Respect

Diversity

Contents
02 Financial and Nonfinancial Highlights
04 A Message from the President
07 Medium-Term Business Plan [SIP21]
08 Review of Operations by Business Segment
10 Topics
12 CSR / Corporate Governance13 Senko Group stakeholders
and their relationship with us
14 Environmental Initiatives
16 Safety Programs
18 Health Initiatives
20 Social Activities
22 CSR Topics

Editorial Policy

24 Corporate Governance

Scope of Report

27 Directors and Auditors

The scope of coverage includes the activities of Senko
Group Holdings Co., Ltd. and Group companies.

Reporting Period
This report covers business activities for the period
between April 1, 2017 and March 31, 2018. However,some activities that took place after April 2018 are
also covered.

Other Publications of the Company• Notice of convocation of the annual meeting ofshareholders• Securities reports (Japanese only) and quarterly reports• CSR reports (Japanese only)• Senko Group report (Japanese only)
A variety of information other than that mentioned
above is available on the Company’s website.
http://www.senkogrouphd.co.jp/en

Disclaimer

26 Risk Management

28 Financial Information
29 Financial Review
32 Consolidated Balance Sheets
34 Consolidated Statements of Income
34 Consolidated Statements ofComprehensive Income
35 Consolidated Statements of Changes
in Net Assets
36 Consolidated Statements of Cash Flows
37 Notes to the Consolidated Financial
Statements
57 Report of Independent Auditors
57 Corporate Information
59 Stock Information / Corporate Data
61 Global Network

The Senko Group provides no guarantee concerning
the outcome of the forward-looking statements in thisannual report as they will be affected by various factors
including unforeseen changes in economic conditions.
SENKO ANNUAL REPORT 2018 01

Financial and Nonfinancial Highlights
Financial Highlights
FY2014FY2015FY2016FY2017FY2018FY2018($)

Operating revenues

millionsof yen333,884

398,448

434,000

455,435

492,127

4,632,219

Operating profit

millionsof yen12,122

13,65017,497

17,082

17,087

160,834

Net income attributable toowners of parent

millionsof yen

6,504

7,074

8,542

8,951

9,504

89,458Operating profit margin

(%)

3.6

3.4

4.0

3.8

3.5

Net assets per shareyen

539.52581.46613.71661.61

741.44

6.98

Net income per share

yen

51.89

55.06

60.43

61.67

62.64

0.59

Cash dividends per share

yen

16.00

17.00

20.00

22.00

22.00

0.21

Dividend payout ratio

(%)

30.8

30.9

33.1

35.7

35.1

–

Net assets

millionsof yen72,30392,745100,010114,091

118,057

1,111,230

Total assets

millionsof yen243,570

285,310

269,461

285,959

334,418

3,147,760

Equity ratio

(%)

27.8

28.4

32.6

35.1

33.7

–

Return on equity (ROE)

(%)

9.8

9.5

10.1

9.5

8.9

–

Price earnings ratio (PER)

times

8.63

14.17

11.35

11.63

13.22

–

Capital expenditures

millionsof yen24,00014,182

17,50017,662

37,625354,000

Cash flows from operating activities

millionsof yen10,68919,22816,14920,84824,568231,250

Cash flows from investing activities

millionsof yen(24,956)(17,979)(2,289)(3,679)(37,020)(348,456)

Cash flows from financing activities

millionsof yen14,551

6,209(21,492)(8,627)

9,940

93,561

Cash and cash equivalents
at end of year

millionsof yen17,66725,476

17,76526,197

23,796

223,983

FY2014FY2015FY2016FY2017FY2018Nonfinancial Highlights

Number of employees

number

8,738

11,562

11,992

12,88914,496

Logistics center storage space

millions m2

2.52

2.81

2.94

3.22

3.42

Fleet of own trucks (including trailers)

units

3,352

4,530

4,745

5,180

6,020

02 SENKO ANNUAL REPORT 2018

Operating revenues

Operating profit

Net income attributable toowners of parent(Millions of yen)

(Millions of yen)

(Millions of yen)

600,000

20,000398,448450,000

434,000 455,435

492,127

10,00017,497 17,082 17,087

15,00012,122333,884

13,6507,500

300,000

10,0005,000

150,000

5,000

2,500

0

0

2014 2015 2016 2017 2018

Operating profit margin

Total assets/ Net assets/
Equity ratio(%)(Millions of yen)

6.0

360,000

334,418 60

4.5

3.6

3.4

3.8

270,000

3.5

243,57027.8

28.4

269,46132.6

180,000

3.0

90,0001.5

002014 2015 2016 2017 201872,30392,745 100,010(Yen)

539.52600

51.89

581.4655.06

613.7160.43

661.61

741.44 100

30.8

61.67 62.64

75

50

20

200

25

10

0

2014 2015 2016 2017 2018
Net income per share

0

33.1

35.7

35.1

30

400

■■ Net assets per share

30.9

0

16.00 17.00

9.8

9

30

6

15

3

0

0

9.5

10.1

9.5

20.00

Capital expenditures(%)(Millions of yen)40

40,00030

30,00020

20,00010

10,0000037,62524,00014,182

17,500 17,662

2014 2015 2016 2017 2018

Dividend payout ratio

Number of employees

Logistics center storage space

Fleet of own trucks(Number)(Millions m2)(Units)

14,496

16,00011,562 11,992

12,000

4

12,889
3

8,738

2.52

2.81

2.94

3.22

3.42

8,000

6,020
6,000

8,000

2

4,000

4,000

1

2,000

0

2014 2015 2016 2017 20180

8.9

2014 2015 2016 2017 2018

22.00 22.00

2014 2015 2016 2017 2018■■ Cash dividends per share2014 2015 2016 2017 2018

Equity ratio

(Yen)
40

12

45

Cash dividends per share/
Dividend payout ratio

Net assets per share /Net income per share
800

114,091 118,057

2014 2015 2016 2017 2018■■ Total assets ■■ Net assets

(Yen)

33.7

7,074

(%)

285,959
35.1

6,504

9,504

8,951

Return on equity (ROE)(%)

285,310
4.0

02014 2015 2016 2017 2018

8,542

2014 2015 2016 2017 2018

0

4,530

4,745

5,180

3,352

2014 2015 2016 2017 2018

SENKO ANNUAL REPORT 2018 03

A Message from the President

We will move forward as a united Group withthe second year targets of our Five-Year Medi
Business Environment during
Fiscal Year 2018
The Japanese economy in the fiscal year under review
experienced a moderate recovery coupled with firm consumer
spending and capital expenditure backed by higher corporate
earnings and improved employment. At the same time, theoutlook for overseas economies remained clouded byuncertainties, due in part to the potential impact of geopoliticalrisk, despite the solid trend of a continuing recovery, particularlyin the United States and emerging countries in Asia.
In the logistics industry — where our core business operates— freight volume has been steady, mainly for consumer- andproduction-related cargo, but the business environment overall
has remained challenging due to shortages of drivers and workers
combined with increasing costs, particularly for leasing
vehicles and other outsourcing costs, as well as fuel costs.

Main Activities and Performance
The Senko Group worked hard on building the foundation
for growth during the first fiscal year of the Five-Year Medium-Term

Yasuhisa Fukuda
President and Representative Director
Senko Group Holdings Co., Ltd.

04 SENKO ANNUAL REPORT 2018

the aim of achieving
um-Term Business Plan
Business Plan SIP21 (Senko Innovation Plan 2021), launched in
April 2017.
In our Logistics segment, to further grow the marine shipping
business, we added NIPPON MARINE CO., LTD., a marinetransportation company for the JX Nippon Mining & Metals
Group, as well as EIKICHI KAIUN CO., LTD. to the Group in April.
We also added Kanto regional cargo truck company ANZENYUSO CO., LTD. in October to increase the Group’s own fleet.
For logistics centers, we began operations at the Yokkaichi
PD No. 2 Center (Mie Prefecture) in April; the New Komaki PD
Center (Aichi Prefecture) in July; and the Hiroshima PD Center(Hiroshima Prefecture) in December.
Also, to increase sales in major drug store-related
logistics, we began operations at the Ranzan Logistics Center(Saitama Prefecture) in June; the Aomori Logistics Center(Aomori Prefecture), our first logistics center located in Aomori
Prefecture, in September; and the Shin-Fuji PD Center(Shizuoka Prefecture) in October.
Moreover, to expand operations in fashion logistics, webegan operating the Fujiidera Logistics Center (Osaka) in
January and the Narashino Logistics Center (Chiba Prefecture)in March. We also began operating the Hiroshima No. 2 Center(Hiroshima Prefecture) in February to further develop
operations in cold and freezer logistics.
Outside Japan, Singapore-based Skylift Consolidator (Pte)Ltd., an international air and marine transportation company

with related operations, became a Group company in April, andwe worked to upgrade our logistics network and strengthen
our business infrastructure.
In Vietnam, our overseas subsidiary there launched full-scale
forwarding operations in May serving Japanese companies inthe suburbs of Ho Chi Minh City, and we completed the Pho Noi
Logistics Center, our first logistics center in Vietnam, in January.
In South Korea, in October we started operating the NH-SENKO
Logistics Center, our second business in Busan New Port.
Further, in March we established M-Senko Logistics Co.,
Ltd. in a joint venture with major Thai restaurant chain MK
Restaurant Group Public Company Limited.
Going forward, we will leverage the Senko Group’s
technology and know-how to develop the cold and freezer
logistics business in Thailand. In our Trading & Commerce
segment, SMILE CORP. established an overseas subsidiary in
Vietnam in April, and we welcomed OKUMURA CO., LTD., acompany that manufactures and sells slippers, into the Groupin September. We created the manufacturing enterprise partof the Group with the aims of bolstering product development
and improving price competitiveness.
Moreover, we added companies to the Group with the aimof expanding our business areas, including Aya Construction
Co., Ltd., a company in Miyazaki Prefecture operating construction
and other businesses in July; fitness club operator BLUE
EARTH Co., Ltd. (current name: BLUE EARTH JAPAN Co., Ltd.)

Consolidated operating revenues (Net sales)

Consolidated operating profit /Consolidated ordinary profit(Billions of yen)
600

(Billions of yen)
24

455.4

492.1

530.0

450

18

300

12

150

6

0

2017

2018

2019
(forecast)

FY

0■■ Consolidated operating profit

17.1 17.3

17.1 17.3

2017

2018

■■ Consolidated ordinary profit

19.3 19.3

2019

FY

(forecast)

SENKO ANNUAL REPORT 2018 05

A Message from the President

in September; and in October, VENUS CO., LTD., a company
that operates services that prevent the need for nursing care.
The Senko Group’s consolidated operating revenues for the
fiscal year under review increased 8.1% to ¥492,127 million.
This result was mainly a reflection of aggressive sales expansion.
On the profit front, consolidated operating profit rose by
only ¥5 million from the previous fiscal year to ¥17,087 million,
despite rising profits from sales expansion and theconsolidation of NIPPON MARINE CO., LTD., ANZEN YUSO CO.,LTD., and other companies. This was largely attributable tofactors that include a decline in freight volumes from existingcustomers; increased expenses for leasing vehicles and otheroutsourcing costs as well as fuel prices; and higher costs due
to actuarial differences in accounting for retirement benefit
obligations. Consolidated ordinary profit increased 0.1% year
on year to ¥17,316 million, and profit attributable to owners ofparent increased 6.2% year on year to ¥9,504 million.

Future Initiatives
The Japanese economy going forward is expected to continue
to be supported by rising capital expenditure and consumer
spending. However, in the logistics industry, the challenging
business environment is expected to continue, including risingcosts and intensified competition, against the backdrop ofother factors, including a labor shortage.
In this environment, the Senko Group will work to “expand
business areas,” “upgrade the operation system” and “boost
profitability” in the second year of our Five-Year Medium-TermBusiness Plan.

Net Income attributable to owners of parent

To “expand business areas,” the Group will further enlarge
the logistics center business in Japan and overseas, centeredon Retail Products Logistics, especially logistics bases withthree temperature zones.
To “upgrade the operation system,” we will find ways toimprove the working environment, among other measures, witha commitment to further increasing the use of our own
vehicles, while securing and training the necessary personnel.
To “boost profitability,” we will review the transaction terms
and revise our rates to counter rising costs, including fuel andoutsourcing costs, particularly expenses for leasing vehicles.

Maintained Annual Dividend of¥22 per ShareFor dividends, our basic policy on distributing profits is toconsistently pay out performance-based dividends.
Given this fundamental dividend policy, the year-end
dividend for fiscal 2018, ended March 31, 2018, was ¥11.00 per
share. Together with the interim dividend of ¥11.00 per share(already paid), we paid an annual dividend of ¥22.00 per sharein fiscal 2018.
For fiscal 2019, ending March 31, 2019, we plan to pay anannual dividend of ¥26.00 per share (interim dividend: ¥13.00;
year-end dividend: ¥13.00).
We would like to ask for the continued support andencouragement of our shareholders going forward.

Cash dividend per share / Consolidated payout ratio■■ Cash dividend per share(Billions of yen)
16

(Yen)
100

11.5

35.7

Consolidated payout ratio

35.1

(%)
40

34.3

75

30

8

50

20

4

25

12

0

9.0

2017

9.5

2018

2019
(forecast)

06 SENKO ANNUAL REPORT 2018

FY

0

22.0

22.0

2017

2018

26.0
10

2019
(forecast)

FY

0Medium-Term Business Plan [SIP21]
The Senko Group has launched the Five-Year Medium-Term Business Plan SIP21 (Senko Innovation Plan 2021),
which runs through fiscal year 2018 and fiscal year 2022.
SIP21 is a growth strategy for the corporate group to support logistics for industry and people’s lives as well as to take up the challengeof creating new services and products that will drive the future, based on Logistics and Trading & Commerce, for the next 100 years.

1
2
3
4
5

Expand business areas

Accelerate international business expansion, further enhance existing domestic businesses,
and enter new business areas, such as Living Support and Business Support. Also, actively
promote business partnerships and M&As to support the above.

Enhance brand value

Consolidate the Group’s overall strength, deliver “services that surprise and delight,” andevolve from “customer satisfaction” (CS) to “customer delight” (CD).

Improve employee
satisfaction (ES)Through the creation and active utilization of diverse programs, boost employee satisfaction to
attract diverse personnel, help them to grow, and increase the value of their working environment.

Emphasize corporatesocial responsibility (CSR)

Grow alongside society, while preserving and fostering industry, culture, and nature in each area.

Gain trust from capital
markets

Work to maximize the corporate value of the entire Group, while strengthening financial soundness.

Size

Profitability(Billions of yen)

Strive for operating
revenues of

700.0

492.1

¥700.0 billion
FY 2018

FY 2022(forecast)(Billions of yen)

Strive for operating
profit of

17.1

28.0

¥28.0 billion

3.8 %

4.0 %

Strive for ratio of operating
income to sales of 4.0%

Operational system

FY 2018

4.00

up

0.58
FY 2022(forecast)

FY 2022(forecast)Investment amount (including M&As)

Logistics center storage space (Million m2)
3.42

FY 2018

millionm2

Fleet of own trucks (excluding trailers: units)

6,700

FY 2018

up

680 units

5,179

in five years¥150.0billion

FY 2022(forecast)

SENKO ANNUAL REPORT 2018 07

Review of Operations by Business Segment
Logistics
Operating revenue for the fiscal year ended March 31, 2018
grew 9.4% year on year to ¥347.8 billion in this segment. Thiswas mainly attributable to increasing revenues from theconsolidation of NIPPON MARINE CO., LTD., EIKICHI KAIUN
CO., LTD., ANZEN YUSO CO., LTD., and other companies in
addition to the large logistics centers built in the previous fiscal
year plus higher sales from retailers and mass merchandisers.

347.8

318.0

billion

up

9.4%

2017

Retail Product
Logistics

2018

Total
operatingrevenue¥347.86%
14%

FY

Operating revenue for the fiscal year
ended March 31, 2018 grew 7.3% year on
year to ¥190.5 billion in this segment. Thiswas mainly attributable to the growth ofsales related to large supermarkets,
drugstores, the cold and freezer sector,
and apparel, as well as the effect of making
ANZEN YUSO CO., LTD. into a subsidiary.

billion

12%

Retail Products Logistics

Chemicals Logistics

Housing Logistics

Other Logistics

Housing
Logistics

190.5 billion

177.6

Operating revenue for the fiscal year
ended March 31, 2018 decreased 1.5%
year on year to ¥59.9 billion in thissegment due to a decline in existingcargo volumes, despite rising sales.

up

Chemicals
Logistics

down
1.5%

2017

2018 FY

Operating revenue for the fiscal year
ended March 31, 2018 grew 32.6% year
on year to ¥67.8 billion in this segment.
This was mainly due to the effect ofsales growth and the consolidation of
NIPPON MARINE CO., LTD., EIKICHIKAIUN CO., LTD., and other companies.

67.8 billion
51.1

Other Logistics

08 SENKO ANNUAL REPORT 2018

2018

FY

Operating revenue for the fiscal year
ended March 31, 2018 increased by
4.0% year on year to ¥29.6 billion in thissegment.

29.6 billion

28.4

up

up

4.0%

32.6%
2017

59.9 billion

60.9

7.3%
2017

39%

2018 FY20172018 FYTrading & Commerce
Operating revenue for the fiscal year ended March 31, 2018 grew
4.9% year on year to ¥139.3 billion in this segment. This was mainly
attributable to the growth of sales to new customers and higher
revenue accompanying the increase in oil prices, as well as theconsolidation of OKUMURA CO., LTD.

28%

Total
operatingrevenue¥139.3billion

139.3

132.9

billion

up

4.9%
2017

Others

2018

FY

1%

Operating revenue for the fiscal year ended March 31, 2018 rose
10.4% year on year to ¥5.0 billion in this segment, the effect ofhigher sales from the call center and temporary personnel
businesses, plus the sale of electricity from solar power generation.

Total
operatingrevenue¥ 5.0billion

5.0

4.5

billion

up

10.4%
2017

2018

FY

SENKO ANNUAL REPORT 2018 09

Topics

01

Logistics

Strengthening Logistics in Japan

Senko Co., Ltd. opened the Hiroshima PD Center (Hiroshima City, Hiroshima Prefecture) in 2017 and the Higashi Fuji PD Center (FujiCity, Shizuoka Prefecture) in 2018. They are well-located and cover, respectively, the entire Chugoku region and the area from Kanto
to Chubu. The centers are also equipped with full security, and solar panels and other environmentally conscious equipment havebeen installed. In addition, the Hiroshima PD Center has a power generator and refueling station to support the business continuity
plan (BCP).

02

Logistics

Runtec Co., Ltd. Expanded Cold and Freezer Warehouses

Runtec Co., Ltd., which operates a cold and freezer logistics business, opened the Hiroshima Branch No. 2 Center at a new site in
Higashi Hiroshima City, Hiroshima Prefecture, in February 2018 and the Osaka Branch (Osaka City) in April 2018, in addition toextending the Fukuoka Branch in Hisayama-machi (Fukuoka Prefecture). All of these sites are primarily cold and freezer warehouses
fitted with three-dimensional automated freezer systems to accommodate the expanding need for three-temperature zone logistics.
The three-dimensional automated freezer warehouse at the Osaka Branch is one of Japan’s largest seismically isolated structures.
Runtec is also adopting refrigerators that use energy-saving natural refrigerants to help reduce CO2 emissions and counter global
warming.

Osaka Branch

Hiroshima Branch No. 2 Center

10 SENKO ANNUAL REPORT 2018

Fukuoka Branch

Logistics

03

Full-scale Operation of First Logistics Center in Vietnam

The Pho Noi Logistics Center, built by Vietnamese subsidiary Senko Distribution Service(Vietnam) Co., Ltd., was completed in January 2018 and began full operations in April. In
addition to preventing subsidence and having systems to ensure security, the new center
also has emergency power generators to support the BCP and a bonded warehouse forhandling import/export freight. The new center opens up the opportunity for the Group tocontinue providing high-quality logistics services and to build up the logistics
infrastructure in Vietnam.

Logistics

04

Full Operation of the Qingpu Logistics Center in Shanghai, China

Shanghai Senko International Freight Forwarding Inc., a subsidiary in China, established
the Qingpu Logistics Center in Shanghai and began to operate fully in May 2018. The newcenter, intended to strengthen logistics in the Shanghai region, not only has good accessto the region and full security systems, it can also accommodate the need for threetemperature zone logistics, for which demand is expected to grow in the future, with thepotential for later installing cold and freezer facilities.

Logistics

05

Joint Venture with MK Restaurant in Thailand
to Increase Business for Cold and Freezer Logistics

In March 2018, SENKO Group Holdings Co., Ltd., Runtec Co., Ltd., a Senko Group company,
and SENKO (Thailand) Co., Ltd., a subsidiary in Thailand, established M-SENKO Logistics
Co., Ltd. (“M-SENKO”) in a joint venture with MK Restaurant Group Public Company
Limited (“MK Restaurant”), a Thai restaurant chain. MK Restaurant transferred its own
logistics department to M-SENKO, which will build an efficient high-quality storage andshipping system, leveraging the cold and freezer technology and know-how of the Senko
Group.
In addition, M-SENKO will establish a new three-temperature zone logistics center in
Bangkok in 2019 and work to strengthen the logistics system with MK Restaurant, as wellas cultivate customers other than MK Restaurant, to expand the cold and freezer logistics
business in Thailand.

SENKO ANNUAL REPORT 2018 11

CSR

Corporate Social Responsibility

CSR / Corporate GovernanceContents
Senko Group Stakeholders
and Their Relationship with Us……13
Environmental Initiatives……14
Safety Programs……16
Health Initiatives……18
Social Activities……20
CSR Topics……22
Corporate Governance……24
Risk Management……26
Directors and Auditors……27

12 SENKO ANNUAL REPORT 2018

Senko Group Stakeholders
and Their Relationship with Us
We intend to earn the trust of all our stakeholders in all our business interactions

Shareholders

Senko Group

Customers Shippers /Consignees● Fair profit distribution ● Transparent management● Full disclosure of information● Safe and environmentally friendly services● Partnership ● Full disclosure of information● Road safety ● Environmental friendliness

Regional Community● Engaging with communities ● Engaging with society● Full disclosure of information

Government

Employees

Partner Companies
Subcontractors / Suppliers● Strict legal compliance ● Road safety● Environmental friendliness● Workplace health and safety● HR training ● Fair employment practices● Partnership ● Environmental friendliness

Important Initiatives

1

Environmental
Measures

We recognize that as a logistics
company we have a serious roleto play with regard to theenvironment, and we take on
initiatives to reduce CO2 emissions
and to save energy, with specificnumerical targets, and to
implement green logistics.

2

Safety Initiatives

We have set reduction targets forvehicle and work accidents andhave implemented safety initiatives
based on the PDCA cycle. These
will help us achieve our eventual
goal of being a zero-accident
workplace.

3

Health Initiatives

We aim to reduce health risks to aminimum through workplace
improvements aimed at preventing
health problems, self-care, andother personal healthimprovement programs, and by
maintaining an extensive in-house
health support system withindustrial physicians and nurses.

4

Social Activities

We hold traffic safety classes andlocal clean-up drives tocontribute to the local community,
and we organize volunteer
activities, such as education
support, outside Japan.

SENKO ANNUAL REPORT 2018 13

Environmental Initiatives
Reducing CO2 and Our Achievements
We track energy consumption and CO2 emissions from business activities and measure these in the results of environmental
initiatives. We have continued a range of programs aimed at reducing our environmental impact, and we aim to achieve the CO 2
reduction targets in our Five-Year Medium-Term Management Plan SIP21, which started in fiscal year 2018: a reduction of at least
8,310 tonnes over the five years of the plan.

● FY 2018 CO2 Emissions by Energy Source

Gasoline

INPUT
Diesel oil

11,528 kℓ

Heavy oil

10,231 kℓ

Gasoline

294 kℓKerosene

35 kℓ

280 t-CO / 0%2

2

Forklifts (diesel oil)

Others (city gas,
CNG, kerosene)

2,270 t-CO / 2%2

68 t-CO / 0%
2

LP gasTotal CO2
emissions

2,212 t-CO / 2%
2

66.2 million kWh

CNG（compressed natural gas）

36.6 km³

City gas16.7 km³

LP gas745 t

Offices andwarehouses, etc.
(electricity)

95,336 t-CO

Shipping(heavy oil C)

233,895 t-CO / 36%

11,082 t-CO / 12%2

2

Shipping (heavy oil A)

Automobiles (diesel oil)

17,418 t-CO / 18%

27,428 t-CO / 29%22● Change in annual CO2 emissions

Measures to Reduce CO2

Industrial waste reduction
target achievement rate

Boilers

683 t-CO / 1%

Electricity

Energy conservation target
achievement rate

● FY 2018 CO2 Emissions by Cause(t-CO2)168
194

120,000%%

CO2 emissions tend to increase as business expands, but we haveachieved a reduction of 2,257 t-CO2 by applying the following measures.

86,88990,052

94,276

95,336

15

16

17

18

90,00060,00030,0000FY● FY 2018 CO2 Reduction Targets and Achievements

Energyconservation

Ongoing activities and FY 2018 measures

FY 2018 CO2
reduction target

FY 2018 CO2
reduction

Achievement
rate

Energy-saving logistics
centers● Switching high/low voltage departments to new power company● Increasing solar power sales and considering captive use● Switching to energy-saving equipment (LED lighting/air conditioning)

980 t

1,651 t168%

Improved vehicle fuelconsumption● Switching to newer post long-term vehicles● Introducing non-fossil fuel (natural gas) vehicles● Switching to energy-saving vehicles and environmentallyfriendly forklifts● Reducing fuel consumption with stop/start technology andeco-driving systems, etc.

598 t

443 t

74%

84 t

163 t

194%

1,662 t2,257 t136%

3,757 t1,642 t44%

Social recycling Industrial waste recycling● Increasing the recycling volume and rate
● Cultivating recycling contractors for wooden pallets● Using retreaded tires

Energy conservation + recycling total
Other

14 SENKO ANNUAL REPORT 2018

Green logistics● Supporting the promotion of modal shifts● Switching to eco-friendly materials and products● Supporting joint delivery

CSR

Corporate Social Responsibility

Using Rooftop Space to Increase Solar Power Generation
In FY 2014, we began generating solar power using the extensive rooftops at PD centers,
contributing to the proliferation and promotion of renewable energy.
As of March 31, 2018, the total power output of our 18 sites nationwide was 13.5 MW.
In FY 2019, we will install solar panels at two new sites, and are planning to generate
15.5 MW of electricity Company-wide.

Poweroutput（from FY 2017）

up

1.5

We are now generating

13.5

from

MW

18 sites

across Japan

MW*Based on figures confirmed by the
Ministry of Economy, Trade and Industry● Installation Plans for FY 2019
Site name

Timing of operation

Location

Kazo City, Saitama
Prefecture
Fuji City, Shizuoka
November 2018
Prefecture❶ Kazo PD Center Stage 2 August 2018
❷ Higashi Fuji PD Center

Total

20

May 2017, Senko Co., Ltd. Yokkaichi No. 2 PD Center

July 2017, Senko Co., Ltd. Shin Komaki PD Center

Generating capacity

1,500 KW
433 KW
1,933 KW

❶ Kazo PD Center Stage 2

There will be soon
solar
power installations nationwide.

January 2018, Senko Co., Ltd. Hiroshima PD Center

Sites in operation
FY 2019 plan

❷ Higashi Fuji PD Center
March 2018, Senko Co., Ltd. Ibaraki Housing Branch

Reducing Waste and Promoting Recycling
We are continuing to work on reducing waste
and on promoting recycling. In FY 2018, thetotal amount of non-recyclable waste
increased 8% year on year, due in part to theincrease in the number of our sites. At thesame time, recycling volume increased by 1.8%,
and the rate of recycling declined 1.2% year on
year to 74.9%.
Going forward, we will keep striving to
reduce waste and increase the rate ofrecycling by continuing to separate trash.

● Trend of Total Waste Emissions and Recycling Volume■■ Total waste emissions ■■ Recycling volume(t)
12,000

74.3

74.7

8,474

9,000

Recycling rate

76.1

74.9

80

8,828

8,675

8,226

(%)

60

6,000

40

2,928

2,789

2,726

2,960

3,000

0

20

15

16

17

18

FY

0

SENKO ANNUAL REPORT 2018 15

Safety Programs
Senko Group Safety Policy
The Senko Group will “achieve an eventual goal of zero workplace accidents” based on the spirit ofrespect and by prioritizing safety over everything else.

SafetyPhilosophy

1 We can and must prevent all accidents and disasters.
2 Managers are responsible for the safety of employees.
3 Every employee must believe in “eliminating all accidents.”
4 Safety ensures high quality and high productivity.
1 The‌Senko Group deeply recognizes the social mission of the logistics business and promotes efforts that all

Basic
Approach

Priority
Measuresemployees understand correctly and that contributes to the improvement of safety by ensuring safety in businessactivities is the basis of our business.
2 The‌ top management will actively lead the field from the bottom to the top to unite and strive to secure safety andimprove safety in business activities.
3 The‌ basis of safety is to be strongly conscious of each person working in the Senko Group to be healthy mentallyand physically, to practice proper
1 We comply with relevant laws and regulations and fulfill our social responsibilities.
2 We thoroughly carry out risk assessment and reduce all safety risks.
3 We prevent health problems by enhancing health management system and promoting independent health.
4 We actively disclose information on safety and health activities.

Achievement of Safety Goals (FY 2018)
As not all goals were achieved, we will formulate and implement new measures.
FY 2018 goals FY 2018 achievements

Priority measures

0.35 or lower

0.49● ‌Develop and strengthen the management system to accommodate the aging ofOccupational accident frequency rate 1.45 or lower

1.60

Vehicle accident frequency rate

● Reduce vehicle accidents and occupational accidents involving young employees

employees● ‌Create an environment where safety can be substantially improved and introduce

leading-edge technology based on the verification of results● ‌Strengthen the links between safety management systems and prevent accidents

and disasters

Medium-Term Safety Goals (FY 2018 — FY 2022)
Based on our Five-Year Medium-Term Management Plan SIP21, we will promote Group-wide safety programs, including using
the latest driver assistance technology and other measures.
We aim to reduce by half vehicle and occupational
accidents from the FY 2017 level.

We will promote, as a strategic priority, the introductionof advanced safety equipment.

● Vehicle accident frequency rate (on-road accidents)● Introduction of dash cams

FY 2018
achievements

0.52/0.38(Logistics Group)

FY 2022 goal

(Senko Co., Ltd.)

0.25

or lower(Senko Co., Ltd. andLogistics Group)● Occupational accident frequency rate

(occupational accidents with at least four lost workdays)

FY 2018
achievements

1.96/0.74(Logistics Group)(Senko Co., Ltd.)FY 2022 goal

0.95

*Figures for the Logistics Group do not include recently acquired companies.

16 SENKO ANNUAL REPORT 2018

or lower(Senko Co., Ltd. andLogistics Group)

FY 2018
achievement

70 %(Senko Co., Ltd. andthe Logistics Group)

FY 2022 goal

100 %(Senko Co., Ltd. andthe Logistics Group)Corporate Social Responsibility

CSR

Safety Management Systems: From Development to Use
In FY 2018, we created a safety management system thatlinks systems for safety, education, and health management.
This system measures every item related to safety
management and our progress, and we have been running
PDCA cycles for safety management.
In FY 2019, we will use this data to manage operations to
avoid accidents, with the aim of introducing the system at
every worksite and Group company.

Safety Management System
Operations management
Driver health management system
Long working hours management system
Accident rapid reporting system

Initiatives in FY 2018
Linking Safety Information Systems to Upgrade
Management and Analysis Functions
We linked seven safety-related systems, including the driver healthmanagement system related to operation management and the risk
assessment system for disaster potential and hazards, to improve workplacesafety. Our objective is legal compliance with the Motor Truck Transportation
Business Act for safe operations and the Industrial Safety and Health Act for
improving workplace safety.

We are now able to visually represent safety management

Legal compliance

By collecting all the information and visualizing the progress of our initiatives,
we strengthened the safety management system.

Safety skills evaluation system
Roll call system

FY 2019 goal
Promoting the use and consolidation of the safety
management system

Workplace safety
Education management system
Risk assessment system for disaster potential and hazards

District Training and Initiatives to Enhance Safety Skills
We hold nationwide district training, or accident prevention training for which we simulate situations that have high accident rates.
In fiscal year 2018, we provided training with the following two mandatory themes in an effort to increase safety awareness and skills.
Avoiding collisions with bicycles

Avoiding accidents involving forklifts and people

Driver-related

Operator-related

We held practical skills training around Japan for situations with high accident rates, aiming for the complete elimination of accidents.

Be Safe! Using Educational Videos that Match the Occupation and Type of Operation
There are a range of potential dangers in the logistics
workplace. However, with only guidance from text and verbal
communication, it is difficult for inexperienced drivers to get areal sense of these dangers. At the Senko Group, we haveproduced educational videos to ensure safety, and every
workplace can select videos that match the characteristics oftheir operations to develop visually appealing safety educationthat can be edited and presented.

Visualizing the potential dangers inlogistics operations

for inexperienced drivers

Visual simulations ofdangerous situations

to increase the risk awareness of
inexperienced drivers

We released 45 videos in FY 2018 and will continue producing videos
in FY 2019 and beyond.

SENKO ANNUAL REPORT 2018 17

Health Initiatives
Announcing the Senko Group Health Management Declaration
inside and outside the Company
The Health Management Declaration announced in September 2017 expresses our wish that employees will
not only be healthy and happy at work, but that they will also be healthy and happy throughout their lives,
even after their working life ends.

Senko Group Health Management Declaration
The Senko Group hereby declares the following regarding the health of employees:◎ Continuing to be “A corporate Group which nurtures people and supports their daily lives.”◎ Ensuring that every Group employee can work in a healthy and lively manner.

◎ Placing the utmost importance on making sure employees can live healthy and happy lives.
In line with these goals, the Senko Group is implementing initiatives for promoting the health of employees, in order tobecome a truly affluent global company as a “Corporate Group Creating Future Trends.”
Yasuhisa Fukuda

President and Representative Director
Senko Group Holdings Co., Ltd.

Implemented Initiatives(1)‌Enhanced health management systems
Information on employee health will be managed for a longer life expectancy, with initiatives such as increasing the number ofnursing staff that are currently being allocated around the country, and providing specialist guidance to each and every employee.
(2) Enhanced measures for mental healthIn addition to further enhancing checkups for stress that are currently being implemented, improvements will be made to
management systems for preventing mental health problems.
(3) Implementation of activities for promoting health
Improvements will be made to the Healthy Activities program started in 2007 (a health promotion system using the Senko Group’s
own methods for measuring the level of activity) to encourage health promotion activities throughout the Senko Group.
(4) Management of workplace environment
Initiatives will focus on promoting a better work-life balance by reducing the amount of working hours and increasing the numberof days off, and developing programs to assist with quitting smoking.

Promotion System
These initiatives will mainly be administered by the Senko Group Health Management Division, in coordination with the Human
Resources Department, government health insurance services, and external occupational physicians, to create and implement a roadmap for employee health that will help to achieve the Health Management Declaration.

18 SENKO ANNUAL REPORT 2018

Corporate Social Responsibility

CSR

Examples of Specific Initiatives in FY 2018
1

Healthy Activities

Under the Healthy Activities program
started in 2007, every employee sets
goals based on the Ministry of Health,
Labor and Welfare’s Physical Activity
Guidelines for Health to make exercise a
habit in their daily life and to promote
general good health.

2

Organizing Sports Events

Twice a year, we have periods forstepping up Healthy Activities, andemployees enjoy physical activity inevery workplace, working to promote
good health. We also hold a variety ofsports events, such as volleyball
tournaments and walks.

3

Assigning Nurses

We have assigned 21 occupational healthand general nurses to our main businesssites in nine areas nationwide to provide
expert health guidance and day-to-day
mental and physical support based on the
results of periodic employee healthcheckups and consultations.

Recognized by the Certified Health & Productivity Management
Outstanding Organizations Recognition Program 2018
The Senko Group has been promoting health management for employees
for many years, including through the Healthy Activities program. To
acknowledge this, we were recognized in the Certified Health & Productivity
Management Outstanding Organizations Recognition Program 2018 (alsocalled White 500) on February 20, 2018. Under this program, the Ministry of
Economy, Trade and Industry and the Nippon Kenko Kaigi jointly honor
companies that practice outstanding health management.
The Senko Group’s approach is founded on the desire for employees tobe healthy and fulfilled at work and in their private lives. Based on thisapproach, we will continue to further improve the promotion of physical andmental health, not only stepping up our activities to promote health but also
by promoting mental health and managing the workplace environment sothat every employee can work energetically.

SENKO ANNUAL REPORT 2018 19

Social Activities
Promoting Diversity, Allowing All Employees to Feel
Comfortable at WorkThe Senko Group is committed to promoting individual growth and performance as well as to improving corporate vitality by fostering
an environment where every employee feels a sense of fulfillment. We promote the creation of a workplace environment where all
employees can feel comfortable and continue working for a lifetime. We have implemented both tangible and intangible activities inour effort to improve and develop the employment environment.

Basic Approach1

We allow all employees to play more active roles through mutual respectfor diverse values, including nationality, culture or handicap, rather thangender alone.

2

We make it possible to choose a work style that accommodates where
employees might find themselves from time to time, as well as changing
values.

Amid a shortage of labor, we have established the Foreign Employment
Support Office, and we are promoting an increase in our hiring of nonJapanese nationals and technical interns.

Gunma office, Kanto Senko Transport Co., Ltd.

Recognizing Social Contribution within the Group and Honoring
Outstanding Achievements
The Senko Group established the Social Contribution Activities
Commendation program in the fiscal year (ended March 31, 2017). The Social
Contribution Promotion Committee examines social contribution activities
submitted by Group companies and commends outstanding achievements.
In the fiscal year ended March 31, 2017, Runtec Co., Ltd. received an
outstanding performance award in recognition of activities over many years.
The award ceremony was held in May 2017.
Company representatives receiving outstanding performance awards

Outstanding
PerformanceAward

Recognizing activities that have continued
for many years, the head office team, Runtec Co., Ltd.
Runtec Co., Ltd. received an outstanding performance award for activities
that included holding traffic safety classes for children, fundraising drives,and directing traffic where children go to school.
Traffic safety class for children

20 SENKO ANNUAL REPORT 2018

Corporate Social Responsibility

CSR

Supporting Community and Cultural Activities through the
Popularization of Go
We have held the GO Festival at the Senko Group’s training facility
Crefeel Koto in Higashi Omi, Shiga Prefecture, since 2006, and wehave sponsored the Senko Cup Women’s Championship, since 2016.
We also sponsored the Senko Cup World Go Women’sChampionship held in March 2018.

Overseas Social Contribution Activities
Employees of our Thai subsidiary visit special care centers where
people with mental handicaps, such as Downs syndrome andautism, are living. They donated play equipment, food, clothing,and other items.

Playing games with the children

Bringing meals and eating together

Holding School Visit Workshops on Traffic Safety in Every Area
In addition to Traffic Safety Classes for Kids, which we hold in every area, we have been
holding school visit workshops at elementary and junior high schools since the fiscal
year ended March 31, 2015.
In the school visit workshop program, children learn about the importance of traffic
safety in a fun way, which includes thinking about safe ways to cross the road and use acrosswalk, experience the blind spots in a truck driver’s line of sight, and learn about thehazards of left-turn collisions.
The school visit workshop program makes the children happy and interested to see
trucks up close, including a ride in a truck and other experiences.

Traffic safety classes for kids held by Senko Co., Ltd.

Experiencing the blind spots in a truck (Runtec Co., Ltd.)We held workshops
in seven schoolsin Kanagawa, Hyogo, Fukuoka,
Kumamoto, and Miyazaki
Prefectures as well as Hokkaido.

How to use a crossroad (Minami-Kyushu Senko Co., Ltd.)SENKO ANNUAL REPORT 2018 21

CSR Topics
Transportation Cross-Docking
Reduces Long Distances andDriving Hours
The Senko Group began using a cross-docking transportation system toreduce the burden on drivers and make trucking more efficient, one solution
to drivers getting older and labor shortages becoming more severe. To meet
diverse transportation requirements while decreasing long driving hours, weare establishing new cross-docking transportation routes.
Long-distance driving means long working hours for drivers and has
been one factor for the labor shortage. To resolve this issue, the Senko
Group has established relay stations on routes with long-distance sections
and uses cross-docking transportation to swap drivers and loads. By
returning from the relay station, the driver can go there and back in a day.
This enables drivers to maintain a work-life balance while working in good
health.
In 2017, we established an additional 21 cross-docking routes and now
operate 78 of these routes between the Tohoku and Kyushu regions. Withplans to further double the number of routes over the next five years, we will
establish diverse cross-docking transportation routes and hope to continue
meeting customer needs, including transporting difficult-to-handle goods.

Cross-docking transportation:
drivers go a central location and back in one day

Increasing cross-docking routes to meet diverse logistical needs

Modal Shift in Food Transportation Helps
Reduce CO2 and the Burden on Drivers

The Senko Group is striving to reduce the environmental impact and shorten
working hours for drivers through a modal shift from truck to railway
transportation that will significantly reduce CO 2 emissions and energy
consumption. In particular, Runtec Co., Ltd. has unique know-how due to thespecialization in food logistics, and has maximized rail transportation forfoodstuffs.
Runtec Co., Ltd. developed an original 31-foot cold and freezer container

22 SENKO ANNUAL REPORT 2018

Original container with seismic isolation to prevent damage to delicate foods

Labor Saving and Mechanization to Reduce
Onsite Workloads and Resolve Labor
Shortages
The Senko Group is promoting labor saving and mechanization for heavy
work such as reshipment, sorting, and onsite transportation at logistics
centers. We intend to resolve labor shortages and increase productivity by
reducing the burden on employees and by achieving a more comfortableworkplace environment.
It is possible to prevent human error and improve the quality andconsistency of service while reducing the work burden on employees
through labor saving and mechanization, primarily for the reshipment ofespecially heavy items such as beverages being shipped to mass retailers
and onsite transportation operations that require long working hours. At thesame time, allowing people to work at a level that requires some judgement
also increases their motivation.
In 2018, we launched a robotics project at the Senko Group’s Logistics
Research Institute. Going forward, we will carry out research into nextgeneration technology, particularly robot technology, across the Group froma medium-to-long term perspective and introduce this technology into
logistics worksites.

An unmanned forklift reduces
the workload

A robotic arm automaticallyreshipping heavy freightwith a GPS dynamic temperature monitoring system to preserve food quality
and transport it safely, ahead of other companies, and to improve railtransportation for food. Amid the increase in single-serving meals and readyto-eat items due to the decline in the birthrate and aging of the population,
Runtec plans to increase the number of 31-foot cold and freezer containers
from the current 160 to 200 by 2021.
In recognition of these initiatives, we received three Special Logistics
Environment Awards from the Japan Association for Logistics and Transport at
the 18th Logistics Environment Awards in the fiscal year ended March 31, 2018.
We were also chosen for an Award for Excellent Business Entities Working on
Modal Shift, recognizing that our percentage of rail and sea transportation fortrunk sections has exceeded 40%.
The Senko Group had already obtained Eco-Ship Mark certification and
Eco-Rail Mark certification as a logistics company that uses more than acertain level of environmentally friendly sea and rail transportation. We also
propose environmentally friendly logistics services and shipping channels
other than truck transportation.

Receiving three Special Logistics Environment Awards at the 18th
Logistics Environment Awards

Eco-ship mark

Eco Rail mark

SENKO ANNUAL REPORT 2018 23

Corporate Governance
Basic Policy
The Senko Group is a logistics company involved in highly public work that fosters people’s development and supports their lives. The
Senko Group makes every effort to ensure that all corporate activities thoroughly comply with laws, based on the awareness that
good corporate governance is the foundation of a business, as well as regarding governance as a high priority for management.

Corporate Governance System
We have adopted the following corporate governance system, one that we consider to be optimal, in order to ensure managementtransparency and legal compliance based on the company’s size, lines of business, organizational structure, and other features.
General Meeting of Shareholders
Appointment / Dismissal

Appointment / Dismissal

Accounting Auditors

ReportBoard ofCorporate Auditors

Appointment / Dismissal

ReportAudit

Appointment /Supervision

Dialogue
ReportAccounting
Audit

Executive Officers

Board of Directors

Assist /ReportReportPresident andRepresentative Director

Audit

Auditing Dept.

Internal Controls Committee
CSR Promotion Committee(Directors, Corporate Auditors, Committee Chairmen, etc.)

ReportSupervise
Instruct

Legal Counsel

Audit

ReportOperating companies
AdviceSubsidiaries directlysupervised byholding company
Companies in Living
Support, Agriculture,
and Business Support

ReportCore companies
Runtec Co., Ltd.
SENKO SHOJI Co., LTD.
AST CORPORATIONSMILE CORP.

ReportReportReportCompliance Committee
Corporate Ethics Committee
Risk Management Committee
Environmental Promotion Committee
Social Contribution Promotion Committee
Health and Safety Committee

SENKO Co., Ltd.
ReportCorporate Management Committee

1

The Company’s Board of Directors meets at least once a month and deliberates on issues as required by laws and regulations aswell as important management concerns in addition to being an organization that oversees the execution of business. Furthermore,so that the Directors, Executive Officers, and key employees execute their duties appropriately and efficiently, the Company has
established the Regulations of the Board of Directors and the Regulations for Administrative Authority to clarify authority andresponsibility. We also verify the status of the implementation of operations and strive to have even more transparent management.

2

To promote Group-wide CSR-based management, the Group has established the Compliance Committee, the Corporate Ethics
Committee, the Risk Management Committee, the Environmental Promotion Committee, and the Social Contribution Committee
in addition to the CSR Promotion Committee, which supervises these committees.
Moreover, we have established the Group Safety and Environment Committee to improve the level of safety andenvironmental concern within the Group and the Internal Controls Committee to maintain and upgrade the Group’s internal
control systems.

3

The Corporate Auditors attend meetings of the Board of Directors and monitor the execution of operations by the Directors
from an objective point of view. In addition, they conducting audits and collaborate with the Auditing Department and the
Accounting Auditors (Otemae Audit Corporation) to ensure thorough compliance, which includes subsidiaries.

24 SENKO ANNUAL REPORT 2018

4

The Company has concluded audit agreements based on the Companies Act and the Financial Instruments and Exchange Act
with Ohtemae Audit Corporation as the Accounting Auditors and receives advice on accounting. Three certified public
accountants provide these services, and eight certified public accountants assist with audit operations.

5

The Auditing Department performs internal audits at the Company and subsidiaries with the aim of verifying the status of risk
countermeasures, identifying the status of managing operations and of improvements, and ensuring the effectiveness of the operation
management system. As well, the Auditing Department reports its findings to the Representative Director and the Corporate Auditors.

Further, to promote Group-wide CSR-based
management, we established the Compliance
Committee, the Corporate Ethics Committee, theRisk Management Committee, the Environmental
Promotion Committee, and the Social Contribution
Committee in addition to the CSR Promotion
Committee, which supervises these committees,
and the Internal Controls Committee to create aGroup-wide CSR-based management system.

Compliance Committee
Corporate Ethics Committee
CSR Promotion
Committee
Committee Chairman: President

Operatingcompanies

Risk Management Committee
Social Contribution Promotion Committee
Environmental Promotion Committee

Policy on Determining Compensation for Officers
Compensation for the Company’s officers consists of basic remuneration, a performance-based stock compensation plan, stock
options, and performance-based pay (bonuses). Specific amounts are controlled by internal regulations with basic remuneration andstock options being determined by their peers, while the performance-based stock compensation plan and performance-based bonus
are based on varied circumstances, including the contribution of each person to the Company’s financial performance, in addition to
the Company’s overall financial performance in a single fiscal year.
Category of Officer

Total Amount of
Total Amount of Each Type of Compensation, etc. (Millions of yen)
Number of eligible
Compensation, etc.
officers
Basicremuneration
Stock options
Bonus
Retirement benefits(Millions of yen)

Directors (excludes Outside Directors)

93

64

10

19

–

9

Corporate Auditors (excludes Outside Corporate Auditors)

35

30

1

4

–

3

Outside Officers

36

30

1

5

–

5

Senko has included some of the principle elements of Japan’s Corporate Governance Code, which started being applied in June 2015,
on the Company’s website to clarify the Company position on working to enhance corporate governance based on this code.
http://www.senkogrouphd.co.jp/ir/governance/ (Japanese only)● Corporate Governance Report● Initiatives Based on Corporate Governance Principles

Compliance-Based Management
Compliance-based management, which complies with laws and regulations and engages in ethical business activities, is the base for acompany to fulfill its social responsibility and earn the trust of stakeholders.
The Senko Group has established, based on a thorough understanding of the Group’s social obligations, the Senko Standards of BusinessConduct which prescribes all items that executives and employees must observe for every aspect of their jobs.

SENKO ANNUAL REPORT 2018 25

Risk Management
Business Risks
The risks related to the business, financial position, and operating results, etc. of the Senko Group that may have a material impact on
the judgment of investors are described below. Forward-looking statements are based on the judgment of the Senko Group (theCompany and consolidated subsidiaries) as of the last day of the fiscal year under review (March 31, 2018).

1 Laws and Regulations

The Group is engaged in transportation, distribution processing, and other businesses, and provides a wide range oflogistics services. These businesses are subject to regulation under the Motor Truck Transportation Business Act,
the Consigned Freight Forwarding Business Act, the Warehousing Business Act and other legislation. It is necessary
to receive registration or approval from the Minister of Land, Infrastructure and Transport to engage in thesebusinesses, and there is a mandatory post-notification system for setting and revising fees. Moreover,environmental legislation, including regulations on truck exhaust, has also been strengthened. The performance of
the Group could be affected by legal revisions in the future and by trends for tightening or loosening regulations.

2 the Price of Crude Oil

Sharp Increases inHigher prices for light oil due to a sharp increase in the price of crude oil will push up transportation costs. The performanceof the Group, where truck transportation is the mainstay business, could be affected in the future by price trends.

3 Serious Accident

Occurrence of a

In case a serious vehicle or freight accident occurs, the performance of the Group could be affected by a loss in customer
and public confidence, suspension of vehicle use, administrative penalties such as business suspension, etc.

4 Disaster, etc.

Occurrence of a

The performance of the Group could be affected by a system shutdown due to transportation routes being blocked
or electricity being suspended during a disaster, such as a storm or an earthquake, or by a blackout.

5

The Group leverages IT technology to manage customer freight information and for control systems for warehouses.
The performance of the Group could be affected if these systems are shut down due to a natural disaster, computervirus, or computer hacking.

IT System FailureManagement of

The Group handles customer information when providing logistics services and has worked hard on information

6 Customer Information management through in-house education. However, the Group’s performance could be affected by claims forcompensation for damages if there is an external leak of information or loss of data.

Risk Management System
The Senko Group’s key management issues include ensuring stable earnings and establishing a sound management base bymanaging all risks associated with the execution of operations. The risk management system is described below.

1

To systematically and effectively prevent the risks from occurring that the Group faces and to take corrective measures, we have established
the Risk Management Regulations. Every department that controls risk formulates and disseminates regulations, etc. aimed at reducing risks
and taking effective action when risks arise.

2

When a risk materializes and is expected to cause serious damage, the department controlling this risk and the department in which the risk is
expected to arise collaborate on reporting to the Board of Directors.

3

The Auditing Department verifies the status of risk countermeasures, etc. and reports to the Representative Director and the Board of
Corporate Auditors.

Establishing Business Continuity Plans (BCPs)
Every Group location has established a business continuity plan (BCP) in order to swiftly recover logistics in the event of a disaster. In
an emergency, support and recovery activities will be carried out promptly under the direction of the head office and the manager ofthe department taking countermeasures on the ground using the BCP.
When data centers are affected by a disaster, a backup data center will restore systems within 30 minutes, even if the server
shuts down to ensure that logistics systems can be maintained.

26 SENKO ANNUAL REPORT 2018

Directors and Auditors

President andRepresentative Director

Yasuhisa Fukuda
President andRepresentative Director

Yasuhisa Fukuda

Responsible for Logistics & International Business
Head of Promotion Division, Business Support
President and Representative Director, Senko Co., Ltd.
Representative Director and Chairman, Zenkoku Tsuun Co., Ltd.

Yoshihiro Kawase

Responsible for IT & Training, President and Representative Director, SENKOINFORMATION SYSTEM Co., Ltd.

Noburo Sasaki

Responsible for PR, IR, & Real Estate
President and Representative Director, Senko Real Estate Co., Ltd.

Kenichi Shiraki

Head of Business Promotion Division, Living Support

Masanobu Uenaka

Director and Managing Executive Officer, Responsible for Management Strategy
Director and Managing Executive Officer, Senko Co., Ltd.

Takeyo Tezuka

Responsible for Trading & Commerce, Director and Chairman, SENKO SHOJI Co., Ltd. ,President and Representative Director, Marufuji Co., Ltd.
President and Representative Director, Obata Co., Ltd.

Directors (Managing
Executive Officers)

Kengo Tanaka
Directors

Kazuhiro Yamanaka

Representative for Refrigerated & Frozen Logistics
President and Representative Director, Runtec Corporation
President and Representative Director, KOUKI Co., Ltd.

Hiroko Ameno

Professor, Faculty of Commerce at Kansai University, Director (part-time), Senko Co., Ltd.

Yasuyuki Sugiura

Advisor, Mitsubishi Corporation, Managing Director, Toyo Bunko, Outside Director,
IBJ Leasing Company, Limited

Keiji Matsubara
Masami Washida
Full-time Corporate
Auditors

Auditor, Senko Co., Ltd.

Keiichiro Yoshimoto
Kanji Yasumitsu
1. Both the directors Hiroko Ameno and Yasuyuki Sugiura are outside directors.
2. Both the full-time corporate auditors Keiichiro Yoshimoto and Kanji Yasumitsu are outside corporate auditors.
3. The full-time corporate auditor Keiji Matsubara has served in the Company’s Accounting Department and has considerable knowledge of finance and accounting．
4. ‌The Company has submitted statements to the Tokyo Stock Exchange designating directors Hiroko Ameno and Yasuyuki Sugiura and Full-time Corporate Auditor
Keiichiro Yoshimoto as Independent Officers.

SENKO ANNUAL REPORT 2018 27

2018

Financial Information
Contents
Financial Review……29
Consolidated Balance Sheets……32
Consolidated Statements of Income……34
Consolidated Statements of Comprehensive Income……34
Consolidated Statements of Changes in Net Assets……35
Consolidated Statements of Cash Flows……36
Notes to the Consolidated Financial Statements……37
Report of Independent Auditors……57

28 SENKO ANNUAL REPORT 2018

Financial Review
Performance
attributable to several factors that include a decline in freight
volumes from existing customers, rising expenses for leasing
vehicles and other outsourcing costs, as well as fuel prices
and higher costs due to actuarial differences in accounting for
retirement benefit obligations. Consolidated ordinary profit also
increased 0.1% year on year to ¥17,316 million, and net income
attributable to owners of parent increased 6.2% year on year to¥9,504 million.
Operating revenues by segment for the fiscal year underreview were as follows.

The Senko Group’s consolidated operating revenues for the
fiscal year under review increased 8.1% year on year to¥492,127 million. This result mainly reflects the aggressive
expansion of sales and the consolidation of NIPPON MARINE
CO., LTD., ANZEN YUSO CO., LTD., and other companies.
On the profit front, consolidated operating income rose by
only ¥5 million from the previous fiscal year to ¥17,087 million,
despite factors buoying profits brought about by sales
expansion and the consolidation of NIPPON MARINE CO., LTD.,ANZEN YUSO CO., LTD., and other companies. This was largely

Billions of yen

2018

2017

Operatingrevenues

Component
ratio (%)

Operatingrevenues

Component
ratio (%)

Difference

Growth rate(%)

Distribution¥ 347.8

70.7¥ 318.0

69.8¥ 29.8

9.4

Retail product

190.5

54.8

177.6

55.9

12.9

7.3

Housing

59.9

17.2

60.9

19.2

(0.9)

(1.5)

Chemicals

67.8

19.5

51.1

16.1

16.7

32.6

Other

29.6

8.5

28.3

8.9

1.1

4.0

Trading & commerce

139.3

28.3

132.9

29.2

6.4

4.9

Others

5.0

1.0

4.5

1.0

0.5

10.4

Total

¥ 492.1

100.0¥ 455.4

100.0¥ 36.78.1

For the fiscal years ended March 31

Operating revenues

Operating profit

Net income attributable toowners of parent(Millions of yen)

(Millions of yen)

(Millions of yen)

500,000

20,00010,000400,000

16,0008,000

300,000

12,0006,000

200,000

8,000

4,000

100,000

4,000

2,000

0

0

0

14

15

16

17

18

14

15

16

17

18

14

15

16

17

18

SENKO ANNUAL REPORT 2018 29

Distribution
Operating revenue grew 9.4% year on year to ¥347,752 million
in this segment. This was mainly attributable to a rise inrevenues due to the consolidation of NIPPON MARINE CO.,LTD., ANZEN YUSO CO., LTD., and other companies in addition
to the large-scale logistics centers built in the previous fiscal
year and higher sales from retailers and mass merchandisers,
particularly major drugstore chains.

previous fiscal year. Current assets came to ¥117,127 million,up ¥8,428 million from the end of the previous fiscal year. Thiswas mainly a reflection of increases of ¥8,551 million in notes
and operating accounts receivable-trade, despite decreasesof ¥2,167 million in cash and deposits.
Non-current assets were ¥217,232 million, up ¥40,056
million from the end of the previous fiscal year. This was
mainly due to increases in property, plant and equipment of¥29,957 million from M&As and new capital expenditure,despite the downward effect from the transfers of threelogistics centers to the private REIT, an increase in intangible
assets of ¥1,043 million, and an increase in investments andother assets of ¥9,056 million.

Trading & Commerce
Operating revenue grew 4.9% year on year to ¥139,317 million
in this segment. This was mainly attributable to higher revenue
from increasing fuel sales prices along with the growth insales to new customers and the consolidation of OKUMURA
CO., LTD.

Liabilities

OthersLiabilities as of March 31, 2018 increased ¥44,492 million fromthe end of the previous fiscal year to ¥216,360 million.
Current liabilities totaled ¥106,050 million, up ¥12,135 million
from the end of the previous fiscal year. This was mainly due toincreases in notes and operating accounts payable–trade of¥3,687 million, electronically recorded obligations–operating of¥416 million, short-term loans payable of ¥3,719 million andincome taxes payable of ¥592 million.
Non-current liabilities as of March 31, 2018 rose ¥32,357
million from the end of the previous fiscal year to ¥110,311
million. This was due to increases in bonds payable of ¥10,168
million, long-term loans payables of ¥20,748 million and leaseobligations of ¥976 million.

Operating revenue rose 10.4% year on year to ¥5,058 million in thissegment. This was mainly attributable to higher revenue from thecall center business.

Assets, Liabilities and Net Assets
Total Assets
Total assets as of March 31, 2018 were ¥334,418 million, an
increase of ¥48,459 million compared with the end of the

Operating profit margin (Net income per share

Cash dividends per share

(%)

(Yen)

(Yen)

5.0

75

25

4.0

60

20

3.0

45

15

2.0

30

10

1.0

15

5

0

)

0

0

14

15

30 SENKO ANNUAL REPORT 2018

16

17

18

14

15

16

17

18

14

15

16

17

18

Cash Flows

Net Assets
Net assets as of March 31, 2018 rose ¥3,966 million from theend of the previous fiscal year to ¥118,057 million. This was due
to such factors as increases in capital surplus of ¥4,319 million,
retained earnings of ¥6,314 million, and re-measurements ofdefined benefit plans of ¥1,250 million, despite a decrease of¥8,366 million in non-controlling interests mainly due to theacquisition of an additional equity stake in RUNTEC Co., Ltd., aconsolidated subsidiary. The equity ratio decreased by 1.4
percentage points from the end of the previous fiscal year to33.7%.

Cash and cash equivalents at the end of the fiscal year
decreased by ¥2,401 million year on year to ¥23,796 million.
Net cash provided by operating activities amounted to¥24,568 million. This was mainly due to a fall in cash of ¥3,863
million from an increase in trade receivable and payments of¥5,262 million in income taxes paid, despite profit before
income taxes of ¥16,936 million, depreciation and amortizationof ¥12,439 million, an increase in trade payable of ¥2,260
million and proceeds from subsidy income of ¥1,892 million.
Net cash used in investing activities totaled ¥37,020
million. This was mainly due to the purchase of fixed assetsof ¥37,042 million and payments of ¥2,140 million for purchaseof shares of newly consolidated subsidiaries accompanied bya change in the scope of consolidation and ¥5,131 million forthe purchase of non-consolidated subsidiaries despite¥11,121 million in proceeds from the sale of fixed assets.
Net cash provided by financing activities totaled ¥9,940
million. This was mainly due to a net increase of ¥9,778 million
in short-term loans payable, proceeds from long-term debt of¥22,106 million, and proceeds from issuance of corporatebond of ¥10,000 million, despite repayments of long-term debtof ¥17,792 million, repayments of finance lease obligations of¥3,855 million, the purchase of shares of usual consolidated
subsidiaries not accompanied by changes in the scope of
consolidation of ¥6,884 million, and cash dividends paid of¥3,471 million.

Capital Expenditures andDepreciation
Capital expenditures in the fiscal year under review increased¥19,963 million, or 113.0%, to ¥37,625 million, compared with theprevious fiscal year. The Company opened logistics centers in
the Aichi and Hiroshima Prefectures as well as Vietnam andSouth Korea in the fiscal year ending March 2018. As a result,
the total warehouse space as of March 31, 2018 expanded by
200,000 m2 from the end of the previous fiscal year to 3,420,000
m2. In the fiscal year ending March 31, 2019, capital
expenditures are expected to decrease ¥12,804 million, or
34.0%, to ¥24,821 million.
Depreciation increased ¥2,224 million, or 21.8%, to ¥12,440
million, compared with the previous fiscal year, and is
expected to rise ¥2,072 million, or 16.7%, to ¥14,512 million in
the fiscal year ending March 31, 2019.

Total assets

Net assets ( ) /Equity ratio ( )ROE ((Millions of yen)

(Millions of yen)

(%)

(%)

350,000

120,000

40

12

90,00030

960,00020

630,000

10

3

0

0

280,000)

210,000

140,000

70,000

0

0

14

15

16

17

18

14

15

16

17

18

14

15

16

17

18

SENKO ANNUAL REPORT 2018 31

Consolidated Balance Sheets
SENKO Group Holdings Co., Ltd. and Consolidated Subsidiaries
March 31, 2018 and 2017
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

¥ 23,796¥ 26,197$ 223,983

ASSETS
Current assets:
Cash and cash equivalents
Trade accounts and notes receivable–
Non-consolidated subsidiaries
OthersLess : allowance for doubtful accounts

3

6

28

70,524

61,970663,818

(16)

(22)

(150)

Inventories

8,181

7,604

77,005

Deferred tax asset (Note 16)

2,979

2,827

28,040Prepaid expenses and other current assets

11,660

10,117

109,752

117,127

108,699

1,102,476

Investments in and long-term loans receivable to non-consolidated subsidiaries

20,00813,267

188,328

Investment securities (Notes 7 and 12)

7,209

6,033

67,856

Total current assets

301,788

241,2362,840,625

Less : accumulated depreciation(141,717)(111,122)(1,333,933)

Net property and equipment

160,071

130,114

1,506,692

Long-term deferred tax assets (Note 16)

1,783

2,051

16,783Net defined benefit assets

3,659

2,359

34,441Other assets

24,50323,353

230,638

58

83

546

58

83

546

¥ 334,418¥ 285,959$ 3,147,760

Property and equipment, at cost (Notes 9 and 12)

Deferred assets:
Business commencement expenses
Total deferred assets

Total assets
See the accompanying notes to the consolidated financial statements.

32 SENKO ANNUAL REPORT 2018

Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

LIABILITIES AND NET ASSETS
Current liabilities:
Short-term loans (Note 10)¥

19,891

¥

9,035

$

187,227

Current portion of long-term debt (Note 10)

9,509

16,59789,505

Lease obligations

3,074

2,794

28,934

Trade accounts and notes payable–
Non-consolidated subsidiaries
Others
Accrued expenses

0

25

0

44,60840,480419,880

10,0408,630

94,503

Accrued income taxes

4,509

3,916

42,441Other current liabilities

14,41912,438135,721106,050

93,915998,211Long-term debt, less current portion (Note 10)90,44059,534

851,280

Lease obligations

7,343

6,366

69,117

Net defined benefit liabilities (Note 11)

6,902

7,088

64,966

Other long-term liabilities

5,626

4,965

52,956

26,52926,529249,708

Capital surplus

29,73025,411

279,838

Retained earnings

54,96948,655

517,404

(590)

(658)

(5,553)

110,638

99,937

1,041,397
16,707

Total current liabilities

Contingent liabilities (Note 13)
Net assets (Note 14):
Shareholders' equity
Common stock:
Authorized–294,999,000 shares
Issued–152,861,921 shares in 2018 and 152,861,921 shares in 2017

Less : Treasury stock, at cost–937,015 shares in 2018 and 1,279,937 shares in 2017
Total Shareholders' equity
Accumulated other comprehensive income :Net unrealized holdings gain on securities

1,775

1,392

Gain (loss) on deferred hedges

(61)

2

(574)

Translation adjustments

335

251

3,154

Remeasurements of defined benefit plans(43)(1,293)

(405)

2,006

352

18,882

Total accumulated other comprehensive income :Stock acquisition rights (Note 15)

373

396

3,511

Non-controlling interests

5,040

13,40647,440Total net assets

118,057

114,091

1,111,230

Total liabilities and net assets¥ 334,418¥ 285,959$ 3,147,760

See the accompanying notes to the consolidated financial statements.

SENKO ANNUAL REPORT 2018 33

Consolidated Statements of Income
SENKO Group Holdings Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2018, 2017 and 2016
Thousands of
U.S. dollars

Millions of yen

2018

2017

2016

2018

¥492,127¥ 455,435¥ 434,000$ 4,632,219

440,671
34,369405,758
32,595386,32130,182

4,147,882
323,503

475,040

438,353

416,5034,471,385

17,087

17,082

17,497

160,834

238
(977)
588

232
(927)
186

293
(1,102)
(272)

2,240
(9,196)
5,535

(151)

(509)

(1,081)(1,421)

Income before income taxes

16,936

16,573

16,416

159,413

Income taxes (Note 16):
Current
Deferred

5,778
(9)

5,930
(148)

5,528
638

54,386
(84)

5,769

5,782

6,166

54,302

Net income

11,167

10,791

10,250105,111Net income attributable to non-controlling interests(1,663)(1,840)(1,708)(15,653)

Operating revenues
Operating costs and expenses:
Operating costs of revenues
Selling, general and administrative expenses

Operating profit
Other income (expenses):
Interest and dividend income
Interest expenses
Others, net

Net income attributable to owners of parent

¥

9,504

¥

Per share of common stock
Net income
Diluted net income
Cash dividends applicable to the year

8,951

¥

8,542

$

Yen

¥

62.64
58.08
22.00

¥

61.67
58.74
22.00

89,458
U.S. dollars

¥

60.43
56.32
20.00

$

0.59
0.55
0.21

See the accompanying notes to the consolidated financial statements.

Consolidated Statements of Comprehensive Income
SENKO Group Holdings Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2018, 2017 and 2016
Thousands of
U.S. dollars

Millions of yen

2018

2017

2016

2018

¥ 11,167¥ 10,791¥ 10,250$ 105,111

Other comprehensive income (Note 5):
Net unrealized holdings gain on securities
Gain (loss) on deferred hedges
Translation adjustments
Remeasurements of defined benefit plans

430
(66)
105
1,257

52
98
(236)
1,544

(353)
(95)
(153)
(1,019)

4,047
(620)
988
11,832

Total other comprehensive income

1,726

1,458

(1,620)

16,247

Comprehensive income¥ 12,893¥ 12,249¥ 8,630$ 121,358

Total comprehensive income attributable to:
Owners of parent
Non-controlling interests¥ 11,158¥ 1,735¥ 10,337¥ 1,912¥ 7,088¥ 1,542$ 105,027$ 16,331

Net income

See the accompanying notes to the consolidated financial statements.

34 SENKO ANNUAL REPORT 2018

Consolidated Statements of Changes in Net Assets
SENKO Group Holdings Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2018, 2017 and 2016
Millions of yen

Balance at March 31, 2015
Net income attributable to owners of parent
Conversion of convertible bonds
Cash dividends
Purchases of treasury stock
Retirement of treasury stock
Adjustment of retained earnings for
newly consolidated subsidiaries
Change in treasury shares ofparent arising from transactions
with non-controlling shareholders
Other changes

Balance at March 31, 2016

Number ofshares ofcommonstock issued

Commonstock

CapitalsurplusRetainedearnings

Treasurystock(at cost)

141,927¥ 23,099¥ 21,915¥ 36,677¥ (1,183)¥ 1,820

¥ (4)

¥ 544

¥ (1,840)

¥ 289

–
2,907
–
–
–

–
913
–
–
–

–
913
–
–
–

8,542
–
(2,571)
–
–

–
–
–
(10)
250

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

8,542
1,826
(2,571)
(10)
250

–

–

–

197

–

–

–

–

–

–

–

197

–

–

10

–

–

–

–

–

–

–

–

10

–

–

–

–

–

(371)

(88)

(116)

(981)

71

506

(979)

144,834¥ 24,012¥ 22,838¥ 42,845¥ (943)¥ 1,449¥ (92)¥ 428¥ (2,821)

¥ 360

–

–

–

19

–

–

–

–

–

–

144,834¥ 24,012¥ 22,838¥ 42,864¥ (943)¥ 1,449¥ (92)¥ 428¥ (2,821)

¥ 360

–
8,027
–
–
–

–
2,517
–
–
–

–
2,517
–
–
–

8,951
–
(3,177)
–
–

–
–
(1)
286

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

8,951
5,034
(3,177)
(1)
286

–

–

–

17

–

–

–

–

–

–

–

17

–

–

56

–

–

–

–

–

–

–

–

56

–

–

–

–

–

(57)

94

(177)

1,528

36

1,452

2,876

152,861¥ 26,529¥ 25,411¥ 48,655¥ (658)¥ 1,392

¥ 2

¥ 251

¥ (1,293)

¥ 396

–
–
–
–
–

–
–
–
–
–

–
–
–
–
(13)

9,504
–
(3,355)
–
–

–
–
(455)
523

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

9,504
–
(3,355)
(455)
510

–

–

–

165

–

–

–

–

–

–

–

165

–

–

4,332

–

–

–

–

–

–

–

–

4,332
(6,735)

Cumulative effects of changes inaccounting policies

Restated balance
Net income attributable to owners of parent
Conversion of convertible bonds
Cash dividends
Purchases of treasury stock
Retirement of treasury stock
Adjustment of retained earnings for
newly consolidated subsidiaries
Change in treasury shares ofparent arising from transactions
with non-controlling shareholders
Other changes

Balance at March 31, 2017
Net income attributable to owners of parent
Conversion of convertible bonds
Cash dividends
Purchases of treasury stock
Retirement of treasury stock
Adjustment of retained earnings for
newly consolidated subsidiaries
Change in treasury shares ofparent arising from transactions
with non-controlling shareholders
Other changes

Balance at March 31, 2018

Net
Remeasurements
Stock
Gain (loss)
unrealized
Translationof definedacquisition
on deferredholdings gain
adjustments
benefit plansrightshedgeson securities

Noncontrollinginterests

Total net
assets¥ 11,428 ¥ 92,745¥ 11,934 ¥ 100,010
20

39¥ 11,954 ¥ 100,049¥ 13,406 ¥ 114,091

–

–

–

–

–

383

(63)

84

1,250

(23)

(8,366)

152,861¥ 26,529¥ 29,730¥ 54,969¥ (590)¥ 1,775¥ (61)¥ 335¥ (43)¥ 373¥ 5,040 ¥ 118,057

Thousand of U.S. dollars

Balance at March 31, 2017
Net income attributable to owners of parent
Conversion of convertible bonds
Cash dividends
Purchases of treasury stock
Retirement of treasury stock
Adjustment of retained earnings for newly
consolidated subsidiaries
Change in treasury shares of parent arising fromtransactions with non-controlling shareholders
Other changes

Balance at March 31, 2018

Net
Gain (loss)
Remeasurements
Stockunrealized
Translation
on deferredof definedacquisition
holdings gain
adjustments
hedgesbenefit plansrightson securities

Commonstock

CapitalsurplusRetainedearnings

Treasurystock(at cost)$ 249,708$ 239,185$ 457,972$ (6,193)$ 13,102

–
–
–
–
–

–
–
–
–
(123)

89,458–(31,579)–––––(4,283)
4,923

–

–

1,553

–
–

40,776–$ 249,708$ 279,838$

Noncontrollinginterests

Total net
assets19$ 2,363$ (12,171)$ 3,727$ 126,186$1,073,898

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

89,458–(31,579)(4,283)
4,800

–

–

–

–

–

–

–

1,553

–
–

–
–

–
3,605

–
(593)

–
791

–
11,766–(216)–(78,746)

40,776(63,393)$ 517,404$ (5,553)$ 16,707$ (574)$ 3,154(405)$ 3,511$ 47,440$1,111,230$

SENKO ANNUAL REPORT 2018 35

Consolidated Statements of Cash FlowsSENKO Group Holdings Co., Ltd. and Consolidated Subsidiaries
Year ended March 31, 2018, 2017 and 2016

Thousands of
U.S. dollars

Millions of yen

2018

2017

2016

2018

¥ 16,936¥ 16,573¥ 16,416$ 159,413

12,440
127
57
(414)
651
(639)
–
(66)
–
–
471
(257)
190
(238)
977
(3,863)
63
2,260
(309)

10,216
130
–
(251)
1,225
–
(1,253)
(537)
575
–
(419)
(243)
144
(232)
927
(1,695)
(67)
1,071
608

9,925
182
–
(248)
–
–
–
–
104
32
–
(1,761)
58
(293)
1,102
(1,748)(405)
1,694(2,276)

117,093
1,195
537(3,897)
6,128(6,015)
–
(621)
–
–
4,433
(2,419)1,788(2,240)9,196(36,361)593
21,273(2,908)28,386
1,892
520
(968)
(5,262)

26,772–390(954)(5,360)22,782–226(1,096)(5,763)

267,188
17,8094,894(9,112)(49,529)

24,56820,84816,149231,250(37,042)
11,121(387)
155(5,131)(2,140)–(3,596)(16,253)
17,883(60)
637(5,282)
(325)
–
(279)

(17,995)
21,728(120)
524(4,579)–(96)(1,751)(348,663)
104,678(3,643)
1,459(48,296)(20,143)–(33,848)(37,020)(3,679)(2,289)(348,456)

9,778
22,106(17,792)–
10,000(24)(6,884)(3,855)(455)
683(3,341)
(276)

252
3,150
(10,871)
10,050–(5,000)–(2,802)(1)
406(3,173)(638)(12,800)
5,780(9,645)––(20)–(2,116)(9)250(2,571)(361)

92,037208,076(167,470)–
94,127(226)(64,797)(36,286)
4,282
6,428
(31,448)(2,598)9,940(8,627)(21,492)

93,561

55

(116)

(79)

518

Net increase (decrease) in cash and cash equivalents(2,457)

8,426(7,711)(23,127)

Cash and cash equivalents at beginning of year

26,197

17,76525,476

246,583

56

6

–

527

¥ 23,796¥ 26,197¥ 17,765$ 223,983

Cash flows from operating activities:
Income before income taxes
Adjustments for:
Depreciation and amortization
Loss on disposals of property and equipment
Loss on valuation of investments in affiliates
Gain on sales of property and equipment
Loss on reduction of property and equipment
Subsidy income
State subsidy
Gain on sales of investment securities
Loss on valuation of shares of subsidiaries and associates
Loss on sales of shares of subsidiaries and associates
Decrease (increase) in accured retirement benefits
Decrease in net defined benefit liabilities
Increase in accrued bonuses to employees
Interest and dividends income
Interest expenses
Increase in trade receivables
Decrease (increase) in inventories
Increase in trade payables
Other
Subtotal
Proceeds from subsidy income
Interest and dividends income received
Interest expenses paid
Income tax paid
Net cash provided by operating activities
Cash flows from investing activities:
Payments for purchases of fixed assets
Proceeds from sales of fixed assets
Payments for purchases of investment securities
Proceeds from sales of investment securities
Payments for purchases of non-consolidated subsidiaries
Payments for purchase of shares of newly consolidated subsidiaries
Payments for sales of shares of consolidated subsidiaries
Other
Net cash used in investing activities
Cash flows from financing activities:
Increase (decrease) in short-term loans, net
Proceeds from long-term debt
Repayment of long-term debt
Proceeds from issuance of convertible bondProceeds from issuance of corporate bondPayments for redemption of bondPayments for purchase of shares of usual consolidated subsidiaries
Repayments of finance lease obligations
Purchases of treasury stock
Sales of treasury stock
Dividends paid
Other
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents of newly consolidated subsidiaries
Cash and cash equivalents at end of year
See the accompanying notes to the consolidated financial statements.

36 SENKO ANNUAL REPORT 2018

Notes to the Consolidated Financial Statements
SENKO Group Holdings Co., Ltd. and Consolidated Subsidiaries

01

Basis of Presenting Consolidated Financial Statements:

02

Summary of Significant Accounting Policies:

SENKO Group Holdings Co., Ltd. (the “Company”) and its domestic subsidiaries maintain their accounts and records in accordance with theprovisions set forth in the Japan Companies Act and the Financial Instruments and Exchange Law of Japan and in conformity with accounting
principles generally accepted in Japan, which are different in several respects as to the accounting and disclosure requirements of International
Accounting Standards.
The Company’s foreign subsidiaries maintain their accounts and records in conformity with generally accepted accounting principles andpractices prevailing in their respective countries of domicile.
The accompanying consolidated financial statements are prepared based on the consolidated financial statements of the Company and its
subsidiaries(the“Companies”) which were filed with the Director of Kanto Local Finance Bureau as required by the Financial Instruments andExchange Law of Japan.
In preparing the accompanying consolidated financial statements, certain reclassifications and rearrangements have been made to theconsolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan.
The translation of Japanese yen amounts into U.S. dollars is included solely for the convenience of the reader, using the exchange rate
prevailing at March 31, 2018, which was ¥106.24 to US$1.00. These convenience translations should not be construed as representations that theJapanese yen amounts have been, could have been, or could in the future be, converted into U.S.dollars at this or any other rate of exchange.

(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its significant subsidiaries. All significant intercompany balances
and transactions are eliminated.
Non-consolidated subsidiaries, whose combined assets, net sales, net income and retained earnings in the aggregate are not significant inrelation to those of the consolidation with the Companies.
The investments in other insignificant unconsolidated subsidiaries and affiliates are stated at cost.

(b) Cash and Cash Equivalents
Cash and cash equivalents comprise cash in hand, deposits held at call with banks, net of overdrafts and all highly liquid investments withmaturities of three months or less.

(c) Investment Securities
Investment securities are classified and accounted for, depending on management’s intent.
Marketable other securities, which are not classified as either trading securities or held-to-maturity debt securities, are reported at fair value, withunrealized gains and losses, net of applicable taxes, reported in a separate component of net assets.
Non-marketable other securities are stated at cost.
The cost of other securities sold is determined by the moving-average method.
The Companies classified all securities as other securities.

(d) Allowance for Doubtful Accounts
The allowance for doubtful accounts is stated in amounts considered to be appropriate based on the Companies’ past credit loss experience or an
evaluation of potential losses in the receivables outstanding.

(e) Inventories
Purchased goods are stated principally at cost determined by the moving-average method (with book values written down on the balance sheets based on
decreased profitability of assets). Finished goods, real estate for sale and work in process are stated principally at cost determined by the specific method(with book values written down on the balance sheets based on decreased profitability of assets). Raw materials are stated at cost determined by the lastpurchase cost method (with book values written down on the balance sheets based on decreased profitability of assets). Supplies are principally stated atcost determined by the moving-average method (with book values written down on the balance sheets based on decreased profitability of assets).

(f) Property and Equipment and Depreciation (Except for Leased Assets)
Property and equipment are stated at cost. Depreciation is computed on the straight-line method for the buildings (including fixtures attached tothe buildings), structures and vehicles, and on the declining-balance method for the others, on the estimated useful lives of assets.
The principal estimated useful lives are as follows:
Buildings and structures

3 to 51 years

Machinery and equipment

3 to 17 years

SENKO ANNUAL REPORT 2018 37

(g) Leased Assets
Financial leases other than those that are deemed to transfer the ownership of leased assets to the lessees are accounted for in a similar way topurchases and depreciation for lease assets is computed under the straight-line method with zero residual value over the lease term.
Financial leases other than those that are deemed to transfer the ownership of leased assets to the lessees, which commenced in fiscal years
beginning prior to April 1, 2008, are accounted for in a similar way to operating leases.

(h) Accounting for significant deferred assets
Method and period for amortization of business commencement expenses
Business commencement expenses are amortized by the straight-line method over five years.

(i) Retirement Benefits
The Company and certain consolidated subsidiaries have retirement benefit plans for their employees that consist of funded and unfunded defined
benefit pension plans and a defined contribution pension plan. The Company terminated a part of the retirement lump-sum plan and transferred toa defined contribution pension plan on July 1, 2013.
Under the defined benefit pension plans (all of which are funded benefit plans), lump-sum benefits or pensions are paid based on salary and thelength of service. The Company has set up a retirement benefit trust scheme for certain defined benefit pension plans.
Under the retirement lump-sum plans (though the plans are basically unfunded, some were turned into funded plans after the setting up of aretirement benefit trust scheme), lump-sum benefits are paid based on salary and length of service.
Net defined benefit liabilities have been provided for employees’ retirement benefits, based on the amount of projected benefit obligation reducedby pension plan assets at fair value at the balance sheet date.
Actuarial gains and losses are amortized by the straight-line method over a period of 10 years, which is within the estimated average remaining
years of service of the Companies’ employees. The amortization of such gains and losses is recognized effective the year subsequent to the year inwhich they are incurred. Prior service costs are amortized in the fiscal year in which they are incurred.
Certain consolidated subsidiaries also have a severance indemnity plan for directors and corporate auditors, whose accrued severance
indemnities are stated at 100% of the amount which is computed according to internal rules.

(j) Income Taxes
Deferred income taxes are recognized by the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are
determined based on difference of between financial reporting and the tax basis of the assets and liabilities, and are measured using the enacted
tax rate and laws that will be in effect when the differences are expected to reverse.

(k) Goodwill
Goodwill amortized over a period of 5 years by the straight-line method. If the economic useful life can be estimated, the useful life is used as theamortization period.

(l) Derivatives and hedge accounting
The Company and consolidated subsidiaries state derivative financial instruments at market value and recognize changes in the market value as
gain or loss unless the derivative financial instruments are used for hedging purposes. If derivative financial instruments are used as hedges andmeet certain hedging criteria, the Company and consolidated subsidiaries defer recognition of gain or loss resulting from changes in the market
value of the derivative financial instrument until the related loss or gain on the hedged item is recognized. However, when forward foreignexchange contracts are used as hedges and meet certain hedging criteria, the foreign currency receivables or payables are translated at thecontracted rate. Also, if interest rate swap contracts are used as hedges and meet certain hedging criteria, the net amount to be paid or received
under the interest rate swap contract is added to or deducted from the interest on the asset or liability for which the swap contract was executed.

(m) Per Share Information
Basic net income per share is computed on the basis of the weighted-average number of shares of common stock outstanding for the period.
Diluted net income per share is computed on the basis of the weighted-average number of shares of common stock outstanding during each year after giving
effect to the dilutive potential of the shares of common stock to be issued upon the conversion of convertible bonds and exercise of stock acquisition rights.
Cash dividends per share are dividends applicable to the respective years including dividends to be paid after the end of the year.

(n) Translation of Foreign Currencies
All monetary assets and liabilities denominated in foreign currencies are translated into Japanese yen at the exchange rate at the balance sheet
date. Revenue and expenses are translated at the rate of exchange prevailing when transactions are made.
Foreign currency financial statements amounts of overseas consolidated subsidiaries are translated into Japanese yen at the exchange rate forprevailing at the respective balance sheet dates of those subsidiaries for assets and liabilities, and at the historical exchange rate for net assets.
All income and expense amounts are translated at the average rate of exchange during the fiscal year of those subsidiaries.
The resulting translation adjustments are included in net assets as translation adjustments.

38 SENKO ANNUAL REPORT 2018

03

Accounting Standard, etc., Issued but Not Yet Adopted

・Implementation Guidance on Tax Effect Accounting (ASBJ Guidance No. 28, revised on February 16, 2018 by the Accounting Standards Board ofJapan (ASBJ))
・Implementation Guidance on the Recoverability of Deferred Tax Assets (ASBJ Guidance No. 26, final revision on February 16, 2018, AccountingStandards Board of Japan)(1) Outline
The Implementation Guidance on Tax Effect Accounting, etc. underwent the following revisions deemed necessary on the transfer of the Practical
Guidelines on Tax Effect Accounting of the Japanese Institute of Certified Public Accountants to the ASBJ, by adhering to the basic contents.
(Major revised accounting treatment)
・The accounting treatment for the taxable temporary difference for subsidiaries’ shares, etc. in the non-consolidated financial statements
・The accounting treatment on the recoverability of deferred tax assets at companies that fall under Category 1(2) Planned application date
To be applied from the beginning of the fiscal year ending March 31, 2019(3) Impact of the application of the above accounting standards, etc.
The impact of the application of the Implementation Guidance on Tax Effect Accounting, etc. on the consolidated financial statements is currently
being assessed.
・The Accounting Standard for Revenue Recognition(ASBJ Statement No. 29 issued on March 30, 2018 by ASBJ)
・The Implementation Guidance on Accounting Standard for Revenue Recognition(ASBJ Guidance No. 30 issued on March 30, 2018 by ASBJ)(1) Outline
The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) in the United States jointly developed
comprehensive accounting standards for revenue recognition and published the Revenue from Contracts with Customers (IFRS 15 in the IASB and
Topic 606 in the FASB) in May 2014. Given that IFRS 15 will be applied from the fiscal year starting on or after January 1, 2018, and that Topic 606
will be applied from the fiscal year starting after December 15, 2017, the Accounting Standards Board of Japan (ASBJ) has developed
comprehensive accounting standards for revenue recognition and has published them together with the implementation guidance.
The policy of the ASBJ in developing accounting standards for revenue recognition is to set accounting standards that incorporate the basic
principles of IFRS 15 as a starting point. The goal is to have comparability between financial statements, one of the benefits of ensuringconsistency with IFRS 15, and to add alternative accounting treatments without losing comparability if there is an item that should be taken into
account in the practices, etc. that have been followed in Japan.

(2) Planned application date
To be applied from the beginning of the fiscal year ending March 31, 2022

(3) Impact of the application of the above accounting standard, etc.
The impact of the application of the Accounting Standard for Revenue Recognition, etc. on the consolidated financial statements is currently being
assessed.

04

Additional Information(Employee Stock Ownership Plan Trust (ESOP Trust))(1) Outline of the transaction
The Company introduced the ESOP Trust with the aim of improving the benefit program for employees. In addition, the ESOP Trust will foster asense of belonging to the Group, creating an awareness of participation in management, and will increase awareness about contributing to
improvements in the Group’s medium-to-long term business performance and increasing corporate value through a program that is common
across the Group. The ESOP Trust is an incentive plan that delivers the Company’s shares acquired by the Trust to eligible employees who meetcertain requirements based on predetermined share distribution rules . As the funds for purchasing the Company’s shares that the Trust acquires
are contributed by every eligible company, there is no contribution from eligible employees.

(2) The Company’s own stock remaining in the trusts
The Company’s own stock remaining in the ESOP Trusts is posted as treasury stock under net assets at a book value recorded in the ESOP Trusts(excluding ancillary expenses). The amount and book value of the applicable treasury stock is 349,000 shares valued at ¥285 million
SENKO ANNUAL REPORT 2018 39

($2,683thousand) for the current consolidated fiscal year.
(Officer Remuneration Board Incentive Plan (BIP Trust))(1) Outline of Transactions
The Company has introduced the Board Incentive Plan Trust (BIP Trust) as an executive officer remuneration plan for directors of the Company
and the Group’s subsidiaries (excluding outside directors and non-residents of Japan). This incentive plan is strongly linked to the Group’s financial
performance as well as being highly transparent and objective to help increase awareness of contributing to improving the Group’s medium-tolong term business performance and increasing the corporate value. The BIP Trust is a plan that delivers the Company’s shares and/or pays anamount of cash equivalent to the converted value of the Company’s shares to directors based on their position in the company and their financial
performance in the same way as the Performance-based Stock Compensation Plan (Performance Share) and the Restricted Stock Compensation
Plan (Restricted Stock) in Europe and the United States.

(2) The Company’s own stock remaining in the trusts
The Company’s own stock remaining in the BIP Trusts is posted as treasury stock under net assets at a book value recorded in the BIP Trusts(excluding ancillary expenses). The amount and book value of the applicable treasury stock is 210,000 shares valued at ¥170 million ($1,601 thousand)for the current consolidated fiscal year.

05

Comprehensive Income

The amount of recycling and amount of income tax effect associated with other comprehensive income at March 31,2018, 2017 and 2016
consisted of the following:Thousands of
U.S. dollars

Millions of yen

2018

2017

2016

2018

Net unrealized holdings gain on securities:
Amount recognized in the period under review
Amount of recycling

¥ 693
(67)

¥ 563
(513)

¥ (658)6$ 6,523(631)

Before income tax effect adjustments
Amount of income tax effect

626
(196)

50
2

(652)
299

5,892
(1,845)Net unrealized holdings gain on securities
Gain (loss) on deferred hedges:
Amount recognized in the period under review

430

52

(353)

4,047

(97)

143

(138)

(913)

Before income tax effect adjustments
Amount of income tax effect

(97)
31

143
(45)

(138)
43

(913)
293

Gain (loss) on deferred hedges
Translation adjustments:
Amount recognized in the period under review

(66)

98

(95)

(620)

105

(236)

(153)

988

Remeasurements of defined benefit plans:
Amount recognized in the period under review
Amount of recycling

425
1,383

1,791
460

(1,127)
(276)

4,000
13,018Before income tax effect adjustments
Amount of income tax effect

1,808
(551)

2,251
(707)

(1,403)384

17,018(5,186)

Remeasurements of defined benefit plans

1,257

1,544

(1,019)11,832¥ 1,726¥ 1,458¥ (1,620)$ 16,247

Total other comprehensive income

06

Financial Instruments(a) Status of financial instruments(1) Policy on financial instruments
The Company and certain of its subsidiaries raise the funds required for capital investment plans for further growth from bank loans and theissuancee of bond. The Companies manage any temporary surplus funds using highly stable financial assets. The Companies use derivatives inorder to hedge against currency risks associated with merchandise imports as well as interest rate fluctuations risks in loans payable, and do
not engage in speculative transactions.

40 SENKO ANNUAL REPORT 2018

(2) Details of financial instruments, their risks and management systems
Trade accounts and notes receivable, which are operating receivables, are exposed to the credit risk of the customer and the Companies
operate systems to manage both payment deadlines and balances for each customer and grasp the credit status of each customer.
Investment securities are mainly the shares of companies with which the Companies have a business relationship and the shares related tocapital alliances, and these are exposed to the risk of fluctuations in market prices. 					Trade accounts and notes payable, which are operating liabilities, have payment dates of within 1 year. 				Trade accounts payable in foreign currencies are exposed to risks of foreign exchange fluctuations. To hedge such fluctuation risks, aconsolidated subsidiary has entered into foreign exchange forward contracts.							Short-term loans are fund procurement related mainly to operating transactions. Long-term debt are fund procurement related mainly to capital
investment. 							Loans with variable interest rate are exposed to the risk of fluctuations in payable interest rates, but the Company conduct interest rate swap
transactions in order to hedge the risk of fluctuations in payable interest rates for some long-term debt among variable interest rate loans. 		
In addition, operating liabilities and loans payable are exposed to liquidity risk, but the Companies implement integrated fund management
through the concentration of funds in the Company, which carries out fund settlement, fund procurement, monitoring of balances and fundmanagement for the Companies. 							Regarding derivatives, the Companies use foreign exchange forward contracts to hedge against foreign exchange rates fluctuation risks, andinterest rate swap transactions aimed at hedging against the risk of future interest rate fluctuations, and also reduce the cost of fundprocurement by converting variable interest rate liabilities into fixed interest rate liabilities. 						Primary risks pertaining to derivative transactions include market risk and credit risk. Market risk is the risk that the value of an investment
position will decrease due to changes in market factors, and a derivative transaction is exposed to foreign exchange and interest rate
fluctuation risks. The Companies' derivatives effectively offset the risks of assets and liabilities on the balance sheets, and there were noimportant transaction risks. Credit risk is the risk that, in the case of default of the other party, the relevant party would become incapable ofbenefiting from the effect that would have obtained in the future if the transaction had continued. The Companies' derivative transaction
partners are limited to financial institutions with high credit ratings and the Companies do not foresee the occurrence of losses due to debt
default on the part of transaction partners. 							The Company manages derivatives based on authority-related regulations in the Business Management Division . The execution of transactions
requires the permission of the director responsible for the management of derivatives and the details of transactions are reported to the generalmanager of the Business Management Division and the director after their execution. 					Consolidated subsidiaries also manage derivatives based on authority-related regulations, as does the Company.
(3) Supplementary explanation of the estimated market values of financial instruments
The market value of financial instruments includes prices based on market prices and reasonably estimated prices if there are no market prices.
Because estimations of the prices incorporate fluctuating factors, application of different assumptions can in some cases change the prices.

(b) Market value of financial instruments
The values on the consolidated balance sheets, market values and the differences between them are as follows. Financial instruments forwhich apprehension of the market value is recognized to be extremely difficult are not included.
Millions of yen

2018(1) Cash and cash equivalents(2) Trade accounts and notes receivable(3) Investment securities(4) Long-term loans receivable (including current portion)Less allowance for doubtful accounts (*1)

Book valueMarket value

Difference¥ 24,996
70,527
6,814
3,980
(840)

¥ 24,996
70,527
6,814

3,140

3,903

763

Total assets¥ 105,477¥ 106,240¥ 763(1) Trade accounts and notes payable(2) Short-term loans(3) Bond(4) Convertible bond(5) Long-term debt (including current portion)(6) Lease obligations (including current portion)¥ 44,608
19,891
17,216
10,04072,693
10,417¥ 44,608
19,891
16,923
9,769
73,277
10,360¥Total liabilities¥ 174,865¥ 174,828¥ (37)

Derivatives (*2)

¥

¥

¥

(61)

(61)

¥

–
–
–

–
–
(293)
(271)
584
(57)

–

SENKO ANNUAL REPORT 2018 41

Millions of yen

2017Book value(1) Cash and cash equivalents(2) Trade accounts and notes receivable(3) Investment securities(4) Long-term loans receivable (including current portion)Less allowance for doubtful accounts (*1)

Market value

Difference¥ 27,163
61,976
5,597
3,791
(646)

¥ 27,163
61,976
5,597

3,145

3,872

727

Total assets¥ 97,881¥ 98,608¥ 727(1) Trade accounts and notes payable(2) Short-term loans(3) Bond(4) Convertible bond(5) Long-term debt (including current portion)(6) Lease obligations (including current portion)¥ 40,505
9,035
7,000
10,05059,081
9,160¥ 40,505
9,035
6,953
9,702
59,702
8,602¥

Total liabilities¥ 134,831¥ 134,499¥ (332)Derivatives (* )

¥

¥

¥

2

2

¥

2

–
–
–

–
–
(47)
(348)
621
(558)

–

Thousands of U.S. dollars

2018Book value(1) Cash and cash equivalents(2) Trade accounts and notes receivable(3) Investment securities(4) Long-term loans receivable (including current portion)Less allowance for doubtful accounts (*1)

Market value

Difference$ 235,279
663,846
64,13837,463(7,907)$ 235,279
663,846
64,13829,55636,738

7,182

Total assets$ 992,819$ 1,000,001$ 7,182(1) Trade accounts and notes payable(2) Short-term loans(3) Bond(4) Convertible bond(5) Long-term debt (including current portion)(6) Lease obligations (including current portion)$ 419,880
187,227
162,048
94,503684,234
98,051$ 419,880
187,227
159,290
91,952689,731
97,515$

Total liabilities$ 1,645,943$ 1,645,595$ (348)Derivatives (* )

$

$

$

2

(574)

(574)

$

–
–
–

–
–
(2,758)(2,551)
5,497
(536)

–

*1. Allowance for doubtful accounts recognized in long-term loans receivable is offset.
*2. “Derivatives” shows net receivables and liabilities generated by derivative transactions, with net liabilities shown in parentheses.

Calculation of the market value of financial instruments and items relating to investment securities and derivatives● Assets(1) Cash and cash equivalents, (2) Trade accounts and notes receivable				Because these are settled in a short period of time and market values are roughly equivalent to book values, market value are calculated basedon book values.
(3) Investment securities
The market values of shares are based on stock exchange prices and the market values of bond are based on stock exchange prices and theprices offered by correspondent financial institutions. With regard to details of the investment securities by purpose, please see "Note 6"(4) Long-term loans receivable
The market values of long-term loans receivable are calculated based on the current value discounting future cash flow by a rate adding credit
risk to appropriate indices such as the yield on government bond.
● Liabilities(1) Trade accounts and notes payable, (2) Short-term loans
Because these are settled in a short period of time and market values are roughly equivalent to book values, market values are calculated
based on the book values.
(3) Bond, (4) Convertible bond
The market values of bond issued by the Company are calculated based on the current value discounting the total value of principal and interestby a rate adding the remaining period of the bond in question and credit risk.
42 SENKO ANNUAL REPORT 2018

(5) Long-term debt
The market values of long-term debt are calculated based on the current value discounting the total value of principal and interest by a rateenvisioned if a new loan of the same value was taken out. Long-term debt based on variable interest rates are subject to special processing
using interest rate swaps, and are calculated based on the current value discounting the total value of principal and interest processed as aunit with the relevant interest rate swaps by a rate estimated rationally and applied if a loan of the same value was taken out.
(6) Lease obligations
The market values of lease obligations are calculated based on the current value discounting the total value of principal and interest by a rateenvisioned if a new loan of the same value was taken out.
● Derivatives

See “Note 8”
Financial instruments for which it is extremely difficulty to determine market value

Thousands of
U.S. dollars

Millions of yen

2018
Unlisted shares2017¥ 15,829

2018¥ 10,856$ 148,993

The financial instruments listed above are not included in “(3) Investment securities,” as there is no market price and determination of their market
value is extremely difficult.

(c) ‌Planned redemption amounts after the balance sheets date for monetary assets and investment securities withmaturity dates

Millions of yen

2018

Within 1 year

Over 1 year
Within 5 years

Over 5 years
Within 10 years

¥

¥

–
–
–

–
–
–

Over 10 years

Cash and cash equivalents
Trade accounts and notes receivable
Investment securities
Other securities with maturity period(1) Government bond, local government bond(2) Bond(3) Other
Long-term loans receivable¥ 24,996
70,527
–

¥

–
–
–

–
–
–
538

–
16
–
2,914

–
–
–
217

–
–
–
311

Total

¥ 96,061¥ 2,930

¥ 217

¥ 311

Within 1 year

Over 1 year
Within 5 years

Over 5 years
Within 10 years¥¥

Millions of yen

2017

–
–
–

–
–
–

Over 10 years

Cash and cash equivalents
Trade accounts and notes receivable
Investment securities
Other securities with maturity period(1) Government bond, local government bond(2) Bond(3) Other
Long-term loans receivable¥ 27,163
61,976
–

¥

–
–
–

–
–
–
844

–
16
–
1,357

–
–
–
1,481

–
–
–
109

Total

¥ 89,983¥ 1,373¥ 1,481¥ 109
Thousands of U.S.dollars

2018

Within 1 year

Over 1 year
Within 5 years

Over 5 years
Within 10 years

$

$

–
–
–

–
–
–

Over 10 years

Cash and cash equivalents
Trade accounts and notes receivable
Investment securities
Other securities with maturity period(1) Government bond, local government bond(2) Bond(3) Other
Long-term loans receivable$ 235,279
663,846
–

$

–
–
–

–
–
–
5,064

–
151
–
27,428

–
–
–
2,043

–
–
–
2,928

Total

$ 904,189$ 27,579$ 2,043$ 2,928

SENKO ANNUAL REPORT 2018 43

07

Investment Securities

The carrying amounts of investment securities at March 31,2018 and 2017, consisted of the following:Thousands of
U.S. dollars

Millions of yen

2018Marketable securities
Non-marketable securities

2017

2018

¥ 6,814395¥ 5,597436$ 64,138
3,718¥ 7,209¥ 6,033$ 67,856

The following is a summary of marketable securities included in investment securities, at March 31, 2018 and 2017.
Millions of yen

2018
Equity security
Bond and Others

Acquisition cost

Gross unrealized
gains

Gross unrealized
lossesBook value(Market value)¥ 3,465162¥ 3,2520¥ 62
3¥ 6,655
159¥ 3,627¥ 3,252¥ 65¥ 6,814

Millions of yen

2017
Equity security
Bond and Others

Acquisition cost

Gross unrealized
gains

Gross unrealized
lossesBook value(Market value)¥ 2,891133¥ 2,6090¥ 34
2¥ 5,466131¥ 3,024¥ 2,609¥ 36¥ 5,597

Acquisition cost

Gross unrealized
gains

Gross unrealized
lossesBook value(Market value)$ 32,615
1,525$ 30,610
0

$ 584
28

$ 62,641
1,497$ 34,140$ 30,610$ 612$ 64,138

Thousands of U.S.dollars

2018
Equity security
Bond and Others

08

Derivatives

1. Derivative transactions to which hedge accounting is not applied
Not applicable.
2. Derivative transactions to which hedge accounting is applied(1) Currency transactions

Millions of yen

2018
Hedge accounting method

Type of contracts

Designated transactions forforward exchange contracts

Forward exchange contracts
Sell
U.S. dollars
Buy
U.S. dollars
Euros
Chinese yen
Danish kroner
Total

44 SENKO ANNUAL REPORT 2018

Item hedged

Contract
amounts

Over 1 year out ofcontract amounts

Market value

Trade accounts receivable

¥

10

¥–

¥

0

Trade accounts payable
Trade accounts payable
Trade accounts payable
Trade accounts payable¥ 2,151
698
212
7

¥–
–
–
–

¥ 274
(5)
2
(0)

¥ 3,078¥–¥ 271

Millions of yen

2017
Hedge accounting method

Type of contracts

Designated transactions forforward exchange contracts

Forward exchange contracts
Sell
U.S. dollars
Euros
Buy
U.S. dollars
Euros
Chinese yen
Danish kroner
Pounds sterling

Item hedged

Contract
amounts

Over 1 year out ofcontract amounts

Market value

Trade accounts receivable
Trade accounts receivable

¥

58
2

¥–
–

¥ 0
0

Trade accounts payable
Trade accounts payable
Trade accounts payable
Trade accounts payable
Trade accounts payable¥ 1,954
572
147
5
3

¥–
–
–
–

¥ 6
1
5
0
0

¥ 2,741

¥–

¥ 12

Total

Thousands of U.S.dollars

2018
Hedge accounting method

Type of contracts

Designated transactions forforward exchange contracts

Forward exchange contracts
Sell
U.S. dollars
Buy
U.S. dollars
Euros
Chinese yen
Danish kroner

Item hedged

Contract
amounts

Over 1 year out ofcontract amounts

Market value

Trade accounts receivable

$

94

$–

$

Trade accounts payable
Trade accounts payable
Trade accounts payable
Trade accounts payable$ 20,247
6,570
1,995
66

$–
–
–
–

$ 2,579
(47)
19
(0)

$ 28,972$–$ 2,551

Total

0

Market value is measured based on prices and other criteria presented by our correspondent financial institutions.

(2) Interest rate swaps
Millions of yen

2018
Hedge accounting method
Exceptional accounting
method for interest-rate
swap transactions
Principle accounting method

Type of contracts
Interest rate swap contracts
Floating rate receivable/
Fixed rate payable
Interest rate swap contracts
Floating rate receivable/
Fixed rate payable

Item hedged

Contract
amounts

Over 1 year out ofcontract amounts

Market value

Long-term debt

¥ 18,950¥ 17,450

Long-term debt

¥ 1,038

¥

973

(27)

¥ 19,988¥ 18,423¥ (27)

Total

¥

–

Millions of yen

2017
Hedge accounting method
Exceptional accounting
method for interest-rate
swap transactions

Type of contracts

Item hedged

Interest rate swap contracts
Floating rate receivable/
Fixed rate payable

Long-term debt

Contract
amounts¥ 30,600

Over 1 year out ofcontract amounts¥ 18,950

Market value¥ – (*)SENKO ANNUAL REPORT 2018 45

Thousands of U.S.dollars

2018
Hedge accounting metho
Exceptional accounting
method for interest-rate
swap transactions
Principle accounting method

Type of contracts
Interest rate swap contracts
Floating rate receivable/
Fixed rate payable
Interest rate swap contracts
Floating rate receivable/
Fixed rate payable

Item hedged

Contract
amounts

Over 1 year out ofcontract amounts

Long-term debt

$ 178,370$ 164,251

Long-term debt

$

$

Total

9,770

$ 188,140

Market value
$

–

9,159

(254)

$ 173,410$ (254)* ‌Items treated under exceptional accounting method for interest-rate swap transactions are recorded together with long-term debt included in items hedged. Therefore, the market value of such items
is included in the market value of the relevant long-term debt.

09

Property and Equipment

At March31,2018 and 2017,property and equipment at cost consisted of the following:Thousands of
U.S. dollars

Millions of yen

Land
Buildings and structures
Machinery and equipment, vehicle and vessels
Tools, furniture and fixtures
Construction in Progress
Lease assets

10

2018

2017

2018

¥ 59,614
146,448
59,003
7,271
16,45013,002¥ 56,700
124,740
37,669
6,955
3,637
11,535$ 561,126
1,378,464
555,375
68,439154,838
122,383¥ 301,788¥ 241,236$ 2,840,625

Short-term Loans and Long-term Debt

At March31, 2018 and 2017, short-term loans consisted of the following:Thousands of
U.S. dollars

Millions of yen

2018
0.24% to 4.80% unsecured loans from banks

2017¥ 19,891¥ 9,035

At March 31, 2018 and 2017, long-term debt consisted of the following:-

0.50% bond due 2021
0.10% bond due 2022
0.48% bond due 2027
Convertible bond due 2022
0.20% to 2.40% loans from banks and insurance companies:
UnsecuredLess current portion$ 187,227

Thousands of
U.S. dollars

Millions of yen

2018

2018

2017

2018

¥ 7,000
216
10,00010,040¥ 7,000––
10,050$ 65,889
2,033
94,126
94,503

72,69359,081

684,234

99,949(9,509)76,131(16,597)

940,785(89,505)¥ 90,440¥ 59,534$ 851,280

On March 9, 2017, the Company issued ¥10,050 million ($94,597 thousand) of zero coupon convertible bond with stock acquisition rights due in 2022.
The stock acquisition rights are exercisable during the period from March 14, 2022 at a conversion price of ¥930 ($8.75) per share.
46 SENKO ANNUAL REPORT 2018

The annual maturities of long-term debt at March 31, 2018 are as follows:Year ending March 31

2019
2020
2021
2022
2023
There after

Millions of yen

Thousands of
U.S. dollars¥ 9,509
6,780
13,987
19,92910,57339,131$ 89,505
63,818
131,655
187,585
99,520368,326

At March 31,2018, the Company has committed line and overdraft contracts with twenty five banks aggregating ¥58,165 million ($547,487 thousand).
Of the total credit limit, ¥20,245 million ($190,559 thousand) was used as the above short-term and long-term borrowing, and the rest ¥37,920 million($356,928 thousand) was unused.

11

Retirement Benefits(1) Defined benefit plana. Table for adjusting benefits obligation at the beginning and end of the year

Thousands of
U.S. dollars

Millions of yen

2018
Benefits obligation at the beginning of the year
Service cost
Interest costAccrued actuarial differences
Retirement benefits paid
OthersBenefits obligation at the end of the year

2017

2018

¥ 25,637¥ 26,264$ 241,312

1,083
109
300
(1,606)
101

1,137
78
(442)
(1,673)274

10,194
1,026
2,824(15,117)951¥ 25,624¥ 25,638$ 241,190

b. Table for adjusting fair value of plan assets at the beginning and end of the year

Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Fair value of plan assets at the beginning of the year
Expected return on plan assets
Accrued actuarial differences
Contribution by employers
Retirement benefits paid

¥ 20,909
627
725
726
(606)

¥ 18,643
559
1,397
1,011
(701)

$ 196,809
5,902
6,824
6,834
(5,704)

Fair value of plan assets at the end of the year

¥ 22,381¥ 20,909$ 210,665c. ‌Table for adjusting benefits obligation, fair value of plan assets at the end of the year, and net defined benefit liabilities and net defined benefit
assets on the consolidated balance sheets						Thousands ofMillions of yen

2018

U.S. dollars

2017

2018

Benefits obligation under the funded benefit plan
Fair value of plan assets¥ 19,844(22,381)¥ 20,095(20,909)$ 186,785(210,665)

Benefits obligation under the unfunded benefit plan

(2,537)
5,780

(814)
5,542

(23,880)
54,405

Net amounts of assets and liabilities on the consolidated balance sheets

3,243

4,728

30,525Net defined benefit assets
Net defined benefit liabilities

3,659
6,902

2,360
7,088

34,44164,966¥ 3,243¥ 4,728$ 30,525

Net amounts of assets and liabilities on the consolidated balance sheets

SENKO ANNUAL REPORT 2018 47

d. Breakdown of retirement benefit costs

Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Service cost
Interest cost
Expected return on plan assets
Recognized actuarial differences¥ 1,083
109
(627)
1,383

¥ 1,137
78
(559)
480

$ 10,194
1,026(5,902)13,018Retirement benefit costs for the defined benefit plan

¥ 1,948¥ 1,136$ 18,336

e. Remeasurements of defined benefit plans (Other Comprehensive Income)The breakdown of items posted as re-measurement of defined benefit plans (before tax effect deduction) is as follows:
Millions of yen

2018

2017

Thousands of
U.S. dollars

2018

Recognized actuarial differences¥ 1,808¥ 2,252$ 17,018

Total

1,808

2,252

17,018f. Remeasurements of defined benefit plans (Accumluated Other Comprehensive Income)The breakdown of items posted as re-measurement of defined benefit plans (before tax effect deduction) is as follows:
Millions of yen

2018

2017

Thousands of
U.S. dollars

2018

Unrecognized actuarial differences¥ (159)¥ (1,967)$ (1,497)

Total

(159)

(1,967)(1,497)g. Items concerning plan assets(i) Main items of plan assets
2018

2017

Bonds
StocksOthers

25%
58%
17%

25%
58%
17%

Total

100%

100%

(Note)44% and 44% of total pension assets are in a "Retirements Benefit Trust" for the defined benefit pension plans as of March 31, 2018 and 2017,respectively.

(ii) Method of setting the expected rate of long-term return on plan assets
The Company has taken into account a forecasted allocation of plan assets and the present and expected long-term return on various assetsthat consist of the plan assets to determine the expected rate of long-term return on plan assets.
h. Items concerning the essential basis for actuarial calculation
2018
Discount rate
Defined benefit pension plans
Retirements lump-sum plans
Expected rate of return on plan assets

2017

0.51%
0.21%
3.00%

0.61%
0.26%
3.00%

(2) Defined contribution plan

Thousands of
U.S. dollars

Millions of yen

2018
Contributions to defind contribution plan by the Company and its consolidated subsidiaries

48 SENKO ANNUAL REPORT 2018

2017
¥ 693

2018
¥ 621

$ 6,523

12

Pledged Assets

The following assets were pledged as collateral as at March 31, 2018 and 2017.

Thousands of
U.S. dollars

Millions of yen

2018
Land
Buildings
Structures
Ship
Investment securities2017¥ 6,606
2,496
27
1,426
22

¥ 5,834
2,744
31
–
22

$ 62,180
23,494254
13,422207¥ 10,577¥ 8,631$ 99,557

Obligations which were secured on the above assets were as follows:

Thousands of
U.S. dollars

Millions of yen

2018Long-term debt, including current portion

13

2017

¥ 6,160¥ 4,5812018$ 57,982

Contingent Liabilities

At March 31, 2018 and 2017, contingent liabilities were as follows:

Thousands of
U.S. dollars

Millions of yen

2018
Guarantees of some obligations
Buyback obligations associated with securitization of receivables
Recourse obligation associated with securitization of guarantee deposits
Trade notes endorsed

14

2018

2017

2018

¥ 573
445
83
103

¥ 2,052605
83
84$ 5,393
4,189
781
970

¥ 1,204¥ 2,824$ 11,333

Net Assets

The Japan Companies Act provides that an amount equal to at least 10% of the amounts to be disbursed as distributions of earnings be appropriated to
the legal reserve until such reserve and additional paid-in capital equals 25% of the common stock account. The Japan Companies Act also stipulates
that, on condition that the sum of the additional paid-in capital and the legal reserve exceeds 25% of the common stock account, the amount of any
such excess is available for appropriation by resolution of the shareholders.
The retained earnings account in the accompanying consolidated financial statements at March 31, 2018, included the Company’s legal reserve of¥1,506 million ($14,175 thousand).

SENKO ANNUAL REPORT 2018 49

15

Stock Option Plans

The stock option plans of the Company approved by the shareholders in accordance with the Japan Companies Act at March 31, 2018 were as follows:(1) Description of stock options
Stock option

Grantees

Number of shares withwarrants granted

Date of
grant

Option priceper warrant

Shares withwarrants granted

Exerciseperiod2007 Stock options (1st)

10 directors
3 auditors

61,000 shares

July 20, 2007

¥1

Common stock

July 21, 2007June 30, 2027

2007 Stock options (2nd)

9 operating officers

18,000 shares

July 20, 2007

¥1

Common stock

July 21, 2007June 30, 2027

2008 Stock options (4th)

10 directors
3 auditors

71,000 shares

July 1, 2008

¥1

Common stock

July 2, 2008June 30, 2028

2008 Stock options (5th)

10 operating officers

22,000 shares

July 1, 2008

¥1

Common stock

July 2, 2008June 30, 2028

2009 Stock options (6th)

11 directors
4 auditors

74,000 shares

July 1, 2009¥1

Common stock

July 2, 2009June 30, 2029

2009 Stock options (7th)

12 operating officers

27,000 shares

July 1, 2009¥1

Common stock

July 2, 2009June 30, 2029

2010 Stock options (8th)

11 directors
4 auditors

90,000 shares

July 1, 2010

¥1

Common stock

July 2, 2010June 30, 2030

2010 Stock options (9th)

13 operating officers
13 assistant directors

42,000 shares

July 1, 2010

¥1

Common stock

July 2, 2010June 30, 2040

2011 Stock options (10th)

12 directors
4 auditors

102,000 shares

July 1, 2011

¥1

Common stock

July 2, 2011June 30, 2031

2011 Stock options (11th)

15 operating officers
20 assistant directors

96,000 shares

July 1, 2011

¥1

Common stock

July 2, 2011June 30, 2041

2012 Stock options (12th)

12 directors
4 auditors

107,000 shares

July 2, 2012¥1

Common stock

July 3, 2012June 30, 2032

2012 Stock options (13th)

16 operating officers
22 assistant directors

92,000 shares

July 2, 2012¥1

Common stock

July 3, 2012June 30, 2042

2013 Stock options (15th)

12 directors
4 auditors

71,000 shares

July 1, 2013

¥1

Common stock

July 2, 2013June 30, 2033

2013 Stock options (16th)

18 operating officers
26 assistant directors

82,000 shares

July 1, 2013

¥1

Common stock

July 2, 2013June 30, 2043

2014 Stock options (18th)

12 directors
4 auditors

56,000 shares

July 1, 2014

¥1

Common stock

July 2, 2014June 30, 2034

2014 Stock options (19th)

18 operating officers
32 assistant directors

74,000 shares

July 1, 2014

¥1

Common stock

July 2, 2014June 30, 2044

2015 Stock options (20th)

12 directors
4 auditors

52,000 shares

July 1, 2015

¥1

Common stock

July 2, 2015June 30, 2035

2015 Stock options (21th)

20 operating officers
30 assistant directors

60,000 shares

July 1, 2015

¥1

Common stock

July 2, 2015June 30, 2045

2016 Stock options (22th)

10 directors
4 auditors

35,000 shares

July 1, 2016

¥1

Common stock

July 2, 2016June 30, 2036

2016 Stock options (23th)

23 operating officers
15 assistant directors

43,000 shares

July 1, 2016

¥1

Common stock

July 2, 2016June 30, 2046

2017 Stock options(25th)

6 directors
4 auditors

21,000 shares

July 3, 2017¥1

Common stock

July 4,2017June 30,2037

2017 Stock options(26th)

2 operating officers
4 assistant directors
9 executives of thesubsidiaries
23 operating officers of
the subsidiaries
20 assistant directorsof the subsidiaries

77,000 shares

July 3, 2017¥1

Common stock

July 4,2017June 30,2047

50 SENKO ANNUAL REPORT 2018

(2) Changes in the number of stock options
The following describes changes in the number of stock options that existed during the year ended March 31, 2018. The number of stock options istranslated into the number of shares
Share subscription rights which are not yet vested (shares):
Stock option

Share subscription rights which have already been vested (shares):

At March 31,
2017

GrantedForfeited

VestedAt March 31,
2018

At March 31 ,2017

Vested2007 Stock options (1st)

–

–

–

–

–

24,000–2007 Stock options (2nd)

–

–

–

–

–

4,000

2008 Stock options (4th)

–

–

–

–

–

2008 Stock options (5th)

–

–

–

–

2009 Stock options (6th)

–

–

–

2009 Stock options (7th)––2010 Stock options (8th)–2010 Stock options (9th)Forfeited

At March 31,
2018

–

–

24,000

–

–

–

4,000

27,000–––27,000

–

6,000

–

–

–

6,000

–

–

30,000–––30,000–––20,000–––20,000––––35,000–––35,000

–

–

–

–

–

34,000

–

2,000

–

32,0002011 Stock options (10th)

–

–

–

–

–

62,000–––62,0002011 Stock options (11th)

–

–

–

–

–

81,000

–

6,000

–

75,0002012 Stock options (12th)

–

–

–

–

–

66,000–––66,0002012 Stock options (13th)

–

–

–

–

–

85,000

–

5,000

–

80,0002013 Stock options (15th)

–

–

–

–

–

63,000

–

4,000

–

59,0002013 Stock options (16th)

–

–

–

–

–

76,000

–

3,000

–

73,0002014 Stock options (18th)

–

–

–

–

–

49,000

–

3,000

–

46,0002014 Stock options (19th)

–

–

–

–

–

70,000

–

1,000

–

69,0002015 Stock options (20th)

–

–

–

–

–

52,000

–

3,000

–

49,0002015 Stock options (21th)

–

–

–

–

–

60,000–––60,0002016 Stock options (22th)

–

–

–

–

–

35,000

–

3,000

–

32,0002016 Stock options (23th)

–

–

–

–

–

43,000–––43,0002017 Stock options(25th)–

21,000–21,000––21,000––21,0002017 Stock options(26th)–

77,000–77,000––77,000––77,000Exercised

SENKO ANNUAL REPORT 2018 51

16Income Taxes

The Company and its subsidiaries are subject to several taxes based on income, which in the aggregate resulted in a normal effective statutory tax rates ofapproximately 30.9 % for the years ended March 31, 2018 and 30.8 % for the years ended March 31, 2017.
(1) Significant components of deferred tax assets and liabilities at March 31, 2018 and 2017 were as follows:
Thousands of
U.S. dollars

Millions of yen

2018
Deferred tax assets:
Net defined benefit liabilities
Accrued bonuses to employees
Loss carry forward
Impairment losses
Loss on revaluation of land
Accrued enterprise tax
Social insurance premium
Asset retirement obligations
Loss on revaluation of golf club membership
Other

2017

2018

¥ 2,572
1,611
418
243
265
406
212
258
121
1,739

¥ 2,966
1,591
409
258
265
318
216
258
102
1,744

$ 24,209
15,164
3,934
2,287
2,494
3,823
1,995
2,428
1,139
16,3697,845(1,361)

8,127(1,244)73,842(12,810)

6,484

6,883

61,032

(729)
(71)
(981)
(804)

(689)
(32)
(697)
(971)

(6,862)(668)(9,234)(7,568)Gross deferred tax liabilities(2,585)(2,389)(24,332)

Net deferred tax assets¥ 3,899¥ 4,494$ 36,700

Gross deferred tax assets
Less: valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Reserve for reduction in costs of fixed assets
Asset retirement obligations
Net unrealized holdings gain on other securities
Other(2) Reconciliation‌of the statutory effective income tax rate and the income tax rate as a percentage of income before income taxes and non-controllinginterests at March 31, 2018 and 2017 were as follows:

2018

2017

Statutory tax rate
Adjustment:
Non-deductible expenses
Inhabitants’ per capita taxes
Non-taxable dividends income
Special deduction of income taxes
Changes in valuation allowance
Other

30.9%

30.8%

1.3
1.6
(0.3)
(0.6)
0.7
0.5

1.3
1.5
(0.4)
(0.6)
1.4
0.9

Income tax rate as a percentage of income before income taxes and non-controlling interests

34.1%

34.9%

52 SENKO ANNUAL REPORT 2018

17

Bussiness Combination Related

Common control transaction, etc.
1. Outline of transaction
a. Name of applicable business and business description
All businesses, excluding the Senko Group’s business management businessb. Date of business restructuring
April 1, 2017c. Legal form of business structure
Absorption-type split with the Company as the splitting company, and SENKO Co., Ltd., the Company’s consolidated subsidiary, as the successor
company.
d. Name of the restructured (holding) company
SENKO Co., Ltd. (consolidated subsidiary of the Company)e. Other matters concerning the outline of the transaction
As a result of the transition to a holding company structure through an absorption-type split,
the Company aims to further reinforce the Group’s structure and enhance corporate value by:1) strengthening the governance system;2) clarifying the responsibility and authority of each operating company; and3) accelerating decision-making.
・The pure holding company will plan strategy and allocate resources from a medium-to-long term
perspective and provide support for the growth and expansion of the operating companies in addition
to handling new business development and M&As.
・The operating companies will respond appropriately to changes in the business environment withthe goal of pursuing growth in their own business domains.
2. Outline of accounting procedure
The business restructuring (combination) was treated as a common control transaction in accordance with the Revised Accounting Standard forBusiness Combinations (Accounting Standards Board of Japan (ASBJ) Statement No. 21, revised on September 13, 2013) and the Revised
Implementation Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures (ASBJ
Implementation Guidance No. 10, revised on September 13, 2013).
Additional acquisition of shares of subsidiaries
1. Outline of transaction
a. Name of the constituent company and its business description
Name of the constituent company : Runtec Co., Ltd.
Business description: temperature-controlled transportation of frozen food, chilled food, fresh food products, etc., warehousing, truck
maintenance, etc.
temperature-controlled transportation of frozen food, chilled food, fresh food products, etc., warehousing, truck maintenance, etc.
b. Date of business restructuring
February 28,2018
c. Legal form of business structure
Acquisition of shares from non-controlling shareholders
d.Other matters concerning the outline of the transaction
The Company acquired the equity interest owned by non-controlling shareholders in order to accelerate initiatives aimed at creating synergistic
effects among Group companies. As a result, the percentage of voting rights owned by the Group has increased from 47.7% to 98.7%.
2. Outline of accounting procedure
The business restructuring was treated as a transaction with non-controlling shareholders in the category of common control transactions, etc. inaccordance with the Revised Accounting Standard for Business Combinations (Accounting Standards Board of Japan (ASBJ Statement No. 21,
revised on September 13, 2013) and the Revised Implementation Guidance on Accounting Standard for Business Combinations and AccountingStandard for Business Divestitures (ASBJ Implementation Guidance No. 10, revised on September 13, 2013).

SENKO ANNUAL REPORT 2018 53

3. Matters concerning additional acquisition of shares of subsidiaries
Acquisition cost and breakdown by type of consideration
Millions of yen

Consideration for the acquisition

Cash and deposits

Acquisition costThousands of
U.S. dollars¥ 6,764$ 63,667¥ 6,764$ 63,667

4. Matters related to changes in equity of the Company for transactions with non-controlling shareholders
a. Major causes of changes in capital surplus
Additional acquisition of shares of subsidiaries
b. Amount of increase in capital surplus due to transactions with non-controlling shareholders¥4,240 million ($ 39,911 thousand)18

Asset Retirement Obligations

1. Asset retirement obligations recorded in the consolidated balance sheetsa. Outline of the relevant asset retirement obligations
Of property lease contracts for the Company’s distribution centers, asset retirement obligations are recognized where restoration is requiredin the fixed-term leasehold contracts and in the property lease contracts of some consolidated subsidiaries as well as expenses for removing
asbestos in buildings the Company owns.
b. Calculation method for the relevant asset retirement obligations
In calculating the amount of asset retirement obligations recorded under liabilities, an estimated period of use of 10 to 30 years and a discountrate of 0.1% to 2.5% were assumed.
c. Increase in the total amount of asset retirement obligations

Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Balance at the beginning of the term
Increase due to acquisition of a consolidated subsidiary
Increase due to acquisition of fixed assets
Reconciliation associated with the passage of time
Decrease due to settlement

¥ 817
–
5
13
(16)

¥ 519
232
52
14
–

$ 7,690
–
47
122
(150)

Balance at the end of the term

¥ 819

¥ 817

$ 7,709

2. Asset retirement obligations not recorded in the consolidated balance sheets
The Group has restoration obligations to the original state at the withdrawal for some offices used on lease agreements. Since the use period of theleased asset pertaining to the obligations is unclear and transfer is not scheduled at present, asset retirement obligations cannot be measured
reasonably. Therefore, asset retirement obligations corresponding to the obligations have not been recorded.

19

Segment Information

1. Summary of reportable segment
The reportable segments of the Companies are components for which separate financial information is available and whose operating results are
regularly reviewed by the board of directors to make decisions about resource allocation and to assess performance.
The Companies divide business operations into three segments: Distribution, Trading & Commerce, and Others
Distribution mainly includes truck transport, railway forwarding, marine transport, global logistics service, integrated retail logistics (distribution centers) etc.
Trading & Commerce mainly includes the sale of petroleum products and the trading business.
Others mainly includes data processing outsousing services, automobile maintenance and insurance agency services
2. Calculation of sales, income (loss), and assets, etc. of each reportable segment
The accounting policies of the segments are substantially the same as those described in the “Summary of Significant Accounting Policies.”
Income (loss) of reportable segments is based on operating income or loss.						3. Sales, income (loss), and assets, etc. of each reportable segment

54 SENKO ANNUAL REPORT 2018

Millions of yen

2018
Adjustments andeliminations

Consolidated¥ 492,127
23,329¥ –(23,329)¥ 492,127–

13,936515,456(23,329)

492,127896

17,460(373)

17,08745,706

18,336

325,6818,737

334,418

283
305

416
2,763

11,602
37,919838
6,459

12,44044,378Distribution

Trading &Commerce¥ 347,752
2,157¥ 139,317
12,294¥ 5,058
8,878

Total operating revenues

349,909

151,611

Segment income (loss)

13,7092,855

Segment assets

261,639

Other items
Depreciation
Increase in tangible and intangible fixed assets

10,90334,851

Operating revenues:
Customers
Intersegment

Others

Total

Millions of yen

2017
Adjustments andeliminations

Consolidated¥ 455,435
18,408¥ –(18,408)¥ 455,435–

8,991

473,843(18,408)

455,435

3,209

870

17,498(416)

17,082

221,505

42,88012,260276,6459,314

285,959

8,634
15,165

277
457

311
822

9,222
16,444994
6,619

10,21623,063Distribution

Trading &Commerce¥ 317,985
1,999¥ 132,868
12,000¥ 4,582
4,409

Total operating revenues

319,984

144,868

Segment income (loss)

13,419Segment assets
Other items
Depreciation
Increase in tangible and intangible fixed assets

Operating revenues:
Customers
Intersegment

Others

Total

Thousands of U.S. dollars

2018
Distribution

Trading &Commerce

Others

Total

Adjustments andeliminations

Consolidated

Operating revenues:
Customers
Intersegment$ 3,273,268
20,303$ 1,311,342
115,719$ 47,609
83,566$ 4,632,219
219,588$ –(219,588)$ 4,632,219–

Total operating revenues

3,293,571

1,427,061

131,175

4,851,807(219,588)

4,632,219

Segment income (loss)

129,038

26,873

8,434

164,345(3,511)

160,834

Segment assets

2,462,716

430,215

172,590

3,065,521

82,2393,147,760

Other items
Depreciation
Increase in tangible and intangible fixed assets

102,626
328,040

2,664
2,871

3,916
26,007109,206
356,918

7,887
60,796

117,093417,714(1) Products and Services Information
Information for specific products and services is not shown because the same information is in the segment information.
(2) Geographic Segment Informationa. SalesSales information by geographic segment is not shown because sales in Japan accounted for over 90% of operating revenue on the
consolidated statements of income.
b. Property, plant and equipment
Property, plant and equipment information by geographic segment is not shown because property, plant and equipment in Japan accounted forover 90% of property, plant and equipment on the consolidated balance sheets.
(3) Information by Major Clients
Information by major clients is not shown because sales to major clients accounted for less than 10% of operating revenue on the consolidated
statements of income.
(Information on impairment losses in fixed assets by business segment)
No significant items to be reported.
(Information on amortization of goodwill and amortization balance by business segment)
SENKO ANNUAL REPORT 2018 55

Millions of yen

2018

Amortization of goodwill
Balance at the end of period

Distribution

Trading &Commerce

Others

¥

¥

¥

260
4,382

145
1,922

Adjustments andeliminations

8
218

¥ –
–

Consolidated
¥

413
6,522

Millions of yen

2017

Amortization of goodwill
Balance at the end of period

Distribution

Trading &Commerce

Others

¥

¥

¥

227
3,472

144
2,060

Adjustments andeliminations

5
86

¥ –
–

Consolidated
¥

376
5,618

Thousands of U.S. dollars

2018

Amortization of goodwill
Balance at the end of period

Distribution

Trading &Commerce$ 2,447
41,246$ 1,365
18,091OthersAdjustments andeliminations

Consolidated$ ––$ 3,887
61,389$ 75
2,052(Information on negative goodwill by business segment)
No significant items to be reported.

20

Subsequent Event(1) Payment of Dividends
Shareholders approved the following appropriation of retained earning at the annual meeting held on June 27, 2018
Millions of yen

Cash dividends

56 SENKO ANNUAL REPORT 2018

¥ 1,677

Thousands of
U.S. dollars$ 15,785

Report of Independent Auditors

SENKO ANNUAL REPORT 2018 57

Corporate
Information
Contents
Stock Information / Corporate Data……59
Global Network……61

58 SENKO ANNUAL REPORT 2018

Stock Information / Corporate Data
Stock Information (As of March 31, 2018)
Stock ListingFirst Section of the Tokyo Stock Exchange

Stock Code9069

Authorized Shares

294,999,000

Outstanding Shares

152,861,921

Number of Shareholders

8,588

Administrator of
Shareholders’ Register

Mitsubishi UFJ Trust and Banking Corporation, Osaka Stock Transfer Agent Division
3-6-3, Fushimi Machi, Chuo-ku, Osaka 541-8502, Japan

Independent Auditors

Ohtemae Audit Corporation

Major Shareholders

Type of Shareholder
Number of
Shares(thousands)

Percentage
Held

Japan Trustee Services Bank, Ltd.

22,75714.92%

Asahi Kasei Corporation

11,676

7.66%

The Master Trust Bank of Japan, Ltd.

8,444

5.54%

Sekisui Chemical Co., Ltd.

6,785

4.45%

Senko Group Employee’s Stockholding

6,280

4.12%

Mitsubishi UFJ Trust and Banking
Corporation

4,252

2.79%

Isuzu Motors Ltd.

4,039

2.65%

Financial
institutions

Individuals
and others

57,398,529

24,008,939

15.71%
Total

37.55%

21.29% 152,861,921
sharesState Street Bank and Trust Company

3,992

2.62%

Tokio Marine & Nichido Fire Insurance Co., Ltd.

3,439

2.26%

J.P. Morgan Bank Luxembourg S.A.

3,179

2.08%

Foreign financial
institutions andindividuals

32,541,407

24.98%

0.48%
Securities firms

Other domestic
corporations

727,544

38,185,502

Stock Price and Trading Volume
Stock Price (left axis)

Trading Volume (right axis)

(Yen)
1,000

(Yen)
2,000,000

750

1,500,000

500

1,000,000

250

500,000

00
2015/4

2015/7

2015/10

2016/1

2016/4

2016/7

2016/102017/1

2017/42017/72017/10

2018/1

2018/3

SENKO ANNUAL REPORT 2018 59

Corporate Data (As of March 31, 2018)
Trade NameSENKO Group Holdings Co., Ltd.

Capital26,528 million yen

Established

September 1916

Incorporated

July 1946

Head Office

Shiomi SIF Bldg., 2-8-10 Shiomi, Koto-ku, Tokyo 135-0052

Representative

Yasuhisa Fukuda, President and Representative Director

Group Employees

15,876

Vehicles

5,179 (6,020: including trailers)

Vessels

68

Total Warehouse Space

3,420,000 m2

Group

Logistics Group

Trading & Commerce GroupSENKO Group
Holdings Co., Ltd.

Living Support Group

Business Support Group

Agriculture Group

60 SENKO ANNUAL REPORT 2018

Global Network

Companies :Locations :

133
598

East Asia

16
27

companies

Japan

sites

ASEAN

14
18

96
541

companies
sites

North America

7
12

companies
sites

companies
sites

Main Group Companies
Domestic

Overseas

SENKO Co., Ltd.

Osaka SenkoTransport Co., Ltd.

DALIAN TRI-ENTERPRISE LOGISTICS CO., LTD.

Runtec Corporation

Minami Osaka Senko Transport Co., Ltd.

SHANGHAI SENKO INTERNATIONALFREIGHT FORWARDING INC.

Tokyo Nohin Daiko Co., Ltd.

Kyushu Senko Logistics Co., Ltd.

GUANGZHOU SENKO LOGISTICS CO., LTD.

Senko A Line Amano Co., Ltd.

Minami Kyushu Senko Co., Ltd.

Senko International Logistics Pte. Ltd.

NIPPON MARINE CO., LTD.

SENKO SHOJI CO., LTD.

SHANGHAI SMILE CORP.

ACROSS TRANSPORT CO., LTD.

SMILE CORP.

HONG KONG SMILE CORP LIMITED

Hokkaido Senko Co., Ltd.

AST CORPORATIONKOREA SMILE CORP LIMITEDSENKO Line CO., LTD.

Marufuji Co., Ltd.

SMILE CORP VIENTNAM CO., LTD

ANZEN YUSO CO., LTD.

SENKO INFORMATION SYSTEM Co., Ltd.

Senko Fashion Logistics Co., Ltd.

Logi Solution Co., Ltd.

SENKO ANNUAL REPORT 2018 61

SENKO Group Holdings Co., Ltd.
Shiomi SIF Bldg., 2-8-10 Shiomi, Koto-ku, Tokyo Japan
http://www.senkogrouphd.co.jp/en/