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euglena | 2931 |
Research Report by Shared Research Inc.
Shared Research Inc. has produced this report by request from the company discussed in the report. The
aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide
an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data
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where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and
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euglena | 2931 |
Shared Research Report
LAST UPDATE【2017/2/10】
INDEX
Executive summary --------------------------------------------------------------------------------------------------- 3
Key financial data ----------------------------------------------------------------------------------------------------- 4
Recent updates --------------------------------------------------------------------------------------------------------- 5
Highlights ----------------------------------------------------------------------------------------------------------------------- 5
Trends and outlook --------------------------------------------------------------------------------------------------- 6
Quarterly trends and results----------------------------------------------------------------------------------------------- 6
Full-year company forecast ---------------------------------------------------------------------------------------------- 10
Business development, medium- to long-term strategy ------------------------------------------------------- 15
Business, market, and value chain ------------------------------------------------------------------------------31
Business overview ---------------------------------------------------------------------------------------------------------- 31
Strengths and weaknesses ----------------------------------------------------------------------------------------------- 42
Historical performance --------------------------------------------------------------------------------------------- 43
Financial statements------------------------------------------------------------------------------------------------- 50
Income statement ---------------------------------------------------------------------------------------------------------- 50
Balance sheet----------------------------------------------------------------------------------------------------------------- 53
Cash flow statement ------------------------------------------------------------------------------------------------------- 55
Other information---------------------------------------------------------------------------------------------------- 56
Corporate governance (as of June 2016) --------------------------------------------------------------------------- 56
Top management----------------------------------------------------------------------------------------------------------- 56
Dividend policy ------------------------------------------------------------------------------------------------------------- 56
Shareholder composition ------------------------------------------------------------------------------------------------ 57
Employees -------------------------------------------------------------------------------------------------------------------- 57
Profile --------------------------------------------------------------------------------------------------------------------------- 59
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Shared Research Report
euglena | 2931 |
euglena＞ Executive summary
LAST UPDATE【2017/2/10】
Executive summary
Corporate philosophy: “making people and the Earth healthy”
The corporate philosophy of euglena Co., Ltd. (euglena) is “making people and the Earth healthy,” harnessing outdoor
mass cultivation technology for the microalgae Euglena gracilis. A biotechnology company originating at the University of
Tokyo, euglena is cultivating various uses for the microalgae including functional foods, cosmetics, animal feed, and fuel.
The microalgae Euglena shares characteristics of both plants and animals with the vitamins and minerals found in plants
and the omega-3 fatty acids found in fish, making it a potential solution to malnutrition. In December 2005 the company
was the first in the world to succeed in outdoor mass culturing of Euglena. As of FY09/16 it had no competitor that
produced the microalgae on the same scale. In the mainstay Healthcare segment, the company produces and sells
functional foods that “make people healthy.” Over the medium term, it intends to “make the Earth healthy” by
commercializing biodiesel and aviation biofuel. The company was founded to solve the global nutrition problem, sparked
by the malnutrition seen in Bangladesh.
Short- to medium-term strategy
euglena wants at least three cash flow pillars rooted in the Healthcare, Agriculture and Aquaculture Products, and Energy
and Environment segments. It plans to invest the cash generated in new growth. It currently generates cash through OEM
supply of Euglena products in the Healthcare segment but is beginning to generate cash flow through B2C sales. euglena
plans to use the cash generated from the Healthcare segment, a stable earnings base, to both grow the segment and
invest in medium-term growth goals such as biofuel research and development.
Expanding B2C sales in the Healthcare segment
As of September 2016, almost all sales were from the Healthcare segment. The B2C sales business, a source of short-term
growth, saw FY09/16 sales of JPY6.9bn and 154,000 regular customers. The company wants to expand this business to be
on par with other health food companies, with sales of JPY30–50bn and 1 million regular customers (medium-term
management targets are sales of JPY20bn and 500,000 regular customers by FY09/20), so it is investing aggressively in
advertising. While euglena is taking lifetime value (LTV) and cost per order (CPO) into consideration as it makes these
investments, such upfront expenditures will continue as it works to build scale.
Establishing the Agriculture and Aquaculture Products business
In the Agriculture and Aquaculture Products segment, euglena aims to expand the Mungbean Project––importing mung
beans for growing bean sprouts from Bangladesh––and the prawn farming and feed research on Taketomi Island,
Okinawa Prefecture. According to the company, the Mungbean Project contributes to Bangladesh’s agricultural and
economic development, and helps Japanese bean sprout producers reduce costs and mitigate risks of importing beans
solely from China. euglena aims to expand in prawn farming by acquiring companies, and transition from a B2B business
model to selling directly to consumers, as it has successfully achieved for health foods. The company believes that both
the mung bean and prawn projects have the potential to generate several hundred million yen in cash.
Aiming to establish biofuel business
euglena aims to produce and supply aviation biofuel for commercial flights by 2020. A biofuel production pilot plant is
slated to start construction in summer 2017 and operations in the first half of 2019. The domestic jet fuel market is worth
over JPY200bn, with hefty demand for reducing CO2. The success of a biofuel business will depend on crude oil prices
and euglena’s success in lowering production costs. The company is also looking to use Euglena residue (after the lipids
have been extracted) for livestock and aquaculture feed, and has started research in the group’s prawn farming jointly
with JA ZEN-NO (National Federation of Agricultural Cooperative Associations).
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euglena | 2931 |
Shared Research Report
euglena＞ Key financial data
LAST UPDATE【2017/2/10】
Key financial data
Income statement
(JPYmn)
Sales
Healthcare
Energy and Environment
YoY
Healthcare
Energy and Environment
Gross profit
GPM
SG&A expenses
YoY
SG&A-to-sales ratio
Operating profit
Healthcare
Energy and Environment
Adjustments
YoY
Healthcare
OPM
Healthcare
Energy and Environment
Non-operating income (expenses)
Financial income
Gains on foreign exchange
Other non-operating income
Recurring profit
YoY
RPM
Extraordinary gains
Implied tax rate
Non-controlling interest
Net income attributable to parent company shareholders
YoY
Net margin
Capital expenditures
Depreciation
Amortization of goodwill
Per share data
Shares issued (year end; mn)
Treasury shares
Excluding treasury shares
Number of shares (average; mn)
BPS (JPY)
EPS (JPY)
DPS (JPY)
Balance sheet (JPYmn)
Current assets
Cash and equivalents
Accounts receivable
Inventories
Allowance for doubtful accounts
Others
Tangible fixed assets
Intangible fixed assets
Investments and other assets
Investment securities
Others
Total assets
Current liabilities
Accounts payable
Short-term debt
Accounts payable-other; accrued expenses
Income taxes payable
Other current liabilities
Noncurrent liabilities
Long-term debt
Net assets
Shareholders' equity
Treasury shares
Valuation and translation adjustments
Minority interests
Total capital and liabilities
Cash flow statement (JPYmn)
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Financial ratios
Interest-bearing debt
Net cash
ROA
ROE
Equity ratio
FY09/07
Cons.
116
116
44
37.6%
114
98.6%
-71
-71
-60.9%
-60.9%
-0
0
-1
-71
-61.3%
-2
-74
-63.7%
FY09/07
81
-48.2
FY09/07
145
78
28
39
1
4
2
2
151
24
12
5
1
6
127
127
151
FY09/07
FY09/07
78
83.8%
FY09/08
Cons.
164
164
41.8%
41.8%
89
54.1%
156
36.2%
94.7%
-67
-67
-40.6%
-40.6%
2
0
1
-65
-39.7%
-2
-67
-41.0%
FY09/08
73
-42.2
FY09/08
132
74
22
33
-1
4
0
2
2
134
15
3
4
1
7
120
120
134
FY09/08
FY09/08
74
-45.7%
-54.7%
89.0%
FY09/09
Cons.
221
221
34.2%
34.2%
111
50.3%
143
-8.1%
64.8%
-32
-32
-14.5%
-14.5%
2
-0
2
-30
-13.8%
3
-27
-12.4%
FY09/09
73
-16.8
FY09/09
162
76
50
36
-1
2
0
2
0
2
165
33
19
0
1
1
11
10
10
122
122
165
FY09/09
FY09/09
10
66
-20.4%
-22.7%
74.2%
FY09/10
Cons.
735
735
232.9%
232.9%
392
53.3%
239
67.0%
32.5%
153
304
-51
-101
20.8%
41.4%
-6.9%
30
-0
30
183
24.9%
0
0.2%
183
24.9%
0
FY09/10
0.0
297
97.8
FY09/10
665
534
102
19
-1
11
0
5
0
5
670
95
43
15
3
34
575
575
670
FY09/10
201
-2
259
FY09/10
534
43.9%
52.5%
85.9%
FY09/11
Cons.
1,166
1,164
2
58.7%
58.4%
649
55.7%
355
48.6%
30.4%
294
513
-83
-136
92.5%
68.4%
25.3%
44.0%
-7.1%
20
0
20
314
71.4%
26.9%
-1
34.6%
205
12.0%
17.6%
0
FY09/11
2.2
2.2
1.9
451
105.4
FY09/11
1,222
973
133
98
-4
23
1
2
10
10
1,236
262
74
39
130
19
2
971
971
1,236
FY09/11
251
-2
191
FY09/11
973
33.0%
26.5%
78.6%
FY09/12
Cons.
1,586
1,581
4
36.0%
35.9%
80.2%
860
54.3%
552
55.7%
34.8%
308
592
-93
-192
4.5%
15.4%
19.4%
37.3%
-5.8%
18
0
18
325
3.6%
20.5%
39.3%
197
-3.6%
12.5%
13
FY09/12
2.2
2.2
2.2
542
91.6
FY09/12
1,199
892
169
118
-3
22
24
4
146
50
96
1,373
195
53
47
60
35
9
1,169
1,169
1,373
FY09/12
86
-167
FY09/12
892
25.0%
18.5%
85.1%
FY09/13
Cons.
2,092
2,087
5
31.9%
32.0%
10.0%
1,144
54.7%
968
75.2%
46.3%
176
547
-113
-258
-42.7%
-7.5%
8.4%
26.2%
-5.4%
88
-2
90
265
-18.7%
12.7%
322
17.8%
483
144.4%
23.1%
83
35
FY09/13
13.7
13.7
13.0
37
7.4
FY09/13
2,472
1,846
313
270
-7
50
733
29
51
51
3,286
338
94
22
103
70
48
379
199
2,569
2,569
3,286
FY09/13
164
-105
895
FY09/13
221
1,625
11.4%
25.8%
78.2%
FY09/14
Cons.
3,046
3,039
7
45.6%
45.6%
45.7%
1,849
60.7%
1,706
76.3%
56.0%
142
658
-168
-348
-19.4%
20.2%
4.7%
21.6%
-5.5%
49
17
32
191
-27.7%
6.3%
0
38.4%
118
-75.5%
3.9%
172
63
4
FY09/14
78.0
0.0
78.0
75.7
134
1.6
FY09/14
7,314
6,346
479
412
-7
84
850
64
3,053
2,982
71
11,280
622
171
375
31
46
213
22
10,445
10,441
-0
-9
11,280
FY09/14
-8
-6,177
7,499
FY09/14
22
6,324
2.6%
1.8%
92.5%
FY09/15
Cons.
5,924
5,908
16
94.5%
94.4%
136.0%
4,019
67.8%
3,543
107.6%
59.8%
476
1,122
-115
-532
234.7%
70.6%
8.0%
18.9%
-1.9%
250
32
218
726
279.3%
12.3%
19
38.6%
12
470
297.4%
7.9%
315
136
35
FY09/15
81.9
0.1
81.8
80.3
155
5.9
FY09/15
8,605
6,794
698
806
-2
308
1,624
1,175
3,119
2,969
150
14,523
1,393
240
254
388
309
203
429
72
12,701
12,662
-231
-1
27
14,523
FY09/15
621
2,091
-177
FY09/15
326
6,469
5.6%
4.1%
87.2%
FY09/16 FY09/17
Cons.
Est.
11,103 15,000
11,093
10
87.4%
35.1%
87.8%
-39.3%
8,137
73.3%
7,443
110.1%
67.0%
694
820
1,577
-200
-683
45.7%
18.2%
40.5%
6.3%
5.5%
14.2%
-1.8%
251
26
-2
226
945
1,100
30.0%
16.5%
8.5%
7.3%
-25
27.6%
8
673
690
43.4%
2.5%
6.1%
4.6%
232
88
FY09/16 FY09/17
82.5
0.1
82.4
82.3
162
8.2
8.4
FY09/16
11,355
9,204
1,059
852
-3
243
2,472
1,238
461
289
172
15,526
1,612
248
13
983
234
134
492
59
13,423
13,408
-231
-16
15
15,526
FY09/16
914
-154
-185
FY09/16
72
9,132
6.3%
5.2%
86.3%
Source: Shared Research based on company data
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euglena | 2931 |
Shared Research Report
euglena＞ Recent updates
LAST UPDATE【2017/2/10】
Recent updates
Highlights
On February 10, 2017, euglena Co., Ltd. announced earnings results for Q1 FY09/17; see the results section for details.
On January 31, 2017, the company announced that it was doubling production capacity of food-use microalgae
Euglena to 160 tons.
Construction has been completed to increase production capacity of food-use microalgae Euglena at the consolidated
subsidiary Yaeyama Shokusan Co., Ltd. (Ishigaki City, Okinawa Prefecture). This production facility will begin full scale
operation from February 1, 2017. With this, annual production will increase from 80 tons to 160 tons. This increased
production will meet the increasing demand in a market which is experiencing rapid growth both in Japan and overseas
as well as allow the company to respond to the diversifying needs of its customers. The invested capital was
approximately JPY800mn (including all surrounding facilities aside from cultivation facilities). The annual production
capacity of 160 tons is on the basis of powder. Actual production volume could differ depending on climate and
operational hours.
Change in production capacity
(MT)
180
Production capacity (MT/year, year end)
Sales (JPYbn, right axis)
160
160
15.0
140
120
60
40
20
0
60
40
14
8
6
5.9
4
3.0
FY09/14
16
10
80
80
18
12
11.1
100
(JPYbn)
2
FY09/15
FY09/16
FY09/17
0
Source: Shared Research based on company data
On December 22, 2016, Shared Research initiates coverage of the company with this report.
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euglena | 2931 |
euglena＞ Trends and outlook
LAST UPDATE【2017/2/10】
Trends and outlook
Quarterly trends and results
Income statement
(JPYmn)
Sales
Healthcare
Energy and Environment
Group B2C sales
Group B2B sales
OEM, ingredients, and overseas
Other
YoY
Healthcare
Energy and Environment
Group B2C sales
Group B2B sales
OEM, ingredients, and overseas
Other
YoY
Gross profit
GPM
SG&A expenses
Selling expenses
Advertising expenses
Personnel expenses
Administrative expenses
R&D expenses
YoY
Selling expenses
Advertising expenses
Personnel expenses
Administrative expenses
R&D expenses
SG&A-to-sales ratio
Selling expenses
Personnel expenses
Administrative expenses
R&D expenses
Operating profit
Healthcare
Energy and Environment
Adjustments
YoY
Healthcare
OPM
Healthcare
Energy and Environment
Non-operating income
Recurring profit
YoY
RPM
Extraordinary gains (losses)
Pretax profit
Income taxes
Implied tax rate
Non-controlling interest
Net income attributable to parent company shareholders
YoY
Net margin
EPS
YoY
EBITDA
YoY
EBITDA margin
R&D expenses
Depreciation
Goodwill amortization
Inventories
YoY
Inventory turnover
Number of direct sales customer ('000)
YoY
QoQ change
FY09/14
Q1
Q2
Q3
Q4
701
752
731
862
699
752
731
857
1
0
5
154
173
199
254
27
48
72
92
513
525
452
503
7
6
8
14
80.2% 71.8% 28.3% 24.0%
79.8% 73.6% 28.3% 23.2%
- -99.1%
342.4% 257.8% 138.0% 145.1%
0.5% 93.3% 135.5% 139.0%
57.0% 46.3%
0.6% -7.9%
1,738.0%
5.1% 26.4% 81.1%
21.9% 23.0% 27.2% 29.4%
411
459
472
507
58.6% 61.0% 64.6% 58.8%
369
440
446
450
172
228
227
247
111
147
138
127
91
97
99
101
69
65
79
58
37
50
35
52
91.8% 95.2% 65.6% 60.9%
52.7% 58.5% 61.1% 52.2%
24.5% 30.3% 31.0% 28.7%
13.0% 12.9% 13.5% 11.7%
9.8%
8.6% 10.8%
6.7%
5.3%
6.6%
4.8%
6.0%
41
19
25
57
155
157
161
184
-31
-42
-45
-50
-83
-96
-91
-77
95.0% -15.8% -19.1% -44.0%
53.7% 30.8% 30.2% -8.9%
5.9%
2.5%
3.5%
6.6%
22.2% 20.9% 22.1% 21.5%
-4.4% -5.6% -6.1% -5.9%
-26
16
45
14
16
35
70
70
-15.7% -20.9% -17.4% -39.6%
2.2%
4.7%
9.6%
8.2%
0
16
35
70
71
9
17
26
22
56.7% 48.7% 36.7% 31.1%
7
18
45
49
-43.5% -94.9% -11.8% -29.8%
1.0%
2.4%
6.1%
5.7%
0.1
0.2
0.6
0.6
48
79
- 12.2% -31.0%
6.6%
9.1%
37
50
35
52
9
12
22
21
1
1
1
1
273
314
375
412
105.4%
0.1% 20.4% 52.4%
85.5
91.3
121.3
101.1
10
13
16
21
- 189.9%
3
2
3
5
Q1
1,162
1,162
0
476
157
504
24
65.8%
66.1%
-90.5%
210.3%
476.7%
-1.6%
224.8%
41.0%
775
66.7%
715
445
242
110
116
44
93.5%
158.7%
118.0%
20.9%
68.1%
16.7%
61.5%
38.3%
9.5%
10.0%
3.7%
60
240
-21
-160
44.6%
54.6%
5.1%
20.7%
-1.8%
21
81
418.6%
7.0%
81
27
33.4%
54
698.6%
4.6%
0.7
616.0%
81
6.9%
44
20
1
397
45.3%
95.4
37
258.6%
17
FY09/15
Q2
Q3
1,380 1,582
1,372
1,582
9
0
582
659
174
298
590
588
35
37
83.5% 116.4%
82.3% 116.4%
20,181.0%
235.7% 231.5%
262.4% 314.2%
12.3% 30.0%
487.6% 361.9%
42.1% 41.7%
937 1,046
67.9% 66.1%
808
911
515
577
246
316
114
148
99
123
79
64
83.5% 104.1%
125.9% 154.2%
67.3% 129.0%
17.5% 49.5%
52.3% 55.7%
58.2% 82.4%
58.5% 57.6%
37.3% 36.5%
8.3%
9.4%
7.2%
7.8%
5.7%
4.0%
129
134
293
279
-25
-36
-139
-109
587.9% 427.9%
86.5% 73.0%
9.4%
8.5%
21.3% 17.7%
-1.8% -2.3%
102
67
231
202
557.6% 186.5%
16.7% 12.7%
4
0
235
202
95
79
40.3% 39.3%
5
140
127
677.0% 185.9%
10.2%
8.0%
1.8
1.6
630.1% 168.7%
164
181
- 273.8%
11.9% 11.4%
79
64
34
35
1
12
495
715
57.7% 90.7%
91.8
102.9
48
54
286.4% 244.2%
11
5
Q4
1,800
1,793
8
927
340
506
27
108.8%
109.2%
39.6%
265.4%
269.3%
0.6%
101.2%
51.5%
1,262
70.1%
1,109
713
392
173
146
76
146.3%
188.7%
208.7%
71.3%
151.7%
48.0%
61.6%
39.6%
9.6%
8.1%
4.2%
153
311
-34
-124
169.0%
68.4%
8.5%
17.3%
-1.9%
60
213
202.4%
11.8%
15
228
86
38.0%
7
148
203.5%
8.2%
1.8
186.8%
221
181.5%
12.3%
76
47
21
806
95.7%
128.9
96
368.0%
43
Q1
2,340
2,340
0
1,447
436
412
45
101.4%
101.4%
-41.6%
203.8%
177.1%
-18.3%
89.8%
61.9%
1,687
72.1%
1,656
1,179
722
196
209
71
131.6%
164.9%
198.3%
78.2%
80.2%
63.9%
70.8%
50.4%
8.4%
8.9%
3.1%
31
268
-47
-191
-48.2%
11.8%
1.3%
11.5%
-2.0%
44
75
-6.9%
3.2%
75
-36
-47.8%
-1
111
105.3%
4.7%
1.3
96.7%
100
23.9%
4.3%
71
40
29
759
91.1%
109.3
113
201.1%
16
FY09/16
Q2
Q3
2,890 2,952
2,888
2,952
2
1,751
1,748
416
434
621
574
102
196
109.4% 86.6%
110.5% 86.6%
-73.6%
201.1% 165.2%
138.9% 45.6%
5.4% -2.5%
189.8% 433.1%
60.6% 59.2%
2,147 2,158
74.3% 73.1%
1,724
1,807
1,262
1,268
719
707
210
241
172
205
80
93
113.4% 98.2%
145.0% 119.8%
192.3% 123.7%
84.2% 62.8%
73.7% 66.7%
1.7% 47.0%
59.6% 61.2%
43.7% 43.0%
7.3%
8.2%
6.0%
6.9%
2.8%
3.2%
423
352
606
584
-47
-68
-136
-165
227.1% 161.4%
107.0% 109.3%
14.6% 11.9%
21.0% 19.8%
-1.6% -2.3%
45
125
468
476
102.6% 136.4%
16.2% 16.1%
0
468
476
159
163
33.9% 34.3%
9
10
318
323
126.9% 153.9%
11.0% 11.0%
3.9
3.9
120.1% 147.4%
495
431
202.2% 138.1%
17.1% 14.6%
80
93
57
57
15
22
861
920
73.9% 28.7%
99.4
102.3
136
139
181.4% 158.7%
23
3
Q4
2,921
2,914
8
1,889
481
343
208
62.3%
62.6%
103.8%
41.5%
-32.1%
659.7%
64.7%
2,145
73.4%
2,257
1,681
1,071
243
224
109
103.5%
135.8%
173.2%
40.5%
53.4%
42.9%
77.3%
57.5%
8.3%
7.7%
3.7%
-112
118
-39
-191
-61.9%
-3.8%
4.1%
-1.3%
37
-75
-2.6%
-25
-100
-32
31.9%
-10
-78
-2.7%
-0.9
-12
-0.4%
109
78
22
852
5.6%
104.1
154
59.9%
15
FY09/17
Q1
3,273
3,273
2,115
411
733
14
39.9%
39.9%
46.1%
-5.7%
78.0%
-68.7%
64.6%
2,457
75.1%
2,178
1,568
981
276
239
95
31.6%
33.0%
35.9%
40.8%
14.4%
32.8%
66.6%
47.9%
8.4%
7.3%
2.9%
278
593
-83
-177
800.5%
121.0%
8.5%
18.1%
-2.5%
24
302
301.5%
9.2%
302
92
30.4%
-1
209
89.3%
6.4%
2.5
87.6%
364
264.3%
11.1%
95
65
21
1,113
46.7%
109.8
177
57.2%
23
FY09/15 FY9/16
Cons.
5,924
5,908
16
2,644
970
2,188
123
94.5%
94.4%
136.0%
239.3%
305.0%
9.8%
253.0%
44.6%
4,019
67.8%
3,543
2,250
1,196
546
484
262
107.6%
157.4%
128.6%
40.7%
78.6%
51.1%
59.8%
38.0%
9.2%
8.2%
4.4%
476
1,122
-115
-532
234.7%
70.6%
8.0%
19.0%
-1.9%
250
726
279.3%
12.3%
19
745
287
38.6%
12
470
297.4%
7.9%
5.8
274.6%
647
209.0%
10.9%
262
136
35
806
95.7%
116.7
96
368.0%
76
FY9/17
Cons.
Est. % of FY
11,103 15,000 21.8%
11,093
10
6,836
1,767
1,951
550
87.4% 35.1%
87.8%
-39.3%
158.5%
82.2%
-10.8%
348.1%
61.6%
8,137
73.3%
7,443
5,390
3,219
889
809
354
110.1%
139.6%
169.1%
62.8%
67.1%
35.0%
67.0%
48.5%
8.0%
7.3%
3.2%
694
820 33.9%
1,577
-200
-683
45.7% 18.2%
40.5%
6.3%
5.5%
14.2%
-1.8%
251
945
1,100 27.5%
30.0% 16.5%
8.5%
7.3%
-25
919
254
27.6%
-8
673
690 30.4%
43.4%
2.5%
6.1%
4.6%
1.3
8.4 30.3%
-76.9% 519.9%
1,014
56.8%
9.1%
354
232
88
852
5.6%
102.0
154
200
59.9% 29.8%
58
46 49.9%
Source: Shared Research based on company data
Note: Quarterly figures are calculated by subtracting cumulative figures for one quarter from those of the previous quarter. (For example, Q3 figures
are obtained by subtracting 1H figures from cumulative Q3 figures.)
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LAST UPDATE【2017/2/10】
Q1 FY09/17 earnings (out February 10, 2017)
▶
Q1: Expansion of the group’s B2C sales continued in Q1 FY09/17. Achieved 50% of full-year target of 46,000 increase
in regular purchase customers in direct sales by consolidation of Chlorella Supply.
OP: Reached 34% of full-year target. GPM improvement and sales growth effect stemming from higher direct

sales weighting absorbed aggressive advertising and promotional spending.
▶
Group direct sales: Expanded range of new products to satisfy customer needs in foods (matcha flavor, powdered
type) and cosmetics (high-end line).
▶
Group sales through distributors: Strengthened brand power by launching new brands and expanding product range
in cosmetics, and for food, launching new products and putting all products in cardboard cans under a single brand.
▶
Capex to increase production: Construction to increase production capacity of food-use Euglena (doubled from 80t to
160t per annum) was completed at end-January 2017.
▶
Plan for domestic biofuel production: Finalized pilot plant schedule. Construction to begin in June 2017, be completed
at end-October 2018, and operation to begin in early 2019. Total investment of JPY5.8bn.
Performance by quarter (JPYbn)
Sales
(JPYbn)
Gross profit
Operating profit
GPM (right axis)
3
2
57%
53%
1
0
54%
55%
53%
59%
57%
53%
61%
Q1
FY09/12
Q1
FY09/13
Q1
FY09/14
66%
59%
1.4
1.2
0.9
0.8
0.5
0.1
0.1
Q1
FY09/15
1.8
1.6
0.9
0.1
1.0
0.1
73%
3.0
2.9
2.3
55%
0.8
0.7
0.7
0.7
0.6
0.5
0.5
0.5
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.3
0.3
0.2
0.2
0.2
0.2
0.2
0.1
0.1
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
68%
67%
65%
74%
72%
70%
2.1
73% 3.3
2.9
2.2
70%
2.5
2.1
60%
1.7
1.3
50%
0.2
0.4
0.4
0.3
0.0
Q1
FY09/16
40%
Q1
FY09/17
-0.1
-1
30%
Source: Shared Research based on company data
Overview of results
FY09/16: Expansion of the group’s B2C sales continues; achieved 50% of target of 46,000 increase in regular purchase
customers
In Q1 FY09/17, the company posted sales of JPY3.3bn (+39.9% YoY) and OP of JPY278mn (+JPY247mn YoY). The mainstay
group B2C sales business was the earnings driver, with sales up 46.1% YoY in Q1. The GPM rose 3.0pp because of the
increased sales weighting of the profitable group B2C business (+2.8pp YoY), which absorbed the continued heavy
selling expenses. As a result, OP increased by JPY247mn from a year earlier to JPY278mn. OP made strong progress,
reaching 33.9% of the full-year target of JPY820mn.
There were 177,000 direct sales customers at the end of Q1 FY09/17, showing solid progress toward the initial plan of
200,000 (+46,000), due in part to acquiring Chlorella Supply in December 2016.
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LAST UPDATE【2017/2/10】
Regular purchase customers in direct sales (B2C) business (thousands of people)
('000 people)
Number of regular purchase customers (quarter end)
180
177
43
160
136
140
139
154
40
113
120
96
100
80
17
60
40
20
0
('000 people)
QoQ change
3
10
7
Q1
FY09/12
Q1
FY09/13
16
3
13
2
Q1
FY09/14
37
5
21
Q1
FY09/15
48
11
54
23
16
5
30
23
20
15
10
3
Q1
FY09/16
0
Q1
FY09/17
Source: Shared Research based on company data
Chlorella Supply Co., Ltd.: Brought into the group on December 1, 2016, at an acquisition price of JPY579mn. Chlorella Supply has an
accumulated customer base of more than 580,000, with its business history of more than 20 years. euglena anticipates an expansion in sales
arising from cross-selling of its products to Chlorella Supply’s customers. Other synergistic effects include lower manufacturing costs by
manufacturing euglena’s Chlorella products in Chlorella Supply’s facilities, lower SG&A expenses by increased efficiency from making Chlorella
Supply a group company, and higher consolidated earnings arising from the replacement in the medium term of Chlorella Supply’s Chlorella
powder with Chlorella powder produced by subsidiary Yaeyama Shokusan Co., Ltd. The plan for Chlorella Supply calls for sales of JPY586mn
and operating profit of JPY32mn in FY12/17.
Topics
Construction to boost production capacity of food-use Euglena (doubled from 80t to 160t per annum) completed end-Jan 2017
The company announced on January 31, 2017 that it would double annual production capacity of food-use microalgae
Euglena to 160t. Work on facilities to increase production at consolidated subsidiary Yaeyama Shokusan Co., Ltd. (Ishigaki
City, Okinawa Prefecture) was completed and full-scale production started on February 1, 2017. The company
commented that annual production capacity has doubled from 80t to 160t as a result of the new facilities starting up,
making it possible to fulfill fast-growing demand in domestic and overseas markets and respond to diversifying customer
needs. Total investment on culturing facilities and peripheral equipment is estimated at JPY800mn. Annual production
capacity of 160t is on a powder basis; actual production volume will vary according to weather and hours of operation.
Change in production capacity
(MT)
180
Production capacity (MT/year, year end)
Sales (JPYbn, right axis)
160
160
15.0
140
120
60
40
20
0
60
40
14
8
6
5.9
4
3.0
FY09/14
16
10
80
80
18
12
11.1
100
(JPYbn)
2
FY09/15
FY09/16
FY09/17
0
Source: Shared Research based on company data
Plan for domestic biofuel production: Finalized pilot plant schedule: Construction to begin in June 2017, be completed at
end-October 2018, and operation to begin in early 2019. Total investment of JPY5.8bn.
Together with Q1 earnings results, the company announced on February 10, 2017 that it had concluded an agreement
with Chiyoda Corp. (TSE 6366) on the same day to build a pilot aviation biodiesel facility, which is part of its plan to
produce biofuels in Japan. The company will invest JPY5.8bn in the project, including basic design fees, upfront expenses
such as ordering and site preparation costs (all already paid for), and additional expected costs (partly USD-based). The
company plans to allocate JPY4.3bn raised by a public offering approved by its board of directors on November 18, 2013
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LAST UPDATE【2017/2/10】
to the project.
Based on the agreement with Chiyoda Corp., construction of the pilot plant is slated to begin on June 1, 2017 (“around
summer 2017” according to the initial public announcement of the project in December 2015) and scheduled for
completion on October 31, 2018 (“around winter 2018”). The plant should be operational some time in 1H 2019 (“by
1H 2019”).
Reference
SG&A expenses (JPYbn)
Personnel expenses
(JPYbn)
Administrative expenses
R&D expenses
Selling expenses
2.0
1.5
1.0
28%
31%
0.1
0.1
0.5
0.0
50%
45%
52%
47%
36%
53%
59%
62%
61%
59%
52%
40%
0.2
0.2
Q1
FY09/12
0.3
0.2
0.4
0.3
Q1
FY09/13
0.2
0.4
0.4
0.5
0.2
0.2
0.2
Q1
FY09/14
0.9
0.8
0.7
0.2
58%
0.6
0.5
0.4
Q1
FY09/15
SG&A-to-sales ratio
2.3
71%
1.7
62%
1.7
60%
2.2
77%
1.8
1.7
1.1
1.3
1.2
80%
67%
61%
60%
1.6
1.3
40%
0.7
20%
Q1
FY09/16
0%
Q1
FY09/17
Source: Shared Research based on company data
Healthcare segment
Sales
36%
30%
3,000
26%
Operating profit
OPM (right axis)
22%
22%
2,000
21%
22%
22%
0
(JPYmn)
570
467
433
389
379
379
356
166
166
153
124
120
107
101
Q1
FY09/12
Q3
Parent B2C sales
Q1
FY09/13
épauler
2,500
2,000
1,500
699
695
Q3
(JPYmn)
600
203
752
155
Q1
FY09/14
157
731
161
Q3
Group B2B sales
500
400
300
1,000
500
0
Q1
Q1
Q1
Q1
FY09/14FY09/15FY09/16FY09/17
200
100
0
Q1
Q1
Q1
Q1
FY09/14FY09/15FY09/16FY09/17
2,340
21%
21%
18% 1,793
1,582
1,372
17%
1,162
1,000
3,273
2,888 2,952 2,914
29%
28%
21%
184
240
Q1
FY09/15
(JPYmn)
800
279
Q3
311
20%
18%
20%
11%
857
293
30%
606
584
268
Q1
FY09/16
OEM, ingredients, and overseas
700
600
500
4%
118
Q3
Q1
FY09/17
(JPYmn)
250
10%
593
0%
Q3
Other
200
150
400
300
200
100
0
Q1
Q1
Q1
Q1
FY09/14FY09/15FY09/16FY09/17
100
50
0
Q1
Q1
Q1
Q1
FY09/14FY09/15FY09/16FY09/17
Source: Shared Research based on company data
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LAST UPDATE【2017/2/10】
Full-year company forecast
Income statement
(JPYmn)
Sales
YoY
Gross profit
YoY
GPM
SG&A expenses
YoY
SG&A-to-sales ratio
Operating profit
YoY
OPM
Recurring profit
YoY
RPM
Net income
YoY
Net margin
EBITDA
YoY
EBITDA margin
Capital expenditures
Depreciation
Goodwill amortization
FY09/14
1H
1,453
75.8%
870
88.4%
59.9%
810
93.6%
55.7%
60
38.0%
4.1%
51
-19.4%
3.5%
25
-93.2%
1.7%
82
50.2%
5.7%
89
21
2
2H
1,593
25.9%
979
43.4%
61.4%
897
63.2%
56.3%
82
-38.1%
5.2%
141
-30.2%
8.8%
93
-22.2%
5.9%
127
-19.1%
8.0%
83
43
2
FY
3,046
45.6%
1,849
61.6%
60.7%
1,706
76.3%
56.0%
142
-19.4%
4.7%
191
-27.7%
6.3%
118
-75.5%
3.9%
209
-1.2%
6.9%
172
63
4
FY09/15
1H
2,542
74.9%
1,712
96.8%
67.3%
1,523
88.1%
59.9%
189
214.9%
7.4%
312
514.9%
12.3%
194
682.9%
7.6%
245
197.2%
9.6%
136
54
2
2H
3,382
112.3%
2,307
135.7%
68.2%
2,020
125.3%
59.7%
287
249.1%
8.5%
415
194.5%
12.3%
276
195.1%
8.1%
402
216.6%
11.9%
178
82
33
FY
5,924
94.5%
4,019
117.4%
67.8%
3,543
107.6%
59.8%
476
234.7%
8.0%
726
279.3%
12.3%
470
297.4%
7.9%
647
209.0%
10.9%
315
136
35
FY09/16
1H
5,230
105.7%
3,834
124.0%
73.3%
3,379
121.9%
64.6%
454
140.3%
8.7%
543
74.2%
10.4%
428
120.9%
8.2%
595
143.4%
11.4%
446
97
44
2H
5,873
73.6%
4,303
86.5%
73.3%
4,063
101.1%
69.2%
240
-16.6%
4.1%
401
-3.2%
6.8%
245
-11.2%
4.2%
419
4.1%
7.1%
FY
11,103
87.4%
8,137
102.4%
73.3%
7,443
110.1%
67.0%
694
45.7%
6.3%
945
30.0%
8.5%
673
43.4%
6.1%
1,014
56.8%
9.1%
135
44
232
88
FY09/17 Initial Est.
1H
2H
FY
15,000
35.1%
820
18.2%
5.5%
1,100
16.5%
7.3%
690
2.5%
4.6%
Source: Shared Research based on company data
Medium-term targets and FY09/17 company forecast (out November 9, 2016)
Along with FY09/16 results, euglena announced two medium-term management targets for FY09/20: consolidated group
sales of JPY30bn and the production and supply of aviation and diesel biofuel made in Japan for practical use. The
company intends to concentrate on expanding the group’s B2C sales and launching new businesses. Medium-term
management targets and FY09/17 initiatives are outlined below.
Sales
(JPYbn)
B2C sales
30
Other
30.0
25
Other
1.2
11.1
10
0.2
FY09/08
0.2
0.7
1.2
FY09/11
1.6
2.1
0.3
3.0
0.8
FY09/14
5.9
4.3
3.3
6.8
2.6
20.0
FY09/17
Est.
FY09/20
Est.
2.9
3.0
2.9
1.8
1.7
1.9
2.3
2
15.0
15
0
B2C sales
3
10.0
20
5
(JPYbn)
1
0.7
0.8
0
0.2
0.2
Q1
FY09/14
0.7
0.2
Q3
1.4
1.6
1.8
0.9
0.3
0.5
Q1
FY09/15
0.6
0.7
Q3
0.9
1.4
Q1
FY09/16
Q3
Shared Research based on company data
Consolidated group sales of JPY30.0bn
euglena is targeting sales of JPY15.0bn in FY09/17, and aims to double that figure by FY09/20. To achieve these goals, the
company plans to ensure the group’s B2C sales of JPY20.0bn, expand the contributions of group earnings from group B2B
sales and overseas businesses, and invest aggressively in acquisitions. To boost B2C sales, it mainly anticipates greater
direct sales of food (at the parent company and subsidiary épauler) and growth in direct sales of cosmetics. Any related
acquisitions would add to these figures. The company plans to achieve a further JPY10.0bn in sales through overall
growth, with no major change in the sales composition for group B2B sales and OEM supply, ingredients, and other
items.
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LAST UPDATE【2017/2/10】
Sales composition
FY09/14
Other
1%
FY09/15
Group B2C
sales
26%
OEM and
ingredients
65%
Other
2%
Group
B2C
sales
45%
OEM and
ingredients
37%
Group B2B
sales
8%
Group
B2B
sales
16%
FY09/16
Other
5%
FY09/20
OEM and
ingredients
18%
Group
B2C
sales
61%
Group
B2B
sales
16%
Group
B2C
sales
67%
Shared Research based on company data
Group direct sales (B2C)
B2C sales to regular purchase customers are a key sales indicator, and euglena plans to increase the number of regular
customers from 154,000 at end-FY09/16 (+58,000 YoY) to 200,000 at end-FY09/17 (+46,000 YoY). In addition to B2C
sales of food by euglena and its subsidiaries, the company plans to achieve a growth trajectory using the “one” skincare
brand. However, euglena expects the spend per regular purchase customer to fall from FY09/16 for three reasons:
monthly selling prices on cosmetics are low; “JPY100 per day” is a common concept in the mail-order industry, and in
order to retain customers, euglena intends to design products in line with this concept; and épauler, which has higher
average selling prices, is taking up a smaller portion of the group’s sales mix. Rather than raising product prices, Shared
Research believes euglena is trying to broaden its customer base by keeping prices steady or launching products at low
prices that will attract customers.
Direct sale product prices for subscription purchases: midorijiru (euglena farm’s green juice, a mainstay product for euglena): JPY3,780
(31 servings), “one” skincare: JPY2,682 (40g, one month’s worth) or JPY4,410 (77g, one–two months’ worth), épauler’s Super Euglena:
JPY4,743 (one month’s worth), épauler’s Euglena Natural Rich: JPY3,978 (one month’s worth)
Regular purchase customers (FY09/20 is a rough estimate)
('000)
500
500
400
300
200
200
100
0
10
Q1
FY09/14
13
16
37
21
48
54
Q1
FY09/15
96
113
136
Q1
FY09/16
139
154
Q1
FY09/17
Q1
FY09/18
Q1
FY09/19
Q1
FY09/20
Shared Research based on company data
Expanding sales route by converting Chlorella Supply to a subsidiary
In December 2016, euglena converted Chlorella Supply to a wholly owned subsidiary. The conversion is to acquire a base
of more than 580,000 accumulated customers, benefit from synergies with euglena’s Chlorella sales business, and
integration synergies through expansion of euglena’s business infrastructure (boosting profit). The 580,000 accumulated
customer base is the number of customers who have purchased health food products (mainly Chlorella) to date, and are
potential customers for euglena’s food direct sales business. By marketing to these potential customers, euglena could be
expected to gain as many as 10,000 regular customers in FY09/17.
Although the Chlorella market appears to be shrinking, the company says it will focus on cultivating the new customer
base for B2C sales, raising sales per customer by cross-selling other group products, acquiring regular purchase customers
for Chlorella Supply’s products, and benefiting from efficiency improvements and other synergies. Even so, Shared
Research believes the impact the consolidated operating level will be slight in FY09/17, given the amount of goodwill.
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Chlorella Supply’s operating performance
1,000
900
Sales
879
783
800
586
600
578
554
300
200
FY12/15
FY12/17
Est.
(JPYmn)
FY12/18
Est.
FY12/19
Est.
0
10%
8%
6%
5.5%
10
100
12%
32 32
20
6
11 12
10
0.7%
FY12/13
10
1.4% 8
FY12/14
14%
11.4%
10.1%
30
FY12/14
66 66
56 56
40
400
FY12/13
OPM (right axis)
50
500
0
Recurring profit
60
719
700
Operating profit
70
4%
2%
1.1%
FY12/15
FY12/17
Est.
(JPYmn)
FY12/18
Est.
0%
FY12/19
Est.
Shared Research based on company data
The company plans to continue actively pursuing acquisitions. Shared Research believes acquisition targets include OEM
suppliers of its products, companies that can be easily integrated into the group, and companies without successors (in
the mail order industry, the number of aging business owners is growing).
Initiatives in FY09/17
In FY09/17, euglena aims to increase the number of direct sales (B2C) regular customers to 200,000, up by 46,000 from
end-FY09/16. It expects the increase in customers purchasing “one” skincare to make up more than half of this growth.
“one” is an important component for reaching the medium-term sales target of JPY20.0bn group B2C sales, and euglena
intends to focus advertising expenditures in this area in FY09/17. It plans to use online and newspaper ads in 1H to gain
new regular purchase customers from 2H.
Regular purchase customers
('000)
Parent B2C sales
250
épauler
200
200
150
96
100
50
0
10
13
16
21
Q1
FY09/14
Q2
Q3
Q4
37
Q1
FY09/15
48
54
Q2
Q3
Q4
136
139
Q2
Q3
154
113
Q1
FY09/16
Q4
Q1
FY09/17
Q2
Q3
Q4
Shared Research based on company data
The company has not released planned advertising expenses for FY09/17, but says it expects these expenses to increase
somewhat as a percentage of sales (JPY3.2bn in FY09/16, sales forecast to grow 35.1% YoY in FY09/17). The company sees
these expenses as an investment; its policy is to invest aggressively in advertising to acquire new regular customers.
To date, euglena has made efficient use of advertising expenses by investing in online and newspaper ads. It now plans to
run TV commercials to further increase regular purchase customers for mainstay midorijiru (euglena farm’s green juice).
Scheduled to run from December 2016, the ads will be styled as infomercials highlighting the characteristics of midorijiru.
At the end of December, the company planned to assess the resulting increase in regular customers for midorijiru and
other products.
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SG&A and advertising expenses
Advertising expenses
Advertising expense ratio (right axis)
(JPYbn)
Other selling expenses
Other selling expense ratio (right axis)
31%
2
20%
1
0
37%
16%
21%
19%
15%
14%
12%
0.2
17%
0.4
18%
19%
0.5
20%
16%
0.6
24%
1.3
1.3
20%
19%
19%
0.7
0.7
0.7
Q1
FY09/16
Q2
Q3
22%
1.2
18%
0.7
9%
0.2
11%
0.2
0.1
0.1
0.1
0.1
0.2
0.2
0.3
0.4
Q2
Q3
Q4
Q1
FY09/15
Q2
Q3
Q4
Q1
FY09/14
25%
0.2
1.7
40%
35%
30%
25%
21%
1.1
20%
15%
10%
5%
Q4
0%
Advertising expenses
(JPYbn)
% of sales (right axis)
29%
28%
4
20%
3
21%
17%
2
14%
11%
7%
1
0
FY09/13
FY09/15
0%
FY09/17
Est.
Shared Research based on company data
OEM supply
In OEM supply, the top 10 supply partners account for 80% of the company’s sales (FY09/16). The company expects
overall OEM sales to be flat or down YoY in FY09/17, but says it will focus on collaborating with these top 10 companies
toward FY09/20. In particular, it expects sales to Takeda Pharmaceutical Co., Ltd. (TSE: 4502) to rise. It also forecasts
similar sales growth in other businesses. As well as higher sales of the existing product, Takeda no Euglena midori no
shukan (“Takeda’s Euglena: The Green Routine”), Shared Research expects the expansion of its lineup by introducing new
products.
Overseas development
Overseas sales came to around JPY20mn in FY09/16. Given the number of employees (six or seven), Shared Research
thinks the overseas business is generating an operating loss. In FY09/17, the company plans to further increase overseas
sales by boosting customer numbers. The company considers China’s health food market as key, as it is larger than the
domestic health food market and has higher average customer spend. Mr. Fukumoto, director in charge of the Healthcare
segment, spends half of his time on working to expand overseas sales.
Energy and Environment business
Construction of the biofuel production pilot plant will begin in FY09/17. As of November 2016, the company was
planning to start construction by summer 2017 and begin operations in 1H 2019.
Roadmap for producing and supplying biofuel for commercial use
2016
2017
2018
2020～
2019
Saga: B-DASH Project (Sewage treatment)
Cultivation
research on
Cabinet Office: ImPACT Program (R&D)
Euglena
Mie:Taki-town project (Large scale cultivation pool)
Commercial
cultivation
facilities of
Plan and prepare
Construct and operate
Euglena
Pilot plant
Construct
Start construction
Operate (aim for biofuel use in commercial flights by 2020)
Commercial
plant
Plan and prepare
Construct and operate
Shared Research based on company data
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Historical company forecasts vs. results
Forecasts versus results
(JPYmn)
Sales
Initial forecasts
Q1
Q2
Q3
Results
Operating profit
Initial forecasts
Q1
Q2
Q3
Results
Recurring profit
Initial forecasts
Q1
Q2
Q3
Results
Net income
Initial forecasts
attributable to
Q1
Q2
owners of parent
Q3
Results
FY09/13
Cons.
2,291
2,291
2,055
2,055
2,092
352
352
134
134
176
409
409
225
225
265
254
254
445
445
483
Results
vs. Est.
-8.7%
-8.7%
+1.8%
+1.8%
-49.9%
-49.9%
+31.7%
+31.7%
-35.3%
-35.3%
+17.6%
+17.6%
+90.0%
+90.0%
+8.4%
+8.4%
FY09/14
Cons.
3,113
3,113
3,113
3,113
3,046
176
176
176
176
142
240
240
240
240
191
144
144
144
144
118
Results
vs. Est.
-2.1%
-2.1%
-2.1%
-2.1%
-19.1%
-19.1%
-19.1%
-19.1%
-20.2%
-20.2%
-20.2%
-20.2%
-17.9%
-17.9%
-17.9%
-17.9%
FY09/15
Cons.
4,722
4,722
5,923
5,923
5,924
77
77
258
323
476
256
256
384
536
726
175
175
235
344
470
Results
vs. Est.
+25.5%
+25.5%
+0.0%
+0.0%
+518.6%
+518.6%
+84.6%
+47.5%
+183.7%
+183.7%
+89.2%
+35.5%
+168.4%
+168.4%
+99.8%
+36.5%
FY09/16
Cons.
11,086
11,086
11,086
11,100
11,103
601
601
601
760
694
826
826
826
1,000
945
540
540
540
736
673
Results
vs. Est.
+0.2%
+0.2%
+0.2%
+0.0%
+15.5%
+15.5%
+15.5%
-8.7%
+14.3%
+14.3%
+14.3%
-5.5%
+24.7%
+24.7%
+24.7%
-8.5%
Source: Shared Research based on company data
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Business development, medium- to long-term strategy
History of business development
Corporate philosophy of “making people and the Earth healthy"
The corporate philosophy of euglena Co., Ltd. (euglena) is “making people and the Earth healthy.” It harnesses outdoor
mass cultivation technology for the microalgae Euglena gracilis, from which the company name is derived. A
biotechnology company originating at the University of Tokyo, euglena is cultivating a variety of uses for the microalgae,
including functional foods, cosmetics, animal feed, and fuel. In December 2005 it became the first company in the world
to succeed in the outdoor mass culturing of Euglena, and as of FY09/16 it had no competitors that produced microalgae
on the same scale. In the mainstay Healthcare segment, the company focuses on the production and sale of functional
foods. Over the medium term, the company intends to produce and supply biodiesel and aviation biofuel for commercial
use in the Energy and Environment segment. The company was founded to help solve the global nutrition challenges,
sparked by the malnutrition seen in Bangladesh.
First to succeed in large-scale outdoor cultivation of Euglena ; entered the health food market via the Healthcare segment
The company was established in August 2005, but efforts to commercialize products using Euglena began before then, in
2000. The founders secured outdoor cultivation pools and utilized the results of algae research conducted mainly at the
University of Tokyo. These efforts led to the world’s first successful outdoor mass culturing of Euglena for use in food on
December 16, 2005. In 2006 the company launched “euglena v22” supplements and two other products in the health
food market in 2006, and began OEM supply on the back of a capital tie-up with ITOCHU Corporation (TSE: 8001) in May
2008, a foothold for the Healthcare segment.
Sales and gross profit margin (JPYmn)
(JPYmn)
12,000
Other
OEM, ingredients, and overseas
11,103
10,000
73%
68%
8,000
61%
6,000
54%
4,000
2,000
0
(JPYmn)
Group B2B sales
50%
53%
56%
54%
5,924
55%
116
FY09/07
164
221
FY09/09
735
1,166
FY09/11
1,586
2,092
FY09/13
80%
70%
GPM (right axis)
74% 73%
72% 73%
70%
68%
67% 66%
65%
61%
59%
59%
3,000
60% 2,000
Energy-related
57%
53%
40%
FY09/15
30%
0
Q1
FY09/12
80%
70%
60%
57%
55%
55%
54%53%
53%
50% 1,000
3,046
38%
Group B2C sales
90% 4,000
50%
Q1
FY09/13
Q1
FY09/14
Q1
FY09/15
40%
Q1
FY09/16
Source: Shared Research based on company data
Expand Euglena product lineup, starting with higher selling price per kg
The company formulated the “five Fs of biomass” (see the following table), which describe its strategy for introducing
Euglena products: starting with products with high unit price by weight (selling price per kilogram). While reducing
production costs, the company expanded its product lineup from functional foods to highly functional cosmetics and
general foods. It further lowered costs, enhanced its level of recognition and trustworthiness by listing on TSE Mothers on
December 20, 2012, and commenced full-fledged direct-to-consumer (B2C) sales.
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The “Five Fs of biomass” and business expansion
Five Fs of biomass
Food
Energy and Environment
Functional foods
Hitachi, Ltd.
Healthcare
Fuel
ANA Holdings Inc.
Functional foods
Isuzu Motors Limited
Fiber
Cosmetics ingredients
Medical ingredients
Chemicals
Takeda Pharmaceutical Company Limited
Mass cultivation
technology for euglena
Chevron Lummus Global & ARA
Feed
ITOCHU Corporation
Feed
ITOCHU Corporation
DENTSU INC.
Tokyo Century Corporation
Food (distribution)
Pet foods
Ingredient for
compound feed
Seven & i Holdings Co., Ltd.
FamilyMart UNY Holdings Co., Ltd.
Thermal power plant
Sumitomo Joint Electric Power Co., Ltd.
Taki, Mie Prefecture
Fertilizer
Functional foods
Water clarification equipment
SHIMIZU CORPORATION
Fuel
Nihon Kolmar Co., Ltd.
Socie World Co., Ltd.
Saga, Saga Prefecture
Companies with partnership or capital alliance
Source: Shared Research based on company data
Establish Healthcare segment base through OEM supply, shift toward a B2C sales business model
By expanding its OEM supply, euglena booked an operating profit in FY09/10 and succeeded in establishing an earnings
base. However, with OEM supply it is difficult to control growth and brand image. To enhance its brand image in line
with its Tokyo Stock Exchange listing, in FY09/13 the company transitioned from an OEM-based business model to its
current model focusing on direct-to-consumer sales. In tandem with this shift, the company stepped up M&A activity. It is
aiming to extend its value chain by bringing OEM clients into the euglena group so it can expand production bases and
sales routes.
OEM
products
Own-brand
products
Business model shift in the food sector
Regular customers via online and mail
orders approx. 100,000 as of Q3 FY09/16
Strategies
Supermarkets and convenience stores
Total 180 companies nationwide
Aim at 1mn regular customers via online
and mail orders
Approx. 1,000 small retailers nationwide
Expand domestic wholesale markets including
supermarkets and convenience stores
euglena art
euglena group
Approx. 14,000 small retailers nationwide
épauler
euglena group
Approx. 37,000 regular customers
nationwide
Takeda Pharmaceutical, and others
(approx. 50 companies）
Each companies' sales network, and
online and mail-order systems
Expand small retailers in the group
Expand distribution network through M&A
Continue M&A of OEM partners and/or
include them in the euglena group;
integrate order systems and advertisement
Transforming the earnings structure
The shift in business model has transformed euglena’s earnings structure. As an OEM supplier, the company’s advertising
and SG&A expenses were relatively low, as was GPM. Now, with direct sales its advertising and SG&A expense burden is
relatively high but so is GPM. The direct sales model has a number of other advantages: when increasing the number of
regular customers, the fixed cost ratio declines due to the volume effect; once sales promotion and other upfront
expenditures have successfully established a solid customer base, advertising and SG&A expenses can be reduced,
substantially contributing to earnings. Also, with direct-to-consumer sales the company can control its brand image.
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A changing cost structure: SG&A expenses (left), SG&A expenses as a percentage of sales (right)
4,000
Personnel expenses
R&D expenses
SG&A expenses
GPM
Advertising and promotion
Depreciation
SG&A-to-sales ratio
3,500
70%
3,000
2,500
2,000
20%
60%
15%
50%
1,000
500
FY09/13
1H
FY09/14
1H
FY09/15
1H
FY09/16
1H
25%
65%
55%
1,500
0
30%
75%
Advertising and promotion
SG&A expenses
Personnel expenses
R&D expenses
OPM
10.5%
10%
45%
5%
40%
0%
5.3%
5.2%
4.1%
FY09/13
1H
2H
FY09/14
1H
7.4%
FY09/15
1H
2H
8.5%
8.7%
2H
FY09/16
1H
2H
Source: Shared Research based on company data
Medium- to long-term strategy
Long-term goals
One of euglena’s goals is to solve the global malnutrition challenge. The company can be benchmarked against
companies such as Ajinomoto (TSE: 2802), Yakult (TSE: 2267), Nestlé (SIX: NESN) of Switzerland, and Danone (Euronext:
BN) of France. Euglena is the core product and the company is establishing cultivation technology that cannot be
reverse-engineered, while protecting research results with patents.
Short- to medium-term strategy
Three pillars of cash flow: direct sales, agriculture and aquaculture sector, and aviation biofuel
The company wants at least three cash flow pillars in the Healthcare, Agriculture and Aquaculture Products, and Energy
and Environment segments. It plans to invest the cash flow generated in new growth. In the Healthcare segment it
currently generates cash through OEM supply of Euglena products but is beginning to generate cash flow through its
B2C sales business. The company plans to use the cash generated from the Healthcare segment, a stable earnings base, to
grow the segment and invest in medium-term growth goals such as biofuel research and development.
Performance (sales)
(JPYmn)
12,000
Other
OEM, ingredients, and overseas
11,103
10,000
73%
68%
8,000
61%
6,000
54%
4,000
2,000
0
(JPYmn)
Group B2B sales
50%
53%
56%
54%
5,924
55%
116
FY09/07
164
221
FY09/09
735
1,166
FY09/11
1,586
2,092
FY09/13
80%
70%
GPM (right axis)
74% 73%
72% 73%
70%
68%
67% 66%
65%
61%
59%
59%
3,000
60% 2,000
Energy-related
57%
53%
40%
FY09/15
30%
0
Q1
FY09/12
80%
70%
60%
57%
55%
55%
54%53%
53%
50% 1,000
3,046
38%
Group B2C sales
90% 4,000
50%
Q1
FY09/13
Q1
FY09/14
Q1
FY09/15
Q1
FY09/16
40%
Source: Shared Research based on company data
Healthcare segment
Business model transformation: from OEM supply to direct sales and sales through distributors
In the Healthcare segment euglena is transitioning from a business model based on OEM supply to a direct-to-consumer
sales model. The company’s target markets by scale are categorized as follows, and the company aims to expand beyond
Euglena products into the entire food sector.
Stage 1 (direct sales): Limited segment of the domestic market such as through mail-order sales
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Stage 2 (sales through distributors): Entire domestic market
Stage 3 (overseas markets): Overseas markets
To succeed, the company recognizes that rather than selling generic products like aojiru (green vegetable juice), it will
need to sell unique products with strong branding—encouraging customers to purchase products because they are made
from Euglena.
Target channels
The company is simultaneously pursuing initiatives through all three sales channels.
Direct sales: In a limited segment of the domestic market, raising awareness of core products that that use Euglena—such
as midorijiru (euglena farm’s green juice)—through mail order and face-to-face sales and cross-selling to encourage
purchases of related products
Sales through distributors: Developing its own products, such as Euglena beverage for the entire domestic market,
and selling through mass market operators such as convenience stores and general merchandisers
Overseas markets: Cultivating overseas markets through alliances with partner companies
As of FY09/16, direct sales were driving growth, and the company was concentrating management resources here. It aims
to follow a growth trajectory by pursuing the domestic market and overseas markets.
Market scale
Health food related markets
Other related markets
Euglena
Health Food
Comparable markets
Aojiru (green vegetable juice)
Approx. JPY60.0bn 2016 Est. by Fuji Keizai Marketing Research
Vegetable juice market
Approx. JPY150.0bn 2016 Est. by Kagome
(domestic)
Chlorella
Approx. JPY20.0bn 2012 by Yano Research Institute
Lactic acid bacteria beverage market
Approx. JPY100.0bn 2016 Est. by Kagome
Approx. JPY4.6bn
Q3 FY09/16 sales ×4
Comparable companies Yamada Bee Farm
JPY43.1bn FY2014 group sales (honey, etc.)
(domestic)
Q’SAI CO., LTD.
JPY32.8bn FY12/15 sales (aojiru, etc.)
Yazuya Co., Ltd.
JPY22.0bn FY2013 sales (garlic products, etc.)
Kagome, Yakult and others
Source: Shared Research based on company data
Market development
The company’s market development efforts comprise a branding strategy and a patent strategy (both applicable to stages
1–3), and cost reductions (mainly for stages 2 and 3).
Branding strategy
The company’s branding strategy is to create a compelling story that will motivate customers to buy the company’s
Euglena products because they are made by euglena. The strategy also includes building a positive corporate image
through socially significant initiatives such as social projects in Bangladesh and aviation biofuel development.
The company is using brand control to minimize the ability of other companies to take market share even if they do enter
the Euglena market. This approach is also aimed at preventing the reputational damage that could occur if other
companies offer lower-quality Euglena. In addition to its creating a brand image of “an abundance of nutrients” and
“Euglena produced in Ishigaki,” the company continues to announce research results promoting the health benefits of
regular consumption of Euglena such as alleviating symptoms of influenza, gastric ulcers, and rheumatoid arthritis. In
addition, euglena is promoting its brand image through existing projects such as biofuel, the Mungbean Project with the
Grameen Group, and hands-on support and R&D support for technology ventures through the Real Tech Fund (an
investment business limited partnership).
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R&D successes
Press release Target
May 2016
Nov. 2015
Jul. 2015
Euglena powder extract
Effects
Confirmation of inhibition of Rotavirus growth
Patent applied
Mar. 2016
Continuous intake of Euglena powder and special compound Paramylon Alleviating rheumatoid arthritis
Continuous intake of Euglena powder and special compound Paramylon Alleviating stomach ulcer symptoms
Feb. 2015
Continuous intake of Euglena powder and special compound Paramylon Alleviating influenza symptoms
Apr. 2014
Continuous intake of Euglena powder and special compound Paramylon Adjusting immune balance
May 2013
Usage of Paramylon film as wound treatment agent
Wound treatment effect of Paramylon film
Apr. 2016
Announced
May 2016
70th Annual Meeting of the Japan Society of Nutrition and Food Science
Nov. 2015
31st Euglena Research Association
Jun. 2016
67th Annual Meeting of the Vitamin Society of Japan
Nov. 2014
62nd Annual Meeting of the Japanese Society for Virology
Apr. 2014
May 2013
May 2013
65th Annual Meeting of the Vitamin Society of Japan
Source: Shared Research based on company data
Patent strategy
The company considers its patent strategy a core strategy that is not limited to the Healthcare segment. It is working to
establish cultivation technology that cannot be reverse engineered, and protecting the resulting products with patents.
If euglena patented the cultivation technology itself, and the patented expertise leaked out and a competitor used its
technology, it would be difficult to prove from the resulting Euglena product whether the company’s patents had been
infringed upon or not, so the patent would not be meaningful. Instead, as Euglena is a living organism, it is not possible
to reverse engineer the company’s cultivation technology by using Euglena grown through repeated cell division in its
special culture liquid. Furthermore, the company’s products use dried Euglena, which cannot be brought back to life and
cultured.
For these reasons, the company divides its management assets into (patented) intellectual property and (non-patented)
trade secrets. The company is careful to patent assets such as hardware that can be reverse engineered. Even if a
competitor were to succeed in mass culturing Euglena, the company believes it could differentiate itself on the basis of
accumulated product and brand value. It thinks that it would be difficult for potential competitors to reproduce core
product values such as “Euglena that contains 59 nutrients” and “Euglena aviation biofuel that meets jet fuel regulations”
simply through mass culturing, as these features require certain expertise.
Cost reduction
Following the company’s success in mass culturing Euglena in December 2005, two major technological innovations in
2007 and 2010 plus larger production facilities enabled the company to substantially reduce production costs. The
company also began commercializing Euglena from products with higher unit prices by weight. Costs have not yet fallen
to the level required for use in aviation biofuel, and looking only at price (not health benefits), euglena’s main product in
the Healthcare segment, midorijiru (euglena farm’s green juice) (priced at JPY4,200 for 31 sachets) is much more
expensive than similar aojiru (green vegetable juice) offerings (JPY3,600/30 sachets for Suntory, JPY3,000/30 sachets for
Q’sai, and JPY1,200/28 sachets for Yakult).
Two technological innovations in 2007 and 2010: In 2007, the introduction of a new type of culturing facilities enabled larger-scale
production. An innovation in culture liquid in 2010 successfully shortened the production process. Since then, the company has continued to
cut costs on both the facility and culture liquid fronts, and reduced the time required for the culturing process from one week to three days.
Room for reducing CoGS is limited, as the direct sales department already has a gross profit margin of more than 80%,
and the majority of CoGS are from boxing and packaging. However, improving production costs by 5% would
significantly impact GPM when conducting a full-fledged rollout of products to convenience stores and general
merchandisers. Reducing production costs by a single percentage point might not have a major impact on the GPM in
the direct sales market, but for sales to convenience stores and general merchandisers this could bolster GPM by several
percentage points. The market is also larger, so the impact on total gross profit would be amplified by the sales volume.
The Euglena beverage the company launched sells for JPY240 (recommended retail price), which is relatively high, but
rather than lowering its price the company is working to make the drink an attractive product for which customers will be
willing to pay a higher price.
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While the Euglena beverage is priced at JPY240, a vegetable juice (Itoen) on the same shelf is priced at JPY100, so even if the Euglena beverage
is differentiated based on function, Shared Research believes the company will need to reduce the unit price in order to capture some of the
vegetable juice market (Kagome estimate of JPY149.2bn in 2016) and lactic acid drink market (JPY97.7bn).
Assuming Euglena beverage has a retail price of JPY240, a wholesale price of JPY120, and CoGS of JPY50 (gross profit of JPY70), lowering the
retail price to JPY150 (wholesale price of JPY75 and gross profit of JPY25) would mean the company has to sell almost three times as much
product to achieve the same gross profit. Similarly, lowering the retail price to JPY120 (wholesale price of JPY60 and gross profit of JPY10)
would require seven times the sales amount. The risks, therefore, are high. The company believes that rather than lowering prices and making
up the difference through higher quantities, it is preferable to maintain a retail price of JPY240 and make the product attractive to consumers
at that price.
Shifts in sales composition and GPM
100%
Other
2%
4%
3%
9%
OEM, ingredients, and overseas
3%
6%
5%
6%
80%
9%
7%
11%
6%
Group B2B sales
15%
15%
5%
6%
22%
23%
4%
6%
60%
40%
92%
87%
91%
87%
84%
81%
79%
78%
73%
70%
Group B2C sales
27%
10%
62%
29%
2%
Q1
FY09/12
1%
0%
1%
0%
Q1
FY09/13
1%
1%
1%
1%
Q1
FY09/14
1%
1%
42%
42%
51%
11%
58%
20%
0%
41%
Energy-related
2%
14%
13%
43%
42%
GPM (right axis)
70%
62%
Q1
FY09/15
3%
61%
59%
14%
15%
21%
19%
4%
7%
64%
65%
19%
19%
2%
75%
37%
2%
19%
28%
2%
18%
2%
Q1
FY09/16
60%
16%
55%
12%
7%
50%
Maximizing LTV; increasing advertising and SG&A expenses
The company still has substantial room to reduce general expenditures. Integrating the two companies converted to
subsidiaries in FY09/16 are reducing shared costs, such as distribution and call center expenses, and contributing to
profits. As of FY09/16, however, the company is still working to expand its direct sales route, so it was reinvesting profits
to attract new customers through ads, taking into account product lifetime value (LTV) and cost per order (CPO).
Profit = (LTV – CPO) x number of customers
The company aims to maximize impact based on the following formula: profit = (LTV – CPO) x number of customers. It is
working to increase LTV and the number of customers while reducing CPO, focusing particularly on raising LTV.
The company is pursuing a number of measures to raise LTV: 1) Raise spend per customer: Encourage a purchasing shift
from midorijiru (euglena farm’s green juice) to euglena PLUS, the higher-end supplement. 2) Cross-selling: Generate
additional sales through the sale of related food products and cosmetics. 3) Retention rate: Analyze the reasons for lapses
in regular purchases, and introduce new products such as MEDICA+ to avoid losing regular customers to other
companies’ health foods such as blueberries.
An increase in new regular customers is closely linked with CPO. The company’s approach is to devise advertising
strategies to set CPO based on assumed LTV, and invest aggressively in advertising when it will be most impactful while
holding back at other times, taking into consideration the effects of ad volume and media exposure.
LTV>CPO
Calculating LTV is not easy, as the calculation is based on a large number of regular customers, and the company’s direct
sales customer base has rapidly expanded. However, assuming that around 5% of regular customers leave each month,
the average duration would be 20 months (100% of one month ÷ 5%). Under these assumptions, LTV = JPY3,780/month
x 20 months = JPY75,000. These figures are based on prices for midorijiru (euglena farm’s green juice). Using instead the
prices for épauler’s Super Euglena (regular purchases at JPY4,743/month) would result in LTV of JPY95,000. Considering
the number of regular customers (93,000 for euglena and 47,000 for épauler as of July 2016), the average would be
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JPY82,000. With cost of sales of 15% and transportation expenses of 5%, the company could spend up to 80%, or
JPY65,000, on advertising.
midorijiru (euglena farm’s green juice): The company’s mainstay product. Regularly priced at JPY4,200, the drink is available for JPY3,780
per month to customers who sign up for a subscription. Shipping is free, and the contract can be cancelled at any point up to 10 days prior to
the next shipment.
Super Euglena: épauler’s conventional mainstay product. Regularly priced at JPY6,500, it is available on a monthly subscription basis at
JPY4,743 per month.
Euglena Natural Rich: épauler’s new mainstay product, launched in September 2015. Regularly priced at JPY5,450, it is available on a
monthly subscription basis at JPY3,978 per month.
Future profits = LTV (∝ retention rate) × number of new customers
We estimate that future profits can be generated if costs per regular customer are around JPY20,000 less than LTV. Given
that attracting new customers is key to increase profits, achieving company forecasts for 2H FY09/16 requires continued
investment in ads to ensure growth. Still, the impact of advertising tends to fall when multiple ads are concentrated into a
short period of time. As reducing advertising expenses to zero would not necessarily result in immediate cancellations,
the calculations assume a certain level of ongoing demand.
SG&A and advertising expenses
Advertising expenses
Advertising expense ratio (right axis)
(JPYbn)
Other selling expenses
Other selling expense ratio (right axis)
31%
2
20%
1
0
37%
16%
21%
19%
15%
12%
0.2
14%
17%
0.4
9%
0.2
11%
0.2
0.1
0.1
0.1
0.1
0.2
Q2
Q3
Q4
Q1
FY09/15
Q1
FY09/14
18%
19%
0.5
20%
16%
0.6
22%
18%
0.7
0.2
0.2
0.3
0.4
Q2
Q3
Q4
25%
24%
1.3
1.3
20%
19%
19%
0.7
0.7
0.7
Q1
FY09/16
Q2
Q3
1.2
1.7
40%
35%
30%
25%
21%
1.1
20%
15%
10%
5%
Q4
0%
Advertising expenses
% of sales (right axis)
(JPYbn)
29%
28%
4
20%
3
2
21%
17%
14%
11%
7%
1
0
FY09/13
FY09/15
0%
FY09/17
Est.
Shared Research based on company data
Perspective on OEM supply
The company is transitioning from an OEM supply-based business model to focus on direct sales. Although OEM supply
remains an important source of cash flow, the company stopped cultivating new OEM clients following its 2014
agreement with Takeda Pharmaceutical Co., Ltd. (TSE: 4502). The company is shifting its business model to accelerate
growth, improve the earnings structure, and control its brand.
Brand control: As the number of OEM clients increases, maintaining a consistent brand for products containing Euglena becomes difficult
due to individual OEM client companies’ differences in product positioning and advertising methods. In addition, some advertising possibly
contravened the Pharmaceutical Affairs Act and was not in line with euglena’s intentions, such as ads promoting the “Euglena diet.” Such
factors were undesirable from a brand control perspective and led to decisions to limit or acquire OEM clients.
Positioning of the Healthcare segment, other product groups
Cosmetics undergoing same shift as health foods: OEM supply → sales through distributors → direct sales
Within the “five Fs of biomass,” cosmetics command high unit prices by weight. The company is making the same shift for
cosmetics as for health foods: face-to-face sales → OEM supply → sales through distributors → direct sales. OEM
supply accounts for around half of sales, with sales of euglena’s “B.C.A.D.” brand making up the rest. In May 2015,
euglena acquired two companies with sales routes to small businesses such as hair and beauty salons, and merged them
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into euglena art Co., Ltd. in July 2015 to create a sales channel for high-end products.
For the beauty salon route, the company expanded its product lineup with the July 11, 2016 launch of haircare products,
which have strong demand and are easy to sell in hair salons. In May 16, 2016, euglena made its first foray into a direct
sales skincare brand with an all-in-one face cream called “one.” As with health foods, the company aims to increase direct
sales of cosmetics.
Cosmetics sales (JPYmn)
200
150
100
50
0
(JPYmn)
Q1
FY09/12
Q1
FY09/13
Q1
FY09/14
Q1
FY09/15
Q1
FY09/16
Source: Shared Research based on company data
In addition to Euglena-related products sold through the B2C sales business (including épauler) and OEM supply, the
Healthcare segment includes Chlorella and cosmetics. The Chlorella business is handled by Yaeyama Shokusan, which
became a wholly owned subsidiary in March 2013. euglena’s policy is to not make advertising and R&D investments in
these products, but they generate steady cash flow.
Agriculture and Aquaculture Products segment
The company’s philosophy of “making people and the Earth healthy” goes beyond businesses involving Euglena. As of
FY09/16, the main source of cash flow was the food business, particularly direct sales products, and the company sees the
Agriculture and Aquaculture Products segment as a potential new cash source.
In the Agriculture and Aquaculture Products segment, in October 2014 the company acquired Yukiguni Maitake’s stake in
Grameen Yukiguni Maitake Ltd. (now Grameen euglena Ltd.), amounting to 49.49% of common shares and 100% of
non-voting preferred shares. In September 2015 euglena converted Taketomi Prawn Farm (now euglena Taketomi Prawn
Farm) to a wholly owned subsidiary.
Mungbean Project
The company believes that Grameen euglena’s Mungbean Project will eventually generate cash flow.
Social significance and revenue source
The Mungbean Project offers benefits for Bangladesh, Japan, and euglena. For Bangladesh, the project provides
employment opportunities in farming areas, the chance to improve nutrition, and cultivation technology support for
increasing crop yields and quality. For Japan, the project offers a way to ensure a steady supply of mung bean imports,
which are used for growing bean sprouts (mung beans account for more than 80% of all domestic bean sprout
production). Almost all mung beans are imported, and 90% of imports are from China. This project provides a way to
counter price fluctuation risk and offers steady and low cost supply of mung beans for Japanese bean sprout producers,
many of which are going out of business. For euglena, the project is a way to ensure a revenue source by selling mung
beans imported by Grameen euglena to Japanese bean sprout producers.
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A substitute to imports from China, where prices are rising
In this project, Grameen euglena purchases mung beans harvested by cooperating farmers at higher prices than are
offered in their local markets and exports them to euglena in Japan. In accordance with Grameen euglena’s Articles of
Incorporation, any remaining profits are directed toward local social contributions. euglena sells the imported mung
beans at Japanese market prices to domestic bean sprout producers, earning profits on the price difference.
Import prices on mung beans have risen since 2013, peaked in 2015, then stabilized. Prices rose due to growing demand
within China, decreasing acreage devoted to the cultivation of mung beans as farmers in China shift to crops with higher
earnings potential such as corn, and yen depreciation.
Mung bean import volume (1,000 tons, JPY/kg), imports by country (August 2015–July 2016, tons)
China
('000tons)
30
24
25
20
15
15
Q1
CY08
Average import price (YoY)
23
23
22
8
9
7
6
(JP Y/kg)
250
Bangladesh
9
8
9
Others
702
307
1%
200
9,341
16%
100
50
Q1
CY11
Q1
CY12
Q1
CY13
Q1
CY14
Q1
CY15
1%
Myanmar
150
8
6
17
16
14
14
12
11
4
Q1
CY10
Myanmar
300
23
18
14
5
China
28
20
9
Q1
CY09
Others
24
14
7
5
Bangladesh
28
20
10
0
Myanmar
26
Q1
CY16
0
China
46,745
82%
(tons)
Source: Shared Research based on trade statistics
euglena’s profits: Margin on wholesale prices
Between August 2015 and June 2016, Japan imported JPY12.0bn (JPY10.3bn from China) worth of mung beans at an
average unit price of JPY209/kg (JPY220/kg for mung beans from China). By comparison, in the two-month period from
January to February, Japan imported JPY122mn worth of mung beans from Bangladesh, at an average price of JPY175/kg.
Had the company imported all of these beans from Bangladesh and sold them in Japan at JPY209/kg, it would have
generated JPY24.6mn in profits (702 tons x JPY34/kg). The company’s selling price of Bangladeshi mung beans in Japan is
lower than the selling price of beans imported from China. The company imports beans from Bangladesh at a lower price
than its selling price to ensure a profit.
Boosting profits through larger import quantities and better quality
The company understands that profits are based on import volume x (wholesale price – import price), but it believes this
amount could increase if the number of cooperating local farmers increases, which would boost import quantities and the
amount of land devoted to growing the beans, and if wholesale prices rise as quality improves.
Bean quality: The company says that if the quality of mung beans from China is indexed at 100, those produced in Bangladesh had a quality
of around 80 in 2015. The lower wholesale price than China reflects this difference. Improving the quality of beans from Bangladesh should
reduce the discount against beans produced in China, much of which could be added directly to euglena’s margin.
Working with the United Nations and Bangladeshi government to train farmers, the biggest bottleneck to expansion
In 2015 (mung beans are typically harvested in May or June, and then shipped to Japan after sorting around November or
later), more than 3,000 farmers participated in the Mungbean Project, and the corresponding farming area has grown to a
total of more than 2,000ha. Due in part to inclement weather, in 2016 the import volume is expected to fall to around
330 tons, but in 2017 the company expects the crop volume to expand to around 2,000 tons (crops planted in 2016 and
contributing to performance in FY09/18). Forecasts call for the sorting of 1,000 tons designated for export to Japan, with
the remainder sold locally. In 2018 (planted in 2017, contributing to FY09/19 earnings), the company targets 3,000 tons
(1,500 tons for export).
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Outlook for the Mungbean Project
FY09/16
2014
Approx. 1,500
2015
Approx. 1,400
2015-2016
Approx. 700
Contribution to earnings:
Planted
Area (ha)
Harvested
Amount (tons)
Exported
Amount (tons)
FY09/17
2015
Approx. 2,000
2016
780
2016-2017
330
FY09/19
2017
Approx. 3,000
2018
Approx. 3,000
2018-2019
Approx. 1,500
FY09/18
2016
Approx. 2,000
2017
Approx. 2,000
2017-2018
Approx. 1,000
Source: Shared Research based on company data
Even in 2018, the amount of mung beans the Mungbean Project is projected to export to Japan would only account for
2–3% of Japan’s imports of 57,095 tons (in the 121 months to July 2016). The bottleneck is the number of participating
farmers in Bangladesh. To address this situation, Grameen euglena agreed to form a business alliance with a Bangladeshi
government-affiliated development institution, the Palli Karma-Sahayak Foundation (PKSF), which is supported by a
subsidy from the International Fund for Agricultural Development (IFAD). This alliance leverages PKSF’s network of 20mn
farmers to train those interested in participating in the Mungbean Project. Through this alliance, the company expects to
triple the number of participating farmers to 10,000 over a three-year period. Ignoring potential weather impact, this
figure would correspond to a tripling of production to 6,000 tons (with 3,000 tons exported to Japan). If crop yields and
quality increase, leading to higher wholesale volumes and prices, the project could further contribute to the company’s
profits.
Grameen euglena Ltd. business (left) and business alliance with PKSF (right)
Grameen agricultural
foundation
IFAD
PKSF
Soybean sprouts
maker
Operational funds
Agricultural funds
United
Nations
Bangladesh
For Japan
Business
alliance
Agricultural
technique
Japan
Grameen Euglena
Local farmers
Grameen Euglena
Guideline
Training
Expertise
Technique
For Bangladesh
Local
customers
Mung bean
sales
Export mung
bean
Funding
support
New local farmers
Sale of mung
beans as
material for
bean sprouts
Domestic soybean
sprouts maker
Source: Shared Research based on company data
euglena Taketomi Prawn Farm
euglena Taketomi Prawn Farm (prawn farming in Taketomi) generates annual sales of around JPY200–300mn (sales of
JPY280mn and recurring profit of JPY90mn in FY08/15) and the company expects this new initiative to generate stable
earnings by ensuring stable profitability.
In foods, euglena is transitioning its business model from OEM supply to sales through distributors and direct sales to
consumers. In prawn farming, it also aims to expand from wholesale to direct sales. Summer is the optimal season for
wild-caught prawn, but in winter prices reach their highest levels as demand spikes towards the end of the year. For
direct sales to consumers, the company aims to improve profitability by freezing prawn farmed during the off-season to
meet demand during peak seasons. The company expects this business to be a stable source of earnings.
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Energy and Environment segment
In the Energy and Environment segment, one of the company’s medium-term milestones is to “make the Earth healthy”
through aviation biofuel and biodiesel fuel. Shared Research believes this focus stems from the feasibility of aviation
biofuel and the use of fuel-use Euglena by-products as feed. The target market is large, and full-fledged adoption is slated
for 2020 or later.
Aviation biofuel
Aviation biofuel is at the base of the “five Fs of biomass” figure, meaning it has the lowest selling price per kg. Although
the scale of consumption is high, this market is difficult to enter because costs will need to drop by an order of
magnitude. The company is pursuing R&D by participating in multiple government projects and receiving subsidies. It
has also entered an alliance with one of Japan’s leading commercial airlines with the aim of implementing the
Made-in-Japan Biofuel Project toward 2020.
The company produces its own Euglena, and differs from biofuel companies using feedstock such as corn and sugar cane:
production time is shorter, at only one to two weeks, so is relatively impervious to market prices; biofuel Euglena residue
can be reused as feed; the food business is generating stable earnings; and relatively less land is needed to produce the
feedstock.
Market scale
The company aims to produce 5,000 barrels (800kl) of commercial-use aviation biofuel or bio-kerosene a day
(300,000kl/year). The Japanese market alone is large; sales of jet fuel in Japan amounted to 5.5mn kl (5,488,143kl)
between August 2015 and July 2016. Multiplied by the average CIF prices for the year this has a value of JPY230.0bn.
Important factors for whether euglena can successfully produce and supply commercial biofuel in the Japanese market
will be attractive pricing in comparison with petroleum jet fuel and plants capable of large-scale production. As such,
crude oil prices will play the largest role in biofuel sales.
Jet fuel sales volume, average import prices
(mn kl)
Sales volume of jet fuel in Japan (mn kl)
1.8
1.6
100
1.4
90
1.2
Averafge import price (JPY/kg)
80
1.0
70
0.8
60
0.6
0.4
50
0.2
40
0.0
Average import price (JPY/L)
110
Q1
CY08
Q1
CY09
Q1
CY10
Q1
CY11
Q1
CY12
Q1
CY13
Q1
CY14
Q1
CY15
Q1
CY16
30
Q1
CY11
Q1
CY12
Q1
CY13
Q1
CY14
Q1
CY15
Q1
CY16
Source: Shared Research based on data from the Ministry of Economy, Trade and Industry and trade statistics
No concerns on the demand front
Demand should not be a problem, the company believes, as long as it is able to provide biofuel at an attractive price. As
long as the fuel meets standards, airlines will prefer biofuel, which represents added value (they can reduce purchases of
CO2 emission credits). ANA FLY ECO 2020 is an example of this trend. ANA HOLDINGS (TSE: 9202), which participates in
the Made-in-Japan Biofuel Project, recorded energy consumption (FY03/16) by the crude oil equivalent of 3.97mn kl.
euglena's targeted 300,000kl of biofuel amounts to less than 10% of this figure. Crude oil competes with euglena’s
biofuel more than other biofuels, so lowering production costs and large-scale feedstock supply are the largest issues.
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ANA FLY ECO2020: By FY03/21, ANA is targeting a 20% reduction vs. FY03/06 in CO2 emissions per paid transport ton-kilometer on its
domestic and overseas flights.
Establishing a price advantage
The company’s selection of biofuel feedstock is based on what is economically rational. Its ultimate target is to use
Euglena as the pure feedstock for jet fuel, but it is considering the procurement of other biofuel ingredients as well.
Unless processing volume increases, and its processing equipment is able to handle several thousand barrels per day, the
company may be unable to bring refining costs down to the same level as the cost of refining petroleum crude oil. This is
the reason why euglena is considering the procurement of other biofuel feedstock in addition to Euglena–– scaling up
the plant size. A department concentrating on the biofuel business is working on profitability (buying feedstock cheaply
and selling fuel for a higher price), and a department researching Euglena is trying to maximize earnings (producing
Euglena at low cost).
To produce biofuel, euglena is using US Chevron’s Biofuels ISOCONVERSION Process (BIC Process) technology, which is
also used by other companies. In principle, if it is unable to lower production costs enough to achieve profitability with
Euglena, the biofuel team will select the other, more profitable biofuel feedstock. If the Euglena used in biofuel can be
sold at JPY100/liter, for example, the business should be profitable if the commercial plant achieves a JPY80/liter
production cost. However, lower crude oil prices may put pressure on reducing costs to JPY60/liter, which would be
problematic. The company therefore needs to either find a way to sell the fuel at JPY80/liter or somehow make up the
remaining JPY20/liter. The first might be accomplished through multi-year, fixed-rate contracts, and the latter by making
use of Euglena residue. Alternatively, it may be possible to apply a subsidy corresponding to aircraft fuel taxes
(JPY26/liter), leveraging the environmental benefits of biofuel.
Selling price concept
Oil 40%
(0.4kg ≒ 0.5L)
JPY21
JPY13
Fuel-use Euglena (1kg)
Degreased Euglena 60%
0.6kg
... Avg. jet fuel import price: JPY41,854/kl
(Year through July 2016, Trade Statistics of Japan, MOF)
... Without fuel surcharge of JPY26/L
JPY101 ... Avg. fish meal import price: JPY169/kg
(Year through July 2016, Trade Statistics of Japan, MOF)
Total JPY135
Source: Shared Research based on company data
Utilizing residue
The Euglena research team is also studying alternative uses (uses other than biofuel) for the residue of Euglena from
which the lipids have been extracted (proteins, degreased Euglena). The company thinks the residue could be used in
fish meal. Fish meal is the principal ingredient of the mixed feed used in aquaculture (53% of the total, 2009), and both
import dependency and prices are high. Annual imports amount to JPY27.3bn (August 2015 to July 2016), highlighting
significant demand.
At fisheries, feed costs are high in relation to revenues, putting a strain on management. For farmed yellowtail, which has
a production value of more than JPY100bn per year (JPY107.1bn in 2012), feed costs account for 73% of revenues for
individually managed fisheries, and 89% for corporate entities. The Ministry of Agriculture, Forestry and Fisheries (MAFF)
provides compensation through a fishery management safety net to help stabilize management, but an urgent need still
exists to develop protein sources for an alternative fish meal. euglena’s subsidiary euglena Taketomi Prawn Farm, which
farms prawns, is studying the use of degreased Euglena as feed.
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Prices on mixed feed and imported fish meal (left, center), percentage cost of feed in fishing revenue (sales) for yellowtail and red sea bream
(JPY'000/ton)
Avg. monthly compound feed price (JPY'000/ton)
220
Import price (JPY'000/ton)
200
180
160
140
120
100
80
Jan
2008
Jan
2012
Jan
2010
Jan
2014
Jan
2016
('000ton)
(JPYbn)
Import volume ('000tons)
Import value (JPYbn, right axis)
50
45
40
35
30
25
20
15
10
5
0
Yellowtail a
Red sea bream a
9 90%
6
Yellowtail b
Red sea bream b
80%
70%
3
60%
Jan
2008
Jan
2010
Jan
2012
Jan
2014
0
Jan
2016
50%
FY2006
FY2008
FY2010
FY2012
Source: Shared Research based on Ministry of Agriculture, Forestry and Fisheries data and trade statistics
Note: “Yellowtail a” is for entities managed privately, “yellowtail b” for corporate entities
In April 2016, euglena and JA ZEN-NOH (the National Federation of Agricultural Cooperative Associations) signed a joint
research agreement regarding the use of degreased Euglena as feed. Preparatory experiments under this agreement had
been completed (January 2015 to March 2016) and feeding trials using chickens, pigs, and other livestock were
underway (April 2016 to end-March 2017).
Corn accounts for around half of the ingredients used in mixed and compound feed for livestock (46% in FY2015), with
soybean meal next (13%). The graphs below show domestic import prices and average prices. Feed costs account for a
high percentage of costs, so demand for lower-cost alternatives is high. However, soybean prices are low in comparison
to fish meal. Annual Japanese imports of soybean meal amount to JPY84.0bn (August 2015 to July 2016), at an average
price of JPY48.3/kg.
Imported soybean meal and corn
(JPYbn)
(JPY/kg) (JPYbn)
Soybean cake import value (JPYbn)
Soybean cake import price (JPY/kg, right axis)
40
80
30
60
20
40
10
20
0
0
Q1
CY08
Q1
CY09
Q1
CY10
Q1
CY11
Q1
CY12
Q1
CY13
Q1
CY14
Q1
CY15
Q1
CY16
(JPY/kg)
Corn for feed import value (JPYbn)
120
60
Corn for feed import price (JPY/kg, right axis)
100
50
80
40
60
30
40
20
20
10
0
Q1
CY08
Q1
CY09
Q1
CY10
Q1
CY11
Q1
CY12
Q1
CY13
Q1
CY14
Q1
CY15
0
Q1
CY16
Source: Shared Research based on trade statistics data
Feed costs as a percentage of costs (left, FY2014), percentage of use in mixed and compound feeds (right, FY2015)
('000tons)
Chaff and
bran
2,650
11%
66%
39%
Cattle
for breeding
43%
Cattle
for fattening
66%
69%
48%
Cattle
for milking
Pig
for fattening
Chicken
for broiler
Chicken
for ovulation
Others
2,360
10%
Other
oil cake
1,350
6%
Corn
10,800
46%
Soybean
oil cake
2,960
12%
Other
grain
3,450
15%
Source: Shared Research based on data from the Ministry of Agriculture, Forestry and Fisheries
Time axis
As the following chart shows, the company plans to begin operating its biofuel production pilot plant in 2019, and apply
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the knowledge it gains through this plant’s operation to a commercial plant, which is to begin operating in the 2020s.
The commercial plant (target production of 300,000kl/year) will be a large-scale production and supply facility, at more
than 1,000x the size of the pilot plant (125kl/year). (These pilot plant production volumes would enough for weekly
round-trip flights between Tokyo and Sapporo.)
The company has licensed from Chevron Lummus Global of the US the BIC Process biofuel production technology
developed by two US companies, Chevron (NYSE: CVX) and Applied Research Associates (ARA). Chiyoda Corporation
(TSE: 6366) is handling localized plant design and construction. Jet fuel standards will be “Jet A” based on the American
Society for Testing Materials (ASTM) standards. Airlines and airports employ these standards, and as of September 2016
Chevron’s application to use these hydrocarbon standards for biofuels refined using the BIC Process was under
deliberation.
Companies in the Made-in-Japan Biofuel Project
Government agencies,
industry consortiums
Assist with construction
and operation
Biomass (Euglena )
Propose operations such as
refueling at airports
Lease land
ASTM
aviation biofuel
Biomass oil
Aim for use in
commercial flights
Implement public
transportation
Next-generation biodiesel
Aviation biofuel production facility
(Japan's first)
Invest in and operate Japan's first
aviation biofuel plant
Grant license on production
facility and equipment
Design, procure for, construct,
and localize the pilot plant
Survey and test supply/demand and
logistics of products
Evaluate and utilize
next-generation biodiesel
Itochu Enex
Source: Shared Research based on company data
Note: Companies on a blue background are partners in the Made-in-Japan BioFuel Project
Schedule
2017
2020～
2019
2018
Construction start by summer 2017
Completion by winter 2018
Biomass incl.
euglena
Construction of a fuel pilot plant
Pilot
operation
Come on line by 1H 2019
The pilot plant to come on line
Leverage knowledge from the pilot operations
Planning and preparations
Biomass
crude oil
Japan's first aviation biofuel
production facility
ASTM certified
aviation biofuel
Licensing production
technologies
Production and supply hundreds of times larger than the pilot plant
Commercial plant to come on line
Source: Shared Research based on company data
Supply chain
euglena and ITOCHU ENEX CO., LTD. (TSE: 8133) will supply feedstock for biofuel. Jet fuel will be produced at the
company’s refining plant, and biofuel is expected to be supplied by refuelers directly to aircraft or by using hydrants.
Biofuel feedstock
Feedstock used in the Made-in-Japan Biofuel Project is not limited to Euglena, and Itochu Enex Co., Ltd. is scheduled to
handle the procurement of biofuel sources other than Euglena. At present, no plan is in place to produce Euglena at
overseas bases, and the jet fuel refining plant will use a location in Japan to supply domestic airports. However, euglena
says it might set up overseas bases if it expands its business overseas.
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As a pilot project to produce biofuel algae, a pool for culturing biofuel-use microalgae is being constructed in the town of
Taki, Mie Prefecture, and testing is scheduled to take place from October 2016 through March 2019. By 2018, the
culturing pool is slated to be the largest in Japan for culturing fuel-use microalgae, at more than 3,000sqm. The pool will
not produce the quantities necessary under the Made-in-Japan Biofuel Project, but the company plans to build an even
larger culturing pool to reduce costs in the future.
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euglena of the future
The company publicizes its vision for the future of Euglena (see below). It is already undertaking some of the initiatives.
Shared Research believes these initiatives are in line with the company’s corporate philosophy and principles, which are
premised on social significance and will also help it grow.
◤
euglena of the future: The company conducts daily research to make people and the Earth healthy, and support
companies that develop technologies toward these objectives.
◤
Factories of the future: These factories will produce environment-friendly products derived from Euglena, including
biofuels, bioplastics, and pharmaceuticals.
◤
Food of the future: Euglena, a rich source of nutrients, will be used as fertilizer for agricultural products, turning
Japan into a food-exporting country.
◤
Fuel of the future: Biofuels will become commonplace through low-cost mass production, and Japan will become a
fuel-supplying country.
◤
Rivers of the future: Water purification characteristics will return waterways to their natural state, turning the world’s
tap water into delicious drinking water.
◤
◤
Branded livestock of the future: “euglena brand cows” will be grown with nutrient-rich Euglena.
School lunches of the future: Euglena, with its excellent nutritional balance, will be used in school lunches,
becoming familiar foodstuffs from a young age.
◤
Space development of the future: Euglena will be used as an essential provider of air and food in spacecraft, making
interstellar travel a real possibility.
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Business, market, and value chain
Business overview
Performance (JPYmn)
Sales
12,000
Operating profit
GPM (right axis)
OPM (right axis)
10,000
54%
8,000
6,000
56%
53%
50%
61%
55%
54%
60%
38%
0
-2,000
735
221
164
116
-71
-67
-32
FY09/07
FY09/08
FY09/09
75%
5,924
4,000
2,000
90%
11,103
73%
68%
1,166
153
FY09/10
2,092
1,586
45%
30%
3,046
294
308
176
142
476
FY09/11
FY09/12
FY09/13
FY09/14
FY09/15
15%
694
-15%
FY09/16
Quarterly performance (JPYbn)
(JPYbn)
Sales
Gross profit
Operating profit
GPM (right axis)
3
2
57%
54%
53%
53%
55%
53%
1
0
0.5
0.4
0.4
0.4
0.4
0.4
0.3
0.2
0.2
0.2
0.2
0.2
0.1
0.1
0.1
0.0
0.0
0.0
Q1
FY09/12
0.6
0.3
0.0
Q1
FY09/13
59%
55%
1.2
0.8
0.7
0.7
0.4
0.1
0.4
0.5
0.0
0.9
0.7
0.5
0.0
0.8
0.5
0.0
0.1
Q1
FY09/14
0.1
2.2
2.1
73%
2.9
70%
2.1
60%
1.7
1.3
1.0
0.9
0.1
1.8
1.6
1.4
73%
3.0
2.9
66%
2.3
61%
59%
57%
68%
67%
65%
74%
72%
70%
50%
0.1
Q1
FY09/15
0.2
0.4
0.4
0.0
40%
Q1
FY09/16
Source: Shared Research based on company data
With mass cultivation technology for the Euglena gracilis microalgae at its core, the company engages in diverse R&D
activities related to Euglena. It applies these research results to develop the Healthcare segment (production and sale of
food and cosmetics containing Euglena) and the Energy and Environment segment (aiming to create biofuel business).
The company aims to generate cash flow in the Healthcare segment, the Agriculture and Aquaculture Products segment,
and the Energy and Environment segment. It intends to invest the cash flow generated through these businesses to meet
new growth targets. As of FY09/16, the Healthcare segment generated essentially all cash, sales, and operating profit.
Sales breakdown
FY09/14
Other
1%
Group B2C
sales
26%
OEM and
ingredients
65%
Group B2B
sales
8%
FY09/15
Other
2%
OEM and
ingredients
37%
Group
B2B
sales
16%
Group
B2C
sales
45%
FY09/16
Other
5%
OEM and
ingredients
18%
Group B2B
sales
16%
Group
B2C
sales
61%
Source: Shared Research based on company data
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Healthcare segment
Performance (JPYmn)
Sales
36%
30%
3,000
OPM (right axis)
29%
28%
26%
Operating profit
2,888
22%
22%
21%
22%
22%
2,000
0
467
433
389
379
379
356
166
166
153
120
107
101
Q1
FY09/12
Q3
695
570
Q1
FY09/13
124
Q3
203
699
752
155
Q1
FY09/14
157
21%
21%
1,162
1,000
2,340
1,372
21%
18% 1,793
1,582
17%
161
Q3
240
184
293
Q1
FY09/15
279
Q3
2,914
30%
20%
20%
11%
857
731
2,952
606
311
584
268
Q1
FY09/16
10%
4%
118
0%
Q3
Sales by category (JPYmn)
(JPYmn)
Parent B2C sales
épauler
2,000
(JPYmn)
600
1,800
Group B2B sales
1,400
1,000
300
800
200
600
400
200
300
100
0
0
Other
200
200
Q1
Q1
Q1
FY09/14 FY09/15 FY09/16
250
150
100
Q1
Q1
Q1
FY09/14 FY09/15 FY09/16
(JPYmn)
400
100
0
OEM, ingredients, and overseas
500
400
1,200
700
600
500
1,600
(JPYmn)
50
Q1
Q1
Q1
FY09/14 FY09/15 FY09/16
0
Q1
Q1
Q1
FY09/14 FY09/15 FY09/16
Source: Shared Research based on company data
In the Healthcare segment, the company has succeeded in turning two of the “five Fs of biomass” into products: food
(functional foods) and fiber (cosmetics). For feed, another of the five Fs, it has commercialized pet foods containing
Euglena, but is still researching the application of Euglena as feed for stockbreeding and aquaculture. One source of cash
flow is the OEM supply of Euglena powder, and the company is using the generated cash to strengthen the B2C sales
business. Its flagship product is midorijiru (euglena farm’s green juice), which has shown rapid growth and become a
source of cash flow.
The company handles a variety of products. Key products using Euglena as a main ingredient are described in the
following chart. See the Medium- to long-term strategy section for details.
Value chain
euglena group products
euglena group
e-commerce site and
mail orders
Over 15,000 small
retailers in total
nationwide
handling euglena
180 supermarkets
and convenience
stores in total
nationwide
OEM supply
Ingredients supply
OEM clients
Collaboration products with major
retaiers and food manufacturers
products
Customers
Customers
Source: Shared Research based on company data
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Euglena: Latin for beauty (eu) and eyeball (glena)
Euglena gracilis is a type of microalgae, as are Spirulina and Chlorella. Measuring 0.05mm in diameter, Euglena is
classified as both plant and animal. Positioned at the bottom of the food chain pyramid, Euglena is thought to have been
on the planet since ancient times. Able to take in water-based organic and inorganic substances, Euglena contains both
phytonutrient and animal nutrients and generates lipids. Like plants they produce nutrients through photosynthesis and
absorb CO2, so are effective in fighting global warming. Like animal cells, Euglena cells do not have walls, so are easier to
digest than plants. They also contain a unique dietary fiber, Paramylon.
Paramylon: As a dietary fiber, Paramylon excels at absorbing oil but is indigestible, so it passes through the human body. Research findings
suggest that Paramylon is effective in discharging fat and cholesterol, inhibiting purine absorption, reducing uric acid in the blood, and
alleviating symptoms of atopic dermatitis, influenza, gastric ulcers, and rheumatoid arthritis. (Processed into film, Paramylon also has
wound-healing effects.)
Euglena and Paramylon
cholesterol
Genus: Euglena
Japanese name: "Midori-mushi"
Born more than 500mn
years ago in ancient earth
Take in water-based organic
and inorganic substances
High CO2 tolerance
Generates lipids
No-cell wall structure
Contains 59 nutrients
including both plant's and
animal's
Approx. 30μm-50μm long,
10μm wide
Unique component
Paramylon granule
fat
- Carry fats and cholesterol out of the body
- Inhibit purines absorption
- Reduce the level of uric acid in the blood
Paramy lon
Source: Shared Research based on company data
Direct sales (B2C) channel
Sales (left, JPYmn) and number of regular purchase customers (right, thousands)
(JPYmn)
8,000
Parent B2C sales
épauler
(JPYmn)
2,000
épauler
1,800
7,000
6,000
5,000
120
100
1,200
80
3,000
800
2,000
1,000
600
40
400
20
FY09/16
0
Q1
FY09/12
0
Q1
FY09/14
Q1
FY09/16
épauler
129
138
108
92
60
200
FY09/14
euglena
140
1,400
1,000
FY09/12
160
1,600
4,000
0
Parent B2C sales
37
Apr
2014
56
20
15
('000 people)
48
Jul
Oct
Jan
2015
Apr
Jul
Oct
Jan
2016
Apr
Jul
Source: Shared Research based on company data
Overview and business scale
The direct sales business is driving the company’s growth over the short to medium term. The business involves direct
sales of functional foods, such as the Euglena-containing midorijiru (euglena farm’s green juice) and Chlorella. The
domestic market for aojiru (green vegetable juice), a functional food similar to midorijiru, has a value of JPY60.0bn (2016
forecast, Fuji Keizai), and Chlorella has a market value of JPY20.0bn (FY2012, Yano Research Institute). Given the size of
these markets, the company believes Euglena has ample market potential (JPY12.5bn in FY2015, based on company
estimates).
The number of regular purchase customers continues to grow, and the company is investing aggressively in
advertisement to acquire new subscribers. To raise lifetime value (LTV), the company is 1) raising sale per customer by
encouraging a shift from buying midorijiru (euglena farm’s green juice) to euglena PLUS, the higher-end supplement
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product, 2) promoting cross-selling by generating additional sales of related products and cosmetics, 3) and increasing
the retention rate by analyzing the reasons for cause of cancellation and introducing alternative products such as
MEDICA+ to avoid customers switching to competitors’ health foods such as blueberries. The company launched its
direct-sale skincare brand, “one,” in May 2016, and aims to expand B2C sales of cosmetics.
In November 2016, euglena announced its medium-term management targets: JPY20.0bn direct sales.
Profitability
The direct sales channel has the highest GPM within the Healthcare segment, at around 80% before accounting for SG&A
expenses such as transportation and call center expenses. However, the OPM is affected by the major advertising
expenses incurred to attract new customers. Once such upfront expenditures subside, the company expects OPM to
improve for this business, which is anticipated to be a cash cow. The company aims for consolidated sales of JPY20.0bn.
Wholesale (B2B) channel
Sales (JPYmn)
(JPYmn)
Food
2,000
(JPYmn)
Cosmetics
1,767
Food
500
Cosmetics
400
1,500
FY09/12
FY09/13
FY09/14
157
100
239
FY09/15
FY09/16
0
434
340
200
500
416
298
300
970
1,000
0
481
436
27
Q1
FY09/12
Q3
Q1
FY09/13
Q3
48
Q1
FY09/14
72
Q3
174
92
Q1
FY09/15
Q3
Q1
FY09/16
Q3
Source: Shared Research based on company data
In this business, the company wholesales its products, such as Euglena beverage (JPY240, launched in May 2014), to
convenience stores and other retailers. Adopting a profit-focused strategy, the company is working to make Euglena
beverage attractive enough for consumers to pay the JPY240 retail price. If it can lower costs, the company believes the
market has significant growth potential, considering the size of the markets for vegetable juice (Kagome estimate of
JPY149.2bn in 2016) and lactic acid drinks (JPY97.7bn). (Cosmetics explained later.)
Profitability
In this market, GPMs differ by product but are typically around 50% (lower for beverages). If the company wants to
capture some of the market for vegetable juice and lactic acid drinks, its profit margins may fall as it reduces prices.
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LAST UPDATE【2017/2/10】
OEM, ingredients, overseas (B2B2B2C)
Sales (JPYmn)
(JPYmn)
Food
Cosmetics
2,000
(JPYmn)
2,188
1,993
1,951
Food
Cosmetics
513 525
500
1,500
621
590 588
600
452
574
506
503 504
412
400
343
300
1,000
200
500
0
100
FY09/12
FY09/13
FY09/14
FY09/15
FY09/16
0
Q1
FY09/12
Q3
Q1
FY09/13
Q3
Q1
FY09/14
Q3
Q1
FY09/15
Q3
Q1
FY09/16
Q3
Source: Shared Research based on company data
As of FY09/16, this business was a cash cow. In the Healthcare segment, the company has transitioned the focus of its
business structure from OEM supply to direct-to-consumer sales. Accordingly, the company has not cultivated new OEM
clients since October 2014 when euglena signed “comprehensive agreement related to Euglena-blended products” with
Takeda Pharmaceutical Co., Ltd. The top 10 OEM clients account for 80% of OEM sales.
Profitability
For food products, the more middle men between the company and end-consumers (models: B2B2B2C for OEM supply,
B2B2C for wholesale, B2C for direct sales), the lower the contribution of sales and profits to overall profit margins, and the
more difficult it becomes to control the brand image of euglena. At the same time, OEM supply is low-cost in terms of
SG&A expenses and contributes to stable operating performance. As OPM is unlikely to change significantly, the
company believes this business will remain a cash cow.
Cosmetics: OEM and B2B sales
Sales (JPYmn)
(JPYmn)
(JPYmn)
500
200
400
150
300
100
200
50
100
0
FY09/12
FY09/13
FY09/14
FY09/15
FY09/16
0
Q1
FY09/12
Q1
FY09/14
Q1
FY09/16
Source: Shared Research based on company data
Cosmetics sales are included in B2C sales; group B2B sales; and OEM, ingredients, and overseas categories. In the
cosmetics subsegment, the company primarily conducts sales on an OEM-basis (brand name: “euga”) to Socie World Co.,
Ltd., and wholesales its own cosmetic brand, “B.C.A.D.” The company’s direct sales brand “one” is included in B2C sales.
OEM supply sales vary by quarter, and sales grow in quarters that see OEM shipments such as Q3 FY09/15 and Q1
FY09/16. The number of shops selling “B.C.A.D.” is on the rise, but slowly. The company aims to achieve growth by
strengthening its product lineup.
Profitability
As with food, in the cosmetics business euglena is transitioning from OEM supply (B2B2B2C) to wholesale through
distributors (B2B2C) and then to direct sales (B2C). Profitability is rising as more products are sold directly to end
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customers rather than through middlemen (retailers). The company aims to improve profitability further by boosting
recognition of its “B.C.A.D.” and “one” brands.
“euga,” “B.C.A.D.,” “one”
Source: Shared Research based on company data
Other Healthcare business
Items not included in the Healthcare segment above include an antenna shop in Ishigaki Island, sales of Chlorella and wild
Kalahari watermelon, business in the Agriculture and Aquaculture Products sector such as prawn farming and mung bean
imports, and overseas business.
Ishigaki euglena Garden on Ishigaki Island
Source: Shared Research
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euglena＞ Business, market, and value chain
LAST UPDATE【2017/2/10】
Energy and Environment segment
Performance (JPYmn)
20
10
0
2
0
2
0
5
0
0
1
0
0
9
5
0
0
8
0
2
0
8
0
-10
-20
-17
-30
-23
-40
-29
-23
-25
-29
-28
-21
-31
-31
-42
-50
-60
Sales
-70
-80
(JPYmn)
FY09/12
Q1
-25
-36
-45
-34
-47
-50
-39
-47
Operating profit
FY09/13
Q1
-68
FY09/14
Q1
FY09/15
Q1
FY09/16
Q1
Source: Shared Research based on company data
In the Energy and Environment segment, the company continues to engage in R&D centered on biofuel development.
euglena is also taking part in Japan Cabinet Ministry’s “Impulsing Paradigm Change through Disruptive Technologies
Program (ImPACT)” and contracted R&D for the Ministry of Land, Infrastructure, Transport and Tourism’s “Breakthrough
by Dynamic Approach in Sewage High Technology Project (the B-DASH Project)”.
DeuSEL
Sales in this category come mainly from pilot testing under the DeuSEL Project, a plan for the adoption of biodiesel fuel.
Because of the company’s involvement in numerous R&D activities, however, this segment generates operating losses.
DeuSEL Project: Began in July 2014. The project is a joint research project toward the commercial use of next-generation biodiesel fuels and
involves, as a first step, the regular operation of a DeuSEL bus. Isuzu Motors is in charge of travel and performance testing, while euglena
handles R&D and production. In July 2014, the bus commenced regular operation (on business days) between Isuzu’s Fujisawa Factory and the
nearest station.
Next-generation biodiesel fuel: Conventional biodiesel fuels had a fatty acid methyl ester (FAME) molecular structure, containing oxygen,
making 100% substitution for petroleum-based diesel fuel problematic. Accordingly, Japanese standards allowed mixing FAME with
petroleum-based diesel fuel only up to 5%. As next-generation fuels have a hydrocarbon molecular structure, the same as petroleum-based
diesel fuel, technically it can be used as a 100% substitute. (However, no regulation is currently in place in Japan.)
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Other business
Production
The company produces all the Euglena powder it uses in foods on Ishigaki Island, in Okinawa. For biofuel, the company is
making use of the “Fiscal 2016 Subsidy for Pilot Project for the Production of Microalgae for Biofuel,” provided by the
Ministry of Economy, Trade and Industry’s Agency for Natural Resources and Energy, to build one of Japan’s biggest pools
for culturing fuel-use microalgae, and began pilot testing in October 2016.
Shared Research estimates that Yaeyama Shokusan, which handles the production of Euglena powder as ingredients,
produces Chlorella using a similar process as for Euglena (note, the company does not publish any information on its
Euglena production methods).
For fuel-use Euglena, the content rate of lipids is extremely important from a cost perspective. Furthermore, the
cultivation facilities need to be larger than those for food-use Euglena in order to achieve economies of scale. Once the
pilot plant proves successful, the company plans to perform culturing Euglena at a larger and lower cost commercial
plant.
Production capacity
The Healthcare segment continues to grow at a rapid pace, doubling YoY, and the company says its facilities are
operating at full capacity. The company recognizes that cultivation facilities and drying machines are production
bottlenecks, and continues to increase production capacity. In terms of cash outflow, the increase of production capacity
does not require large investments. However, the company is aware that its current concentration of production facilities
on Ishigaki Island is an issue in respect of the diversification of risk.
Research and development
In FY09/16, R&D expenses accounted for 3% of sales, and this percentage has fallen as sales have increased. Part of the
company’s research is funded by government subsidies. For an R&D project that is 100% funded by subsidies, R&D
expenses of JPY10mn by the company would be matched with JPY10mn in subsidies.
Not all subsidies are booked as expenses, but the following should be noted: (1) Because subsidies are received
sometime after the related investments and expenses are made, expenses are recorded temporarily in advance, giving the
appearance of increases. (2) Subsidies are recorded as non-operating income, so the related investments and expenses
appear to reduce operating profit. (3) Subsidies are paid in May–June according to the national government’s fiscal year
(April through March), and may straddle the company’s fiscal year (ending in September).
R&D expenses
R&D expenses
100
93
79
80
(JPYmn)
52
50
40
0
76
64
60
20
109
% of sales (right axis)
15
22
25
FY09/12
Q1
21
26
33
32
FY09/13
Q1
37
35
71
80
7%
6%
5%
44
4%
20
3%
FY09/14
Q1
FY09/15
Q1
FY09/16
Q1
2%
Source: Shared Research based on company data
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euglena | 2931 |
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Principal group companies
M&A
(JPYmn)
Yaeyama Shokusan
Plant High Technology Institute
euglena art
YU-KI
ART CORPORATION
épauler
Taketomi Prawn Farm
Chlorella Supply
(JPYmn)
Yaeyama Shokusan
Plant High Technology Institute
Euglena Art
YU-KI
ART CORPORATION
épauler
Taketomi Prawn Farm
Chlorella Supply
Merged % of voting shares
Acquisition cost
Before
After
Acquisition price
Mar. 2013
20%
100%
252
247 Cash 198＋price of shares held 49.5
Nov. 2013
100%
11
9 Cash
Jul. 2015
1,026
1,013
May 2015
100%
1,026
1,013 euglena common shares at market value
May 2015
100%
YU-KI 1:3998, Art 1:51
Sep. 2015
100%
917
911 euglena common share at market value (1:2849)
Sep. 2015
100%
90
85 Cash
Dec. 2016
100%
585
579 Cash
Shares Goodwill
Total assets
Total liabilities
('000)
Depreciation
Current
Fixed
Current
-322
1,119
427
693
545
103
36 10-yr straight
9
8
0
34
30
536
655 10-yr straight
952
844
108
581
580
10-yr straight
469
370
99
323
323
536
655
10-yr straight
483
474
9
257
257
570
469 10-yr straight
722
540
182
274
189
474
88
386
370
270
-
Acquisition costs
5 Advisory fee and others
2 Advisory fee and others
13 Advisory fee and others
13 Advisory fee and others
Advisory fee and others
7 Advisory fee and others
5 Advisory fee and others
6 Advisory fee and others
Earnings contribution
Fixed
Sales
OP
441,914
181
39
4
1
446
3
1
85
100
-
446
3
1,326
281
-
14
79
-
Source: Shared Research based on company data
Note: Figures are as of acquisition dates
Yaeyama Shokusan: Converted from ingredient producer to wholly owned subsidiary
Since the time of its foundation, euglena has outsourced the production of Euglena powder as an ingredient to Yaeyama
Shokusan, which it converted to a wholly owned subsidiary in March 2013. euglena has taken over sales of Chlorella from
Yaeyama Shokusan, which now concentrates solely on production, producing all the company’s food-use Euglena, as well
as producing fuel-use Euglena in the same facility.
euglena art: Has proprietary distribution channel
In May 2015, euglena acquired shares in YU-KI Inc. and ART CORPORATION, both of which were its OEM client
companies and had their own distribution channels such as beauty salons and small retailers. In July 2015, euglena
initiated an absorption-type merger, with euglena art (formerly YU-KI Inc.) as the surviving company and ART
CORPORATION as the absorbed company. The new company strengthened its branding by incorporating the euglena
brand and logo, began handling euglena’s products, and reinforced product development. Integration synergies, such as
through personnel exchanges and shared sales expertise, are beginning to appear.
épauler: Has direct sales route
In September 2015, euglena converted épauler into a wholly owned subsidiary, which had been its OEM client and sold
health products via direct sales. Integration synergies are appearing, similar to those at euglena art. Following the
integration, euglena introduced advertising linkage and controls. Previously, euglena newspaper ads were run, for
example, on Mondays and épauler ads on Tuesdays. By adopting a headquarter-driven advertising strategy, the company
sought to improve ad efficiency. It has also reduced costs by integrating direct sales systems, logistics, and call centers,
and strengthening raw materials purchasing power.
euglena Taketomi Prawn Farm: part of the growth strategy in the Agriculture and Aquaculture Products sector
In September 2015, euglena acquired this company’s shares and converted it to a wholly owned subsidiary. The
subsidiary is located in Taketomi Island, Okinawa Prefecture (on the south of Taketomi Island, one of the Yaeyama Islands,
which include Ishigaki Island, a 15-minute boat ride away). The subsidiary, which has 70,000sqm of on-land aquaculture
ponds, farms and sells prawns. In June 2015, it had sales of JPY280mn, recurring profit of JPY90mn, and net income of
JPY51mn. By undertaking direct sales (B2C), and acquiring prawn farming companies, the company plans to grow the
prawn farming business.
The subsidiary’s results are highly seasonal. After the farmed prawns are shipped in June, the farming pool is cleaned in
July–August, and cultivation begins again in August–September. Winter is the peak demand period for farmed prawn,
and the subsidiary generates almost no sales in Q1 (July–September). Unique among the group’s subsidiaries, its fiscal
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year-end is June, when the cultivation cycle ends.
Grameen euglena: part of the growth strategy in the Agriculture and Aquaculture Products sector
In October 2014, euglena acquired shares in this company from Yukiguni Maitake (formerly TSE2: 1378, delisted in June
2015) and converted it to a consolidated subsidiary (50% stake, with the remaining 50% held by Grameen Group of
Bangladesh). The subsidiary operates a mung bean project in Bangladesh.
Social significance and revenue source
The Mungbean Project offers benefits for Bangladesh, Japan, and euglena. For Bangladesh, the project provides
employment opportunities in farming areas, the chance to improve nutrition, and cultivation technology support for
increasing crop yields and quality, resulting in higher earnings. For Japan, the project offers a way to ensure a steady
supply of mung beans, which are used for bean sprouts (accounting for more than 80% of Japanese production). Almost
all mung beans are imported (90% of them from China), and this project provides an way to counter price fluctuation risk
to support domestic producers of bean sprouts, many of which are going out of business. For euglena, the project is a
way to increase earnings by selling mung beans imported from Grameen euglena to domestic producers of bean sprouts.
In short, in addition to its social significance, this project could provide euglena with a source of earnings.
Dhal: In Bangladesh, mung beans are crushed and made into a curry (dhal curry) and used in bean soup (dhal soup). The beans, which are a
source of protein, serve as an everyday main dish. For this reason, in the marketplace the beans are often sold crushed, so until the launch of
the project in 2012, little attention was placed on the quality of the mung beans themselves. Grameen euglena and its predecessor, Grameen
Yukiguni Maitake, have worked with farmers to increase awareness and provided technological instruction, leading to mung bean exports to
Japan. The Mungbean Project made use of a JETRO system to begin testing, followed by the establishment of Grameen Yukiguni Maitake in July
2011.
Shanghai Euglena
Shanghai Euglena generated sales of less than JPY100mn in FY09/16, but euglena sees much potential in overseas
markets, and plans to engage in cross-border e-commerce. As in Japan, the company’s goal is to transition its business
development from OEM supply to sales through retailers (B2B) and then to sales directly to consumers (B2C). At the
moment, recognition of Euglena within China is low. Due to business customs that differ from those in Japan, the
company is proceeding on a trial-and-error basis, including for advertising methods.
Shanghai Euglena was still generating operating losses in FY09/16, but is expected to move into the black by FY09/18. As
its main business is OEM supply, Shared Research believes that operating costs are unlikely to rise substantially, so steady
sales increases should translate into profits. As the company starts moving toward B2C sales, however, upfront costs are
likely to increase.
Expanding sales route by converting Chlorella Supply to a subsidiary
In December 2016, euglena converted Chlorella Supply to a wholly owned subsidiary. There are three objectives for this
move: 1) acquire a base of more than 580,000 accumulated customers, 2) benefit from synergies with euglena’s Chlorella
sales business, and 3) integration synergies through expansion of euglena’s business infrastructure (boosting profit). The
580,000 figure is the accumulated number of customers who have purchased health food products to date, mainly
Chlorella, and are potential customers for euglena’s food direct sales business. By marketing to these potential customers,
euglena aims to increase the number of regular customers.
Although the Chlorella market appears to be shrinking, euglena says it will focus on cultivating the new customer base for
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euglena＞ Business, market, and value chain
LAST UPDATE【2017/2/10】
B2C sales, raising sales per customer by cross-selling other group products, acquiring regular customers for Chlorella
Supply’s products, and benefiting from efficiency improvements and other synergies. Even so, Shared Research believes
the impact to consolidated earnings at the operating level will be slight in FY09/17, given the amount of goodwill.
Chlorella Supply’s operating performance
1,000
900
Sales
879
783
800
586
600
554
578
400
300
200
100
FY12/15
FY12/17
Est.
(JPYmn)
FY12/18
Est.
FY12/19
Est.
0
12%
10%
8%
32 32
6%
5.5%
10
6
11 12
10
0.7%
FY12/13
10
1.4% 8
FY12/14
4%
2%
1.1%
FY12/15
(JPYmn)
14%
11.4%
10.1%
20
FY12/14
66 66
50
30
FY12/13
OPM (right axis)
56 56
40
500
0
Recurring profit
60
719
700
Operating profit
70
FY12/17
Est.
FY12/18
Est.
FY12/19
Est.
0%
Shared Research based on company data
Alliances
Business and R&D partners (red indicates euglena shareholders)
Business partners
(Healthcare)
ITOCHU
FamilyMart
Takeda
Pharmaceutical
DENTSU
Seven & i Holdings
Chevron Lummus
Global & ARA
SHIMIZU
ITOCHU ENEX
Hitachi
Tokyo Century
Chiyoda
ANA Holdings
Isuzu Motors
City of
Yokohama
Cabinet
Office
Ministry of Economy, Trade and Industry
Business partners
(Energy and Environment)
Japan Science abd Technology Agency
Universities
R&D partners
Keio University
RIKEN
New Energy and Industrial technology
Development Organization
Local
government
Taki, Mie
Source: Shared Research based on company data
Note: Impulsing Paradigm Change through Disruptive Technologies Program (ImPACT) and Cross-ministerial Strategic Innovation Promotion
Program (SIP) are subsidized by Cabinet Office, Government of Japan.
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Strengths and weaknesses
Strengths
High barriers to entry
Since the company achieved success with outdoor mass cultivation of Euglena on December 16, 2005, no similar
company has emerged. Barriers to entry are high, as success in the Euglena-related market is unlikely without the outdoor
mass cultivation technology like that developed by the company. We see this as one of its major strengths.
Core technologies and trade secrets
Even if another company were to overcome the hurdle of outdoor mass cultivation of Euglena, euglena’s strength is its
technologies for producing Euglena that has a variety of functions and characteristics. Different from industrial products
or software development, it is not possible to reverse engineer Euglena, produced through the use of special culture
liquid and repeated cell division in a certain environment. Furthermore, the company’s products use dried Euglena
organisms, which cannot be brought back to life and cultured.
Euglena ’s characteristics
Food-use Euglena has 59 nutrients found in meat, fish, and vegetables (14 vitamins, 11 unsaturated fatty acids, 18 amino
acids, 9 minerals, and 7 other components including Paramylon). As such, Euglena is a relatively competitive health food
compared with aojiru (green vegetable juice) and vegetable juice. Euglena is also a competitive biofuel feedstock:
compared with sugar cane and other biofuel feedstocks that take longer to harvest, Euglena can be produced in only
around two weeks, allowing for a swift transition to other uses if biofuel becomes unprofitable due to fluctuations in
crude oil prices. euglena differs from other biofuel companies in that it also generates cash flow from Euglena for food,
which is a management advantage.
Weaknesses
Performance skewed toward the Healthcare segment, particularly for B2C sales
The company is highly dependent on the Healthcare segment and food-use Euglena, its mainstay product. Furthermore,
earnings rely heavily on B2C sales of midorijiru (euglena farm’s green juice) and other health foods. If poor-quality
Euglena were to enter the market, the company could suffer from harmful rumors that might lead to concerns about the
quality of the health foods and a substantial loss of customers. This is a risk rather than a weakness, but the company’s
almost total dependence on a single product category can be seen as a weakness.
Highly dependent on advertising
Sales in the Healthcare segment continue to grow sharply, but the direct sales of the company’s mainstay midorijiru
(euglena farm’s green juice) still account for only around JPY4.0–5.0bn per year. The domestic market for aojiru (green
vegetable juice) has a value of JPY80.0bn, suggesting that general recognition of the company’s product is still low. As of
FY09/16, the company still tried to raise brand recognition and attract new customers, so it invested nearly half of its gross
profit in promotional and advertising expenses. Although the company is controlling these expenditures based on
detailed analysis, its dependence on advertising is high, which may be constraining profitability.
Personnel shortage due to rapid growth
Despite its rapid growth, the company has limited production and employee capacity. Meanwhile, given its accumulated
cash position, it needs to develop its business further to improve capital efficiency. It must allocate management
resources to its growing, existing business, but this leaves it with a shortage of personnel to launch new businesses,
hampering its business development. We believe aggressive recruiting will be key to the company’s ability to hire
talented personnel.
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Shared Research Report
euglena＞ Historical performance
LAST UPDATE【2017/2/10】
Historical performance
Q4 FY09/16 earnings (out November 9, 2016)
◤
FY09/16: Expansion of the group’s B2C sales and contributions from group companies drove consolidated earnings
growth. Initial plan achieved with 154,000 regular purchase customers in direct sales
◤
Q4: Sales in line with target (revised in Q3). Operating loss wider than expected as aggressive spending to win
regular purchase customers continued
◤
M&A: Chlorella Supply, with more than 580,000 accumulated customers, made a wholly owned subsidiary from
December. Expects to leverage customer base for cross selling
◤
FY09/17: Expects a roughly JPY4.0bn sales increase centered on the group’s B2C sales. In the near-term, prioritize
expansion of direct sales and aggressive R&D investment over profit growth
◤
Medium-term plan: Targets consolidated sales of JPY30bn and provision and supply of commercial biofuels made in
Japan by FY09/20
◤
Sixth round of stock options: Sales of JPY30.0bn and recurring profit of JPY1.0bn conditions for 100% exercise
(FY09/18–FY09/20)

Also set exercise condition linked to successful aircraft flight using aviation biofuel manufactured by euglena
Performance by quarter (JPYbn)
(JPYbn)
Sales
Gross profit
Operating profit
GPM (right axis)
3
2
57%
53%
54%
53%
55%
57%
1
0
0.5
0.4
0.4
0.4
0.4
0.4
0.3
0.2
0.2
0.2
0.2
0.2
0.1
0.1
0.1
0.0
0.0
0.0
Q1
FY09/12
61%
59%
53%
0.6
0.3
0.0
Q1
FY09/13
59%
0.7
0.4
0.1
0.4
0.0
0.5
0.7
0.5
0.0
Q1
FY09/14
0.0
0.9
0.8
0.5
0.1
0.1
1.8
1.6
1.4
1.2
0.7
66%
0.9
0.1
Q1
FY09/15
1.0
0.1
2.1
73%
73%
3.0
2.9
2.3
55%
0.8
68%
67%
65%
74%
72%
70%
2.9
2.2
70%
2.1
60%
1.7
1.3
50%
0.2
0.4
0.4
0.0
40%
Q1
FY09/16
Source: Shared Research based on company data
Overview of results
FY09/16: Expansion of the group’s B2C sales and contributions from group companies drove consolidated growth. Initial plan
achieved with 154,000 regular purchase customers in direct sales
In FY09/16, sales of JPY11.1bn (+87.4% YoY) matched the forecasts revised in Q3, but operating profit fell short by
JPY66mn to JPY694mn (+45.7% YoY). The main reason for the operating profit shortfall was active spending primarily on
advertising to acquire regular purchase customers for the group’s B2C sales, with an eye on long-term growth.
The group’s B2C sales jumped 2.6x the previous year to JPY6.8bn. This YoY increase of JPY4.2bn in B2C sales accounted
for about 81% of the consolidated YoY sales increase of JPY5.2bn. Aggressive SG&A spending to acquire new regular
purchase customers proved successful, and the release of direct sales skincare brand “one” in Q3 also contributed to an
increase in regular purchase customers in Q4. There were 154,000 direct sales customers at the end of FY09/16,
surpassing the initial plan of 150,000 and representing a QoQ increase of 16,000.
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euglena＞ Historical performance
LAST UPDATE【2017/2/10】
Regular purchase customers in direct sales (B2C) business (thousands of people)
('000 people)
Number of regular purchase customers (quarter end)
180
('000 people)
QoQ change
43
160
136
140
154
40
113
120
96
100
80
40
20
3
10
7
Q1
FY09/12
Q1
FY09/13
13
2
16
3
5
21
Q1
FY09/14
37
16
54
48
11
30
23
17
60
0
139
20
15
5
10
3
Q1
FY09/15
0
Q1
FY09/16
Source: Shared Research based on company data
M&A: Chlorella Supply, with more than 580,000 accumulated customers, made wholly owned subsidiary from December.
Expects to leverage customer base for cross selling
euglena made Chlorella Supply Co., Ltd. into a wholly owned subsidiary, bringing it into the group on December 1,
2016, at an acquisition price of JPY579mn. Chlorella Supply has an accumulated customer base of more than 580,000,
with its business history of more than 20 years. euglena anticipates an expansion in sales arising from cross-selling of its
products to Chlorella Supply’s customers. Other synergistic effects include lower manufacturing costs by manufacturing
euglena’s Chlorella products in Chlorella Supply’s facilities, lower SG&A expenses by increased efficiency from making
Chlorella Supply a group company, and higher consolidated earnings arising from the replacement in the medium term
of Chlorella Supply’s Chlorella powder with Chlorella powder produced by subsidiary Yaeyama Shokusan Co., Ltd. The
plan for Chlorella Supply calls for sales of JPY586mn and operating profit of JPY32mn in FY12/17.
FY09/17: Expects a roughly JPY4.0bn sales increase mainly from the group’s B2C sales. In the near-term, prioritizes expansion
of B2C sales and aggressive R&D investment over profit growth
In FY09/17, the company forecasts sales of JPY15.0bn (+35.1% or JPY3.9bn YoY) and operating profit of JPY820mn
(+18.2% or JPY126mn YoY). It will actively invest in advertising to acquire new regular purchase customers, aiming for
200,000 regular purchase customers for the group’s B2C sales, and in research and development primarily for biofuels.
This will keep any increase in profits relatively small. euglena stated that it is prioritizing increasing regular purchase
customers for the group’s B2C sales and aggressive investment in R&D primarily for biofuels rather than profit growth and
plans to continue prioritizing these over profit growth in FY09/17.
SG&A expenses (JPYbn)
Personnel expenses
(JPYbn)
Administrative expenses
R&D expenses
Selling expenses
SG&A-to-sales ratio
2.0
1.5
1.0
0.5
0.0
45%
28%
31%
0.1
0.1
50%
52%
47%
36%
0.2
Q1
FY09/12
53%
59%
62%
61%
52%
40%
0.7
0.2
0.2
0.2
0.3
Q1
FY09/13
0.3
0.4
0.2
Q1
FY09/14
0.4
0.4
0.5
0.2
0.2
0.2
0.4
Q1
FY09/15
59%
0.8
0.5
58%
0.9
0.6
62%
71%
1.7
1.7
60%
2.3
1.8
77%
61%
1.7
1.1
1.2
1.3
1.3
80%
60%
40%
0.7
20%
Q1
FY09/16
0%
Source: Shared Research based on company data
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euglena＞ Historical performance
LAST UPDATE【2017/2/10】
Medium-term plan: aims for consolidated group sales of JPY30bn and commercial use of biofuels made in Japan by FY09/20
euglena’s medium-term management plan lays out two key objectives to be achieved by FY09/20: consolidated group
sales of JPY30.0bn and the production and supply of made-in-Japan biofuels for commercial use. It expects JPY20.0bn of
the JPY30.0bn to be secured through the group’s B2C sales. The group still expects increased earnings contributions from
group B2B sales and overseas businesses. Furthermore, the company will actively pursue M&A, which may also contribute
to earnings.
Sixth round of stock options: sales of JPY30.0bn and RP of JPY1.0bn as conditions for 100% exercise (FY09/18 to FY09/20)
The company has announced it will issue its sixth round of stock options. The planned issue of 21,990 stock options is
equal to approximately 2.66% of outstanding shares (82,627,216 total shares outstanding) as of the end of September
2016. The company set sales of JPY30.0bn and recurring profit of JPY1.0bn as conditions to exercise 100% of the options,
and sales of JPY25.0bn and recurring profit of JPY1.0bn as conditions for 60% exercise. At first glance, these figures
suggest that recurring profit will barely rise, but Shared Research thinks these conditions demonstrate the company’s
intent to invest in growth without being restricted by stock options.
However, euglena has also set an additional condition, such that even if these conditions are fulfilled, only half of the
options will actually be eligible for exercise until an aircraft flight using a mixture of conventional petroleum-based jet fuel
and euglena’s aviation biofuel (manufactured at the pilot plant for aviation diesel biofuel production to be constructed as
part of the company’s Made-in-Japan Biofuel Project) becomes successful. Both the achievement of the medium-term
forecasts and realizing the commercial use of aviation biofuel have been included as exercise conditions.
Healthcare segment
Sales
36%
30%
3,000
OPM (right axis)
29%
28%
26%
Operating profit
2,888
22%
22%
21%
22%
22%
2,000
0
(JPYmn)
570
467
433
389
379
379
356
166
166
153
124
120
107
101
Q1
FY09/12
Q3
Parent B2C sales
Q1
FY09/13
épauler
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
Q1
Q1
Q1
FY09/14 FY09/15 FY09/16
Q3
(JPYmn)
600
695
203
699
155
Q1
FY09/14
Group B2B sales
500
400
300
200
752
157
1,372
161
Q3
184
240
293
Q1
FY09/15
(JPYmn)
700
17%
279
Q3
OEM, ingredients, and overseas
600
500
606
311
Q1
FY09/16
(JPYmn)
250
100
0
Q1
Q1
Q1
FY09/14 FY09/15 FY09/16
30%
20%
584
4%
118
Q3
10%
0%
Other
200
300
0
20%
268
150
200
2,914
11%
400
100
21%
18% 1,793
1,582
857
731
100
Q1
Q1
Q1
FY09/14 FY09/15 FY09/16
21%
21%
1,162
1,000
2,340
2,952
50
0
Q1
Q1
Q1
FY09/14 FY09/15 FY09/16
Source: Shared Research based on company data
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euglena＞ Historical performance
LAST UPDATE【2017/2/10】
Q3 FY09/16 earnings (out August 12, 2016)
Performance by quarter (JPYbn)
(JPYbn)
Sales
Gross profit
Operating profit
3
57%
54%
53%
53%
55%
53%
1
0
0.5
0.4
0.4
0.4
0.4
0.4
0.3
0.2
0.2
0.2
0.2
0.2
0.1
0.1
0.1
0.0
0.0
0.0
Q1
FY09/12
0.6
0.3
0.0
0.8
0.7
0.4
0.4
0.1
Q1
FY09/13
0.0
0.5
0.0
0.7
0.5
0.1
0.0
Q1
FY09/14
1.0
0.9
0.8
0.5
1.6
1.4
1.2
0.9
0.1
1.8
0.1
0.1
73%
3.0
2.9
66%
59%
55%
0.7
74%
72%
70%
2.3
61%
59%
57%
68%
67%
65%
2
GPM
2.1
70%
2.2
60%
1.7
1.3
50%
0.2
Q1
FY09/15
0.4
0.4
0.0
40%
Q1
FY09/16
SG&A expenses (JPYbn)
Personnel expenses
(JPYbn)
1.5
45%
1.0
28%
31%
0.0
0.1
50%
52%
R&D expenses
53%
47%
59%
Selling expenses
62%
61%
52%
Q1
FY09/12
0.2
0.2
0.2
0.3
0.3
Q1
FY09/13
SG&A-to-sales ratio
58%
62%
71%
1.7
1.7
60%
1.8
61%
60%
1.1
0.8
0.7
0.2
59%
40%
36%
0.5
0.1
Administrative expenses
0.4
0.4
0.4
0.9
40%
0.5
Q1
FY09/14
20%
Q1
FY09/15
0%
Q1
FY09/16
Regular purchase customers in direct sales (B2C) business (thousands of people)
('000 people)
Number of members at quarter end
180
('000 people)
QoQ changes
160
36
140
129
120
30
108
92
100
80
17
60
40
20
0
40
138
7
Q1
FY09/12
Q1
FY09/13
3
10
Q1
FY09/14
13
2
15
3
5
20
37
Q1
FY09/15
48
11
56
21
20
16
8
8
10
0
Q1
FY09/16
Source: Shared Research based on company data
Overview of results
Direction for FY09/16
For FY09/16, in the Healthcare segment euglena plans to strengthen direct sales, harness synergies from integrating two
subsidiaries, and augment its product lineup. Through healthcare R&D activities, it also plans to clarify the functionalities
of the microalgae Euglena and expand production facilities in response to growing demand. In the biofuel sector, it is
preparing for construction of its biofuel production pilot plant and working to lower the cost of producing fuel-use
Euglena.
Performance through Q3
Progress was generally in line with the company targets as of Q3, particularly on the direct sales, subsidiary integration,
and product lineup fronts. The number of regular purchase customers in direct sales business was 140,000 as of July 31,
2016 (up by 10,000 from April 30), in line with FY09/16 targets. Integrating two subsidiaries are starting to show
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euglena＞ Historical performance
LAST UPDATE【2017/2/10】
increased efficiencies in distribution and advertising expenses. The company expanded its product lineup as shown in the
following table, and in Q3, it released “one,” its new direct sales skincare brand.
New product launches by category
Subsegment
Food (direct sales)
Food (distribution)
Cosmetics (direct sales)
Q3
Q2
Q2
Q2
Q3
Launch date
May 16, 2016
Feb. 08, 2016
Mar. 25, 2016
Mar. 28, 2016
May 16, 2016
Product
MEDICA+
Algae bar
Appetizer jelly from euglena farm
Euglena from Ishigaki with bitter gourd (honey sauced)
"one" all-in-one face cream
Description
A new supplement lineup
A bar form confection with Euglena and Chlorella
Pet food with Euglena
Cartocanned beverage co-developed with JR East Japan
First product for "one," the new direct sales brand
Source: Shared Research based on company data
In terms of clarifying the functionalities of Euglena, R&D activities have recently confirmed the efficacies of Euglena in
inhibiting rotavirus proliferation (virus that infects the intestinal tract). The company was also expanding production
facilities to accommodate the B2C sales that have roughly doubled YoY. For biofuel the company has pushed back the
planned start of operations at its pilot plant from mid-2018 to the first half of 2019 (2020 target remains unchanged)
while in September 2016 it began building cultivation pools for biofuel-use microalgae in Taki town, Mie Prefecture. In
May 2016, the company also announced its success in developing an improved breeding method for selecting a Euglena
variant with high lipid content, suited for biofuel.
The company explains that it delayed the start of its pilot plant in Yokohama for refining biofuel because it took more time
than expected to respond to the various issues arising as it proceeded with the plant’s basic design. The company now
plans to complete the basic design in the US, localize the design for construction in Japan, and start construction in
summer 2017.
Changes in the pilot plant construction schedule: In August 2016, euglena announced changes in the construction schedule for its biofuel
production pilot plant. The start of construction was delayed from summer 2016 to summer 2017. Expected completion has been delayed
from winter 2017 to winter 2018 and operational start has been delayed from mid-2018 to the first half of 2019. The company has said “by”
these dates, which Shared Research interprets as the company being committed to meeting these deadlines.
Cultivation pools for biofuel-use microalgae: In September 2016, euglena, Chubu Plant Service, and Taki town in Mie Prefecture announced
that they would cooperate in a pilot project to cultivate microalgae for biofuel use. The pools for cultivating biofuel-use microalgae are to be
built in Taki town, using a Ministry of Economy, Trade and Industry (METI) subsidy. Exhaust gas, wastewater, and heat emitted from Chubu
Plant Service’s wood biomass power plant will be used to provide the CO2 and energy needed to cultivate the microalgae, lowering the cost of
biofuel-use microalgae. The company plans to begin testing in October 2016, and expand the cultivation area to more than 3,000sqm in
2018, making this Japan’s largest pool for culturing biofuel-use microalgae. euglena plans to conduct testing until the end of March 2019.
Healthcare segment
Sales
36%
30%
3,000
26%
Operating profit
OPM (right axis)
29%
28%
2,888
22%
22%
21%
22%
22%
2,000
0
467
433
389
379
379
356
166
166
153
120
107
101
Q1
FY09/12
Q3
570
Q1
FY09/13
124
Q3
695
203
699
155
Q1
FY09/14
752
157
731
161
Q3
21%
21%
1,162
1,000
2,340
1,372
17%
184
240
Q1
FY09/15
279
Q3
311
20%
30%
20%
11%
857
293
21%
18% 1,793
1,582
2,952
606
584
10%
268
Q1
FY09/16
Q3
0%
Source: Shared Research based on company data
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euglena＞ Historical performance
épauler
Parent B2C sales
(JPYmn)
1,800
(JPYmn)
150
LAST UPDATE【2017/2/10】
(JPYmn)
Food (B2B sales)
euglena art
(JPYmn)
400
600
1,600
Food (OEM and
ingredients)
1,200
100
200
800
600
200
400
0
0
Q1
Q1
FY09/15 FY09/16
0
Q1
Q1
FY09/15 FY09/16
Overseas, farming
prawns
Chlorella, Kalahari
150
100
50
0
Q1
Q1
FY09/15 FY09/16
350
200
50
100
200
(JPYmn)
250
100
300
50
Cosmetics (OEM and
B2B sales)
150
400
1,000
200
300
500
1,400
(JPYmn)
Q1
Q1
FY09/15 FY09/16
0
0
Q1
Q1
FY09/15 FY09/16
Q1
Q1
FY09/15 FY09/16
Source: Shared Research based on company data
Q3 performance
Healthcare earnings ticked up from Q2, which had solid performance due to media exposure; drop in first-time customers but steady
increase in regular customers
Q3 sales rose 86.6% YoY and 2.2% from Q2. Although YoY growth levels remained high, the rise from Q2 was small
because of a spike in first-time customers from December 2015 to February 2016 stemming from a TV program aired in
December 2015. Still, the company is not concerned as the number of regular purchase customers has continued to
increase even after the TV program, and the impact of ad spending was evident in Q3 results.
Regular purchase customers (direct sales)
160
euglena
140
épauler
138
129
120
108
92
100
80
60
40
0
('000 people)
20
15
20
Apr
2014
56
48
37
Jul
Oct
Jan
2015
Apr
Jul
Oct
Jan
2016
Apr
Jul
Source: Shared Research based on company data
Company revises up full-year forecast, ad spend concentrated in Q4
When announcing Q3 results, euglena also revised upward its forecast for FY09/16. The revised forecast calls for an
operating loss in Q4 due to heavy ad spending. This investment in advertising suggests the company plans to continue
pursuing high levels of growth in FY09/17 as in FY09/16. Given that the measures euglena has undertaken in FY09/16 are
bearing fruit, Shared Research thinks the company is planting seeds for substantial future growth.
The company recognizes that heavy ad spending can cause ROI to decline but believes that advertising is instrumental to
attracting customers. In Q4 and the following Q1, euglena expects to reap the results of ad investments made in August
and September 2016.
In business departments other than B2C sales, OEM supply is decreasing as planned, cosmetic products rose due to
repeat sales contributed, and a rise in other food sales were due to seasonal factors (for subsidiary euglena Taketomi
Prawn Farm, demand for prawns is strong in Q3 [January–March]).
Toward Q4
Q4 was expected to see heavy ad spending. In food (B2C sales), the company expects to reap the benefits of ad
spending. In cosmetics, euglena is engaged in a full-fledged rollout of its new B2C sales brand “one” on May 20, 2016,
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euglena＞ Historical performance
euglena | 2931 |
LAST UPDATE【2017/2/10】
and launched “B.C.A.D. Hair” on July 11, 2016, a new hair care product that can be easily sold through beauty salons that
handle euglena’s “B.C.A.D.” brand products. The harvesting of farmed prawns was expected to continue into Q4 (April–
June). In OEM supply, the company can generally discern order trends two to three months in advance and has
incorporated an expected downturn in orders into its Q4 forecasts.
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euglena＞ Financial statements
LAST UPDATE【2017/2/10】
Financial statements
Income statement
Income statement
FY09/07 FY09/08 FY09/09 FY09/10 FY09/11 FY09/12 FY09/13 FY09/14 FY09/15
(JPYmn)
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Sales
116
164
221
735
1,166
1,586
2,092
3,046
5,924
735
1,164
1,581
2,087
3,039
5,908
164
221
Healthcare
116
Energy and Environment
2
4
5
7
16
YoY
41.8%
34.2% 232.9%
58.7%
36.0%
31.9% 45.6% 94.5%
Healthcare
41.8%
34.2% 232.9%
58.4%
35.9%
32.0% 45.6% 94.4%
Energy and Environment
80.2%
10.0% 45.7% 136.0%
CoGS
72
76
110
343
517
725
948
1,198
1,905
CoGS ratio
62.4%
45.9%
49.7%
46.7%
44.3%
45.7%
45.3% 39.3% 32.2%
Gross profit
44
89
111
392
649
860
1,144
1,849
4,019
GPM
37.6% 54.1% 50.3% 53.3% 55.7% 54.3% 54.7% 60.7% 67.8%
SG&A expenses
114
156
143
239
355
552
968
1,706
3,543
Selling expenses
342
874
2,250
Personnel expenses
301
388
546
Administrative expenses
213
271
484
R&D expenses
7
22
23
39
62
83
111
174
262
120
200
293
470
Other
107
133
YoY
36.2%
-8.1%
67.0%
48.6%
55.7%
75.2% 76.3% 107.6%
Selling expenses
- 155.6% 157.4%
Personnel expenses
- 28.8% 40.7%
Administrative expenses
- 27.0% 78.6%
R&D expenses
204.9%
2.7%
69.0%
59.3%
33.8%
34.2% 56.3% 51.1%
Other
24.6%
-9.9%
66.6%
46.6%
60.3%
YoY
98.6%
94.7%
64.8%
32.5%
30.4%
34.8%
46.3% 56.0% 59.8%
Selling expenses
16.3% 28.7% 38.0%
Personnel expenses
14.4% 12.7%
9.2%
Administrative expenses
10.2%
8.9%
8.2%
R&D expenses
6.3%
13.6%
10.4%
5.3%
5.3%
5.2%
5.3%
5.7%
4.4%
Operating profit
-71
-67
-32
153
294
308
176
142
476
304
513
592
547
658
1,122
Healthcare
-71
-67
-32
Energy and Environment
-51
-83
-93
-113
-168
-115
Adjustments
-101
-136
-192
-258
-348
-532
YoY
92.5%
4.5% -42.7% -19.4% 234.7%
Healthcare
68.4%
15.4%
-7.5% 20.2% 70.6%
Energy and Environment
OPM
-60.9% -40.6% -14.5%
20.8%
25.3%
19.4%
8.4%
4.7%
8.0%
Healthcare
-60.9% -40.6% -14.5%
41.4%
44.0%
37.3%
26.2% 21.6% 18.9%
Energy and Environment
-6.9%
-7.1%
-5.8%
-5.4%
-5.5%
-1.9%
OP before depreciation & amortization of goodwill
-71
-67
-32
153
295
321
212
209
647
YoY
92.7%
8.9% -34.0%
-1.2% 209.0%
Profit margin
-60.9% -40.6% -14.5%
20.8%
25.3%
20.2%
10.1%
6.9% 10.9%
Non-operating income (expenses)
-0
2
2
30
20
18
88
49
250
Financial income
0
0
-0
-0
0
0
-2
17
32
Gains on foreign exchange
Equity in income of affiliates
-2
Other non-operating income
-1
1
2
30
20
18
90
32
220
Recurring profit
-71
-65
-30
183
314
325
265
191
726
YoY
71.4%
3.6% -18.7% -27.7% 279.3%
RPM
-61.3% -39.7% -13.8%
24.9%
26.9%
20.5%
12.7%
6.3% 12.3%
Extraordinary gains
-2
-2
3
0
-1
322
0
19
Loss on impairment of fixed assets
-0
-2
0
G ain on bargain purchase
322
18
Income taxes
0
0
0
0
108
128
104
74
287
Implied tax rate
0.2%
34.6%
39.3%
17.8% 38.4% 38.6%
Non-controlling interest
12
Net income attributable to owners of parent
-74
-67
-27
183
205
197
483
118
470
YoY
12.0%
-3.6% 144.4% -75.5% 297.4%
Net margin
-63.7% -41.0% -12.4%
24.9%
17.6%
12.5%
23.1%
3.9%
7.9%
Capital expenditures
83
172
315
Depreciation
0
0
13
35
63
136
Depreciation (SG&A expenses)
1
0
0
0
12
20
21
36
Amortization of goodwill
4
35
EBITDA
-71
-67
-32
153
295
321
212
209
647
FY09/16
Cons.
11,103
11,093
10
87.4%
87.8%
-39.3%
2,966
26.7%
8,137
73.3%
7,443
5,390
890
810
353
110.1%
139.6%
63.1%
67.4%
34.7%
67.0%
48.5%
8.0%
7.3%
3.2%
694
1,577
-200
-683
45.7%
40.5%
6.3%
14.2%
-1.8%
1,014
56.8%
9.1%
251
26
-2
24
203
945
30.0%
8.5%
-25
254
27.6%
8
673
43.4%
6.1%
232
119
88
1,014
Source: Shared Research based on company data
SG&A expenses
Advertising, selling, and other marketing expenses make up a high percentage of SG&A expenses, and these expenses are
highly variable. These expenses are high because the company is investing in new customer acquisition, with a focus on
LTV in its mainstay food (B2C sales) business. Personnel expenses were also trending upward, as the company stepped up
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euglena＞ Financial statements
LAST UPDATE【2017/2/10】
recruiting to expand.
Some SG&A expenses, such as for sample products, logistics expenses, and credit settlement fees, are also variable and
linked to sales.
A changing cost structure: SG&A expenses (left), as a percentage of sales (right)
Personnel expenses
Selling expenses
2.5
Administrative expenses
SG&A-to-sales ratio
R&D expenses
Gross margin
2.3
2.0
1.7
1.5
1.0
0.7
0.5
0.0
0.2
0.2
Q1
FY09/13
(JPYbn)
0.3
Q3
0.3
0.4
0.2
0.4
0.4
0.5
0.2
0.2
0.2
Q1
FY09/14
Q3
0.4
0.8
0.5
Q1
FY09/15
0.9
0.6
1.7
1.8
1.7
1.1
1.2
1.3
1.3
0.7
Q3
Q1
FY09/16
Q3
Personnel expenses
R&D expenses
Operating profit margin
80%
70%
75%
60%
70%
50%
65%
40%
60%
30%
55%
20%
50%
10% 5.4%5.1%5.5%
45%
0%
40%
-10%
Administrative expenses
Selling expenses
14.6%
Q1
FY09/13
Q3
5.9%
2.5% 3.5%
Q1
FY09/14
Q3
6.6% 5.1%
9.4% 8.5%8.5%
Q1
FY09/15
14.6%
11.9%
1.3%
Q3
Q1
FY09/16
-3.8%
Q3
Source: Shared Research based on company data
Equity in earnings of associated companies
Equity in earnings of affiliated companies applies only to one company, which operates the Real Tech Fund. This company
is capitalized at JPY50mn, and euglena holds a 49% stake and the fund has gathered a total investment commitment of
JPY7.5bn (all of which had been raised as of May 2016). Earnings from dividends vary in line with the investment amount.
Profit attributable to non-controlling interests
Non-controlling interests exist for two companies, euglena’s subsidiary in Shanghai (70% stake) and Grameen euglena
(50% stake). As of FY09/16, both companies generated losses. The company expects losses at its Shanghai subsidiary to
disappear as business in mainland China picks up, and it believes losses at Grameen euglena will disappear as exports of
mung beans to Japan grow.
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euglena＞ Financial statements
LAST UPDATE【2017/2/10】
Equity in earnings of associated companies (left) and profit attributable to non-controlling interests (right)
15
15
13
Equity in earnings of affiliates
9
10
10
5
5
3
2
1
0
-5
-5
-15
(JPYmn)
5
5
0
-10
Net income attributable to non-controlling shareholders
9
7
10
-1
-10
-12
FY09/15
Q1
Q2
Q3
Q4
FY09/16
Q1
Q2
Q3
Q4
-15
(JPYmn)
-10
FY09/15
Q1
Q2
Q3
Q4
FY09/16
Q1
Q2
Q3
Q4
Real Tech Fund areas of support
Target
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Solve global issues in zinc recycling
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Robotics
Free the world from hard labor with humanoid
robots
amelieff
Biotechnology
Society with healthy people through gene
analysis technology
MELTIN MMI Co., Ltd.
Robotics, electronics, biotechnology, AI
Removing all biological barriers between man and
machine
Kyulux, Inc.
Electronics, new materials
Ultimate luminescent material for organic EL to
the world
Japanese Organization for Medical Device Medicine and medical equipment
Contribute to the world with Japanese medical
Development, Inc.
technologies
4D Sensor Inc.
Electronics, IoT
Ultra high speed and ultra precision shape
measurement
iHeart Japan Corporation
Bio, medicine and medical equipment
Develop next gen medicine that could replace
heart transplant
OryLab Inc.
Robotics
Meet whoever you want to meet, go wherever
you want to go
Space Link Co., Ltd.
Electronics, environment, energy, new
Change the world with electricity storage and
materials, aerospace, IoT
positioning technologies
Think-Lands Co., Ltd.
Electronics, bio, new materials, medicine and Be the innovator of production technology with
medical equipment
optical vortices technology from Japan
QD Laser, Inc.
Electronics and medical equipment
Connect humans and cyberspace with optical
technologies
Challenergy Inc.
Environment, energy
Innovate wind power generation; supply safe and
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Quantaglion Co., Ltd.
Business
Robotics
Electronics, IoT
Press release
Aug. 2015
Dec. 2015
Dec. 2015
Jan. 2016
Feb. 2016
Feb. 2016
Feb. 2016
Feb. 2016
Feb. 2016
May 2016
May 2016
Sep. 2016
Sep. 2016
Nov. 2016
Nov. 2016
Source: Shared Research based on company data
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euglena＞ Financial statements
LAST UPDATE【2017/2/10】
Balance sheet
Balance sheet
(JPYmn)
Current assets
Cash and equivalents
Accounts receivable
Inventories
Deferred tax assets
Allowance for doubtful accounts
Others
Tangible fixed assets
Depreciable and leased assets
Land
Construction in progress
Intangible fixed assets
Goodwill
Others
Investments and other assets
Investment securities
Lease and guarantee deposits
Allowance for doubtful accounts
Others
Fixed assets
Total assets
Current liabilities
Accounts payable
Short-term debt
Current portion of long-term debt
Accounts payable-other
Income taxes payable
Other current liabilities
Noncurrent liabilities
Long-term debt
Deferred tax liabilities
Others
Total liabilities
Net assets
Shareholders' equity
Capital stock
Capital surplus
Retained earnings
Treasury shares
Valuation and translation adjustments
Valuation difference on securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Subscription rights to new shares
Non-controlling interest
Total capital and liabilities
Capital expenditures
Depreciation
Amortization of goodwill
Working capital
Total interest-bearing debt
Net cash
Accounts receivable turnover
Inventory turnover
Payables turnover
Working capital efficiency
Current ratio
Fixed ratio
Equity ratio
FY09/07 FY09/08 FY09/09 FY09/10 FY09/11 FY09/12 FY09/13 FY09/14 FY09/15 FY09/16
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
145
78
28
39
1
4
4
2
2
6
151
24
12
5
1
6
24
127
127
185
85
-143
151
50
78
43.6
98.8
30.9
111.4
593%
4.9%
83.8%
132
74
22
33
-1
4
0
0
2
-3
5
2
134
15
3
4
1
7
15
120
120
215
115
-210
134
48
74
55.4
175.3
36.7
194.0
893%
1.8%
89.0%
162
76
50
36
-1
2
0
0
2
0
0
2
2
165
33
19
0
1
1
11
10
10
42
122
122
230
130
-238
165
66
10
66
59.8
115.2
36.6
138.4
492%
2.0%
74.2%
665
534
102
19
-1
11
0
0
5
0
0
4
5
670
95
43
15
3
34
95
575
575
365
265
-55
670
0
63
534
37.8
29.1
33.2
33.7
702%
0.8%
85.9%
1,222
973
133
98
13
-4
10
1
1
2
2
10
10
13
1,236
262
74
39
130
19
2
2
264
971
971
461
361
150
1,236
0
117
973
36.7
41.1
41.5
36.4
466%
1.3%
78.6%
1,199
892
169
118
8
-3
14
24
24
4
4
146
50
9
87
174
1,373
195
53
47
60
35
9
9
204
1,169
1,169
461
361
347
1,373
13
187
892
34.7
54.2
32.0
57.0
613%
14.9%
85.1%
2,472
1,846
313
270
34
-7
16
733
139
579
16
29
29
51
51
814
3,286
338
94
22
103
70
48
379
199
181
717
2,569
2,569
919
819
830
3,286
83
35
386
221
1,625
42.0
74.8
28.3
88.5
732%
31.7%
78.2%
Cons.
Cons.
Cons.
7,314
8,605 11,355
6,346
6,794
9,204
479
698
1,059
412
806
852
32
61
120
-7
-2
-3
52
247
123
850
1,624
2,472
238
620
646
579
930
930
33
75
896
64
1,175
1,238
32
1,121
730
32
54
507
3,053
3,119
461
2,982
2,969
289
71
150
172
3,967
5,918
4,171
11,280 14,523 15,526
622
1,393
1,612
171
240
248
254
13
375
388
983
31
309
234
46
203
134
213
429
492
22
72
59
191
357
432
835
1,822
2,103
10,445 12,701 13,423
10,441 12,662 13,408
4,796
4,826
4,863
4,696
6,650
6,686
948
1,418
2,091
-0
-231
-231
-9
-1
-16
-9
4
-0
-5
-16
13
13
15
27
15
11,280 14,523 15,526
172
315
63
136
232
4
35
88
345
877
680
22
326
72
6,324
6,469
9,132
47.4
36.3
28.9
104.0
116.7
102.0
40.4
39.3
30.0
111.0
113.6
100.9
1,175%
618%
705%
38.0% 46.7% 31.1%
92.5% 87.2% 86.3%
Source: Shared Research based on company data
Cash position
euglena’s management is highly aware of its cash position excluding necessary capital expenditures. As of Q3 FY09/16,
the company held JPY9.0bn in cash and deposits and marketable securities. By our calculations, this amount includes
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euglena＞ Financial statements
LAST UPDATE【2017/2/10】
JPY4.3bn slated for investment in the biofuel production pilot plant, which could rise to JPY5.0bn due to personnel
expenses; around JPY1.0bn in working capital, assuming annual investment in advertising expenses of JPY3.0bn and a
recovery period of four to five months; and JPY1.8bn in working capital needed for operations, leaving a remainder of
JPY1.2bn. The company plans to fund its pilot plant investment using cash on hand.
Inventories
The inventory turnover period is three to four months. An appropriate level for Euglena powder, a raw ingredient, is four
months. Given that manufacturing products after raw materials are on hand takes around two months, one month of
which is needed to produce the raw materials themselves, the company has product inventories of around two months.
Tangible fixed assets
Two subsidiaries—Yaeyama Shokusan and Taketomi Prawn Farm—account for a large percentage of tangible fixed assets.
Investment in the biofuel production pilot plant is booked as construction in progress.
Accounts payable (current liabilities)
Accounts payable vary in line with advertising expenses.
Accounts payable
2,000
Accounts payable–other
1,800
1,600
Advertising expenses
1,600
1,200
1,000
1,000
800
800
600
600
400
400
200
200
(JPYmn)
Advertising expenses
1,200
1,400
0
Accounts payable–other
1,400
1H
FY09/12
1H
FY09/13
1H
FY09/14
1H
FY09/15
0
FY09/12
Q1
(JPYmn)
1H
FY09/16
FY09/13
Q1
FY09/14
Q1
FY09/15
Q1
FY09/16
Q1
Source: Shared Research based on company data
Number of shares
FY09/11
（'000 shares, JPYmn）
Aug. 19, 2011
Sep. 30, 2011
Shares issued
7
7
Change
0
0
Capital stock balance
366
461
Change
1
95
Legal capital surplus
266
361
Change
1
95
Actions
Exercise new share Paid-in third-party
rights
allotment
（'000 shares, JPYmn）
Shares issued
Change
Capital stock balance
Change
Legal capital surplus
Change
Actions
FY09/14
Oct. 01, 2013
68,748
54,998
919
819
Stock split
(5-for-1)
Dec. 3, 2013
73,748
5,000
4,166
3,247
4,066
3,247
Paid-in public
offering
FY09/12
Sep. 14, 2012
2,156
2,148
461
361
Stock split
(300-for-1)
Jan. 6, 2014
74,645
898
4,749
583
4,649
583
Paid-in third-party
allotment
FY09/13
Dec. 19, 2012
2,656
500
852
391
752
391
Paid-in public
offering
Sep. 30, 2014
77,975
3,330
4,796
48
4,696
48
Exercise new share
rights (one year)
Jan. 21, 2013
2,736
80
914
63
814
63
Paid-in third-party
allotment
Apr. 1, 2013
13,678
10,942
914
814
Stock split
(5-for-1)
FY09/15
May 1, 2015
78,511
536
4,796
Sep. 1, 2015
79,081
570
4,796
5,709
1,013
6,620
911
Share exchange
Share exchange
Sep. 30, 2013
13,750
72
919
5
819
5
Exercise new share
rights (half year)
Sep. 30, 2015
82,043
2,963
4,826
30
6,650
30
Exercise new share
rights (half year)
Source: Shared Research based on company data
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euglena＞ Financial statements
LAST UPDATE【2017/2/10】
Cash flow statement
Cash flow statement
(JPYmn)
Cash flows from operating activities
Income before income taxes
Depreciation
Amortization of goodwill
Impairment losses
Loss on retirement of fixed assets
Change in accounts receivable
Change in inventories
Change in accounts payable-trade
Change in accounts payable-other
Change in accrued consumption tax
Others
Subtotal
Interest and dividends income received
Interest expenses paid
Income taxes paid
Cash flows from operating activities
FY09/10 FY09/11 FY09/12 FY09/13 FY09/14 FY09/15
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
FY09/16
Cons.
183
0
-52
17
24
12
15
1
200
0
0
1
201
313
0
-31
-79
31
13
4
252
0
-1
251
325
13
-37
-21
-21
17
-2
276
0
-190
86
587
35
-87
19
33
28
-400
214
1
-2
-139
164
192
63
4
-165
-135
77
68
-38
66
16
-2
-142
-8
745
136
35
-91
-178
-117
1
-46
484
47
-1
-61
621
919
232
88
-361
-46
8
567
-232
1,177
41
-2
-475
914
-2
-2
-2
-2
-31
-37
-9
-91
-167
-83
-2
-20
-105
-3,186
1
-172
-16
-2,804
-6,177
3,186
-315
-44
37
-773
2,091
-15
-1,083
-6
2
948
-154
Cash flows from financing activities
Change in short-term debt
Change in long-term debt
Change in bonds
Proceeds from share issuance
Purchase of treasury shares
Proceeds from disposal of treasury shares
Cash dividends paid
Proceeds from share issuance to minority shareholders
Others
Cash flows from financing activities
-10
269
259
191
191
-
-11
906
895
-234
7,719
-0
15
7,499
-271
-1
59
36
-0
-177
-239
-15
72
-3
-185
Effect of exchange rate on cash and cash equivalents
Change in cash and cash equivalents
Cash and cash equivalents (beginning of year)
Cash and cash equivalents (year-end)
458
76
534
440
534
973
-81
973
892
954
892
1,846
1,314
1,846
3,160
-8
2,528
3,160
6,221
-12
563
6,221
6,784
Cash flows from investing activities
Change in time deposits
Change in investment securities
Acquisition of fixed assets
Proceeds from sale of fixed assets
Payments for lease deposits
Collection of lease deposits
Purchase of long-term prepaid expenses
Others
Cash flows from investing activities
Source: Shared Research based on company data
The cash collection period on the company’s mainstay products in direct sales of food is short because most payments are
made by credit card. The use of cash is trending upward because of euglena’s investment in advertising, but the
collection period on this investment averages four to five months, putting the company in a solid position because this
investment is covered by operating cash flow.
Because ramping up production capacity in the Healthcare segment does not involve major capex, the company has no
noteworthy fluctuations in investment cash flow. We believe the company’s cash position as of FY09/16 exceeded
optimum levels. The company plans to pay for its investment in biofuel production pilot plant with cash on hand, so
financing cash flows should remain stable.
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euglena＞ Other information
LAST UPDATE【2017/2/10】
Other information
Corporate governance (as of June 2016)
Organizational form
and capital structure
Directors
Audit & Supervisory
Board members
Other
Other
Organization
Company with corporate auditors
Controlling shareholders
None
ー
Parent company ticker
Number of directors (per Articles of Incorporation)
7
Directors' term of office (per Articles of Incorporation)
2 years
Number of directors
6
Outside directors
2
Independent outside officers
2
Existence of Audit & Supervisory Board
Y
Number of Audit & Supervisory Board members (per Articles of Incorporat
5
Number of Audit & Supervisory Board members
3
Outside members of Audit & Supervisory Board
2
Independent outside members of Audit & Supervisory Board
2
Foreign shareholding ratio
Less than 10 %
Independent officers
4
Implementation of measures regarding director incentives
Stock option
Eligible for stock option
Officers and employees of the parent company,
and officers and employees of subsidiaries
Participation to electronic voting platform for independent officers
Efforts to improve environments for institutional investors' voting rights
Preparation of convening notices in English
Disclosure of individual director's compensation
Policy to determine amount and calculation method of remuneration
Corporate takeover defenses
None
To be considered
None
None
Y
None
To be considered
Source: Shared Research based on company data
At a general meeting of shareholders scheduled for December 20, 2016, euglena is planning to transition to a company
with an audit and supervisory committee.
Top management
President: Mitsuru Izumo (Born: January 17, 1980, shares held as of September 30, 2015: 13,359,300)
Mr. Izumo graduated from the University of Tokyo’s Faculty of Agriculture (Agricultural Structure and Management) in
March 2002 and joined the Bank of Tokyo-Mitsubishi, Ltd. (now the Bank of Tokyo-Mitsubishi UFJ, Ltd.) in April. He
became president and CEO of euglena in August 2005.
Director, Head of R&D: Kengo Suzuki (Born: November 19, 1979; shares: 922,500)
Mr. Suzuki became a director of euglena in August 2005. In March 2006, he completed a master’s degree in the
University of Tokyo Graduate School of Agriculture and Life Sciences, Faculty of Agriculture, and acquired a PhD from the
University of Tokyo (Agriculture) in April 2016.
Director, Head of Healthcare Business Division: Takuyuki Fukumoto (Born: November 1, 1975; shares: 520,800)
Mr. Fukumoto became a director of High-Chlorella (now épauler) in March 1999 (managing director in September 2004)
and a director of euglena in August 2005.
Director, Head of Finance and Corporate Strategy: Akihiko Nagata (Born: December 6, 1982; shares: 0)
Mr. Nagata graduated from the Faculty of Business and Commerce of Keio University in March 2007 and joined Inspire
Corporation in April. He became an outside director of euglena in December 2008 and director in April 2010.
Dividend policy
euglena has not paid dividends since its foundation. It does not plan to pay dividends in the foreseeable future, instead
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euglena＞ Other information
LAST UPDATE【2017/2/10】
prioritizing the use of cash to reinforce its corporate structure and continue to engage in R&D activities. Nevertheless, the
company recognizes return to shareholders as a management priority, and will consider the distribution of profits and
dividends from surplus, taking into consideration its future operating performance and financial position.
The company will consider dividends based on (1) whether it can use up the JPY7.5bn fundraised through a public
offering in 2013 (the proceeds was mainly used to establish a biofuel production pilot plant), and (2) the monetization
of the biofuel business.
The company had 83,308 individual shareholders as of March 31, 2016 (up 2,172 from September 30, 2015).
Shareholders holding between one and five trading units (100 shares per trading unit) hold around 9.5mn shares,
accounting for 70% of the total, with average holdings of 1.7 trading units. euglena provides discount coupons for its
direct sales products as shareholder benefits, with coupons valid for less than one year having a value of JPY4,000 and
those held for one year or more having a value of JPY6,000. Based on its share price of JPY1,456 as of September 16, 2016,
these incentives would tentatively be worth under 3% to more than 4% of shareholdings.
Shareholder composition
Shareholders
(as of end of September, 2016)
Mitsuru Izumo
Inspire Corporation
JX Nippon Oil & Energy Corporation
Tokyo Century Corporation
Kengo Suzuki
Japan Trustee Services Bank, Ltd. (trust
Dentsu Inc.
Japan Trustee Services Bank, Ltd. (trust
Japan Trustee Services Bank, Ltd. (trust
Japan Trustee Services Bank, Ltd. (trust
Treasury stock
Number of shares issued
Shares
('000)
13,359
1,887
1,500
1,500
923
899
788
773
772
768
138
82,627
account)
account 6)
account 1)
account 2)
%
16.2%
2.3%
1.8%
1.8%
1.1%
1.1%
1.0%
0.9%
0.9%
0.9%
0.2%
100.0%
Source: Shared Research based on company data
Employees
Employees
Healthcare
Energy and Environment
Company-wide
Average temporary employees
Healthcare
Energy and Environment
Company-wide
Employees at parent
Healthcare
Energy and Environment
Company-wide
Average age
Average years employed
Average yearly salary (JPYmn)
Average temporary employees at parent
Healthcare
Energy and Environment
Company-wide
FY09/07
7
FY09/08
14
FY09/09
15
FY09/10
17
FY09/11
30
FY09/12
36
18
8
10
7
14
15
17
30
36
18
8
10
30.8
2.3
4.0
FY09/13 FY09/14
75
89
53
58
9
14
13
17
6
15
5
7
4
1
4
46
60
24
29
9
14
13
17
33.3
34.6
2.5
2.3
4.5
4.8
6
15
5
7
4
1
4
FY09/15
162
126
16
20
28
20
4
4
79
43
16
20
35.2
2.5
5.1
18
10
4
4
Source: Shared Research based on company data
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euglena＞ Other information
euglena | 2931 |
LAST UPDATE【2017/2/10】
Other
The euglena mall on Ishigaki Island (naming rights)
Source: Shared Research
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euglena＞ Other information
LAST UPDATE【2017/2/10】
Profile
Company
Head office
euglena Co., Ltd.
5-33-1 Shiba, Minato-ku, Tokyo
Phone
Listed on
+81-3-3453-4907
Tokyo Stock Exchange 1st Section
Established
Exchange listing
August 9, 2005
December 20, 2012 Tokyo Stock Exchange Mothers
December 3, 2014 Tokyo Stock Exchange 1st Section
Auditor
Fiscal year-end
Deloitte Touche Tohmatsu LLC
September
Website
IR Web
http://www.euglena.jp/en/
http://www.euglena.jp/ir/
IR e-mail
IR Contact
[email protected]
+81-3-3453-4907
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Don Quijote Holdings Co., Ltd.
Dream Incubator Inc.
EARTH CHEMICAL CO., LTD.
Elecom Co., Ltd.
Emergency Assistance Japan Co., Ltd.
en-Japan Inc.
euglena Co., Ltd.
Ferrotec Corporation
FIELDS CORPORATION
Financial Products Group Co., Ltd.
FreeBit Co., Ltd.
Fujita Kanko Inc.
Gamecard-Joyco Holdings, Inc.
GCA Corporation
Grandy House Corporation
Hakuto Co., Ltd.
Happinet Corporation
Harmonic Drive Systems Inc.
Hearts United Group Co., Ltd.
Heiwa Real Estate Co., Ltd.
IDOM Inc.
IID, Inc.
Infomart Corporation
Intelligent Wave, Inc.
istyle Inc.
ITO EN, Ltd.
Itochu Enex Co., Ltd.
J Trust Co., Ltd
Japan Best Rescue System Co., Ltd.
JIN CO., LTD.
KAMEDA SEIKA CO., LTD.
Kenedix, Inc.
KFC Holdings Japan, Ltd.
LAC Co., Ltd.
Lasertec Corporation
MAC HOUSE CO., LTD.
MATSUI SECURITIES CO., LTD.
MEDINET Co., Ltd.
MEGANESUPER CO., LTD.
Milbon Co., Ltd.
MIRAIT Holdings Corporation
MONEY SQUARE HOLDINGS, INC.
NAGASE & CO., LTD
NAIGAI TRANS LINE LTD.
NanoCarrier Co., Ltd.
Nichi-Iko Pharmaceutical Co., Ltd.
NIPPON PARKING DEVELOPMENT Co., Ltd.
Nisshinbo Holdings Inc.
NS TOOL CO., LTD.
NTT URBAN DEVELOPMENT CORPORATION
ONO SOKKI Co., Ltd.
ONWARD HOLDINGS CO.,LTD.
PARIS MIKI HOLDINGS Inc.
PIGEON CORPORATION
RACCOON CO., LTD.
RESORTTRUST, INC.
ROUND ONE Corporation
RYOHIN KEIKAKU CO., LTD.
SanBio Company Limited
SANIX INCORPORATED
Sanrio Company, Ltd.
SATO HOLDINGS CORPORATION
SBS Holdings, Inc. SHIP HEALTHCARE HOLDINGS, INC.
SMS Co., Ltd.
Snow Peak,Inc.
SOURCENEXT Corporation
Star Mica Co., Ltd.
SymBio Pharmaceuticals Limited
Takashimaya Company, Limited
Takihyo Co., Ltd.
TAMAGAWA HOLDINGS CO., LTD.
TEAR Corporation
3-D Matrix, Ltd.
TKC Corporation
TOKAI Holdings Corporation
V-cube, Inc.
VISION INC.
VOYAGE GROUP, INC.
WirelessGate, Inc.
YELLOW HAT LTD.
YUMESHIN HOLDINGS CO., LTD.
Yushiro Chemical Industry Co., Ltd.
ZAPPALLAS, INC.
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