Fiscal 2024 Small Meeting (held on February 21, 2024)
Questions & Answers
Sapporo Holdings Limited
Masaki Oga, President and Representative Director
Sapporo Holdings Limited
Yoshitada Matsude, Managing Director
Sapporo Holdings Limited
Rieko Shofu, Director
Regarding the details of the announcement of the medium- to long-term management
strategy
Q1. I have the impression that there is a short time span between the announcementsof the Medium-Term Management Plan in 2022 and the medium- to long-term policy. Iwould like to know the circumstances over the past year behind this medium- to longterm policy.
A1. Both in the Medium-Term Management Plan in 2022 and the medium- to long-term policy,
there is no change in our approach to pursue synergies in food and beverages, and in realestate.
What we were not sure of when we issued the medium-term plan was how strong theprofitability of Alcoholic Beverages (Japan) could be, and we did not reach a point of certainty.
However, during the past year, we became convinced of the strength of our Alcoholic
Beverages (Japan) business. Changes in the market are one factor, as well as the continued
profitability improvements in alcoholic beverages, evidenced by the increase of core
operating profit by about 2% compared to the medium-term plan, due to the steady impactof structural reforms. Going forward, in order to further increase corporate value, we decided
that we should take another step to reevaluate resource allocation and realize growthinvestments in alcoholic beverages. Without the medium-term plan, we couldn’t have built alaunching pad to review the medium- to long-term policy. The company is now on track tobreak away from the low profitability of domestic alcoholic beverages, and the foundation has
been solidified, enabling us to announce the medium- to long-term policy this time.
Q2. What type of discussions took place in the Committee?
A2 The Committee was created to examine what kind of business portfolio to assemble,
where to create synergies, and what to target beyond 2026. Discussions were held once
every other week from September 2023 to January 2024. Since the committee members
1included outside experts, we received harsh opinions, including some we had not considered
before.
The Committee discussed in depth from various perspectives, on topics such as corporate
culture and personnel systems, why the level of profitability is still low compared tocompetitors despite continuous improvements. In addition, we interviewed parties inside andoutside the Company, including business partners, about our strengths, and had numerous
discussions about where we should invest our limited resources in the future. Through thisprocess, we gained confidence in our brands, especially beer brands, development
capabilities, and technological expertise. For each business segment where we built a
portfolio, resource allocation was reviewed, taking into account future market forecasts andcompetitive trends.
Q3. Many decisions have not been made yet. Wouldn’t it have been better to spend alittle more time on deliberations before disclosing? Why did you choose to make theannouncements now?
A3 It is true that many aspects remain undecided. However, we thought it would beinappropriate not to share any of the information that we have been working on for the past
five months and that has been discussed by the Group Strategy Committee. We also felt
there was a risk of creating various speculation if we didn’t communicate. With this in mind,
our goal was to communicate our true situation at this time and demonstrate our willingness
to have a sincere dialogue with the market. We believe the market has perceived this nuancethat we have strongly decided to change direction.
Moreover, we do not immediately consider concrete actions of the medium- to long-term
policy after the medium-term plan. We must continue steady preparations during the period
covered by the medium-term plan.
Regarding the review of the policy on real estate investment
Q4. You described real estate as one of your strengths. Why did you greatly modify
the real estate policy this time? Please share the context behind this decision,
including environmental changes.
A4 Market conditions have changed since we announced the medium-term plan. In revolving
businesses, inflation has increased the risk of higher interest rates, construction prices, andacquisition costs, raising concerns that the returns we originally envisioned might notmaterialize.
And in the Alcoholic Beverages and the Real Estate businesses, as we reconsider ourstrengths, we are convinced that our contact points with customers, such as YEBISU
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BREWERY, are unique and not found at competing companies. We thought we first had toconcentrate resources in these areas. We plan to strengthen these contacts with customers
in Alcoholic Beverages moving forward.
It is still our understanding that we do have competitive advantages and strengths in the Real
Estate business, but we recognized the challenges it faces in terms of resource allocation.
In the past, many of our M&A transactions in each business were of a relatively small scale,and did not go smoothly as a result. We reached the conclusion that, to further increase
profitability as a Group, we should strengthen and invest resources in the Alcoholic
Beverages business, where growth is expected, including through M&A.
In the Restaurants business, the reorganization continued precisely because of the pandemic,
but we truly still have room to concentrate our resources on our strengths in each business.
Currently, the shift toward beer is undergoing after the alcohol tax revision, and it is our best
chance in the battle that is coming after 2026. We wanted to make the best of this opportunity
by any means necessary to further increase our profitability as a Group. Our plan is to shift
our cash allocation from real estate to alcoholic beverages, realize large investments at an
unprecedented scale, and proceed with an offensive management approach to strengthen
the Alcoholic Beverages business where we foresee growth.
Regarding cash allocation
Q5. There is great interest on how you will handle the balance sheet. I think you
mentioned during the earnings briefing given a few days ago that, if real estate assets
were sold, you did not plan to use the gains for capital reduction with share buybacks
for example, but to allocate them to strategic investments in alcoholic beverages.
I think that if you don’t engage in shareholder returns to a certain extent, capitalefficiency will not improve. What are your thoughts on the subject?
A5 We recognize that there was a question regarding our approach to shareholder returns
during the earnings briefing. We answered that we would not be using external capital fromreal estate to conduct share buybacks, but that we would use the cash from real estate torealize growth investments in beer. We are not denying the possibility of share buybacks inthe future.
When we make the kind of announcements we are making today, questions tend to initially
focus on what our plans are for real estate. We intend to define the policy after considering
the overall situation.
Q6. You said that real estate cash would be allocated to overseas M&A in the future,
but real estate assets cannot be sold right away. And good M&A targets are not found3

right away either. I think managing portfolio replacement is becoming increasinglydifficult, but what is your opinion ?
A6 We are not implementing use of external capital from real estate and M&A all at once, butwill consider various options when deciding the right steps. We must always be able toimplement M&A, and are now firmly moving forward with preparations for the preliminary
steps, including initiatives in the current medium-term plan such as the reduction of crossshareholdings. We want to be able to respond as flexibly as possible.
Regarding the future of the Alcoholic Beverages business (Japan)
Q7. In your opinion, how will the domestic premium beer market evolve following therevision of the alcohol tax?
A7 As the effects of the alcohol tax consolidates, beer prices will go down. Some customers
do not think premium beers are expensive. We have the added option of offering a sort ofsuper-premium category. Instead of building up a new brand, we will probably derive one
from our existing brands. We want to think of beer’s price range in a more flexible manner.
New beer products are expected to increase due to the contraction of new categories. This
doesn’t mean that if we release new products they will necessarily sell, because consumers
are not as interested in beer as they were in the past. Eventually, there will be a gradualconsolidation around a limited number of brands. The current market is not open to the point
where a newly created large-scale product would immediately experience growth. We now
have to establish what can be done with existing brands and with closely linked activities,
and from that perspective, increasing the appeal of Black Label and Yebisu is key goingforward.
Q8. What is your target for the core operating profit margin of Alcoholic Beverages(Japan) going forward? Is your blueprint similar to that of your peers?
A8 First, we are working toward solidly achieving the 5.7% target set in our medium-term
plan. We are also considering our next vision after 5.7%, fully aware of our need to improve
even more. While our competition is at 11% to 12%, we are considering our medium- to longterm targets taking into account our presence in the equipment industry.
Q9. What are the areas where profitability improvements are lacking compared to yourcompetitors?
A9 Because of our activities in the equipment industry, the volume gap differs. Increasing
efficiency by reducing SKUs is one way to improve the situation, but volume improvements
are the most effective way to improve profitability. From this perspective, there is still room
for the Company to take on more volume. These past few years, we have been outperforming
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beer’s market growth. We do not know whether getting our core operating profit margin closer
to the 10% of our competitors would lead to linear growth. Profit margin might also temporarily
decline due to the growth investments.
Regarding the future of the Alcoholic Beverages business (Overseas)
Q10. The market has been requesting for real estate cash to be allocated to alcoholic
beverages, but some question whether this can really lead to growth. Competingcompanies are pursuing M&A, but deals are said to be few and far between. Are you
in a position to find good projects? What are your thoughts on the topic?
A10 There are few opportunities for M&A in the domestic market. The shift from new genresand happoshu to beer and the expansion of the RTD, non-alcoholic and low-alcohol markets
are underway. We are investing in these areas of opportunities in the domestic market.
In overseas markets, we think there are still opportunities, despite the consolidation aroundglobal giants. We want to associate with partners compatible with Sapporo brands, rather
than expand our brand portfolio. As a start, we will be looking for projects mainly in the North
America and ASEAN regions, where our manufacturing bases are located. We would like toincrease sales volume in areas where we are already working to spread our brands, andfurther expand the number of bases in other areas. We will not move to acquire
manufacturing bases in a single bound. Specifics will be discussed in the future.
Q11. Do you have criteria for your overseas targets?
A11 I will refrain from making any statement here, as we will discuss our concrete criteria inthe future. Having said this, one criteria is whether or not there are synergies in the value
chain in the North America and ASEAN regions. Projects that cannot generate synergies aregiven a lower priority. Quantitative criteria will be examined in the future.
Q12. What are the key elements concerning your acquisition of market share fromcompeting companies in overseas markets? Please let us know whether you havereceived a positive response from a particular area or approach.
A12 Imported beers are growing in North America, but in the case of Sapporo, growth is not
driven by increasing immigration, as it the case for Corona or Modelo. Some qualitative
research results suggest that the beer is appreciated for its positioning as a beer that goes
well with food. While strengthening such positioning, we are steadily expanding from theJapanese-affiliated market to the rest of the U.S. market. We believe there is one of the paths
to victory.
We want to sell the Sapporo brand in North America, and will join forces with partners who
can make this happen.
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In the ASEAN region, the brand itself is recognized, but distribution is weak. There isdistribution in the areas where Japanese consumers are, but there is still room for growth inother areas. Deciding on how to build a network of agents and distributors will be key.
Q13. How do plan to develop human resources for global expansion?
A13 Global human resource development has been a consistent issue, and we are aware of
the lateness of our response.
Although we have made some efforts for organic growth overseas, we lack human resources
who can plan and execute post-merger integration and comprehensive due diligence in orderto promote M&A in the future. Improvements will be made in terms of both internal
development and external supplementation.
Regarding the governance structure
Q14. What is your policy on the framework for outside directors?
A14 At this time, we believe we have made the best choice in terms of the lineup for the next
general meeting. We will actively incorporate outside knowledge so that we can include theopinions of capital markets and expertise on M&A and global affairs. The same is true for theexecutive team.
Regarding the upcoming schedule
Q15. What is the timeline for the announcement of specific details of the medium- tolong-term policy?
A15 We would like to present them as early as possible. An easy-to-understand timing would
be when we announce our financial results in February 2025, but we would like to keep you
informed as soon as we have something to tell you before that date.

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