Q&A from Teleconference Meeting: Financial Results for 2Q of FY12/2020
Date and Time: August 7 (Fri.), 13:30-15:00
Speakers:
Sapporo Holdings Limited: Masaki Oga (President and Representative Director) andYoshihiro Iwata (Managing Director)
Sapporo Breweries Ltd.: Hideya Takashima (President and Representative Director)

Corporate expenses
Q. Approximately how much of the amount transferred to other operating expenses in thefirst half is attributable to each business? Please provide details.
Iwata: The total amount transferred was 3.4 billion yen, consisting of 2.6 billion yenattributable to the Alcoholic Beverages segment, which breaks down to 1.6 billion yen foralcoholic beverages (Japan/Asia) and 1.0 billion yen for restaurants; 0.4 billion yen
attributable to the Food & Soft Drinks segment, and 0.4 billion yen attributable to the Real
Estate segment. For Ginza Lion, in the restaurants business, the main items are personnel
expenses and rent associated with temporary closure of restaurants. Also, a breakdown of
the combined figure for Sapporo Breweries and Ginza Lion is 0.8 billion yen related topersonnel expenses, 0.5 billion yen related to sales promotion expenses, 0.5 billion yen
related to fixed costs connected with plant operating performance, 0.2 billion yen for
disposal of inventories, and 0.6 billion yen mainly for rent in connection with temporary
closure of facilities.

Q. How will you lower the break-even point on a group-wide basis going forward? You haveindicated that you will proceed with closure of Ginza Lion restaurants. Isn’t the burden of
fixed costs a weakness in areas other than the restaurant business as well?
Iwata: Reflecting the COVID-19 situation, the nature of business travel and meetings ischanging, and work style reforms are contributing to concrete cost control. Also, in therestaurant business we anticipate closure of 30 to 40 restaurants next year in addition to
the closure of 15 this year. Moreover, we implemented a reorganization of Sapporo
Holdings this spring and are transferring the logistics business and other operations tooperating companies in order to boost efficiency. We want to take advantage of the benefitsof this move next year and beyond. With regard to vending machines, we have reduced thenumber of machines from 76,000 at the end of 2019 to 72,000 as of June 30.
Takashima: Although we have strengthened the earnings structure beginning this year
under a three-year plan, it is necessary to further accelerate reforms because of the
COVID-19 crisis. In addition to personnel optimization using the Early Retirement Incentive
Program and other means, we want to convert fixed costs in the restaurant business into
variable costs.

Q. Specifically, what are the areas where you feel costs can still be reduced?
Oga: There are still things we have continued to do in the same way for 30 to 40 years. I
consider it an important outcome that in these times, areas where we can still cut costs
have come into focus.

Alcoholic Beverages (including restaurants)
Q. You mentioned that the restaurant business struggled in the first half and won’t fully
recover even in the second half. What sort of recovery do you envisage for next year?
Taking the core operating profit of 14.0 billion yen in 2019 as the basis for comparison, howmuch of a recovery from the 2020 revised targets do you expect next year? Also, with theliquor tax revision coming up, what areas will be drivers leading up to next year?
Iwata: Although it’s unclear what impact COVID-19 and the liquor tax revision will have in
2021, at this time we expect overall profit from beer and beer-type beverages to beapproximately 92% of the 2019 level, roughly the same as this year. While the tax cut willlead to an increase in demand for beer for household consumption, the negative impact of
COVID-19 on the restaurant business will be substantial. For 2021, we forecast profit frombeer and beer-type beverages at approximately 87% of the 2019 level (approximately106% of the 2020 level); profit from the new genre category at 97% of the 2019 level (95%of the 2020 level); profit from the RTD category at 117% of the 2019 level (104% of the2020 level) due to anticipated outflow from the new genre category; and profit fromcommercial-use products category at approximately 70% of the 2019 level.
Takashima: In the beer sub-category of beer-taste beverages, profit from canned beer iscurrently at 95.3% of the 2019 level, while profit from Sapporo beer is at 99.3%, with BlackLabel, Yebisu, and Sapporo Classic providing a tailwind. There are places where Gold Star
isn’t yet well stocked on store shelves, and we consider this an opportunity. Also, we arerelaunching Mugi to Hop. Since this will be a year of all-out competition for new genre
products beginning at the time of the October 1 liquor tax decrease, we intend to take anaggressive posture. We are making preparations to enable us to secure shelf space going
forward. Also, since there is little room for optimism about the restaurant business, we willstrive to rigorously control costs.

Q. The forecast second-half profit decline of 3.2 billion yen for the restaurant business iseven worse than the 2.1 billion yen decline in the first half. At the same time, you say thatthe topline will recover and you will proceed with store closures. What is your view on thebalance between sales and profit?
Iwata: The impact of losses resulting from the COVID-19 crisis on first-half and second-half
profit is substantial. We transferred 1.0 billion yen to loss in the restaurant business in thefirst half, and since we don’t anticipate these losses to occur in the second half, this will
result in a difference in the balance between sales and profit. We also recorded 0.4 billion
yen in employment adjustment subsidies under other income.

Q. I think restaurant closures will result in short-term cost reduction in the restaurant
business. What will you do to strengthen the business itself?
Oga: The link between beer as a product and restaurants as places to drink beer isimportant. This is no longer an era of competition to have the most outlets. It seems likelythat the approach of opening similar restaurants in multiple locations in central Tokyo will nolonger match people’s lifestyles in the future. Also, it’s not good to operate similar
restaurants nationwide. Eating and drinking are local activities in the first place, and while acertain level of volume is necessary, we will examine and consider what sort of restaurants
are necessary for Sapporo Group. It’s important to create distinctive restaurants like
Sapporo Beer Garden and our Ginza beer halls. Closure of restaurants that lack distinctive
identities is unavoidable. We want to create a new style of eating out, including newrestaurant formats.

Q. Gold Star still isn’t stocked on shelfs at some retailers. How will you improve
distribution? What is the current situation and future outlook?
Takashima: Gold Star has been well received by distribution channels in which it is stocked
as a regular product, and we will make use of this data in sales activities. We will strongly
emphasize in-store promotion over advertising. We intend to proactively secure shelf space
through this approach.

Food & Soft Drinks
Q. You mentioned that the aim of structural reform of POKKA SAPPORO is to achieve
profitability next year. Removal of unprofitable vending machines is an industry-wide trend.
The company could once again go into the red if the situation doesn’t return to how it wasprior to the COVID-19 crisis. Do you have a strategy other than removing machines?
Iwata: In structural reform of the vending machine business, we are steadily proceedingwith removal of unprofitable machines, partially in response to the COVID-19 crisis. With
regard to the business as a whole, we plan to review the organization in autumn. We will
increase the speed of decision-making by simplifying the organization through integration of
the division in charge of vending machines and the over-the-counter sales team, and pushahead with reform.

Q. On the subject of the vending machine business, you mentioned that the number ofmachines was 72,000 as of the end of June. What is the ratio of machines installedindoors? Also, I think that there are locations, such as workplaces, where sales won’t returnto the prior level because of the impact of COVID-19. What is the outlook for the final
number of machines?
Iwata: We are aware that the ratio of machines installed outdoors is higher than for theindustry in general. Before the COVID-19 crisis, the main thrust was to change fromoutdoor to indoor locations. However, since the indoor-outdoor classification has lost
importance due to the impact of telework and other factors, we will proceed while
monitoring the situation. The number of vending machines was 72,000 as of the end ofJune. However, since there will be removals and new installations going forward, I can’t
really provide specific numbers. In general terms, we must consider the bottom 20% or so
as unprofitable machines. Since some new installations offer good prospects for sales,
notably partner company machines, we want to reduce losses by improving quality, notquantity.

Management, investment, and finance
Q. I have a question about the company’s management stance. With the impact of COVID19 expected to be prolonged, what areas will you prioritize going forward?
Oga: We will further strengthen businesses that are supported by customers as strengthsof the company. Two businesses constitute Sapporo’s backbone, namely beer and realestate, and we will clearly define strategies for these businesses. Also, it has become clear
from the impact of COVID-19 that there remains room to further reduce costs. Costs will fallin the beer business, and although total demand may decline, things won’t be worse than
this year. Also, the fact that demand for beer for home consumption is increasing has
convinced me that the beer industry is an industry desired by the public. It is no good ifbusinesses have structures that do not prevent them from immediately falling into the red
when something happens in the business environment. We will carefully manage cash andcosts to be able to clarify whether to discontinue or reform such businesses.

Q. The plan is for capital expenditure to sharply decrease this year. How much capital
expenditure will slip into next year due to the impact of COVID-19? Also, as you manage
Sapporo Holdings going forward, what are your thoughts on investment next year andbeyond and how will you raise the necessary capital resources? Financial liabilities will
increase, and the EBITDA ratio will rise. What about the possibility of a capital increase?
Iwata: We are curbing capital expenditure this year, and the amount that will slip into next
year is approximately 2.0 to 3.0 billion yen. Also, we have laid out the objective of fortifying
our core businesses in the Medium-Term Management Plan, and the focus of investment
will be the alcoholic beverages business, including overseas, the real estate business, andstrengthening of the food business. With regard to the scale of investment, our policy is tofund investment cash flow from operating cash flow. Since operating cash flow isdecreasing this year, we are currently discussing within Sapporo Holdings how to allocate
investment. With EBITDA falling to about 10.0 billion yen this year, the EBITDA ratio will be
about 10. However, we want to quickly restore the EBITDA multiple to 6, the level at theend of last year, by boosting earning power and increasing EBITDA itself.

Real Estate
Q. The occupancy rate of the main properties in the real estate business is 100%. With
demand for offices and other properties fluctuating, what is the outlook? Also, what is thestate of progress with negotiations to find a tenant after the closing of Ebisu Mitsukoshi?
What is the company’s view on the value of Ebisu?
Iwata: We expect no major change in the outlook for this year. However, the occupancy
rate next year and beyond could decline a few percent due to the increase in telework.
Since Ebisu Mitsukoshi will close in February of next year, we are currently in the processof finding a new tenant.
Oga: Looking at real estate as a whole, conditions are difficult for the market forcommercial properties, such as restaurants and retail stores, and I think the rental businessin some areas has been affected. However, there is little competition in Ebisu, and I think
the impact is small. Also, although Ebisu Mitsukoshi will close, since value enhancement
can be expected from revamping Ebisu Garden Place to keep it in step with the times, I
think the real estate business still offers room for growth.