Sato Restaurant Systems Co., Ltd.

Financial year ending March 2017 Financial Results Explanatory Material
Listed on TSE 1st Section: Security Code 8163

May 18, 20171

Contents
Summary of Financial Results for theFiscal Year Ending March 2017 andForecast for this TermBusiness Highlights
Unconsolidated Business Results
Operating Profit, Profit/Loss Analysis
Number of Restaurants (Update onRestaurant Openings)
Changes in Business Performance of Existing
Restaurants
M&A (Business Selection)
Labor Problems and Recurrence Prevention
Forecast of Unconsolidated Business Results
for the Fiscal Year Ending March 2018
Profit/loss Analysis for the Fiscal Year Ending
March 2018
New Restaurant Opening Plan for the Fiscal
Year Ending March 2018
Major Policies for the fiscal year ending
March 2018

Mid‐term Business Plans(reviewing and revising)
4567891011121314

Mid‐term Business Plans (Vision)
Restaurant Structure (from diamondshape to trapezoid)
Review of Mid‐term Business Plans asof Now
Revision of Current Mid‐term Business
Plan Values

161718
19

Appendix
Balance Sheet (BS)Cash Flow Statement (CF)Sato Bar Sato Café
Miyamoto Munashi Renovation andNew Products
CHOJIRO

21222324252Summary of Financial Results
for the Fiscal Year Ending March 2017
and Forecast for this Term3

Business Highlights for the Fiscal Year Ending March 2018

♦Net Sales 43,354 million yen, up 8.2% or 3,293 million
from the previous consolidated fiscal year
Revenue increase due to M&A (Net sales of Miyamoto Munashi from September to March:approx.1.9 billion yen)
Revenue increase due to new restaurant openings♦Operating profit 405 million yen, down 25.1% or 136 million yen YOY
Ordinary profit 416 million yen, up 15.3% or 55 million yen YOY
Operating profit declines due to M&A advisory expense of Miyamoto Munashi
Ordinary profit rises due to foreign exchange gains caused by a weak yen since the end of the last year♦

Attributable toshareholders of parentcompany

Net profit▲ Down 234 million yen compared to the previous period,▲ down 240 million yen

Losses incurred by impairment loss of restaurants in operation, investment evaluation loss inoverseas joint ventures, extraordinary losses due to lump‐sum payments to employees with
Sushi‐han share transfer.
4

Unconsolidated Business Resultsfor the Fiscal Year Ending March 2017
Unit: million yen

The First Half of the Fiscal Year

The Second Half of the Fiscal
Year

Throughout the Year

Performance

Change from
Previous Term

Performance

Change from
Previous Term

Performance

Change from
Previous Term

Net Sales

20,291＋586

23,064＋2,70743,354＋3,293

Total Gross Profit(sales ratio)

13,383（66.0）＋422（＋0.2）

15,086（65.4）＋1,849（＋0.4）

28,469（65.7）＋2,272（＋0.3）

Selling, general andadministrative
expenses (salesratio)

13,323（65.7）＋867（＋2.4）

14,739（63.9）＋1,541（△0.9）

28,063（64.7）＋2,408（＋0.7）59▲444346＋308405▲136

Operating profit

Significant decline in the first‐half due to a downturn in sales results of the existing restaurants,
uncontrolled personnel expenses, M&A expenses and others.
The second‐half went into recovery mode due to favorable eat‐all‐you‐want sales at Washoku
Sato, improved sales in existing restaurants and better expense control.
5Profit/loss Analysis on Operating Profit
for the Fiscal Year Ending March 2018
With the elimination of unpaid wages, work environment improvements, rise in labor expenses per worker
and social insurance premiums have caused the significant increases in ordinary personal expenses. Profits
were down due to expenses related to the share acquisition of Minamoto Munashi Co., Ltd.
Unit: million yen

Increase in personnel
Elimination ofunpaid wages expenses vs sales amount460

Decline in Increases
Profitin taxes△410 utilities andincrease
Datadues Outsourci
The Miyamoto
expensesofng
migration Restauran
Munashi effect, DD
expenses expenses t opening subsidiary,△90
expenses FNSAFS expenses, goodwill
130amortization△60 △45 and others△5472△140542405

FY endingMarch 2016

FY endingMarch 2017
6Number of Restaurants (Update on Restaurant Openings)
for the Fiscal Year Ending March 2018
Initially planned number of opening restaurants were not achieved, but 69 restaurants added with the acquisition of
Miyamoto Munashi bring a significant increase in the number of restaurants compared with the previous fiscal year.
Number ofrestaurants at theend of theprevious term

Washoku Sato

New Restaurant openings
Plans

Performance

Restaurantclosures

Number ofrestaurants at theend of the term

201

421202

Santen2225(5)18(1)-40(1)

Sushi-han Shares transferred
April 1, 2017
Meotozenzai

14-

-

1

131-

-

-

1

Nigiri Chojiro/CHOJIRO

53

64-

57

Nigiti Chujiro

6--

-

6

18(17)--

3(3)

15(14)

-

-

-

-

69(7)

28(14)

11(6)

8(5)

-

36(19)

6(5)

-

1

1(1)

6(4)

349(36)46(11)

33(6)

6(4)

445(45)

Miyakobito
Miyamoto Munashi
KatsuyaOverseas restaurants
Group total

Acquired
September 1,2016

Figures within parentheses indicate the number of franchises and branches, or if overseas, joint ventures. 7

Changes in Business Performance of Existing Restaurants
for Fiscal Year Ending March 2017
【Washoku Sato】Pronounced trend toward recovery from 2nd quarter onward. Increase in sales of all‐you‐can‐eat led topositive sales result per customer.
【Nigiri Chojiro】Due to the influence by temperature, the results in the 3rd quarter fell below from the previous year, but theresults in other areas, including sales and customer numbers were stable.
%
110【Washoku Sato】After adjusting for characteristics of day of theweek, change from previous year vs existing restaurant

1Q

2Q

3Q

【Nigiri Chojiro】After adjusting for characteristics of day of the week,% change from previous year vs existing restaurant
110

4Q

100

1Q

2Q

3Q

4Q

100

90
Apr. May Jun.

Jul.

Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar.

Net Sales
Number of customers
Average sales per customer

90
Apr. May Jun.

Jul.

Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar.

Net Sales
Number of customers
Average sales per customer
8M&A Performance for the Fiscal Year Ending March 2017
Promoting optimization of business portfolio through selectivity and concentration on corebusiness
1. Share acquisition of Miyamoto Munashi Co., Ltd. (9/1/2016)◆ Purchase price: 2.4 billion yen◆ Business: Operating 69 restaurants of Meshiya Miyamoto Munashi(chain restaurant for the general public at an average sale of 680 yenper customer)◆ Business size: 3.3 billion yen annual revenue◆ Purpose of acquisition: Enhancing the business serving low‐priced
menu items; opening a business within station‐front shopping districts.
2. Share transfer of inaugural brand, Sushi‐han (April 1st, 2017)◆ Transfer price: 2,520 million yen◆ Transferred to: Umenohana Co., Ltd.
◆ Summary of Sushi‐han : 2 billion yen in annual revenue; 13 restaurants;
Japanese restaurant specializing in hot pot and traditional Japanese dishes◆ Purpose of share transfer: streamlining business through selectivity andconcentration on core business (directing investment toward the growth of thebusiness serving low‐priced menu items)◆ Profit/loss of share transfer: 300 million yen (accounted for fiscal year
ending March 2018)9

Labor Problems and Recurrence Prevention
1. Up to now¾ December 2015 ：Findings by the Osaka Labor Bureau, "Special measures squad against extremeoverwork.”¾ Since December 2015 ：Autonomous internal investigation, creating and following through on recurrence
preventative measures¾ May 2016 ：460 million yen payout to employees for 2 years worth of unpaid overtime wages.
¾ September 29, 2016: Papers sent to the Osaka District Public Prosecutors Office involving our company
and five of our employees.
¾ April 20, 2017 : Trial held and concluded at the Osaka Summary Court (for our company only, fiveemployees were not prosecuted)

2. Revising work style toward recurrence prevention
1) Raising awareness of employees and managerial staff.
Accurate input into attendance system, enlightening through training, visiting top restaurants.
2) Preventing long work hours by reducing/changing assignments.
Shortening work hours (early morning, midnight, idle), re‐considering inventory work
3) Increase workers and reducing work hours per worker
Increase employee addition plan and set budget; strengthening employee, part‐time employment, build asupport system.
4) Improving support system
Set up a help line outside of company.
10Forecast of Unconsolidated Business Results
for the Fiscal Year Ending March 2018
Unit: million yen

Performance for thefiscal year ending
March 2017

Business results forecast
for the fiscal year ending
March 2018

43,35445,000＋1,646

Operating profit

405

1,100＋695

Ordinary profit

416

1,100＋684▲234

450＋684

Net Sales

Net profit attributable toshareholders of parentcompany

Change from
Previous TermBusiness results forecast summary for the fiscal year ending March 2018
[Net sales]
Down 1,900 due to share transfer of Sushi‐han, up 1,450 due to Miyamoto Munashi effect, up
550 due to revenue increase of existing restaurants, up 1,550 from new restaurants.
[Profit]Operating profit rate 2.4% (1.5 points improvement from the previous year), gross profit
margin up 0.4, sales, general and administrative expenses up 1.1.
[New restaurants]
11
New restaurant opening plan: 25 restaurants

Profit/loss Analysis on Net Sales and Operating Profits
for the Fiscal Year Ending March 2018
While maintaining new restaurant openings, we plan on increasing revenues and profits by making
improvements on existing restaurants and controlling costs.
Newrestaurants,etc.

【Net Sales】
Miyamoto
MunashieffectSushi-hansharetransfer

Revenueincrease 1,596
1,400
from
△1,900existing
restauran
45,000ts

550【Operating Profit】

Unit: million yen

Controlonpersonal
expensesProfitincreasedue tosales
increase

Improved
gross
profitmargin200

270

Others

205
Reduction in
expenses related
to the shareacquisition,utilities expenses,
data migrationand others

1,100

20
（－）Sushi-han（＋）Miyamoto Munashi

43,354FY
endingMarch2017

405

FY
endingMarch2018

FY
endingMarch2017

FY
endingMarch122018

New Restaurant Opening Planfor the Fiscal Year Ending March 2018
The number of restaurant openings dropped from 33 in the previous term to 25, focusing on improving existing restaurants
Restaurant
openings during thefiscal year endingMarch 2017

The number of restaurants
as of the end of the fiscal
year ending March 2017

Newrestaurant
opening plan

Plannedclosures

The number ofrestaurants expected asof the end of the fiscal
year ending March 2018

2202

2

3

201

18(1)

40(1)

13(5)

-

53(6)

Sushi‐han April 1, 201713---

Meotozenzai

1--

157

3

159-

6Washoku Sato
SantenShare transfer

Nigiri Chojiro/CHOJIRO

4

Nigiri Chujiro

6

Miyakobito

15(14)--

15(14)

69(7)

1

2

68(7)

8(5)

36(19)

5(3)-41(22)

1

6(4)

1-

7(4)

33(6)

445(45)25(8)6451(53)

Acquisition
Miyamoto Munashi September 1,
2016

KatsuyaOverseas restaurants
Group total

13

Figures within parentheses indicate the number of franchises and branches, or if overseas, joint ventures.

Major Policies for the fiscal year ending March 2018
Main Items

Contents of Measures

Washoku Sato

Introducing “Sato Bar Sato Cafes” system to all restaurants. *see Appendix for details(1) Self‐serve drink bar delivers all‐you‐can‐drink items at affordable prices; incentives for renewed patronage(2) With the refined interior, develop a branding strategy that reveals a whole new Washoku Sato image

２

Santen‐ Full‐time staff will be hired to initiate a full franchise development‐ Reinforcement of Marketing(Launch new product development, while continuing to pursue the 390 yen pricing for Ebi Tendon, rice balls withdeep‐fried prawns)‐ Further strengthening profitability toward multiple restaurant presence

３Nigiri
Chojiro/CHOJIRO‐ Restaurant openings centered around Kansai (firmly maintaining Kansai's top position as a purveyor of gourmetconveyor belt sushi)‐ Opened Chojiro Hozenji branch, becoming the main flagship attraction for tourists. *see Appendix for details.

４

Miyamoto Munashi‐ Complete renovations for a total image (bright and clean restaurant interior, appealing to expanded customerbase)‐ Incorporating higher value‐added new products (better sales per customer, gross profit margins). *see Appendixfor details.

５Katsuya

６

Optimized main
office operations‐ Sushi‐han business transfer makes streamlining possible primarily in the merchandising department (from thesecond‐half).

７

Strengthened
Governance‐ Settlement of corporate governance supervisory department (since April 1, 2017)‐ Transitioning from a company with a board of company auditors to a company with audit and supervisorycommittee (since June 29, 2017)

８

Organization
restructuring‐ Transitioning from a holding company (planned October 1, 2017)‐ Expedited decision‐making due to separation of corporate strategy function from the business execution function.

９Taiwan business‐ Plans for the third restaurant opening (planned for December).

１‐ Continuous restaurant opening in Kansai (direct store, franchises)‐ Increased profitability in existing restaurants

14Mid‐term Business Plans(reviewing and correcting)15

Mid‐term Business Plans Vision
Management Policies

Creating restaurants most trusted by customers
・Vision9 Contributing toward a social infrastructure vital as a 100‐year‐oldcompany
9 Offering beloved Japanese food to the world, and aiming for aleadership role in the food‐service industry as a corporate group.
Changing our restaurant structure to a pyramid shape
Price hedging
Stable managementfoundation

Future shape

HighPrice

Pyramid shape
Fast casual

Number ofrestaurants
16

Restaurant Structure (from diamond shape to house shape)
Broader appeal (fast casual business) due to acquisition of Miyamoto Munashi, Katsuya andSanten restaurant openings.
High
As of now
2 years ago

Price
57

202 (+6 overseas）
Total fastcasual：

145
36

40
69

Low

Number ofrestaurants(Chujiro and Miyakobito 21, Meotozenzai 1)
17Review of Mid‐term Business Plans as of Now
Net sales are as planned for the most part, but ordinary profit declines considerably from thefiscal year ending March of 2016.

✓Results that exceeded plans
Sales of existing
restaurants in corebusinessNet sales of existing Washoku Sato and Nigiri Chojiro
restaurants were better than planned sales.

✓Main obstacles for unachieved plans
Increased personnel
expenses

Expenses for improving work environment, part‐time
employees’ hourly wage increase, social insurance
premium increase, rise in hiring costs.

Delays in new businessRestaurant opening delays in the fast casual business
Overseas business is concentrated in Taiwan

18Correction in Current Mid‐term Business Plan Values
Recovering profitability as a priority in preparing for renewed growth.
Performance for the fiscal year
ending March 2017

Initial mid‐term business plan for thefiscal year ending March 2019

Corrected mid‐term business plan for
the fiscal year ending March 201943.3 billion yen
1.0%
445 restaurants－45.1%

52 billion yen
5.0%
600 restaurants
8.0%
More than 50%

47 billion yen
3.0%
480 restaurants
4.0%
More than 45%

New sales
Ordinary profit ratio
Number of restaurants
ROEEquity ratio
One hundred million yen

InitialPlan Performance

Plan Performance

InitialCorrection

Plan Performance

Correction

Sales

500

InitialPlanPlanPerformance

FY ending March2015

InitialCorrection

FY endingMarch 2016

Performance
FY endingMarch 2017

FY endingMarch 2018

Ordinary Profit

Performance
PlanCorrection

FY endingMarch 201919

Appendix

20Balance Sheet (BS)
Unit: million yen

The end of the fiscal
The end of the fiscal year
year ending March 2016
ending March 2017

Profit/Loss

Current assets

10,765

10,906+141

Fixed assets

17,053

20,449+3,395

Current liabilities7,352

7,592+240

Fixed liabilities

5,936

9,565+3,629

Net assets

14,531

14,284△246

Total assets

27,82031,443+3,622

Increase in fixed assets and liabilities due to M&A of Miyamoto Munashi
21Cash Flow Statement (CF)
Unit: million yen

The end of the fiscal
year ending March2016

The end of the fiscal
year ending March2017

Profit/Loss

Sales activity cash flow

1,261

1,637+375

Investment activity cashflow△1,579△4,332△2,753Financing cash flow

3,246

2,697

△549

Balance of cash and cash
equivalents at the end ofcurrent period

8,616

8,532

△84

Decline in cash flow due to investment activity related to M&A of Miyamoto Munashi
and new restaurant opening
22Sato Bar /Sato Café

◆Sato Bar/Sato Café are the self‐serve drink bar service delivering all‐you‐can‐drink items ataffordable prices.
◆Goal:(1) Using alcohol as an incentive to increase sales and attract more customers(2) Reducing restaurant tasks (such as, serving drinks and alcohol)(3) Improving standards of service (no waiting time, shortening the time of food delivery, etc.)(4) Re‐branding Washoku Sato and its category of businessMiyamoto Munashi Renovation and New Products

 Improving product quality
through SRS's food ingredientprocurement capacity.

 Completed 18 restaurant renovations since
May 18, when the company became SRSGroup.

ＣＨＯＪＩＲＯ※CHOJIRO is an urban brand of Nigiri Chojiro located within a commercial building.

◆Kansai's top gourmet conveyor belt sushi,Nigiri Chojiro/CHOJIRO is very popular among
foreign tourists for its high product quality.
◆At the Shijo Kiyamachi branch located inthe center of Kyoto's bustling shopping
district, the sales amount by foreign tourists
accounts for about 90 percent of the total
sales of this branch.

◆On March 17, 2017, the Hozenji branch opened in
Osaka, Namba, one of Kansai's most famous shopping
districts popular with domestic and foreign tourists.
◆A Hozenji site (English) featuring the Hozenji andMeotozenzai branches and the Mizukake Fudoson waslaunched, and the tourist destination Hozenji Yokocho
Alley (the alleys around Hozenji temple) was promotedoverseas.
25

Contact information
Sato Restaurant Systems Co., Ltd.
Corporate Planning and General Affairs Dept(Natsui, Furube, Ohta)
Tel: 06‐7709‐9977
Email address: 873@sato‐rs.jp

The business performance forecast in this material is based on information that was available at the timeof this presentation. Contained within are many uncertain elements and due to various factors may differ
substantially from the earnings outlook presented. Please understand that your decision to invest in ourcompany is based upon your judgment.

26