• Feb 10, 2011 News Releases

• Overview of 2010
• SAPPORO Group Medium-term Management Plan 2011-2012
• Returning profits to shareholders

Overview of 2010

We regarded 2010 as a transitional period for moving from our previous profit consolidation phase, during which we put priority on structural reforms, to a growth phase based on medium-term growth scenarios. Our two basic strategies during that period were to launch our growth strategy and strengthen our existing operations.

These efforts enabled us to boost revenues and profits for the overall Group, as well as boost profitability and enhance our financial base.

1. Progress of basic strategies

(1) Basic strategies

(i)Strengthen existing operations

In each of our business segments, we focused enterprise resources on our brands and other areas of strength, became more adaptable to changes in the operating environment, and continued to build our competitive advantages.

(ii)Launch growth strategy

We embarked on initiatives that will pave the way for future growth to ensure that the SAPPORO Group's total value continues to increase over the medium to long term

(2) Key initiatives and successes in existing businesses

• The Japanese Alcoholic Beverages business posted year-over-year growth in operating income. In the beer and beer-type category, we focused marketing activities on our core products, achieving year-over-year growth in cases sold and an increase in market share. In the wine and spirits category, we booked positive profit for a fourth consecutive year, and our shochu business was profitable for a third straight year.
• The International Alcoholic Beverages business posted higher revenues and profits, excluding upfront investment in Vietnam. Canadian subsidiary SLEEMAN Breweries achieved year-over-year growth in unit sales for a fourth straight year, and SAPPORO USA recorded double-digit unit sales growth.
• The Soft Drinks business achieved year-over-year growth in cases sold, revenues, and profits as it focused resources on core brand products, continued to implement ongoing cost structure reforms, and tapped into synergies with POKKA Corporation. Torrid summer weather also boosted results.
• The Food business performed well. It expanded sales coverage for SAPPORO Potekaru non-fried potato chips to all of Japan (excluding Okinawa Prefecture) and grew sales of its yogurt, desserts, and chilled beverage products by expanding sales channels and achieving further brand penetration.
• The Restaurants business returned to positive operating income in a one-year period. This was the result of various promotional campaigns at existing SAPPORO Lion restaurants and enhanced marketing activities, and also reflected the result of efforts to reform the earnings structure, which included clamping down on costs and closing unprofitable restaurants.
• The Real Estate business booked higher revenue and profits by working to maintain occupancy rates and rent levels at its existing properties and reduce costs while also pursuing growth by acquiring and developing new assets.

(3) Execution of growth strategy

• In December 2009, SAPPORO Group announced its intention to enter the Vietnamese market. We began brewery construction in July (slated for completion in autumn 2011), conducted test–marketing with an eye to full–fledged market entry, and we continued to formulate a marketing strategy and build a distribution network.
• In November, we entered into an alliance with South Korean company Maeil Dairies Co., Ltd., through which we will sell beer in South Korea.
• In November, we entered into a capital and business alliance with dairy goods manufacturer Kyodo Milk Industry Co., Ltd., under which we will cooperate on manufacturing technology, R&D, raw material procurement, and logistics.

2. Strategic investment outlays

Major strategic investments made in 2010 are as follows.

Investments were funded by each business's cash flow as well as a total of ¥23.4 billion realized through the sale of SAPPORO Beer's former Osaka plant site and the Keiyo logistics center.

3. Financial results

In 2010, we achieved growth in both revenues and profits: net sales, operating income, ordinary income, and net income were all up year over year. All businesses achieved operating income growth, excluding the International Alcoholic Beverages business, which lost some ground due to upfront investment in Vietnam. Our ordinary income thus increased for a fourth consecutive year. Our debt-to-equity ratio also improved on an increase in shareholders' equity due to a reduction in financial liabilities and profit growth.

We also strengthened profitability and our financial foundations, further bolstering our ability to successfully execute our growth strategy going forward.

Sapporo Group Management Plan 2010–2012

1. Relationship to Long-term Vision

The SAPPORO Group's New Management Framework (formulated in October 2007) lays out a long-term management policy for enhancing corporate value through group-wide growth.

2. Management Plan 2011–2012's basic strategies

We have designated the new Medium-term Plan's two-year period as a period for solidifying the growth trajectory and will undertake the following three basic strategies.

(1) Basic strategies aimed at solidifying the growth trajectory

(i)Growth in new areas

• We will pursue definitive results and enhance our existence value in new areas identified based on our growth strategy

(ii)Growth in all businesses

• Harnessing the strengths offered by our brands and enterprise resources, we will build unique competitive advantages.

(iii)Bolster management capabilities that underpin growth

• We will bolster our flexible, efficient group management framework to meet the challenges presented by the Group's business domains, which will expand and diversify as we execute our growth strategy

3. Basic investment strategies

We envision a total of ¥63.5 billion (including ordinary annual capital expenditures) in strategic investment in 2011, centered on the acquisition of POKKA Corporation's shares and brewery construction in Vietnam.

We will continue actively making strategic investments toward growth in 2012 and beyond. For 2012 through 2016, we envision strategic investments totaling some ¥150–200 billion (including ordinary capital expenditures).

4. Financial targets

5. Business plans

(1) Japanese Alcoholic Beverages

To achieve sustained growth, we will aim to provide the greatest excitement and joy to customers in the beer, shochu, wine, and RTD (ready-to-drink) sectors while implementing structural reforms and working vigorously to achieve our sales and profit targets.

(i)Strengthening alcoholic beverage marketing

We will endeavor maintain the previous year's momentum and increase sales by winning additional customer support using a select-and-focus approach (selectively focusing resources on key areas).

(a)Enhancing brand power by focusing resources on core products

• We will enhance our presence in the beer and new–genre markets by strategically focusing resources on Yebisu, SAPPORO Draft Beer Black Label, and Mugi to Hop, which account for three-quarters of case sales.

(b)Laying the groundwork for growth in expanding areas

• To lay the groundwork for growth we will offer products that embody SAPPORO's strengths in the non-alcoholic beer market, which we expect to expand in line with market changes, and in the market for RTD beverages, which are highly substitutable for household beers.

(c)Expansion of the wine and shochu sectors

• Over the medium term, we intend to expand our non-beer alcoholic beverages operations, which include RTD beverages, to a scale capable of generating annual operating income of ¥2.0 billion. We will do this by boosting brand power and offering innovative value propositions.

(ii)Strengthening the operating base

• To achieve our financial targets, we will implement management-driven projects to resolve issues, especially with respect to critically important cross-organizational priorities such as cost structure reforms and organizational strengthening.
• In cost structure reforms in particular, our activities will be directed at achieving ¥3.0 billion in cost reductions from 2011 to 2013.

(2) International Alcoholic Beverages

To build our corporate brand and expand the scope of our business activities overseas, we will step up activities and expand into business categories other than alcoholic beverages, making North America and Southeast Asia our top-priority areas. Thus, we aim to shift from “International Alcoholic Beverages business” to “International business”.

(i)Growing our North American business

(a)Marketing strategies

• SLEEMAN will continue to strive for growth above the market average through further investment in marketing of premium brands.
• SAPPORO USA will continue to position itself for additional growth by expanding its focus beyond the Japanese–American community to encompass the wider American and American-Asian markets.

We will also consider mergers, acquisitions, and alliances for further business expansion in the US.

(b) Bolstering production capabilities

• To accommodate future sales growth, we intend to establish an optimal production structure across North America by conducting a review of SLEEMAN's production systems and considering production facilities expansion, consignment production, and M&A activities.

(c) Cost structure reforms

• At SLEEMAN, we will strive for further improvements in product quality and cost efficiency by implementing quality control, process stabilization, and SKU (stock-keeping unit) reduction.

(ii)Expanding into the Asian market

(a)Operations in Vietnam

• In 2011, we will continue brewery construction with completion scheduled for autumn while also strengthening our marketing operations through ongoing test-marketing and development of a distribution network.
• In 2012, we will launch a marketing program that includes media advertising and go into full-swing with sales as we attempt to quickly capture market share and establish the SAPPORO brand in Vietnam.
• We will also endeavor to expand SAPPORO brand sales in countries surrounding Vietnam.

(b)Other business development in Asia

• In Singapore, we will continue to expand our sales channels and enter the household market in cooperation with POKKA Corporation.
• In South Korea, a market that we reentered last year, we will begin full-scale beer sales through the sales network of alliance partner Maeil Dairies Co., Ltd., a major South Korean dairy goods manufacturer.

(iii)Activities to expand the scope of business

While making the alcoholic beverage business our core business, we will continue to pursue activities in new businesses in which we can demonstrate group synergies, including mergers, acquisitions, and alliances.

(3) Soft Drinks

The Soft Drinks business will pursue a growth strategy based on brand-building and undertake measures designed boost its operating margin, under our corporate vision ,“For everyone's smile, we will provide unforgettable taste with infinite passion”

(i)Marketing strategies

(a)Enhancing our brand power

• We intend to strengthen our brand power by concentrating marketing investment and sales efforts on core brand products.
• We will also work to improve our product development infrastructure with an eye to the creation of new high–value–added products.

(ii)Cost structure reforms

(a)Implementing our cost structure reform program

• We will implement cost structure reforms throughout the entire value chain using a select-and-focus approach (selectively focusing resources on key areas).

(4) Restaurants

We will work to invigorate existing restaurants and develop formats differentiated from the competition. We will also undertake cost structure reforms from a medium-term perspective to enable the business to weather economic change.

(i) Positioning for growth

(a)Measures for existing restaurants

• To increase customer traffic, we will continue to conduct promotional campaigns and boost sales activities directed at corporate customers.

(b)New restaurant opening strategy

• In 2011, we plan to open new restaurants totaling around 500 tsubo (approx. 1653 square meters) in size.
• We will roll out the new Yebisu Bar format that takes advantage of synergies with SAPPORO Brewery.

(ii)Cost structure reforms

We will implement cost structure reforms by closing unprofitable restaurants (six closures are planned in 2011) and reducing rent and other fixed costs while at the same time controlling personnel expenses through tighter work-shift management.

(5) Real Estate

We will work to maintain and reinforce our stable profit structure and enhance the value of the SAPPORO Group's properties. We will carefully screen new prospects and acquire only prime properties.

(i)Enhancing the value of our properties

(a)Value enhancement of Yebisu Garden Place

• We will seek to maintain rents at appropriate levels and to maintain and increase the occupancy rate through an increased focus on value and tenant satisfaction.
• We will endeavor to enhance the appeal of the area and increase the number of visitors through shop and restaurant renovation.

(b)Embarking on redevelopment of properties in the Ginza and Ebisu areas

• We will embark on measures to boost future earnings. Specifically, we will begin necessary studies to reconstruct the SAPPORO Ginza Building and the Seiwa Ebisu Building to enhance the value of our prime properties.

(ii) Acquiring new assets

We will continue to carefully screen properties, taking into consideration Group investment priorities and return on investment.

(6) Other Businesses (Food)

We will seek to offer a line of distinctive products and expand profits in the Food business through maximization of intra-group synergies, streamlining, and greater efficiency.

(i)Developing our Food business

(a)Expanding our confectionery business (SAPPORO Fine Foods)

• With regard to the Potekaru range, we intend to expand sales by such means as developing and introducing new products based on new ingredients and new concepts.
• As we develop the product line, we will control costs by using an efficient production system.

(b)Developing our yogurt, dessert, and chilled beverages business (Azumino Food, *Equity method affiliate)

• In addition to increasing sales of existing products, we will aim to develop and launch functional yogurt made using SAPPORO Breweries' lactobacillus, establish the product in the market, and increase sales.

6. Group management strategies

We will bolster our flexible, efficient group management framework to meet the challenges presented by the Group's business domains, which will expand and diversify as we execute our growth strategy.

(1) Review on group headquarters organization

• Our holding company will specialize in planning, financing and auditing for Group growth strategies and we will reorganize a new group headquarters organization in which Sapporo Group Management Ltd. (provisional name) will assume common professional operations in our group.
• We will transmit information on our group timely and fairly, and enhance communication with our shareholders and customers by centralizing functions and organizations for external information concerning IR and internal PR to the holding company.
• We will further consolidate the functions of logistics, purchase and information system and enhance our low-cost operations.

(2) Enhancing human resource development

• We will embark on our human resource development to strengthen ability to implement Group growth strategies and adapt to changes in the business environment.
• We will accelerate people-to-people exchange and diversity of employees in our group, and develop our human resources as our business will be expanded and diversified.
• We will implement a training program for global human resources who will assume international strategies.

7. Business integration with POKKA Corporation

To realize a new food value creation group in which both companies enjoy powerful competitive strength in the alcoholic beverage, soft drink, food, and restaurant sectors in Japan and abroad, we will promptly establish a committee to prepare for business integration and commence discussions in preparation for the launch of a new corporate structure in April of 2012. Discussions will focus on reorganization of the Group's internal business and organizational structure, the management structure and name of the holding company, and other relevant matters.

Because POKKA Corporation will become our consolidated subsidiary, our consolidated earnings forecasts for April and beyond incorporate POKKA Corporation's earnings outlook.

Returning profits to shareholders

1.Basic policy

Providing fair returns to our shareholders is a key management policy of our Group. Our basic policy is to pay stable dividends to the extent permitted by our operating performance and financial condition.

We also aim to maximize corporate value by internally retaining funds to strengthen our financial base and strategically invest in growth businesses in accord with our Management Plan.

2.Dividend policy

We will pay a dividend of ¥7 per share from retained earnings for the year ended December 31, 2010. For 2011, we plan to again pay annual dividends of ¥7 per share by steadily carrying out our Management Plan to enhance earnings while also making strategic investments and strengthening our financial foundation.

We will steadily implement the measures laid out in our Management Plan 2011-2012 to solidify the SAPPORO Group's our growth trajectory and generate dynamic growth.