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Risk Management

Basic Policy on Risk Management

The Sapporo Group has established a structure for managing risks inherent in the decision making and business execution processes that are essential for carrying out its operations.The Group has also set up a crisis management structure for times of emergency. The Group will draw on these structures to put into motion a PDCA cycle.

Sapporo Holdings is working to conduct sound corporate management and improve corporate value in a sustainable manner by strengthening Group-wide risk and crisis management structures. In addition, the Company recognizes the possibility of new risks occurring as it promotes strategies aimed at realizing the Sapporo Group Long-Term Management Vision “SPEED150.” Accordingly, the Company and its subsidiaries are carrying out appropriate risk and crisis management. In particular, the Company is focusing on the following three tasks.

  • Preventing the loss of life and maintaining safety
  • Pursuing quality
  • Thoroughly implementing compliance

Risk Management Structure

The Sapporo Group has built the risk management structure described below in order to properly manage risks of loss

(1) Management of the risks inherent in important decision making or business execution
The risks inherent in important decision making or business execution in the course of management of corporate affairs are to be managed by the Management Council. Management departments such as General Affairs, Finance, and Legal individually analyze the reviews, reported items, and other information in the Management Council for potential risks, and report the results to the Council.

(2) Crisis management
If an emergency situation occurs or a fact that might lead to an emergency situation is discovered that requires crisis management, the Group Risk Management Committee (hereafter referred to as the "GRM Committee"), in cooperation with the risk management organizations of subsidiaries, considers countermeasures including information disclosure and handles the crisis quickly and appropriately.

*Reference:Corporate governance structure

Sapporo Group’s risk management flow (general view)

Sapporo Group’s risk management flow (general view) Sapporo Group’s risk management flow (general view)

Management of the risks inherent in important decision making or business execution

As stipulated in Sapporo Holdings’ Rules for Management Council, Group Management Strategy Council, and Business Strategy Council, decisions on important issues related to management in general and to business execution by group companies first undergo a review in the Management Council, discussion in the Group Management Strategy Council or the like, and are then made by Sapporo Holdings President and CEO. The business execution status of each operating company is also assessed through the Group Management Strategy Council and Business Strategy Council.

Note that risks are assessed and analyzed in these processes as explained below to manage the risk of loss.

  • Before a decision is made on an individual item being reviewed, Sapporo Holdings’ management departments analyze the potential risks and other factors.
  • The risks in the execution status of each operating company is managed using monthly forecasts
  • For Sapporo Holdings’ decision/approvals and items that operating companies must report as required by the rules, Sapporo Holdings management departments analyze the potential risks.

Crisis management

If an emergency situation occurs or a fact is discovered that might lead to an emergency situation, the GRM Committee, in cooperation with as well as risk management organizations of operating companies and subsidiaries, considers countermeasures including information disclosure and handles the crisis quickly and appropriately.
Additionally, the statuses of important issues, such as those reviewed by each company’s risk management organization (e.g., risk management committee), are summarized and reported to the GRM Committee.

Basic flow for reporting and sharing crisis management information within the Sapporo Group

Number of cases handled by each company’s risk management organization

FY 2016 FY 2017 FY 2018 FY 2019
Product/quality-related accidents and recalls 1 1 0 1
Environmental law violation 0 0 0 0
Serious wrongdoing by employee* 0 0 0 0

*Serious wrongdoing refers to serious compliance violations such as bribery and graft

Operational risks, etc

Described below are risks that may affect Sapporo Group’s operating results and financial conditions (including the stock price). Note that the future matters described in the text are based on a judgment made by Sapporo Group as of December 31, 2019.

1. Changes in the economic climate and demographics

Sapporo Group’s sales revenue is affected primarily by economic trends in Japan.Consequently, deterioration in business conditions due to changes in the economic climate may lead to fluctuations in the shipment volume of our main products, declines in the prices of our main products due to a deflationary trend, and a fall in the value of the assets owned by our company. Additionally, our business performance might be adversely affected if we are unable to secure and develop a sufficient number of employees possessing the special skills necessary for our business activities due to a shrinkage in the overall market size caused by Japan’s decreasing birth rate and aging population and the resulting intensification of competition for employees, an increased rate of retirement, or other factors.

2. Overreliance on a certain business field

At the Sapporo Group, our alcoholic beverage business accounts for 66% of our revenues, and the majority of these revenues come from the Japanese market.
In order to shake our overreliance on our domestic alcoholic beverage business, and in order to further increase our profitability, we are trying to expand our business activities in overseas markets.
Nevertheless, we remain highly dependent on our domestic alcoholic beverage business. With demand in the domestic market shrinking, if factors such as price competition with other companies, the phased changes in liquor tax to be implemented from 2020, changes in consumer taste, product price hikes, an unseasonably cool summer, and a prolonged rainy season lead to decreased sales, our business performance might be adversely affected.

3. Overseas business activities

The Sapporo Group is working to increase profit by expanding our business activities in overseas markets, and our international business is focusing especially on the U.S. and Canada.
In Asia, the Group is engaged in beverage and restaurant business activities in Singapore and other countries. In Vietnam, we are selling beers locally manufactured at our Long An Plant.
These overseas business activities of the Group might adversely affect our business performance due to factors such as changes in the laws related to investment, trade, tariff, and foreign exchange; differences in business practices; labor-management relations; terrorism; communicable diseases; and other political, societal, and economic turmoil, in addition to changes in economic conditions, changes in the competitive environment, and fluctuations in the foreign exchange rate.

4. Food safety

The Sapporo Group has been strengthening our initiatives toward establishing a quality assurance structure. However, if a quality problem unique to the Group or one related to general products and raw materials affecting the entire society occurs, a product recall or shipment of defective products might occur. In the restaurant business, if food poisoning occurs, we might be ordered to suspend operation for a certain period of time, which may adversely affect our financial results.

5. Subcontractor-manufactured products and procured products

Some of the Sapporo Group’s products are manufactured by outside subcontractors. We also sell procured products. We take all necessary steps to ensure the quality of subcontractor-manufactured and procured products. However, if a quality problem that is beyond the control of the Group occurs, we may have to suspend sales or recall products, which may adversely affect our financial results.

6. Prices of raw materials and other supplies

The prices of the main raw materials and other supplies the Sapporo Group uses fluctuate according to the commodity market and foreign exchange market conditions. The prices of these raw materials and other supplies may surge and force a rise in selling prices, which may adversely affect our financial results.

7. Capital investment plan, etc.

The Sapporo Group is continuously making capital investment and engaging in system development. However, if a delay from the original plan occurs in the actual schedule, our business performance may be adversely affected by an increase in the amount of estimated investment, for example.

8. Leak of customer information

The Sapporo Group has been strengthening its structure in order to ensure proper management of personal information. However, in the future, if a problem such as a leak of personal information is caused by unforeseeable virus intrusion or unauthorized access to information, a claim for damages or loss of trust in the Group may increase expenses or reduce profit, which may adversely affect our financial results.

9. Credit risk of customers

The Sapporo Group is implementing measures to guard against the credit risk of customers and investments. However, if debt collection becomes impossible due to events such as unexpected bankruptcy, our business performance may be adversely affected.

10. Impact of regulatory requirements

The Sapporo Group is subject to a variety of regulatory requirements of various laws such as the Liquor Tax Law, Food Sanitation Act, environment/recycling-related regulations, and Premiums and Representations Act. It is also subject to the laws and regulations of each country in which the Group does business. Against this backdrop, we are doing our best to preserve our rights through legal procedures. However, new laws and regulations may be enacted in the future, and if the Group becomes subject to these laws and regulations, our business activities may be restricted or new expenses may be incurred, which may adversely affect our financial results. For example, an increase in the liquor tax or excise tax may reduce demand, and if more restrictions are placed on advertisements for liquors including beer and low-malt beer, liquor stores’ operating hours, and liquor-selling locations, factors such as a decline in demand and new expenses for complying with new regulations may adversely affect our financial results.

11. Risk of lawsuits and penalties

The Sapporo Group is striving to reduce the various types of legal violations by promoting compliance through employee education and training when carrying out our business. However, in the course of promoting our business in Japan and overseas, the Group may be sued or assessed a penalty for problems related to the Product Liability Law, Intellectual Property Act, Tax Law, or other laws regardless of whether a legal violation has been committed by a company within the Group or its employee. Furthermore, depending on the situation in which a lawsuit is filed or the outcome of the lawsuit, the Group’s business performance may be adversely affected.

12. Risk of natural disasters and infections

The Sapporo Group owns business sites in Japan and overseas. We are engaged in continual efforts to mitigate the effects of natural disasters and prevent infections, and to ensure business continuity should such situations arise.
However, should conditions arise that far exceed our expectations, then the properties and facilities we own may be damaged, and a temporary cessation of business and confusion in our distribution networks may result in disruption to our product supply.
In the event of an outbreak and spread of infection, it is also likely that restrictions on behavior and a decline in consumer sentiment will result in reduced sales, and may adversely affect our financial results.

13. Financial liabilities

The Sapporo Group obtains much of the funds needed for various businesses by issuing bonds or borrowing from financial institutions, and our financial liabilities account for a large percentage of our total assets (amounting to \227.3 billion, or 36% of total assets as of December 31, 2019 on a consolidated basis). By making large-scale investments in the course of executing a growth strategy, the Group’s financial liabilities might grow further. Additionally, if the market interest rate increases or the Group is downgraded by a rating agency in the future, our interest burden may increase or fund-raising conditions may worsen, adversely affecting the Group’s financial results.

14. Retirement benefit obligation

The Sapporo Group’s employee retirement benefit expenses and obligations are calculated based on the preconditions set for mathematical calculation, such as a discount rate.If there are major changes in the preconditions, such as fluctuations in the fair value of plan assets, interest rate fluctuations, fluctuations in pension assets, they may significantly affect the Group’s business performance and financial condition.

15. Fixed asset impairment

The Sapporo Group uses the impairment accounting principle. In the future, if the fixed assets owned by the Group and the goodwill acquired through corporate mergers are impaired due to declining profitability or plummeting market prices caused by significant deterioration in the business environment, the Group’s business performance and financial condition may be adversely affected.

16. Business and capital tie-up

As part of our efforts to strengthen our competitiveness toward growth in line with our medium-term management plan, the Sapporo Group is promoting business and capital tie-up with other companies in Japan and overseas. However, depending on changes in the market environment or business environment, the results originally assumed may not be achieved. And in some cases, if the business, management, and assets of a partner or invested company deteriorate, the Group’s business performance and financial condition may be adversely affected.

17. Risks in the holding company

Sapporo Holdings Ltd. (hereafter referred to as “the Company”), which represents the Sapporo Group and is listed in stock exchanges, uses as its main revenue sources the brand license fees paid by the business companies it directly owns, as well as a share of the expenses for managing the group and interest received. Additionally, the dividends paid by the operating companies according to their business performance and financial conditions become income for the Company. Consequently, if the operating companies encounter deteriorating financial conditions and are unable to pay dividends to the Company, its business performance may be adversely affected.

Risk Management Structure of Overseas Operating Companies

The Sapporo Group Corporate Code of Conduct has been translated into English and efforts are being made to disseminate it fully to all overseas subsidiaries and their affiliated companies.
Additionally, we have built a structure that can take quick and appropriate actions based on the Sapporo Group Crisis Management Rules, if an emergency situation occurs or a fact is discovered that might lead to an emergency situation.

*Reference: From the English version of the Sapporo Group Corporate Code of Conduct (the beginning part excerpted)

*Reference: From the English version of the Sapporo Group Corporate Code of Conduct (the beginning part excerpted)

Handling of Quality Risks

As part of our mission of a food-manufacturing company, we give highest priority to providing safe products to our customers. We are strengthening our system for eliminating quality risks, by for example providing awareness-raising classes and seminars on risk management and risk communication to all related departments and sections.

(1) If a notification or consultation related to a significant food sanitation or quality assurance issue is received from a customer or employee, the quality assurance section of the involved operating company discusses corrective measures in its crisis management organization (such as a risk management committee) and after investigating the facts, reports the results to the Quality Assurance Department.
The Quality Assurance Division reports the content of what has been reported by the operating company to the Secretariat to the GRM Committee.

(2) For quality assurance issues related to food sanitation, it is extremely important to take rapid and appropriate countermeasures at the early stage of occurrence and to quickly implement them in other departments within the group, as well. Therefore, if an issue is suspected to be serious, the quality assurance section of the operating company must report the issue directly to the Quality Assurance Department without going through its crisis management organization.
When product recalls occur, the Sapporo Group’s Quality Assurance Department swiftly briefs the GRM Committee chairperson or acting chairperson, full-time members of the Audit & Supervisory Board, and the secretariat to the GRM Committee; at the same time, the department seeks to gain an understanding of the operating conditions at the operating company concerned, and provide support to all Group companies that require it.

Product recalls in Japan in 2019

In 2019, there was one product recall across the entire Group.
Some 750ml bottles of Beringer California Chardonnay 2017 imported and sold by Sapporo Breweries were found to contain cloudy liquid as a result of the proliferation of yeast remaining in the bottles. For this reason, Sapporo Breweries discontinued deliveries and voluntarily recalled the product. There were no negative impacts on customer health.
Going forward, Sapporo Breweries will endeavor to improve the level of its quality control, with the aim of preventing any reoccurrence.

Handling of Information Leak Risks

In accordance with the Sapporo Group Corporate Code of Conduct, the Sapporo Group is carrying out proper and secure management of its trade secrets, which are the Group’s assets.

Trade Secret Management Promotion Structure

To oversee and promote the trade secret management activities of the entire Sapporo Group, we are planning to set up the Group Information Protection Committee. We will also set up a promotion secretariat at each operating company in order to promote cross-departmental trade secret management.

Handling of Accidents and Violations

If an accident or violation related to trade secret management occurs, the Sapporo Group will call a meeting of the Group Risk Management Committee and take appropriate actions, with priority given to customer protection and social responsibility

Trade Secret Management

The Sapporo Group considers trade secret management one of its business management tasks, and assesses its trade secrets to properly manage them. We also carry out employee education, as well as management activities such as handling of information security accidents or violations, in order to solidly establish information security management for trade secrets within our organization.

Safety Management of Physical Environment

We have established necessary management requirements, such as crime/disaster-prevention measures and access management/monitoring, for our buildings, offices, and other facilities, in order to ensure the safety of these facilities.

Security Management of Information Systems

To reliably protect and effectively utilize our digitized trade secrets, we have established security management requirements for information systems, including restricting access to electronic data and files, encryption of electronic data and files, and collection and monitoring of access history, as well as countermeasures against malicious programs, in order to ensure the security of our information systems.

Education

The Sapporo Group is continuing to provide education to ensure that everyone in the Group thoroughly understands our internal rules and knows how to handle and manage trade secrets.

Continuous Improvement

As part of continuous business management activities, we ensure that trade secret management is being reliably executed and that necessary improvements are being made.

Countermeasures Assuming Large-scale Disasters

The Sapporo Group has established the Severe Disaster Response Rules, specifying the basic policy that Group companies must follow and providing an overview of the disaster response structure, and is continuing to work on formulating a business continuity plan (BCP).

*The Sapporo Group defines the following as severe disasters:
Earthquakes with an intensity of at least 6 occurring in Japan and accompanying tsunamis. Alternatively, the disasters designated by the Director of the Group Disaster Response Headquarters.

Note that the formulated BCP is revised appropriately to reflect the experience gained from responding to actual disasters.

1. Activities within the Group
We maintain a stockpile of items such as emergency food and drinking water at all Group sites, and have introduced the Group’s standard emergency employee contact and safety confirmation system (“Emergency Call” provided by Infocom Corporation) and a group worksite damage status reporting system (“Initial Response Web Service,” a web-based reporting system provided by NTT Learning Systems Corporation).
When a severe disaster occurs, Emergency Call can be used to register the safety status of employees working at Group sites and their family members.
Additionally, the status of all business sites and stores of the Group is centrally managed by having each site input its damage situation into the Initial Response Web Service. (This service is referred to within the Group as the Disaster Communication Board.)
During normal times, training for entering data into both systems is carried out regularly so that quick action can be taken in the event of a severe disaster.

2. Activities within communities
Sapporo Real Estate, which operates and manages Yebisu Garden Place, has a written agreement with Shibuya Ward for supporting people who are unable to go home during a disaster. Based on this agreement, a disaster drill is conducted regularly inside Yebisu Garden Place for receiving people who are unable to go home in the event of a large-scale earthquake.
Other companies within the Group are also taking steps to contribute to society and their local communities, for example concluding written agreements with local governments, covering supply of goods following a disaster.

Taking into consideration their respective business characteristics, the Sapporo Group’s operating companies (Sapporo Breweries, POKKA SAPPORO Food & Beverage, Sapporo Lion, and Sapporo Real Estate ) are continually engaged in the formulation and modification of BCP.

Three basic policies related to severe disasters (from the Group’s Severe Disaster Response Rules)

Three basic policies related to severe disasters (from the Group’s Severe Disaster Response Rules)

Group’s common emergency employee contact and safety confirmation system (Emergency Call)

Group’s common emergency employee contact and safety confirmation system (Emergency Call)

Site damage status reporting system (Initial Response Web Service)

Site damage status reporting system (Initial Response Web Service)

Handling of social networking systems (SNS)

The Sapporo Group recognizes that if an employee posts an inappropriate comment on the Internet, such as on an SNS, or if information disclosed by a corporation or its handling of customers is improper, the resulting bad reputation can spread widely through the Internet community and ultimately lead to a serious loss of trust of our stakeholders. Therefore, the Group educates its employees on personal use of SNS and has also built a structure that can take proper countermeasures, for example through monitoring information on the web.

  • Education of Group employees
    We are trying to ensure that our employees adhere to the following rules when using an SNS:
    (1) Only deal with public information
    (2) Post comments or submit information at your own responsibility.
    (3) Post comments that are transparent and do not post comments that could be perceived as slandering by other companies or people.
    (4) Respect your own and others’ privacy.
    (5) Do not use SNS for personal matters during working hours.
  • Internet-monitoring structure
    We have set up a dedicated team in Sapporo Holding’s General Affairs Department that monitors whether any Group-related information is posted on the Internet.We also have a subcontractor carry out monitoring during week nights and weekends. We have built a structure that enables sharing of information among the relevant departments/personnel so that appropriate countermeasures can be taken should any incident occur in which Group-related information is spread or goes viral.
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