Risk Management

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

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 Corporate Planning, 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

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.

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

1. COVID-19, etc.

Regarding our response to the spread of infectious diseases such as COVID-19, the Sapporo Group continues manufacturing and logistics operations at our business sites in Japan and overseas while taking measures to reduce the risk of infectious diseases in order to carry out our duties to supply customers as a company involved in the manufacture of alcoholic beverages, food and beverage products, and restaurant business.
And, with regard to COVID-19, we have established a system based on new work rules, including the recommendation of telework, in accordance with government guidelines. In the real estate business, we are taking measures to prevent the spread of infection and posting alerts in commercial complexes and office buildings that we manage and operate.
As mentioned above, we are working to prevent the spread of COVID-19 to our employees, customers, and business partners, as well as to cooperate and collaborate with local communities. We will continue to pay close attention to the latest trends and take measures to the utmost of our ability.
When there is prolonged deterioration of the economy due to the spread of infectious diseases such as COVID-19, our financial results and financial conditions may be adversely affected due to factors such as confusion in domestic and overseas supply chains, decline in consumption due to requests to remain at home, lull in the restaurant industry, and sluggish demand for commercia products.

2. 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.
As a result of even more intensified competition in Japan, our business performance and financial condition may be adversely affected.
We are promoting efforts for health and safety with creating an environment where all employees can maximize their individual abilities.
However, our business performance and financial condition might be adversely affected if we are unable to secure and develop a sufficient number of employees necessary for our business activities due to the 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 due to deterioration of a working environment caused by harassment, or other factors.

3. Risks due to climate change

The Sapporo Group is promoting efforts toward the realization of a "Decarbonized Society", "Recycling-Oriented Society", and "society in harmony with nature" under the vision that defines the goal of environmental conservation in sustainability in the newly established "Sapporo Group Environmental Vision 2050".
We also supported the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) in May 2019.
We will continue to work on information disclosure based on the TCFD's recommendations while further strengthening its activities related to environmental conservation.
However, if we are unable to secure major raw materials or necessary water resources due to climate change in the future, we may incur opportunity losses due to shutdown, which may adversely affect our business performance and financial condition.

4. 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 and financial conditions. 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, it may result in situations such as a decline in demand or new expenses for complying with new regulations.

5. Overreliance on a certain business field

At the Sapporo Group, our alcoholic beverage business accounts for approximately 70% of our revenues, and the majority of these revenues come from the Japanese market.
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 being 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 and financial condition might be adversely affected.

6. 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 business activities in Singapore and other countries. In Vietnam, we are selling beers manufactured at our Long An Plant.
We strive to implement appropriate management and support for business operations based on the local business environment in close cooperation with our overseas subsidiaries engaged in business activities, while also working to improve our business management and risk management systems.
However, these overseas business activities of the Group might adversely affect our business performance and financial condition due to factors such as changes in the laws related to investment, trade, tariff, and foreign exchange; differences in business practices; labor-management relations; conflicts; 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.

7. Impact of technological innovation

The Sapporo Group continuously conducts research and development and product proposals based on "palatability" and "health benefits" that can propose value in response to changing customer needs and lifestyles.
However, if unforeseeable changes in the business environment occur due to changes in consumer preferences, technological innovation, legal revisions, and other factors, and our competitive position in the market decreases, our business performance and financial condition might be adversely affected.

8. Food safety

The Sapporo Group has positioned the provision of safe products to customers as a top priority, and has been strengthening our initiatives toward establishing a quality assurance structure such as maintaining mechanisms for risk management and risk communication and conducting awareness-raising activities and training programs for the relevant departments and divisions of our group companies.
However, if a quality problem unique to our group or one related to general products, raw materials, and labeling problems affecting the entire society occurs, a product recall, shipment of defective products, or product liability claims might occur.
In the restaurant business, if food poisoning occurs, we might be ordered to suspend operations for a certain period of time, which may adversely affect our financial results and financial conditions.

9. Safety of 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 thorough audits, and other measures. 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 and financial conditions.

10. 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.
We are taking various measures, such as strengthening information gathering on the latest market conditions, dispersing and diversification of suppliers, maintaining reasonable inventory levels, and exchange contracts.
However, the prices of these raw materials and other supplies may surge, and this may force a rise in selling prices, which may adversely affect our financial results and financial conditions.

11. Risks related to supply chain

The supply chain is an important function in the manufacturing and sales industry of alcoholic beverages and food products, in which the Sapporo Group is mainly doing business. In the domestic logistics environment, it is expected that there will be an expanding shortage of truck drivers and cargo handling workers due to the increase in e-commerce, in addition to a declining workforce due to the declining birthrate and aging population.
Although it is essential that we secure the necessary volume of logistics functions at an appropriate cost to ensure stable business development, our business performance and financial condition may be adversely affected due to cost increases and lost opportunities in the entire supply chain.

12. Business and capital tie-up

As part of our efforts to strengthen our competitiveness toward growth, the Sapporo Group may implement business and capital tie-ups with other companies in Japan and overseas.
In such cases, we conduct detailed due diligence on the financial condition and contractual relationships of the target company and make every effort to avoid possible future losses to the greatest extent possible.
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.

13. Alcohol-related problems

Alcohol has enriched people's lives, but its excessive consumption has been pointed out to have negative effects on health and social aspects.
The Sapporo Group is promoting awareness-raising activities to eradicate inappropriate drinking, such as “drinking under the age of 20”, “drunk-driving”, and “alcohol-related harassment (forced to drink alcohol etc.)”.
However, it is expected that regulations will be tightened worldwide in the future, and consumer demand for alcohol may shrink due to increasing health consciousness, which may adversely affect our business performance and financial condition.

14. Fixed asset impairment

The Sapporo Group uses the impairment accounting principle.
We always make investments carefully in acquisitions, mergers, and capital expenditures that are important and contribute to the improvement of corporate value, in consideration of the business environment and profitability of such investments.
However, 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.

15. Financial liabilities

The Sapporo Group obtains much of the funds needed for various businesses by issuing bonds or borrowing from financial institutions, and is exposed to financial market risks. We raise the funds needed after comprehensively taking into consideration diversification of funding sources, appropriate borrowing periods, and the interest rate environment, etc.
However, 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 and financial conditions.

16. 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.
We have assigned appropriate human resources to the corporate pension fund and monitored its investment status as appropriate.
However, 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.

17. Risk from the occurrence of natural disasters

The Sapporo Group owns business sites in Japan and overseas. We are engaged in continual efforts to mitigate the effects of natural disasters and to ensure business continuity should such situations arise. However, should earthquakes, wind and flood damage, or landslides that far exceed our expectations occur due to large-scale natural disasters or secondary disasters, then the properties and facilities we own may be damaged. A temporary cessation of business and confusion in our distribution networks may result in disruption to our product supply, and if these result in situations such as opportunity losses or losses from the disposal of products, our financial results and financial conditions may be adversely affected.

18. Risks in corporate governance

Under the holding company structure, the Sapporo Holdings is striving to strengthen operational supervisory functions within the Group and to develop and operate internal controls in each Group company. However, if corporate governance or internal controls within the Group become dysfunctional, the Group's performance and financial condition may be adversely affected.

19. Risks related to compliance

The Sapporo Group strives to prevent the occurrence of compliance violations through awareness-raising activities for employees and the strengthening of internal controls. However, if any act that violates laws, regulations, or social demands, such as fraud, criminal acts, and bribery, occurs within the Group, the Group' s business performance and financial condition may be adversely affected. In addition, the company's brand and credibility may also have a negative impact if this is criticized on social media or other media.

20. 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 carrying out 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 and financial condition may be adversely affected.

21. Information security

The Sapporo Group has various systems for business operations and handles a great deal of important information. We have established a multilayered defense and monitoring system to protect against external attacks, and we have also striven to build an appropriate management system for information systems by educating and training our employees through e-learning. However, if any problem such as a falsification of important information or a leak of personal information is caused by a cyberattack or operational trouble, our business operations may be disrupted, which may adversely affect our group's financial results and financial conditions.

22. 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 and financial condition may be adversely affected.

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.

As part of our mission of a food 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 of Group companies.

(1) If a notification or consultation related to a significant food safety or quality assurance issue is received from a customer, employee, or other party, except for insignificant issues, 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 of Sapporo Breweries, which is in charge of the Group’s quality assurance operations. The Quality Assurance Department of Sapporo Breweries 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 safety, 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 of Sapporo Breweries without going through its crisis management organization. When product recalls occur, the Quality Assurance Department of Sapporo Breweries 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.

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.

The Sapporo Group has established the “Severe Disaster Response Rules”, specifying the basic policies we must follow and providing an overview of disaster countermeasures, and is continuously working on formulating a business continuity plan (BCP) in preparation for the occurrence of a severe disaster.

• Group Disaster Response Headquarters: The following matters are addressed as an initial response to a disaster.
  ① Confirm the safety of Group employees and grasp the damage situation.
  ② Grasp the extent of damage of Group sites and buildings.
  ③ Share the information of ① and ② within the Group.
  Group companies will make judgments as to whether or not to activate the BCP, and we will disclose the status of the BCP to the public as needed.
• Group Risk Management Committee: After grasping the extent of damage caused by the disaster, the committee decides whether or not to activate the Group BCP and provides support in case Group companies activate their own BCP.

※ 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 if necessary, based on the actions when a disaster occurs and the subsequent verifications.

1. Activities within the Group
①Maintenance of disaster prevention stockpiles
We maintain a stockpile of disaster reserves necessary for life during disasters, such as emergency food and portable toilets, at all Group sites, and advance efforts in accordance with the policies of each local governments and the business operations of our companies in the event of a disaster.
②Grasping and sharing information on the safety of Group employees and the damage situation (their family members and houses)
We share the information promptly using the Group's standard emergency contact and safety confirmation system (“Emergency Call” provided by Infocom Corporation).
③Grasping and sharing information on the damage situation of buildings and facilities at Group sites
We use a building status reporting system (“BCPortal” provided by Infocom Corporation) for the group to consolidate and share information on the damage situation of all group companies by having each site input its damage situation for buildings and facilities on the Web.
During normal times, training for entering data into both systems is carried out regularly so that we can take quick action in the event of a severe disaster, and we are also reviewing our operations.

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.

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 the content of Group-related information 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.