Sapporo : 3Q (Online Meeting) Q&A

Sapporo Holdings Limited

Q3 Financial Results Briefing for the Fiscal Year Ending December 2023

November 13, 2023

Event Summary

Presentation

Moderator: Hello, investors. Thank you for attending today's briefing on the financial results for Q3 of FY2023 of Sapporo Holdings Limited.

Present today are Mr. Yoshitada Matsude, Managing Director, and Mr. Takayuki Sato, General Manager of Accounting Department of Sapporo Holdings Limited.

Please have the Financial Results, Supplementary Materials to the Financial Results, and Financial Results Presentation PowerPoint presentation at hand. Mr. Matsude and Mr. Sato will begin with a 30-minute overview of the Q3 financial results based on the PowerPoint presentation of the financial results, followed by a question-and-answer session. The entire meeting is expected to last approximately one hour.

First, Mr. Matsude will talk about the summary, and then Mr. Sato will explain the details. Thank you for your cooperation.

Matsude: My name is Matsude from Sapporo Holdings. Thank you for your time today. I will provide a summary of the financial results and the revised forecast.

Please see the summary. Revenue was JPY377.7 billion, up 9% from the previous year, and core operating profit was JPY14.4 billion, up 150% from the previous year. In addition to the strong performance of the alcoholic beverages business, structural reforms have steadily contributed to profits.

In addition, the net income phase, including the loss from the dissolution of Anchor Brewing Company, showed steady progress at a level exceeding the Company's plan. In light of these factors, we have now revised our earnings forecast upward.

Five major topics are listed below. First is the recovery of the commercial market. Beer sales volume for the commercial market continued to recover, with a 24% increase over the previous year and a 56% increase in existing restaurants sales at Sapporo Lion.

Next is the steady growth in the household market. Our mainstay product, Black Label cans, declined 3% from the previous year in January to September, but increased 1% in January to October, progressing about 5 points above total demand.

Sales of RTDs also progressed favorably, with an 18% increase in sales, thanks to solid sales of new products in addition to core products.

It is also growing overseas. Overseas sales volume of the Sapporo brand continued to grow with a 6.5% increase over the previous year.

Finally, the contribution of structural reform effects. The restaurant business posted an increase of JPY2.5 billion in profit from January to September, and the food and soft drinks business also contributed to a steady improvement in profitability with an increase of JPY2.2 billion. In light of these circumstances, the Company has revised its earnings forecast.

An outline is provided. We have revised our revenue forecast upward by 4% from the initial plan to JPY510 billion, and our core operating profit forecast upward by 20% from the initial plan to JPY16.5 billion.

In addition,at the beginning of the year, we have set aside approximately JPY3 billion for restructuring expenses, resulting in a net income forecast of JPY7 billion and a ROE of 4.1%.

I would like to explain the positive and negative factors of sales revenue and core operating profit.

First, sales revenue. Driving the JPY20 billion upward revision were domestic and overseas alcoholic beverages. Domestic alcoholic beverages take into account an increase in sales volume for commercial use, and then additional price revisions, mainly for commercial use. In addition, the foreign exchange forecast for overseas alcoholic beverages has been revised.

Below, the restaurant business expects an increase in existing restaurant sales, the domestic food and soft drinks business expects a decrease in volume due to the reduction of unprofitable SKUs, and the real estate business expects a decrease in equity investments.

Next is core operating profit. The upward revision of JPY3 billion reflects the effects of revenue growth, cost management, and structural reforms in the domestic alcoholic beverages business, the restaurant business, and the domestic food and soft drinks business, respectively.

On the other hand, the negative revision reflects one-off costs incurred by Stone in the overseas alcoholic beverages business and a decrease in equity investments in the real estate business.

The following is a detailed explanation of the financial results. Mr. Sato, General Manager of the Accounting Department, will explain.

Sato: My name is Sato from the Accounting Department of Sapporo Holdings. I will provide an overview of our financial results for Q3 of 2023, and an explanation of how we are promoting management with an awareness of the cost of capital and stock price.

First, let me supplement the financial highlights. In Q3 of this fiscal year, sales revenue increased 9.2% from the previous year to JPY377.7 billion, core operating profit increased approximately 2.5 times to JPY14.4 billion, and net income decreased 42.2% to JPY3.1 billion due to the loss recorded from the dissolution of Anchor Brewing Company.

In addition, the financial targets outlined in the mid-term management plan for overseas sales revenue and growth rate, including the effect of foreign exchange rates, were 24% and EBITDA growth rate was 40.5%, making a good start for the first year of the mid-term management plan.

I will continue explaining external environment affecting our business performance. First, concerning the impact of the new COVID-19, the restaurant market has recovered better than expected at the beginning of this year, and our domestic alcoholic beverages for commercial use have currently recovered to a level exceeding 80% of the 2019 level.

In addition, our directly managed restaurant business has recovered to a level exceeding 100% compared to 2019 on a comparable restaurant basis. As shown in the table, the number of customers is about 90% of the 2019 level, but the price per customer is in the mid-110% range, so total sales are higher than in 2019.

On the right side, the situation of cost increases due to the rising cost of raw materials. The cumulative cost increase through Q3 was JPY10 billion versus the previous year. The annual forecast is JPY14 billion. This is expected to result in a cost increase of JPY1.5 billion, even with respect to the initial plan at the beginning of the year.

However, we have always covered this issue by revising prices, etc., and we will continue to take measures while monitoring the situation.

Financial highlights by business segment. First, look at the table on the left, Revenue from Sales. With the exception of domestic food and soft drinks, sales increased in all businesses. The alcoholic beverages business saw enormousrevenue growth, driven mainly by domestic alcoholic beverages, which benefited from a recovery in the commercial-use market and price revisions, as well as overseas alcoholic beverages, including the newly consolidated Stone and the effect of the yen's depreciation.

In addition, the domestic food and soft drinks business has positioned this year as a year for thorough structural reforms, so although revenue is down, income is up.

Next, on the right side, please see core operating profit. Profits were also driven by the alcoholic beverages business, with significant gains in domestic alcoholic beverages and restaurant business, which both saw significant revenue growth.

The overseas alcoholic beverages business saw a decrease in profit partly due to the impact of integration costs in the U.S., while the real estate business saw a decrease in profit partly due to the impact of air conditioning work at the YGP Tower.

We would like to supplement the sales revenue summary with a waterfall chart.

First, the alcoholic beverages business reported an increase of JPY33.3 billion. Of that amount, domestic alcoholic beverages sales increased 8% to JPY8.3 billion for beer, which is our focus, and sales of RTDs increased 19% to JPY3.2 billion. In addition, subsidiaries including Sapporo Beer Garden also reported a total increase of JPY1.4 billion in revenues.

Overseas sales of alcoholic beverages increased by JPY11 billion due to the effect of Stone, which was newly consolidated from September last year, and by JPY15.2 billion in total, including an increase in sales at Sleeman Breweries.

As for the food and soft drinks business, sales decreased by JPY2.1 billion. Domestic food and soft drinks sales, for which we are implementing structural reforms, decreased by JPY3.9 billion, while overseas beverage sales increased by JPY1.8 billion, including the effect of foreign exchange rates.

In the real estate business, revenue increased by JPY700 million, partly due to the effect of YGP Center Plaza, which was reopened last November.