Integrated Report 2017 - サッポロホールディングス · Value Creation Story The brand...

Integrated Report 2017

SAPPORO HOLDINGS LIMITED

As an intrinsic part of people’s lives,

Sapporo will contribute to

the evolution of creative,

enriching and rewarding lifestyles.

The Sapporo Group strives to

maintain integrity in corporate conduct

that reinforces stakeholder trust

and aims to achieve continuous growth

in corporate value.

Management Philosophy

Fundamental Management Policy

01


Inheriting Aspirations for the Future Alongside Our Stakeholders

H i s torySAPPORO BRAND STORY 01

In 1876, the Sapporo Group marked its founding with the completion

of the Kaitakushi Brewery in Sapporo, Hokkaido Prefecture.

Throughout the over 140 years of history since its founding,

the Sapporo Group has expanded its business domains to

include not only Alcoholic Beverages but also Food, Soft Drinks,

Restaurants, and Real Estate. Through these business domains,

we have contributed to the evolution of enriching and

rewarding lifestyles for our customers in a variety of settings.

02


H i s tory

SAPPORO BRAND STORY

03



SAPPORO BRAND STORY

DialoguesThe history of the Sapporo Group is one made of dialogues

accumulated over time with its customers and other stakeholders.

We have been deeply involved in people’s lives, developing products

and services to please our customers while providing a new eating

and drinking scene that delivers joy and excitement.

02

04


Dialogues

SAPPORO BRAND STORY

05



SAPPORO BRAND STORY 03

The Sapporo Group has acquired insight and understanding

from dialogues with its customers and implemented them

toward innovation and the pursuit of quality. Those aspirations

have crystallized as our many brand assets, which we want to share

with our stakeholders.

Innovation

06


SAPPORO BRAND STORY

Innovation & Quality

07


The Sapporo Group’s Value Creation Story

The brand story we will inherit together with our stakeholders

Strengthening bonds through our brand story

CSR Basic policy P.48

Refining our brands

Business model P.22

P.02–07

Effective use of sustainable natural resources

P.52

Natural capital

Breweries, factories, equipment, and infrastructure indispensable

for manufacturing

P.23

Manufactured capital

A sound financial base and trust from the capital market

P.40

Financial capital

Good relationships with customers and other stakeholders

P.51

Social and relationship

capital

Human capital

Healthy employees who inherit the Sapporo Group’s DNA

P.38

Intellectual capital

Innovative ideas and inspiration

P.36

Our value creation story aims to realize our Management Philosophy–“As an intrinsic part of people’s lives, Sapporo will

contribute to the evolution of creative, enriching and rewarding lifestyles.” This value creation story is drawn from a brand

story based on over 140 years of history that we want to share with our stakeholders.

While boldly pushing forward with a two-pronged approach that focuses on a business model for refining our brands,

which have crystallized through our pursuit of innovation and quality, and our CSR activities, which strengthen bonds

through our brand story, we will work to attain our 2026 Group Vision and create corporate value unique to the Company.

History Dialogue

Innovation & Quality

Crystallization

08


As an intrinsic part of people’s lives,

Sapporo will contribute to the evolution of creative,

enriching and rewarding lifestyles.

Management Philosophy

Value Created by the Sapporo Group

Deliver new products and services by pursuing innovation and quality

Pioneer new markets by refining tangible and intangible brand assets

Contribute to revitalizing communication among customers by providing products and services

Provide “fun,” “joy,” and “vitality for tomorrow” to all stakeholders through business expansion

2026Group Vision

The Sapporo Group will be a company with highly

unique brands in the fields of “Alcoholic Beverages,”

“Food,” and “Soft Drinks” around the world.Food

Alcoholic Beverages

Soft Drinks

The Sapporo Group Long-Term

Management Vision “SPEED150”

P.34

09


2017

2017 Highlights

January February March April May June

Business Operations

Launched Yebisu Hana Miyabi white beer, Yebisu’s first beer using top-fermented yeast

Launched Plus Nyusankin Tonyu Inryo, a soy milk drink using the Group’s unique strain of the plant-based lactic acid bacteria, SBL88

Renovated the Beer Hall Lion Ginza 7-chome

Celebrated 40 years of Sapporo Draft Beer Black Label

Launched Lemon no Genki, a lemon-based drink with a functional food label

PT. POKKA DIMA INTERNATIONAL commenced operations at new factory in Indonesia

Completed construction of N3E4 Project, TDY Sapporo Collaboration, redeveloping the area neighboring the Sapporo Factory

Certified as an Excellent Enterprise of Health and Productivity Management (White 500)

Management

Won Best Poster Award for research on the aroma of Sorachi Ace, a hop variety developed in Japan, at the 36th European Brewery Convention, the third consecutive year of Sapporo Breweries receiving the top prize

November 2016 Announced the Sapporo Group Long-Term Management Vision “SPEED150” and First Medium-Term Management Plan 2020

Celebrated 40 years of operation of POKKA CORPORATION (SINGAPORE) PTE. LTD.

Established Food Technology Laboratories for Value Creation at the Group’s R&D Headquarters

Opened consortium-type (for multiple companies) on-site nursery / day care at Yebisu Garden Place

Celebrated 60 years in the lemon business

10


The Sapporo Group’s Value Creation Story

2017 Highlights

July August September October November December

Introduced limited run of Sapporo Draft Beer Black Label “Black”

Won Food Action Nippon MIP Award for our unsweetened tea series

Opened Anchor Public Taps in San Francisco under ANCHOR BREWING COMPANY, LLC.

Welcomed over 4 million visitors to GINZA PLACE

Introduced AI technology at Company-owned Azuminoikeda Vineyard

Held grand opening of DINING & SKY “TOP of YEBISU” on 38th and 39th floors of Yebisu Garden Place Tower

Began selling Yebisu Beer in Korea

Held the Yebisu Beer Festival

Began joint logistics between the four major beer companies in the eastern area of Hokkaido

Developed 4 Key Promises for CSR materiality

Selected as a member of the SNAM Sustainability Index, used for SNAM sustainable fund management

Formulated the Sapporo Group Health Creation Declaration

Acquired all interests in ANCHOR BREWING COMPANY, LLC. Began Sapporo Breweries Work Style

Improvement 2020

Sapporo Breweries obtained Platinum Kurumin certification from the Ministry of Health, Labour and Welfare

11


Since our founding in 1876, we have put our Management Philosophy as

the cornerstone of our actions as we have helped provide creative, enrich-

ing and rewarding lifestyles not only to Japan, but to the world. Over our

long history, we have engaged our customers and steadily cultivated rela-

tionships with them through dialogue. The Group’s unique brands repre-

sent the assets that have crystallized through this engagement and dialogue.

While further refining our brands through the pursuit of innovation and

quality, we are working to create distinct corporate value by sharing our

aspirations with our stakeholders and strengthening bonds through our

brand story.

Our Long-Term Management Vision “SPEED150” outlines our goals for

2026, 150 years after our founding. This vision positions the “Alcoholic

Beverages,” “Food,” and “Soft Drinks” fields as our core business areas.

Under this vision, we will aim for solid growth through transformation of

our Group management platform in response to changes in the business

environment and by steadily carrying out our global growth strategy.

This integrated report will showcase how the Sapporo Group has

strengthened and cultivated its brands, not only by reciting its history or

explaining how its businesses came about, but also by demonstrating its

distinct value as a group with highly unique brands and by expressing its

direction and intentions toward the future—a future where the Group

plays an indispensable part for society. We hope that our stakeholders will

read this report and evaluate our efforts from all angles.

It is our constant wish for our integrated report to spark dialogues with

our stakeholders. We ask for your continued support and understanding as

we push ahead with business activities aimed at achieving our goals.

June 2018

To Our Stakeholders

We will display the distinct value

of our existence while helping provide

creative, enriching, and rewarding

lifestyles to Japan and the world beyond.

12


Masaki OgaPresident and Representative Director

Tsutomu KamijoChairman and Representative Director

13


Contents The Sapporo Group’s Value System01 Management Philosophy and Fundamental Management Policy

02 Sapporo Brand Story

08 The Sapporo Group’s Value Creation Story

10 2017 Highlights

12 To Our Stakeholders

The Sapporo Group’s Business Model16 Our History

18 Our Businesses

20 Financial and Non-Financial Highlights

22 The Sapporo Group’s Business Model

24 Special Feature 1 Delivering Value Unique to the Sapporo Group by Refining Our Brands

28 Message from the President

The Sapporo Group’s Growth Strategies34 The Sapporo Group Long-Term Management Vision “SPEED150”

36 R&D Strategy

38 Human Resource Strategy

40 Financial Strategy: Message from the Director of Corporate Finance

42 Risk Management

43 Business Strategy

The Sapporo Group’s Stakeholder Management48 Basic CSR Policy

51 Stakeholder Engagement

52 Initiatives Based on Our 4 Key Promises

54 Special Feature 2 Inheriting Aspirations by Strengthening Bonds through Our Brand Story

56 Message from the Chairman

58 Corporate Governance

64 Board of Directors, Audit & Supervisory Board Members, and Group Operating Officers

Results / Results Indicators66 Eleven-Year Summary of Financial and Non-Financial Data

68 Management’s Discussion and Analysis

72 Consolidated Financial Statements

77 List of Group Companies

78 Corporate Data

28

24

54

58

14


Editorial Policy

Information Framework

Forward-Looking StatementsStatements in this integrated report with respect to the Company’s forecasts, perfor-mance or otherwise, are based on the Company’s judgments in light of the latest information available as of the publication of this report and contain potential risks and contingencies. For that reason, please be aware that due to various changing factors, actual results may vary from the forecasts published in this report.

Period CoveredThis report covers the fiscal year ended December 2017 (Jan. 1, 2017–Dec. 31, 2017).However, it may refer to events before or after this period as necessary.

Organizations CoveredSapporo Holdings, Ltd. and Group companies

Referenced Guidelines• International Integrated Reporting Council

(IIRC), The International <IR> Framework• Ministry of Economy, Trade and Industry,

Guidance for Collaborative Value Creation

• GRI (Global Reporting Initiative)Sustainability Reporting Standards (International guidelines on corporate sustainability reporting)

• International Organization for Standardization ISO 26000 (Guidance on social responsibility)

• Ministry of the Environment Environmental Reporting Guidelines 2012

Supported Initiatives• UN Global Compact

The Sapporo Group considers its dialogues with shareholders, investors, and all

other stakeholders to be of the utmost importance. In that vein, and with the goal

of deepening overall understanding of the Group’s economic and social value

through the reporting of our management strategy, business activities, and CSR

activities, we have started publishing an integrated report as of fiscal 2017.

In addition, we have decided to publish a “Communication Book” as a digest

version of the integrated report that will elaborate on the report’s contents.

In doing so, we hope that all stakeholders, including shareholders and other

investors, will understand the Sapporo Group’s vision toward sustainable growth.

June 2018

For more information regarding financial and non-financial matters, please visit the

Company website.

Detailed

Financial

Non-financialDetailedSummarized

• Securities reports• Financial results and Supplementary information• Presentation

materials• Fact Book

Sapporo Holdings has signed the United Nations Global Compact.

Integrated Report

Communication Book

• Corporate Governance Report

• CSR information (website)

15


Established the Kaitakushi Brewery in Sapporo, Hokkaido

Established Japan Beer Brewery Company in Ginza, Tokyo

Started manufacture and sale of CitronThe launch of Citron (soda) marked the Sapporo Group’s entry into the soft drinks business.* Citron was renamed Ribbon Citron

in 1915 due to the launch of a large number of imitation products.

Established Seiwa Real Estate Co., Ltd. (now SAPPORO REAL ESTATE CO., LTD.)Provides real estate services starting from real estate development of former factory sites

Completed construction of Yebisu Garden Place on the former site of SAPPORO BREWERIES’ Yebisu Brewery

Established Kokusai Inryo Co., Ltd., which later became Sapporo Beverage Co., Ltd.

Completed construction of the Sapporo Factory on the former site of SAPPORO BREWERIES’ Sapporo Brewery

1964

1890

19561877

1993 1994

1957

Company name changed to SAPPORO BREWERIES LIMITED

Launched Yebisu Beer

Revival of Sapporo Beer

Launched Sapporo Lager Beer, the first product

Began exporting beer to the United StatesSAPPORO BREWERIES started its overseas expansion with the export of beer to the United States.

Established SAPPORO U.S.A., INC.

1984

Opened YEBISU BEER HALL, Japan’s first beer hall in Ginza, Tokyo

Changed Company name to SAPPORO LION LIMITED

Opened the Beer Hall Lion Ginza 7-chome, now the oldest existing beer hall in Japan

19791934

1876

1887

1964

1909

1899

1988

Our History

16


Japanese

Alcoholic

Beverages

Food & Soft Drinks

Real EstateCompleted construction of Strata Ginza

Made POKKA CORPORATION a wholly owned subsidiary

Entered the soy milk and chilled products business

2006 2012 2017

2011

2006 2014 2016

2013 2015

Entered the shochu business

Completed construction of Ebisu First Square

Opened the Grande Polaire Katsunuma Winery, eyeing the growing market for fine wines

Completed construction of GINZA PLACE

40th anniversary of the launch of Sapporo Draft Beer Black Label

Integrated business with POKKA CORPORATION and started operations as POKKA SAPPORO FOOD & BEVERAGE LTD.

InternationalMade SLEEMAN BREWERIES LTD. into a consolidated subsidiary and focused on strengthening the SLEEMAN brand

2006 2010 20152012

Entered the U.S. soft drinks business andacquired 51% of the shares of SILVER SPRINGS CITRUS, INC., making it a consolidated subsidiary

Made SAPPORO VIETNAM LIMITED into a consolidated subsidiary and expanded business in Southeast Asia

Acquired 51% of the shares of COUNTRY PURE FOODS, INC., making it a consolidated subsidiary

RestaurantsOpened the first YEBISU BAR jointly developed with SAPPORO BREWERIES in the Ginza Corridor district

Made primarily Sapporo-based restaurant operator MARUSHINKAWAMURA INC. into a consolidated subsidiary

2009 2013 2016

Opened the first GINZA LION BEER HALL in Singapore, using the strength of the beer hall format for overseas development

Started operation under a holding company framework

with SAPPORO HOLDINGS LIMITED

as a pure holding company2003

New Business2016: Acquired 51% of the shares of SHINSYU-ICHI MISO CO., LTD., which manufactures and sells miso, instant miso soup, and freeze-dried products, making it a consolidated subsidiary

2016

17


Since 1876, we have been committed to using only the finest raw materials to always pursue new possibilities and to create the high-quality products that embody our drive toward providing joy and enrichment to our customers. Based on our Company slogan, “Bringing more cheer to your ‘Cheers!,’” we have devel-oped a broad range of businesses that are centered on beer prod-ucts and which also include wine and spirits, and continue to propose new products and services in line with our unique value.

Domestically, our business centers on the production and sale of items including lemon-based products, soups, soft drinks, and soy-based products in addition to the operation of café chains. Overseas, we continue to take on challenges ranging from the expansion of POKKA brand drinks from our base in Singapore to the rest of the world, to the promotion of a business model centered on local production in Southeast Asia. With novel ideas, sparks of inspiration, and overflowing passion, we will continue to create products one after another and provide a sense of “deliciousness” in each one.

The Sapporo Group has a business for managing, operating, and developing real estate centered in Ebisu, Sapporo, and Ginza, three locations where the Group has deep roots. Through urban development projects in these areas such as Yebisu Garden Place, Sapporo Factory, and GINZA PLACE, we hope to create and cultivate both “luxurious time” and “luxurious space.”

We have a rich history that extends over a century. The YEBISU BEER HALL was established as the first of its kind in Japan. Our subsequently established beer halls, such as the GINZA LION and YEBISU BAR, and our and other restaurants, run with a Japanese style of service spread the idea of omotenashi through offering our customers a safe, secure, and delicious dining experience in comfortable surroundings.

We promote a growth strategy focused on North America and Southeast Asia and adapted to the characteristics of each specific area. We are currently working to expand our business in North America by leveraging the strengths of our SAPPORO PREMIUM brand, the No. 1 selling Asian beer in the U.S., our SLEEMAN brand in Canada, and our ANCHOR brand, acquired in 2017. In Southeast Asia, Vietnam has seen remarkable growth, and we are continuing to raise the value of the Sapporo brand with our flagship brand, SAPPORO PREMIUM Beer.

Japanese

Alcoholic

Beverages

Food & Soft Drinks

Real Estate

International

Restaurants

Our Businesses Fiscal year ended December 2017

18


Number of Employees

7,902(Consolidated)

187(Parent company)

As of December 31, 2017

Consolidated Subsidiaries

and Equity-Method Affiliates

57(Consolidated subsidiaries)

2(Equity-method affiliates)


Net Sales

¥137.8 billion

Net Sales

¥24.1 billion

Net Sales

¥281.3 billion

EBITDA

¥8.3 billion

EBITDA

¥15.6 billion

EBITDA

¥19.9 billion

Main Brands: Beer and beer-type beverages: Sapporo Draft Beer Black Label, Yebisu Beer, Mugi to Hop, Goku Zero Wine: Grande Polaire, Penfolds Champagne: Taittinger Spirits: Bacardi, Dewar’s

Net Sales

¥29.1 billion

EBITDA

¥0.9 billion

Main Brands: GINZA LION BEER HALL, YEBISU BAR Number of Outlets: 195 in Japan, 13 overseas (As of December 31, 2017)

Main Brands: Soft drinks: Kireto Lemon, Aromax, Gabunomi Soups: Jikkuri Kotokoto Lemon-based products: POKKA Lemon 100 Soy milk: SOYAFARM Cafe chain: Café de Crié Ice cream: BLUE SEAL

Net Sales

¥67.1 billion

EBITDA

¥3.1 billionMain Brands: SAPPORO PREMIUM, SLEEMAN, ANCHOR Main Sales Areas: United States, Canada, Vietnam, South Korea, Australia, Singapore

Main Facilities: Yebisu Garden Place, Sapporo Factory, GINZA PLACEMain Areas: Ebisu, Sapporo, Ginza

● Japanese Alcoholic Beverages ● International ● Food & Soft Drinks ● Restaurants ● Real Estate ● Other* Starting from the fiscal year ending December 31, 2018,

the export business of Sapporo International Inc. has been transferred to Sapporo Breweries Ltd. The figures for fiscal 2017 have been retroactively adjusted to reflect this transfer.

Consolidated Net Sales

¥551.5 billion

(+1.8% YoY)

Consolidated EBITDA

¥44.5 billion(–4.2% YoY)

Fiscal year ended December 2017

Consolidated Net Sales

Consolidated EBITDA

19


Financial and Non-Financial Highlights

Net Sales (Including Liquor Tax) / Operating Margin (Before Goodwill Amortization)*1

Sales increased during fiscal 2017, as they have done continuously since fiscal 2010. However, operating profit declined due to difficult conditions in the overseas soft drink business, among others. As a result, the operating margin edged down 0.9 of a percentage point year on year, to 4.8%.

1413

551,548

4.8%

16 170

100,000

300,000

500,000

400,000

600,000

0

3

1

200,000 2

4

5

6

15

1413

10,977

140.9

16 170

3,000

9,000

6,000

12,000

0

50

100

150

200

15

1413

40

28.4%

16 170

10

20

40

30

50

0

20

10

30

40

50

15

1413

44,558

10.3%

16 170

10,000

20,000

40,000

30,000

50,000

0

8

4

12

16

20

15

1413

10,977

8.9%

16 170

3,000

6,000

9,000

12,000

0

8

4

12

16

15

1413

220,871

1.2

16 170

50,000

100,000

200,000

150,000

250,000

0

2

1

3

4

5

15

Profit Attributable to Owners of Parent / Earnings per Share*4

Profit attributable to owners of parent rose 15.9% year on year, to ¥10.9 billion, due mainly to a gain on sales of investment securities and a gain on sales of property, plant and equipment.

Dividend per Share*5 / Dividend Payout RatioIn fiscal 2017, EPS increased ¥3, to ¥40 per share, with the dividend payout ratio coming to 28.4%. Under the First Medium-Term Management Plan 2020, the Company has adopted a financial target of reaching a dividend payout ratio of around 30%.

EBITDA*2 / EBITDA Margin*3

EBITDA decreased 4.2% year on year, to ¥44.5 billion. As a result, the EBITDA margin was down 0.7 of a percentage point, to 10.3%.

Profit Attributable to Owners of Parent / ROE (Before Goodwill Amortization)

ROE (before amortization of goodwill) edged up 0.5 of a percentage point year on year, to 8.9%, as profit attributable to owners of parent increased for the third year in a row.

Net Financial Liabilities / Net Debt-to-Equity (D/E) RatioNet financial liabilities declined 2.9%, to ¥220.8 billion. Net D/E ratio came to 1.2 times.

Net sales (including liquor tax) Operating margin (before goodwill amortization)

*1 Operating margin = operating profit before amortization of goodwill ÷ net sales excluding liquor tax

Profit attributable to owners of parent Earnings per share*4 On July 1, 2016, the Company carried out a share consolidation at a ratio of 1 share for

5 shares of the Company’s common stock. Accordingly, per share information is presented on a basis that reflects this share consolidation.

Dividend per share Dividend payout ratio*5 On July 1, 2016, the Company carried out a share consolidation at a ratio of 1 share for

5 shares of the Company’s common stock. Accordingly, per share information is presented on a basis that reflects this share consolidation.

EBITDA EBITDA margin*2 EBITDA = Operating profit + depreciation cost + amortization of goodwill*3 EBITDA margin = EBITDA ÷ net sales excluding liquor tax

Profit attributable to owners of parent ROE (before goodwill amortization)

Net financial liabilities Net debt-to-equity (D/E) ratio

Millions of yen %

Millions of yen Yen

Yen %

Millions of yen %

Millions of yen Yen

Millions of yen Times

20


1413

30,004

29,185

11,363

16 170

10,000

20,000

30,000

50,000

40,000

15

44,558

0907 13 17150

1,000

2,000

1,500

2,500

0

30

10500

20

40

50

11

40.0%

1,943

360

1.8%

16 170

100

200

400

300

500

0

0.8

0.4

1.2

1.6

2.0

15

8.1%

135

16 170 0

40

80

160

120

200

4

2

6

8

10

15

Cash Flows from Operating Activities and Status of InvestmentsThe Company used cash provided by operating activities to actively carry out growth investments.

Awards Related to R&D In fiscal 2017, the Company received a total of six awards related to its R&D activities, including the Best Poster Award at the 36 th European Brewery Convention, which it received for the third year in a row.

Recycling Ratio Environment

Since 1998, Sapporo Breweries has achieved a 100% recycling ratio of byproducts and waste that accompany product development at its beer, soft drink, and food product factories. Since 2006, POKKA SAPPORO Food & Beverage has achieved the same accomplishment.

Percentage of Women in Management Positions*7 Human Resources

For its approach to valuing and utilizing diversity of all kinds, the Sapporo Group will work to establish an environment where it is commonplace for women to continue their profession while playing an active role with a high level of engage-ment. In fiscal 2017, the percentage of women in management positions was 8.1%.

Trends in Overseas Beer Sales VolumeThe ratio of overseas beer sales volume to domestic sales volume in 2017 reached 40.0%, an increase of 2.2 times compared with the 18.3% in 2007.

Results of Social Contribution Activities Society

In fiscal 2017, the Sapporo Group spent ¥360 million on social contribution activities, which accounts for 1.8% of the Group’s ordinary income.

Cash flows from operating activities Investment amount*6 Gain on sales of investment securities and gain on sales of property, plant and equipment EBITDA

*6 Investment amount = Cash flows from investing activities + gain on sales of investment securities and gain on sales of property, plant and equipment

Overseas beer sales volume Ratio of overseas beer

Amount spend on social contribution activities Percentage of ordinary income

Number of women in management positions Percentage of women in management positions

*7 Percentage of women in management positions at domestic and overseas Group companies

Millions of yen Millions of yen %

Millions of yen %

Person %

See page 79 for details.

6(2017)

100%

20 consecutive years for SAPPORO BREWERIES12 consecutive years for POKKA SAPPORO

Food & Beverage

(2017)

Alcoholic Beverages, Food, and Soft Drinks

21


Our unique brands represent the crystallization of our history and dialogues as well as our pursuit of

innovation and quality. While cultivating and strengthening these brands by further refining them

through our unique value chain, we will work to sustainably improve corporate value.

The Sapporo Group’s Business Model

A Business Model for Refining Our Brands

Brands

A

B

CD

E

Research & Development

Procurement

DistributionSales

Experience

We position the strengthening and enhancement

of corporate governance as one of our priority

management issues in order to maximize the

sustainability of our business model.

We are working to improve sustainable corpo-

rate value by reinforcing the risk management

structure of the entire Group and conducting

sound corporate management.

Corporate Governance P.58 Risk Management P.42

Value chain for refining our brands

22


Value Chain for Refining Our Brands

Spaces to Experience Our Brand

We provide brand-inspired spaces through the

operation of our much-beloved restaurants,

commercial complexes, and other facilities,

and in doing so grow our brand alongside the

customer.

Raw material procurement / Marketing / Production / Logistics

External research institution

Planning Product development

Planning

Planning and development

Production planning


By way of our Groupwide R&D structure, “Sapporo innovation Labs,” we improve the

value we currently generate and pursue new

value creation while promoting Groupwide col-

laboration and open innovation.

Procurement

As part of our unique efforts to pursue quality for our beer, our fieldman communicate directly with collaborative contract farmers.* We work to

procure safe, reliable, and high-quality raw

materials for our products.

Distribution

Through the development of production methods tailored to product characteristics, we are able to

deliver high-quality goods in a stable manner in

addition to preparing a waste-free supply system

with an appropriate production plan.

Sales

We continue to work toward delivering custom-ers our goods and services via the most optimal points of contact with them, ranging from super-

markets, convenience stores, and restaurants to

specialty stores, Internet sales, and vending

machines.

A

B

C

D

E

Products / Service proposals

Fieldman

Collaborative contract farmers

Distribution

Customers

Brand-inspired spaces

Restaurants Museums Commercial complexes

Planning

Suppliers

Procurement Production

LogisticsProduction

Sales

Flow of information Flow of goods

Production technology development

Marketing

Marketing

Marketing / Business support

Research & development

Distribution Customers

Sapporo innovation Labs

* Refers to a system whereby we carefully select the production area for barley and hops, the two main raw materials for beer, and work closely with growers from cultivation to processing. See page 52 for details.

23


DNA

Delivering Value Unique to the Sapporo Group by Refining Our BrandsThe Sapporo Group is promoting initiatives to refine its brands utilizing its unique value chain. By

expanding its points of contact with customers and deepening the trust-based relationships it has with

them, the Group has acquired the support of a strong fan base and has fostered a love for its brands.

In doing so, the Group has been working to create unique corporate value.

This section introduces examples of how the Group is working to refine three of its distinctive

brands: Sapporo, Yebisu, and POKKA Lemon.

SAPPORO01Topic

The Sapporo brand has inherited rich traditions starting from the establishment of Kaitakushi Brewery

in 1876. By pursuing innovation and quality throughout the entire value chain, the Group is continuing

to increase the number of fans of Sapporo Draft Beer Black Label.

Over 40 Years of Sapporo Draft Beer Black Label —Pursuing Deliciousness with the Aim of Creating the Perfect Draft Beer

Sapporo Draft Beer Black Label was created in 1977 with

an aspiration for letting people enjoy truly delicious draft

beer in the comfort of their own homes, and this desire

remains unchanged to this day. With Sapporo Draft Beer

Black Label, we have continued to be passionate about

offering the deliciousness of draft beer. In raw material

procurement, production methods, and all our efforts for

the brand, we have pursued the creation of the perfect

draft beer that is loved by adults. The perfect balance

between barley and hops gives Sapporo Draft Beer Black

Label a bold and refreshing taste than can be enjoyed

from the first sip to the last.

In addition, the brand makes use of our original fresh-

tasting, long-lasting malt, which we developed from barley

free of components that deteriorate beer flavor, helping

maintain a fresh taste and aroma and realize long-lasting

foam. These are just a few examples of our never-ending

efforts to achieve the ideal level of deliciousness.

Going forward, we will continue to refine Sapporo Draft

Beer Black Label so that an even greater number of adults

can experience the deliciousness of the perfect draft beer.

Special Feature 1

24


Offering High-Quality Worldviews That Embody the Perfect Draft Beer Loved by Adults

We have continued to engage in activities to consistently communicate the appeal of Sapporo

Draft Beer Black Label under the theme of “a draft beer loved by adults.”

In our television advertisements, not only do we highlight the deliciousness of draft beer,

which is one of the brand’s unique strengths, we also promote Sapporo Draft Beer Black Label’s

value as a beer enjoyed by adults with unique value system. In these ways, we are using the

Sapporo Draft Beer Black Label to offer unique worldviews.

Providing Distinctive Drinking Experiences through the Expansion of Brand Contact Points

The Perfect Black Label Beer, a draft beer only available at stores, offers a

delicious taste realized through our aim to perfect the Sapporo Draft Beer

Black Label. As such, we are expanding efforts aimed at having people expe-

rience the appeal of this beer’s unique taste.

To this end, we hold “THE PERFECT DAYS,” “THE PERFECT BAR,” and

“THE PERFECT BEER GARDEN” events that allow adults to experience

The Perfect Black Label Beer at bars and beer gardens in major cities through-

out Japan. At these events, with a firm commitment to offering draft beer of the highest quality, we provide an

environment, atmosphere, and service lineup that are ideal for drinking The Perfect Black Label Beer. In 2018,

we will continue to increase the number of opportunities for people to enjoy the worldview and delicious taste

offered by The Perfect Black Label Beer, including new plans to promote “THE PERFECT STAR WAGON,”

a food car that will provide the beer in a variety of settings.

Communicating the History, Ideas, and Story of Sapporo Beer in the Area of Our Founding

The Sapporo Beer Museum is one of Japan’s only beer museums. The

museum helps communicate the history of Japanese beer that was cre-

ated through the passionate efforts of Japanese brewers. It also conveys

the dedication and commitment to beer that Sapporo Breweries inher-

ited. The Sapporo Beer Museum is a facility located inside Sapporo

Garden Park, together with the Sapporo Beer Garden. The museum’s redbrick interior is reminiscent of

architecture during the Meiji period. In addition, the museum has received the official “Hokkaido

Heritage” designation.

In April 2016, we carried out a comprehensive renovation of the Sapporo Beer Museum, transforming

it into a location that better communicates the passion of Sapporo Breweries to an even greater number

of visitors.

Over its 40-year history, Sapporo Draft Beer

Black Label has continued to realize sales

growth as one of the Sapporo Group’s rep-

resentative brands.

Sapporo Beer Museum

Sales Volume of the Sapporo Draft Beer Black Label Brand (On a cumulative basis compared with the same month of the previous fiscal year)

110%

115%

105%

100%

95%

Jan.2017

Apr.2017

Jul.2017

Oct.2017

Mar.2018

25


YEBISU02Topic

The Yebisu brand, which has embodied the district of Ebisu as a hub of culture and lifestyle for over

100 years, continues its evolution into the future as a beer that is loved by customers.

Proposing New Value with Yebisu Beer

Yebisu Beer illustrates its theme of “More joy today with Yebisu,” promoting value

proposals that drive food culture further by epitomizing both Japanese culture and

the spirit of innovation. At the same time, Yebisu maintains its value as a premium

Japanese beer with a rich history. Through Yebisu, we work to enhance the drinking

experience by complementing the best seasonal foods and occasional special events

as well as by bringing a little more joy to any special day, including not only New

Year’s, Mother’s Day, and Father’s Day but also any other special occasion.

In March 2017, we introduced our first white beer under the Yebisu brand,

Yebisu Hana Miyabi. To achieve a flavor befitting the Yebisu name, we selected a

top-fermented yeast from over 1000 strains to create a fruity taste with authentic

richness (“KOKU”) that enjoys the support of a new customer base.

Furthermore, The Yebisu Beer Museum, located in the birthplace of Yebisu Beer, is regularly

bustling with local and international visitors. With an “All-things-Yebisu” concept, the museum is

a space where its many visitors can experience the Yebisu brand and understand the Yebisu worldview

through sight, touch, and taste. We hope to bring visitors back again and inspire them to spread the

good word about Yebisu.

Enjoying a “Luxurious Time” and “Luxurious Space” at Yebisu Garden Place

Yebisu Garden Place celebrated its 20th anniversary in

2014, born as a pioneer integrated urban area in 1994, in

tandem with the relocation of Yebisu Brewery. We have also

unveiled a new brand message, “Ebisu, a city on the grow.”

To become such a “city,” we aim to increase brand strength

and user-friendliness and are promoting various measures

to increase value. In 2017, we opened a consortium-style

(serving multiple companies) in-house childcare center and

renovated the food and drinks floor. In addition, Sapporo

Real Estate established an urban development department

at its main office in order to promote

urban development in the Ebisu area—

with which we have a deep relation-

ship—that forms connections within the

area and contributes to people’s lives.

Number of Visitors to The Yebisu Beer MuseumSince the grand reopening of The Yebisu Beer Museum in 2010, an aggregate total of 1.8 million visitors have experienced the worldview of the Yebisu brand.

P r ide

Yebisu Garden Place13 14 15 16 17

260,000

240,000

220,000

200,000

0

250,000 people

Special Feature 1

26


03Topic

POKKA Lemon was first launched in 1957 as a lemon product used in cocktails at standing bars.

Since then, supported by the rise in popularity of Western cuisine, POKKA Lemon has received customer

approval as a lemon product that can be used easily at home. Over the years, we have pursued product

development for POKKA Lemon that caters to the changing times, including promoting a variety of uses

for lemons and increasing variation in product containers and volume. In these ways, POKKA Lemon

has continued to grow over the course of 60 years as one of our long-selling products.

Proposing Comprehensive Lemon-Based Eating Habits in Celebration of the 60-Year Anniversary of the Lemon Business

2017 marked the 60th year since the launch of POKKA Lemon. Over this time, the product has continued

to be a major part of the eating habits of people. In addition to promoting POKKA Lemon in a supporting

role on the dinner table as a dressing for food, we have introduced a wide variety of recipes using the

product that take full advantage of the delicious taste of lemons, thereby proposing lemon-based eating

habits to people. Furthermore, we have communicated information on the health benefits offered by lemons

themselves and how they can contribute to the healthy eating habits of people. For children, who are the

next generation, we have hosted lectures and nutritional seminars where children can learn about the

various health benefits of lemons through experiments and various hands-on

activities. In doing so, we have created opportunities for children to become

more familiar with lemons.

In addition, in Nagoya and Ebisu, we open the lemon antenna shop Lemon

Healthy Stand for a limited period during the summer where people can

experience the deliciousness of lemons in comfort. At this shop, we offer an

extensive menu of healthy food and drinks that let people fully enjoy lemons.

Thoroughly Researching Lemons as a Pioneer in the Lemon Business

POKKA SAPPORO Food & Bevarage has spent many years engaged in research on lemons, analyzing the

various health benefits of lemons and communicating relevant information on them. During 2017, in the

lemon-producing area of Osakikamijima Town, Hiroshima Prefecture, we conducted a fact-finding survey on

the health benefits received from consuming lemons on a daily basis. In addition, we carried out a cultivation

test utilizing information and communication technologies

in an effort to support domestic lemon production. Through

these means, we are promoting a broad range of research

with the aim of becoming lemon professionals.

Offering Another Lemon Brand: Kireto Lemon

In 2001, we launched Kireto Lemon, a drink that allows

customers to easily enjoy the health benefits of lemons. This

product is the result of our years of research on lemon-

based materials and of our constant pursuit of

deliciousness. Positioning Kireto Lemon as a core brand

alongside POKKA Lemon, the brand is currently helping

drive growth in the lemon business of POKKA SAPPORO.

Insp i ra t ionPOKKA LEMON

Lemon Healthy Stand

Sales Volume of POKKA Lemon By creating lemon-related value in the food market, we have been working to expand the market since the launch of POKKA Lemon.

5,000 kl

4,000 kl

3,000 kl

2,000 kl

1,000 kl

1974 1980 1990 2000 2010 2017

Note: From 1974 to 2011, totals are calculated using the period from April to March of the following year. From 2012 to 2017, totals are calculated using the period from January to December of the same year.

27


Masaki OgaPresident and Representative Director

We aim to realize solid growth as a company

with highly unique brands. To this end, we will

develop appealing products and services on a global

basis in the business fields of “Alcoholic Beverages,”

“Food,” and “Soft Drinks” as we boldly aim to

realize growth by expanding the points of

contact with our customers.

Message from the President

28


Delivering Unique Value by Refining Our Brands

Our brands represent the crystallization of the aspira-

tions we would like to share with our stakeholders—

aspirations fostered through the dialogues and

trust-based relationships we have established with

them over many years. Guided by these aspirations,

we are pushing forward with a two-pronged approach

that revolves around a business model for refining our

brands and CSR activities that strengthen bonds with

our stakeholders through our brand story while work-

ing to create distinctive corporate value. Refining our

brands means constantly moving ahead with new

ideas without entering into a repetitive cycle. By con-

tinuously working to refine our brands, we will create

value unique to the Sapporo Group.

There are three major aspects behind the unique

value the Sapporo Group offers. The first aspect is our

relentless efforts to enhance the value of deliciousness

as a food manufacturer that designates “Alcoholic

Beverages,” “Food,” and “Soft Drinks” as its core busi-

ness areas. In the case of Sapporo Draft Beer Black

Label, we remain committed to finding ways to offer

customers a beer that maintains the consistent quality

and delicious taste of draft beer fresh from the tap.

Going forward, we will identify ways to further enhance

the taste of Sapporo Draft Beer Black Label, taking into

account a variety of viewpoints, including improve-

ments to the production process, the bolstering of raw

material procurement and distribution, and the creation

of various settings and scenes in which customers can

enjoy the product. The second aspect is identifying, envi-

sioning, and materializing the kind of value that brings

joy to our customers—specifically, convenience, simplic-

ity, and sensibility—and delivering that value to them

through our products and services. To this end, we will

actively provide value that caters specially to each cus-

tomer. The third aspect is the absolutely essential value

of providing safe and secure products of high quality as

a food manufacturer. For example, we are promoting a

Collaborative Contract Farming System to ensure that

our raw materials are safe, secure, and of high quality.

We are also enhancing the traceability of the raw mate-

rials we use. Furthermore, we are implementing produc-

tion management that uses highly sophisticated analysis

technologies developed in our research and development

departments and are closely studying the flavor compo-

nents of our end products. These kinds of efforts reflect

our commitment to quality at every stage of product

development, from procuring raw materials up until the

product reaches our customers, and we will further

enhance the quality of our products going forward.

Supported by these three major aspects behind the

unique value we deliver, we will continue to refine our

highly distinctive brands while focusing on ensuring

originality, which involves creating products and services

that other companies cannot imitate; relevancy, which

means catering to the tastes and needs of the modern-

day consumer; and continuity, which entails building

trust by continuing to push forward with new ideas.

Sharing Aspirations with Our Stakeholders by Strengthening Bonds through Our Brand Story

Since its founding, the Sapporo Group has remained

committed to manufacturing. At the same time, the

Group has conducted its business operations with a

constant awareness of the connections and relation-

ships it has with various regions, including Sapporo,

Ebisu, Ginza, and Nagoya, which are also major con-

tact points with customers. Specifically, we have proac-

tively contributed to urban development in areas such

as Sapporo and Ebisu, which has helped us cultivate

and strengthen a broad range of distinctive brands. We

are extremely proud of such efforts, the likes of which

are not commonly pursued by other companies.

Furthermore, at the heart of these efforts are the aspira-

tions we wish to share with our stakeholders by

strengthening bonds through our original brand story.

To turn our aspirations into a reality, we have

adopted the enhancement of corporate communication

as a theme of the Sapporo Group Long-Term

Management Vision “SPEED150.” We have also identi-

fied our CSR priority issues and organized them by

field to help determine the 4 Promises of “Contributing

to Creative, Enriching and Rewarding Lifestyles

Through Alcoholic Beverages, Food, and Soft drinks,”

“Promoting Coexistence with Society,” “Promoting

Environmental Conservation,” and “Cultivating Highly

Unique Employees.” We are providing products and

29


services and conducting business activities that relate

closely to the Sustainable Development Goals (SDGs),

which were adopted at a UN Summit in 2015.

Referencing the SDGs, we have determined medium- to

long-term targets aimed at resolving our CSR priority

issues. By pursuing these efforts while working to

enhance our corporate governance, which provides the

foundation for all our businesses, we will contribute to

the realization of the SDGS and will develop brands

and earn trust that will provide the source for growth

going forward.

In particular, from the perspective of environmental

conservation, we use all-natural materials throughout

the beer production process and when we put the

finishing touches on our products. Additionally, we

recycle all of the product containers we use, such as

bottles, cans, and barrels. We also conduct advanced

initiatives geared toward the environment, including

the use of sophisticated water processing technologies.

Going forward, we will continue to contribute to the

resolution of environmental issues from perspectives

unique to the Company and take steps to communi-

cate these issues to the world.

Moreover, while we understand the importance of

continuing an aggressive approach with our growth

strategies, we also recognize the need to remain defen-

sive in some aspects. As such, we will constantly con-

sider not only business risks but also natural disasters

and other risks that will inevitably inflict damage

upon us and begin systematically managing and

responding to such risks.

Through these initiatives, we will strengthen bonds

through our brand story well into the future.

Aiming for the Best Way to Realize Growth for the Sapporo Group and an Ideal Approach to Growth Strategies

Under the First Medium-Term Management Plan 2020,

we aim to transition to a new growth stage based on

the theme of “Transform with Unprecedented Speed.”

In addition to realizing continuous growth in our exist-

ing businesses, we are undertaking initiatives to accel-

erate our expansion in the “Food” field, capitalize on

growth opportunities geared toward business global-

ization, and strengthen our earnings structure. Also, we

are taking steps to establish an R&D structure that

will drive our growth as a food manufacturer.

Furthermore, by making a bold shift to allocating

human resources to growth fields, we are accelerating

the pace of efforts to strengthen the Group’s manage-

ment foundation in response to the changes occurring

in the business environment. Going forward, we will

generate cash flows by strengthening our fundamental

functions, realizing continuous growth in our existing

businesses, and producing results in the investment

business. Meanwhile, we will pick up the pace for

growth by carrying out proactive investments totaling

¥130.0 billion in our core business areas of “Alcoholic

Beverages,” “Food,” and “Soft Drinks” over the four-

year period from 2017 through 2020.

Recognizing and Responding to the Business Environment

Consumption trends in Japan are by no means favor-

able, and we find ourselves in a fairly challenging busi-

ness environment. With that said, there is no

question that many of the domains in which we are


By pursuing efforts under the

4 Promises, we will develop brands and

earn trust that will become the source of

our business growth going forward.

30


involved are growing, including alcoholic beverages

such as ready-to-drink (RTD) beverages and wine.

Amid the changes occurring in consumer tastes and

needs and in the market overall, we will move forward

with comprehensive initiatives in the core business

areas of “Alcoholic Beverages,” “Food,” and “Soft

Drinks” while putting in place a structure that will

allow these businesses and our other businesses, includ-

ing our overseas and real estate businesses, to mutually

complement each other. These initiatives will help us

realize steady growth as we ascertain areas on which

the Company should focus its efforts, keeping in mind

the significance of building on our existing brands.

Accelerating Expansion in the “Food” FieldOver the past 10 years, we have taken great steps to

expand our business domains, including making an

entrance into the food business through the acquisi-

tion of POKKA CORPORATION. To further expand

in the “Food” field going forward, we will promote

efforts centered on developing a strong connection

and relationship between the food business and our

existing businesses and technologies as well as on

aligning the food business with our Management

Philosophy. As part of our expansion efforts, we

acquired SHINSYU-ICHI MISO CO., LTD. (formerly

MIYASAKA JOZO CO., LTD.), a company involved

in the manufacture and sale of miso and instant miso

soup, in 2016. As the main ingredient in miso is soy-

beans, Shinsyu-Ichi Miso has a high level of affinity

with the soy milk and yogurt businesses of the Group

company POKKA SAPPORO Food & Beverage from

the perspective of raw materials. Additionally, with its

miso soup products, Shinsyu-Ichi Miso is also highly

familiar with the soup business of POKKA SAPPORO

Food & Beverage. As such, we will work to generate

synergies with Shinsyu-Ichi Miso as we continue to

expand in the “Food” field going forward.

Meanwhile, in growing our “Food” fields, we will

not only work to expand the range of products we

offer, we will also make rigorous efforts to deepen

and enhance each individual field, including overseas

expansion. We are a food manufacturer with beer as

our mother business. As such, we have been involved

in various other alcoholic beverage businesses that

derive from our beer business. Furthermore, we have

expanded into peripheral domains such as soft drinks,

soups, and lemon-based products. In all of our existing

businesses, we see the potential for growth if we are

able to expand overseas and will therefore work to

develop food businesses overseas as well.

Expanding Our Overseas Businesses as a Growth Driver

As we pursue efforts to expand in the “Food” field,

we are also actively promoting the development of

businesses overseas, centered on North America and

Southeast Asia. In doing so, we have been steadily

establishing a presence as a global food manufacturer.

In particular, our overseas beer business has experi-

enced remarkable growth, with the ratio of overseas

We will establish even higher and more

meaningful targets, including aiming to

enter the top-10 ranking for imported

beers in America, and steadily take steps

to accomplish these targets.

31


beer sales volume to domestic beer sales volume

increasing 2.2 times from 18.3% in 2007 to 40.0%

today. With that said, we believe there is a great deal of

growth potential upon which we have yet to capitalize

in our overseas businesses, and we intend to continue

to grow these businesses as a major growth driver.

Specifically, we will enhance the presence of the

Sapporo brand primarily in North America and

Southeast Asia while also working to heighten aware-

ness of the brand. In addition to Sleeman Breweries,

which continues to perform strongly, our North

American businesses include Sapporo U.S.A. and

Anchor Brewing Company, and we are greatly looking

forward to seeing just how far we can leverage these

companies to expand our presence in the region.

Sapporo has already become the top-selling Japanese

beer and the top-selling Asian beer in North America.

However, given the sheer size of the North American

beer market, we cannot be completely satisfied with

these results. As such, we will establish even higher

and more meaningful targets, including aiming to enter

the top-10 ranking for imported beers in America, and

steadily attempt to accomplish these targets.

Meanwhile, an urgent task for us is to promptly

return to profitability after recording a deficit in the

Vietnam business and other businesses. To this end, we

will rigorously enhance the function of our business in

the region with the aim of rapidly realizing investment

returns.

Also, as collaboration with other companies that

possess prominent brands is one way to effectively

reduce the amount of time it will take us to realize

business expansion, we accordingly keep this option

on the table. For potential M&A projects, we carry

out comprehensive examinations from a brand-based

viewpoint as well as from the perspectives of the

regions in which we operate. From a regional perspec-

tive, while our focus is on North America and

Southeast Asia, the main factor in deciding an M&A

is whether or not it can generate mutual synergies

with our existing businesses and Group companies.

With respect to brands, a major factor is considering

how a particular brand will be received and supported

by our customers. We also give thorough consider-

ation to the conditions in each country and region and

to the negative aspects of pursuing M&A. These steps

reflect how we make investment decisions based on a

comprehensive list of factors.

Turning Global Movements and Trends into Growth Opportunities for the Company

As our fundamental approach, we aim to be a com-

pany that is constantly aware of the changes and

trends that are occurring around the world. From

a diversity standpoint, while previously most of our

employees were men, the percentage of women is

dramatically increasing today, particularly among new

and young employees. Although the current percent-

age of women in management positions is still not

quite sufficient, we believe that opportunities will

The strong push for encouraging

diversity around the world is a trend that

we can turn into a growth opportunity,

and we are therefore pursuing

wholehearted efforts to promote

diversity on a Groupwide basis.


32


significantly increase for women to play an active role

going forward. The strong push for encouraging diver-

sity around the world is a trend that we can turn into

a growth opportunity, and we are therefore pursuing

wholehearted efforts to promote diversity on a

Groupwide basis. These efforts are exemplified in the

composition of the Company’s Board of Directors, as

in 2016 we took the lead over other companies in the

industry and appointed a woman as an internal direc-

tor. In 2018, we appointed a non-Japanese person as

an outside director, thereby further deepening our

efforts toward diversity from a global perspective. In

the years ahead, we will continue to accelerate initia-

tives aimed at encouraging diversity and promoting

globalization.

In a manner similar to how we are turning global

trends into growth opportunities, we are constantly

aware of social movements in regard to corporate

governance, working to enhance and bolster our cor-

porate governance as a listed company in accordance

with each principle of the Corporate Governance

Code. As we pursue such efforts, we place high expec-

tations on our outside directors, as they offer original

perspectives and possess expertise in fields that differ

from those in which we are involved. We believe the

straightforward opinions, suggestions, and advice that

the outside directors offer us are extremely valuable.

While closely observing our management processes

and the evolution of our management itself, the outside

directors have emphasized to us the importance and

necessity of further deepening the relationships we

have with our customers based on our long-cultivated

brands. Looking ahead, we will leverage the

perspectives of the outside directors in a highly

constructive manner as we work to improve the

effectiveness of the Board of Directors.

Becoming a Highly Unique Corporate Group with Highly Unique Employees

We aim to be a company with highly unique brands,

which entails both leveraging the special characteris-

tics of each Group company and allowing all Group

employees to fully draw upon their own uniqueness.

Doing so will ultimately enable us to realize the kind

of brands we seek to create. Not only will we refine

our brands by turning to our products and services for

inspiration, we will also promote Groupwide efforts

to refine our brands from the perspective of people to

truly enhance the value that our brands offer.

To this end, we will make sure that our employees

have the proper mind-set for achieving success within

a fiercely competitive business environment and will

work to play the role that Sapporo needs to fulfill as

a listed company, including in terms of compliance.

As a starting point for ensuring that our employees

are enjoying their work, we will work to have them

develop an affection for our products and services.

Additionally, we will establish a workplace environ-

ment that lets employees make full use of their indi-

viduality and skills. In doing so, we will provide

organizational support that enables our employees to

work proactively toward achieving their individual

goals. As president of the Company, I will clearly

identify the hurdles we must overcome to achieve our

vision. At the same time, I will take steps to ensure

that the necessity of overcoming such hurdles is fully

recognized Groupwide by communicating that neces-

sity in a manner that all Group employees can easily

understand.

June 2018

Masaki Oga

President and Representative Director

Not only will we refine our brands

by turning to our products and services

for inspiration, we will also promote

Groupwide efforts to refine our brands from

the perspective of people to truly enhance

the value that our brands offer.

33


The Sapporo Group Long-Term Management Vision “SPEED150”

Action Guidelines

1. Make customers lifestyle around world more fulfill by creating new value through the pursuit of innovation and quality.

2. Strive to provide products and services and to nurture brands that foster communication among customers.

3. Practice efficient management in tandem with addressing changes in the environment.

Three Major Strategic Themes1 Establish Robust Profitability in the Japanese Alcoholic Beverages and

Soft Drinks Businesses In the Japanese Alcoholic Beverages business, the Group will strengthen brands in

the beer business and nurture the wine business. In the Soft Drinks business, the

Group will strategically shift to a profitable structure and expand overseas busi-

ness. Through these measures, robust profitability will be established to drive the

growth of the entire Group.

2 Accelerate Growth in the “Food” FieldWe will broadly increase the presence of the Sapporo Group in the “Food” field by

strengthening existing businesses and entering new businesses through the provi-

sion of deliciousness, enjoyment, and fulfillment to all dining settings.

3 Promote Global Business ExpansionWe will increase the Group’s presence globally by strengthening the global manage-

ment platform as the Group’s growth driver and promoting the expansion of exist-

ing businesses and such new business development initiatives as M&A activities.

Management PlatformR&D Pursue innovative food value creation P.36

HR Develop “Go Beyond Boundaries” personnel P.38

Finance Enhance cash generation capabilities P.40

Strengthening Corporate CommunicationFor the various corporate activities we pursue based on our Management

Philosophy, we will work to enhance the Group’s presence among our stakeholders

by strengthening our ability to communicate information to them.

First Medium-Term Management Plan

(2017–2020)

Fundamental Policy

Transform with Unprecedented Speed

Second Medium-Term Management Plan

(2021–2023)

Proactively invest and produce results

Third Medium-Term Management Plan

(2024–2026)

Tackle the challenge of creating new opportunities

Long-Term Vision Road Map

2026 Group Vision

The Sapporo Group will be a company with highly unique brands in the fields of

“Alcoholic Beverages,” “Food,” and “Soft Drinks” around the world.

We are taking on management reforms with speed,

promoting existing business growth, and pursuing

new growth opportunities.

Hiroyuki NoseDirector (Member of the Board), Director of Strategic Planning Department

34


First Medium-Term Management Plan 2020

Group Management

Quantitative Targets

Strategies for Business Activities

The Sapporo Group will execute Group management by taking the lead in strengthening its platform

functions through the strategic shift of resources, business structure reforms, and the promotion of

segment management, which will spur the Group’s growth.

By 2018, the Group will put in place an organizational structure optimal for the “Food” field, which

will drive growth and expand global business growth, along with optimal Group Head Office func-

tions for supporting that structure.

The Group will accelerate initiatives to promote growth within R&D, personnel and human resources,

and finance.

While executing strategic investments in the fields of “Alcoholic Beverages,” “Food,” and “Soft Drinks,”

the Group will achieve continuous growth in existing businesses and produce results in the investment

business as early as possible. The Group will enhance its cash flow generation capabilities, and allocate

cash to investments in new growth opportunities.

Continuous Growth in Existing BusinessesThe Group will enhance brand strength and achieve continuous growth by focusing on issues

in the competitive areas identified by each business segment.

Produce Results in the Investment BusinessThe Group will pave the way for a transition to an expansive growth stage as early as possible by work-

ing to enhance the profitability of the investment business, where results are still forthcoming.

Capture Growth Opportunities Accelerate Growth in the “Food” Field: The Group will nurture a high-value-added food business by

identifying target fields based on consumer needs, in addition to taking new approaches to value

creation from both the materials and processing fronts.

Promote Global Business Expansion: The Group will explore new growth opportunities in conjunc-

tion with executing strategies based on the characteristics of each area, centered on North America

and Southeast Asia, and strengthening the business platform for boosting profitability.

To be achieved during the four years from 2017 to 2020

Cash flows from investing activities:

¥130.0billionProactively allocate cash to the fields of “Alcoholic Beverage,” “Food,” and “Soft Drinks”

Shareholder returnsTarget a dividend payout ratio of 30%

Financial Indicators

IFRS

2020(Plan)

1918(Plan)

171615141312111009

625.0

555.8551.5541.8533.7518.7509.8492.4449.4

389.2387.5

58.045.644.546.542.342.944.344.046.439.036.4

Net sales (Including liquor tax) EBITDA

(Billions of yen)

First Medium-Term Management Plan 2020

Net sales: Maintain sales growth that has continued since 2010

EBITDA: Aim for record-high profits on a Groupwide basis

Cash flows from operating activities:

¥180.0 billionGenerate cash flows by achieving continuous growth in existing businesses and producing results

Interest-bearing liabilitiesTarget a debt-to-equity (D/E) ratio of around 1.0 times

35


R&D Strategy

Our R&D will accelerate new food value creation

to achieve further growth of the Sapporo Group.

Ikuya YoshidaDirector (Member of the Board),

Director of Group Research and Development Division

Cross-Functional R&D Structure “Sapporo Innovation Labs”

The Sapporo Group established a cross-functional R&D struc-

ture, “Sapporo Innovation Labs,” with the goal of creating

technology synergies. We are advancing R&D efforts that will

lead to further growth as global food company group under this

structure. We will enhance our R&D competitiveness with a

focus on promoting collaboration in the Group and accelerating

open innovation as we expand our business fields and activities,

in order to expand our market presence in the world.

As part of our efforts to facilitate new value creation, we

have organized the Sapporo Group’s strengths into “4 Core

Technologies” and positioned them as a source of R&D com-

petitiveness. Through research centered on food materials

that are focal points for the Group, we will be able to explore

the intrinsic value of those materials and create new value for

our customers.

4 Core Technologies

Sapporo BreweriesSapporo Holdings

Shinsyu-Ichi MisoPOKKA SAPPORO Food & Beverage

Learn about customers

Food information science

Create new tasty food

Manufacturing and processing technology

Seek out new tasty food

Research into the materials and functions

Ensure tasty food

Quality assurance

Cross-Functional R&D Structure

Sapporo Innovation Labs

New Food Value Creation

The Sapporo Group’s R&D Vision

We will deliver happiness and satisfaction to our customers through

the continued creation and production of food.

36


We promote unique R&D efforts toward such materials as barley, hops, lemons, soybeans, and lactic acid bacteria. We seek out the

intrinsic value in our food materials, which leads to new value creation for our customers.

Learn about customers

Food information science We create new value by thoroughly communication with our customers to determine what they consider delicious and how they choose goods and services.

Create new tasty food

Manufacturing and processing technologyAll products offered by the Sapporo Group are subject to manufacturing and processing technology to deliver products of the best quality to customers.

Ensure tasty food

Quality assurance We leverage advanced analysis technologies at each stage of the production process, from raw materials to the final product, thereby supporting the Sapporo Group’s quality assurance system for ensuring food that is tasty, reliable, and safe.

Value of Materials to Our Customers Lemon is an ingredient overflowing with unique value, and

features a refreshing aroma and characteristic sourness as well

as containing several health functional ingredients such as

polyphenols. The Sapporo Group has concluded a number of

collaborative partnerships with Hiroshima Prefecture, the

largest lemon cultivation region in Japan, including joint pro-

duction promotion and research and development activities.

Moreover, further research into soybeans, which are impor-

tant ingredients in miso and soy milk, and our barley-derived

lactic acid bacteria SBL88 will accelerate new value creation to

achieve further growth.

Creating Value by Developing Beer IngredientsSapporo Draft Beer Black Label makes use of a Sapporo

Breweries-developed barley that lacks the activity of LOX-1, an

enzyme known to catalyze oxidation of linoleic acid. This “fresh-

tasting and long-lasting barley” enables beer with long-lasting

freshness and keeps the beer foam stable. In addition, Sorachi

Ace, our original hop developed in 1983 for its varietal aroma,

has fascinated craft beer fans around the world in recent years.

We are leveraging the results of our many years of research on

barley and hops to improve the quality of our beer and imbue it

with distinctive characteristics. Furthermore, our research has

been highly praised worldwide and has received several academic

awards.

Seek out new tasty food

Research into the materials and functionsWe seek out the intrinsic value in our food materials that lead to the produc-tion of tasty food, such as barley and hops, as well as other materials includ-ing lemons, soybeans, and lactic acid bacteria.

Our 4 Core Technologies, which represent the strengths of the Sapporo Group, accelerate new food value creation.

4 Core Technologies That Lead to Food Value Creation

Turning Results from Our Materials Research into Customer Value

1

3 4

2

37


Human Resource Strategy

Group Human Resource Management

We advance human resource management on a

Groupwide basis by developing “Go Beyond Boundaries”

personnel who can provide new value and create

a deep feeling. In doing so, we will continue to lead

the Group toward sustainable growth.

Mayumi FukuharaDirector (Member of the Board), Director of Human Resource Department

Appoint and Promote the Success of Human Resources across the Boundaries of Gender, Age, Nationality, and Company

To realize its Management Philosophy, “As an intrinsic part

of people’s lives, Sapporo will contribute to the evolution of

creative, enriching and rewarding lifestyles,” the Sapporo

Group has established “Go Beyond Boundaries” as the basic

idea underlying its human resource strategy. To “Go Beyond

Boundaries” is to advance beyond the unconscious walls we

create ourselves, the barriers of organizations, and the bound-

aries of business and country. In order to “Go Beyond

Boundaries” and realize our Management Philosophy, we

believe it is essential that the Group recognizes the differences

that exist between each individual within the boundary and

that we make this understanding one of our strengths as an

organization. To that end, we will enhance human resources

by promoting diversity and through a wide array of ideas and

ways of thinking. In doing so, we will establish an

environment where each individual can realize their maximum

potential. To promote recruitment that contributes to growth

and to eliminate seniority aspects, we will work to appoint

and promote the success of human resources across the

boundaries of gender, age, nationality, and company.

Give Top Priority to Shifting Human Resources to the “Food” and Global Fields

To promote “Go Beyond Boundaries” among Group employees,

we are working to strengthen human resources in growth areas.

By enhancing human resources in strategic departments such

as new business incubation and M&A, strengthening food

departments with the Group’s R&D personnel, fostering a

global mind, and cultivating globally successful human

resources through systematic and continuous training, we will

give top priority to shifting human resources to the “Food” and

global fields, both of which are growth areas within the Group.

Group Human Resource

Management Vision

The Sapporo Group’s most valuable asset is its human resources. Every indi-

vidual represents the corporate brand itself. The individuality and execution

capabilities of the Group’s human resources make the brand successful. With

that in mind, the Sapporo Group aims to be a company that creates human

resources who are glad to be part of a team and tackle challenges and venture

out into unfamiliar fields to acquire new skills by way of a healthy mind and

body and a bright, energetic, and forward-facing spirit.

38


Nurture Human Resources Who Are Ambitious and Healthy Both in Body and Mind

Introduce Measures That Help Promote the Health of Human Resources

In December 2017, Sapporo Breweries initiated a new system

of measures and reforms aimed at improving productivity,

physical and mental health, and promoting a fulfilling lifestyle.

By effectively implementing this system, dubbed Work Style

Improvement 2020, and by promoting measures toward

greater pleasure and satisfaction for work, we can better

embody our corporate philosophy of providing a “rich and

rewarding lifestyle for our customers” through our products

and services. Furthermore, we are working to promote work-

style reforms as part of our efforts in creating environments

that are adapted to each specific workplace for greater produc-

tion and ease of working. This extends to all of our companies,

including POKKA SAPPORO Food & Beverage, Sapporo Lion,

Sapporo International, and Sapporo Real Estate.

To this end, we have implemented the Sapporo Group

Health Creation Declaration in support of physical and

mental health for human resources. Against

this backdrop, Sapporo Holdings was

among several businesses to be certified

as an Excellent Enterprise of Health and

Productivity Management (White 500).

Create Opportunities to Tackle Challenges

Since 2011, the Sapporo Group has conducted an annual

training program, “Global Resource Development Program

for Coming Generation,” to nurture human resources so that

they can play an active role globally. In addition to training in

Japan, we are developing a program to conduct on-the-job

training in Singapore and Vietnam from 2015 with the aim of

raising cross-cultural response skills and English communica-

tion ability. We select members who wish to participate in this

program on their own initiative.

Among these participants, we select those who are ready to

do full-fledged work overseas or conduct business related to

overseas work. In addition, we actively create opportunities

for employees to challenge themselves in such ways as

establishing a personnel recruitment system across business

companies.

Work Style Improvement 2020 System Revisions and Additions

Revised Telecommuting System

We have relaxed the conditions for telecommuting. Employees can apply for telecommuting on a same-day basis and are free to work at locations other than their homes, including at hotels when on business trips or traveling by Shinkansen, so long as they are able to focus on their work.

Introduced super flextime system

We have introduced a flextime system without any designated core working times. Flextime may be taken between the hours of 5 a.m. and 10 p.m. This system also applies to employees making use of systems for reduced working hours.

Introduced hourly paid holiday system

Employees can receive up to 40 hours (five days) of paid leave per year, usable in one-hour increments.

Establish a Group Human Resource Management Platform

Each Group company develops employment policies with

careful consideration to the characteristics and environment

of each respective business and forms a portfolio of human

resources who will contribute to growth of the business

through education and training. Meanwhile, from the

perspective of actively promoting human resources on a

Groupwide basis, we are working to visualize the duties and

human resource structures of each operating company, while

simultaneously positioning the best possible human resources

in the best possible place and vice versa. On that platform, we

will make optimal revisions to personnel systems and measures

while ascertaining their effectiveness, thus enhancing human

resources on a Groupwide basis.

1. People are the bearers of a business You can take on challenges in a new field and cross the finishing line

with a cheerful and positive attitude only because you are healthy both physically and mentally. The business grows because its employ-ees are healthy and this in turn leads to the Company’s growth.

2. The Sapporo Group’s business and health are directly related The core business areas of “Alcoholic Beverages,” “Food,” and “Soft

Drinks” contribute to customers’ physical and mental health and happiness. We believe that employees, who produce and offer the products, being physically and mentally healthy is proof that our products and services can offer happiness to our customers.

3. Being an attractive place of work leads to sustainability as a company Employees spend lots of time at the workplace. A workplace that

works proactively to enhance and maintain employees’ health will be attractive to existing and future employees, and this leads to sustain-ability as a company.

We hereby make the Health Creation Declaration based on the conviction that the physical and mental health of the Group’s human resources leads to creation of happiness for our employees, their families, and the Company.

Sapporo Group Health Creation Declaration

39


Financial Strategy: Message from the Director of Corporate Finance

By enhancing our asset efficiency and

cash generation capabilities and carrying

out proactive investments in the fields of

“Alcoholic Beverages,” “Food,” and “Soft

Drinks,” we will realize sustainable profit

growth and shareholder returns.

Generating Cash, Allocating Resources, and Strengthening the Financial Base

To increase our shareholder value over the medium to

long term, there is a need for us to carry out proactive

investments in growth fields. To this end, it is essential

that we establish a robust financial base that allows for

such investments.

Under the Sapporo Group Long-Term Management

Vision “SPEED150,” we have designed a road map that

splits the 10-year period from 2016 to 2026 into three

terms. For the First Medium-Term Management Plan

2020, we are working to establish a robust financial base

that will enable us to respond to changes in the business

environment and capitalize on investment opportunities.

In doing so, we will proceed with preparations for reach-

ing the next growth stage. In 2017, we generated ¥8.2

billion through the sale of cross-shareholdings in an effort

to enhance our asset efficiency. Over the four-year period

from 2017 through 2020, we will provide our customers

with even higher levels of value through our products and

services, thereby generating ¥180.0 billion in cash flows

from operating activities. Of this amount of generated

cash, we intend to allocate ¥130.0 billion to active invest-

ments in the growth fields of “Alcoholic Beverages,”

“Food,” and “Soft Drinks,” which represent our core

business areas. The remaining amount will be used to

reinforce the stability of our financial base through the

reduction of interest-bearing debt with the aim of reaching

a debt-to-equity ratio of around 1.0 times. At the same

time, we will meet the expectations of our shareholders

and other investors by steadily carrying out shareholder

returns in line with profit growth, keeping our sights set

on maintaining a dividend payout ratio of around 30%.

Also, we examine investment decisions from a broad

range of perspectives, including how an investment aligns

with our Management Philosophy and vision as well as

the business environment, the conditions at our competi-

tors, and the potential for growth and sustainability. We

also give comprehensive consideration to the various

kinds of risks that could occur in the future before

making our final decision. After executing an investment,

we take steps to bolster our monitoring functions with an

awareness of capital cost. Going forward, we will transi-

tion to a management structure that enables us to realize

prompt returns on our investments.

Enhancing Awareness of Management Risks, Developing Response Measures, and Placing Importance on Financial Human Resources

We have assembled a portfolio of numerous businesses

with differing business cycles and terms and are making

diligent efforts to reduce management risks and curtail

volatility. Furthermore, as a food manufacturer that

positions “Alcoholic Beverages,” “Food,” and “Soft

Drinks” as its core business areas, we are promoting

business expansion not only in Japan but also overseas.

We therefore maintain a sharp focus on risks related to

raw material procurement and fluctuations in foreign

currency translations while establishing methods to

hedge these risks appropriately. In terms of procuring

Shinichi SoyaDirector (Member of the Board), Director of Corporate Finance and Business Management Department

40


funds, we are working to lengthen and solidify procure-

ment terms, diversify procurement methods, and stan-

dardize repayment schedules while taking into account

such future risks as a rise in interest rates. As for taxes,

we are developing measures to respond to the potential

risk of tax system revisions in the countries where we

operate. We are also promoting tax planning through the

effective use of deferred tax assets and other means.

In this manner, we are steadily creating measures to

respond to foreseeable management risks. With that said,

I feel that in recent years human resource-related risks have

started to impact more significantly on financial perfor-

mance. Accordingly, I believe that there will be a greater

need going forward for investments to secure outstanding

human resources and for efforts to improve the productiv-

ity of each employee. I also believe that the relationship

between employee satisfaction and the added value and

cash flows we generate as a company will become even

more important. Furthermore, as the Company’s financial

divisions play a major role in improving corporate value,

the human resources within these divisions need to have

comprehensive strengths, such as an abundance of experi-

ence and a high level of skills and ethics. In the past, we

emphasized enhancing the expertise of our employees in

the financial divisions. However, we are now placing more

importance on actively rotating personnel within these

divisions on a Groupwide basis. Going forward, by having

these employees experience working in different compa-

nies and offices and acquire skills related to finance,

accounting, tax management, and globalization, we will

develop financial human resources who have a high level

of both expertise and flexibility.

Promoting Stakeholder Dialogues

It is essential for our human resources in the financial divi-

sions to be able to envision how the events that occur on

the front lines of the Company’s business operations will

eventually impact our financial statements. To this end, we

place importance on adopting an “analog” approach, even

in the digital era, that puts particular emphasis on face-to-

face communication. We adopt the same kind of approach

when dealing with our shareholders and other investors as

well as with financial institutions, promoting engagement

that focuses on identifying common ground with these

parties while keeping in mind the points that interest them

most. Starting in fiscal 2018, we will voluntarily transition

from the Japanese generally accepted accounting principles

(JGAAP) to International Financial Reporting Standards

(IFRS). As we are diversifying our businesses and moving

forward with globalization, this transition will help us

reach appropriate management decisions by establishing

uniform accounting standards across the Group. In addi-

tion, this transition will stimulate dialogues with our stake-

holders by allowing them to better compare our financial

information with that of our competitors.

To improve corporate value going forward, it is crucial

that we receive the blunt but fair opinions of our share-

holders and other investors and engage in meaningful

dialogues with them. As the director of corporate

finance, I will make sure that the Company puts forth

the utmost effort to realize increases in corporate value

so that we can meet the expectations of our shareholders

and other investors. I therefore ask for your continued

support and understanding as we work to do so.

First Medium-Term Management Plan

Cash flows from operating activities

Strengthen the cash generation capabilities

of businessesProactively invest in

growth strategies

2012–2015 result

Japanese Alcoholic Beverages


¥180.0 billion

¥130.0 billion“Alcoholic Beverages,”

“Food,” and “Soft Drinks”

Shareholder returns

2012–2015 result

“Alcoholic Beverages,” “Food,” and “Soft Drinks”

Shareholder returns

Allocate profits to repay interest-bearing liabilities

Real Estate Real Estate

International

International

RestaurantsRestaurants

Food & Soft Drinks

Food & Soft Drinks

Real estate

Interest-bearing liabilities

Reshape the asset portfolio

Real estate

Cash flows from investing and financing activities

ReinvestmentRealignment of the real estate portfolio

Reshape the asset portfolio

41


Risk Management

Sapporo Holdings is working to conduct sound corporate management and improve corporate value in a sustainable manner by strengthening Groupwide 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 focus-ing on the following three tasks.

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

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.

Risk Management Structure

SH president and representative director

Secretariat to Group Risk Management Committee (SH Group Risk Management Department)

Group Management Strategy Council

Business Strategy Council

Crisis management organization of operating companies, etc.

Manage risks inherent in the decision-making and business execution processes essential for carrying out operations

Management Council and Secretariat to Group Management Strategy Council (SH Business Management Department)

Crisis management

Declare states of emergency when they occur and identify issues that have the potential to cause a state of emergency

Operating companies, subsidiaries, and affiliated companies

Sapporo Holdings (SH)

SH Board of DirectorsSH Audit & Supervisory Board

Major Business-Related RisksRisk Details

Risks related to business environment

Laws, regulations, and tax systems

The strengthening of legal regulations, such as the Liquor Tax Law, or the introduction of new regulations could restrict business operations. Consequently, the Group could incur new expenses.

Litigation could be brought against the Group in terms of issues pertaining to the Product Liability Act, intel-lectual property laws, tax laws, or other regulations.

The Group’s overseas business activities are subject to a variety of factors that could have a negative impact on operating results.

Fluctuations in foreign currency translations and market interest rates

In the event that market interest rates rise or the Group’s credit rating is lowered due to a comparatively high ratio of financial liabilities to total assets, the Group could become weighed down by financial burden and face adverse conditions for procuring funds.

The cost of sales could increase due to a rise in the price of raw materials and supplies.

Climate change, natural disasters, and infectious diseases

The Group could sustain damage as a result of a large-scale natural disaster or a secondary disaster. This, in turn, could disrupt the supply of products.

The Group’s overseas business activities are subject to a variety of factors that could adversely affect operating results.

Risks related to business execution

Changes in economic conditions and popula-tion movements

The selling price of the Group’s core products could decline due to changes in the shipment of such products and deflation trends.

The value of assets held by the Group could decrease.

The Group’s overseas business activities are subject to a variety of factors that could have a negative impact on operating results.

Business portfolio As the Group is highly dependent on its domestic businesses, a decline in sales in the domestic market could have adverse effects on operating results.

Product safety A quality issue that jeopardizes the safety of Group products, products produced through manufacturing agree-ments, or stocked merchandise could give rise to product recalls, defective shipments, the suspension of opera-tions, or other negative scenarios.

Information security The Group could face claims for damages and suffer a loss of credibility in the event of a leak of personal or other information. This could cause expenses to increase and have a negative impact on operating results.

Business and capital alliances

The deterioration of the business operations of an alliance partner or investee could have a negative impact on operating results.

Capital investments Schedule delays, investment budget overruns, and other factors could adversely affect operating results.

Please see the Company’s website for more information on business and other risks. http://www.sapporoholdings.jp/english/ir/management/risk.html

Manage risks related to the decision-making process for

individual agenda items

Manage risks involved with the business execution process through monthly forecasts

Management Council Group Risk Management Committee

42


Efforts under “SPEED150”

In the Japanese Alcoholic Beverages segment, we are working to reinforce profitability by enhancing our brand strength in the beer business and estab-lishing the wine business as a second pillar next to beer. In doing so, we aim to leverage this segment to drive overall Group growth. For the beer business in 2018, we have adopted the policy of “continuation of strengthening the beer business” and are promoting a consistent marketing strat-egy by concentrating resources into core beer brands. In doing so, we will realize genuine growth. In the wine business, we are taking steps to develop and strengthen our foundation for both fine wines and everyday wines.*2 Through these means, we aim to be No. 1 in cus-tomer value. In addition, for spirits, we are promoting “brand visualization” through the expansion of contact points with customers. In these ways, we will propose and promote various ways for our customers to enjoy alcoholic bever-ages going forward. In addition, we will create one-of-a-kind products and services that can respond to the diversifying needs of our customers, thereby paving the way for realizing sustainable growth.

Consolidated SubsidiariesSAPPORO BREWERIES LIMITED

YEBISU WINEMART CO., LTD.

TANOSHIMARU SHUZO CO., LTD.

STARNET CO., LTD.

SHINSEIEN CO., LTD.

Business Strategy


Seeking No.1 by accumulating one-of-a-kind products

Market Environment Total demand declining against the backdrop of a declining birth rate and an aging population as well as an overall population decrease Consumers becoming thriftier, with preferences and consumption behavior diversifying

Movement toward changing the defini-tion of beer under the Liquor Tax Act from 2020 through 2026

Strengths Highly competitive brands such as Sapporo Draft Beer Black Label and Yebisu Beer

One-of-a-kind raw material procurement realized through the cultivation of barley and hops under the Collaborative Contract Farming System (CCFS)

Product development capabilities and production systems that meet customer needs

Development of diversified alcoholic beverage products such as wine, shochu, and spirits through strategic partnerships with global brands

Growth Strategy Strengthen beer brands based on revisions to the Liquor Tax Act starting in 2020

Establish the wine business as a growth pillar second to beer

Take on challenges in the growing ready-to-drink (RTD) beverage market Pursue new initiatives aimed toward growth, such as expansion in the EC market and promotion of beer export businesses

1615

273.6 279.4 281.3 272.5293.4

20(Target)

IFRS

17*1 18(Plan)

1615

16.8

6.1%6.8% 7.0% 6.8%

7.6%

19.019.9

18.8

22.5

IFRS

17*1 20(Target)

18(Plan)

EBITDA EBITDA margin

Revenue (Billions of yen)

EBITDA (Billions of yen) /EBITDA Margin (%)

*1 Starting from the fiscal year ending December 31, 2018, the export business of Sapporo International Inc. has been transferred to Sapporo Breweries Ltd. The figures for fiscal 2017 have been retroactively adjusted to reflect this transfer.

*2 Fine wines: Mid- to high-priced wines (over ¥1,500 per bottle); Everyday wines: Low-priced wines (less than ¥1,500 per bottle)

43


Business Strategy


Positioning the International segment as a driver for Groupwide growth, we have been working to strengthen our global business foundation, grow our existing businesses, and develop new businesses, which includes the promotion of M&A. Through these means, we have been growing the presence of the Group on a global scale. Going forward, in the premium beer market in North America, we will actively implement sales activities through Canada-based Sleeman Breweries and Sapporo U.S.A. In addition, we will use the momentum we gained from the acquisition of Anchor Brewing Company to accelerate growth in the region. In the North American soft drinks market, we will move forward with the management integration of Country Pure Foods, Inc., and Silver Springs Citrus, Inc., and work to generate synergies between these two companies post integration. In Southeast Asia, with the aim of improving the value of the Sapporo brand in Vietnam, we are taking steps to revise sales methods and improve profitability.

Consolidated SubsidiariesSAPPORO INTERNATIONAL INC.

SAPPORO U.S.A., INC.

SAPPORO NORTH AMERICA INC.

ANCHOR BREWING COMPANY, LLC

SAPPORO CANADA INC.

SLEEMAN BREWERIES LTD.

SAPPORO ASIA PRIVATE LIMITED

SAPPORO VIETNAM LIMITED

COUNTRY PURE FOODS, INC.

13 other companies

International

Making the Sapporo Brand Shine throughout the World

Market Environment Economic instability brought about by political and religious issues, various changes including revisions to tax sys-tems in the United States

Population increases and economic growth in emerging Asian nations, emer-gence of a new middle class

Global corporate restructuring, progres-sion of M&A by Japanese corporations

Strengths Strong presence and growth potential of Sleeman Breweries Ltd. (third largest share in the Canadian beer market, 11 consecutive years of sales growth)

No. 1 share for Asian beer in the U.S. market (No. 1 Asian beer for 31 consecutive years)

Growth Strategies Grow North American businesses by generating synergies between Sleeman Breweries, Sapporo U.S.A., Inc., and Anchor Brewing Company, LLC

Establish a business foundation and leverage resources by drawing on the strengths of the two North American soft drink companies

Strengthen the value of the Sapporo brand in Vietnam and improve profits in the region by revising sales methods and enhancing operational efficiency

IFRS

1615

70.565.4 67.1

81.9

91.7

17*1 20(Target)

18(Plan)

IFRS

1615

5.3

7.5%8.5%

4.6%

7.4%

9.8%

5.6

3.1

6.1

9.0

17*1 20(Target)

18(Plan)

*1 Starting from the fiscal year ending December 31, 2018, the export business of Sapporo International Inc. has been transferred to Sapporo Breweries Ltd. The figures for fiscal 2017 have been retroactively adjusted to reflect this transfer.




44



By providing deliciousness, joy, and luxury in the Food & Soft Drinks seg-ment, we will strengthen our existing businesses and expand new businesses. In doing so, we will enhance the presence of the Sapporo Group in the fields of “Food” and “Soft Drinks.” In Japan, we will concentrate invest-ments in fields where we can display our competitiveness as we work to create new and unique food value. We will also promote business expansion for lemons, a Company strength, and move forward with functional research on lemons and efforts to communicate their value. For soup, we will expand the range of prod-uct development and work to increase production capacity. In terms of soft drinks, we will steadily improve sales while promoting such products as soft drinks that use select domestic ingredi-ents. Additionally, we will set our sights on the potential of soybeans and plant-based milk products, thereby working to establish new business pillars. Overseas, with Singapore service as a foundation, we will expand POKKA brand soft drinks in a manner that caters to the market needs in each country. In doing so, we will enhance our overseas presence.

Consolidated SubsidiariesPOKKA SAPPORO FOOD & BEVERAGE LTD.

POKKA SAPPORO HOKKAIDO LTD.

OKINAWA POKKA CORPORATION CO., LTD.

POKKA CREATE CO., LTD.

FOREMOST BLUE SEAL, LTD.

PS BEVERAGE LTD.

POKKA CORPORATION (SINGAPORE) PTE. LTD.

POKKA INTERNATIONAL PTE. LTD.

9 other companies

Food & Soft Drinks

Creating Delicious New Products That Enrich and Brighten People’s Lives

Market Environment Diversifying tastes and consumption habits of consumers

Heightened need for health and convenience in terms of food

Revisions to tax systems and regulations in Japan and overseas

Strengths Know-how on both food and soft drink businesses

Development capabilities for lemon-based and soup products, high market share

High market share for green tea drinks in Singapore

Growth Strategies Strengthen lemon procurement capabili-ties and communicate the value of lemons through functional research

Implement capital expenditures, such as increasing soup production capacity, in accordance with market needs

Display a strong presence in the sugarless tea and fruit juice categories, which make use of domestic ingredients

Promote business expansion centered on soy milk yogurt

Develop stable overseas soft drink busi-nesses through strategic cultivation

IFRS

171615

135.6 137.9 137.8 135.6

156.5

20(Target)

18(Plan)

IFRS

171615

8.8

6.4% 6.5%6.0% 6.4%

7.9%

9.18.3 8.7

12.4

20(Target)

18(Plan)



EBITDA (Billions of yen) /

EBITDA Margin (%)

45


Business Strategy


In the Restaurants segment, we will contribute to the strengthening of Group brands by providing establishments where people can experience the products and value of the Group. Guided by our aim of delivering 100% satisfaction to customers, we are making efforts to improve the sales quality of our products, services, store environments, and other core elements of the restaurant business as well as to provide products that are safe and offer peace of mind. In terms of opening new stores, we will work to expand the area served by our core outlets GINZA LION and YEBISU BAR. At the same time, we will focus our efforts on developing new outlets. Furthermore, to maintain and increase profitability well into the future, we are actively remodeling and changing the format of existing stores. Overseas, as part of our efforts to spread the beer hall culture, we will revamp the GINZA LION brand in Singapore while taking steps to reform our cost structure.

Consolidated SubsidiariesSAPPORO LION LIMITED

NEW SANKO INC.

MARUSHINKAWAMURA. INC.

GINRIN SUISAN INC.

SAPPORO LION (SINGAPORE) PTE. LTD.

Restaurants

Enhancing the Joy of Living for Our Customers through Our Restaurants

Market Environment Polarization of price strategies, expand-ing needs for specialized outlets

Increase in labor costs, difficulty in acquiring personnel

Rising cost of vegetables and other ingredients

Strengths Rich history of Japan’s oldest beer hall and highly competitive brands

Store development know-how that caters to the discerning eye and diverse needs of consumers

Growth Strategies Further improve the sales quality and profitability of locations operated by Sapporo Lion, Marushinkawamura, and New Sanko

Contribute to the utilization and rein-forcement of Group brands such as Yebisu Beer and Grande Polaire

IFRS

171615

1.1

4.0% 4.2%3.0% 3.4%

7.9%1.2

0.91.0

2.5

20(Target)

18(Plan)




IFRS

171615

27.0 28.1 29.1 28.831.5

20(Target)

18(Plan)

46



In the Real Estate segment, we will rein-force our earnings base by increasing the property value and enhancing the effi-ciency of our owned properties centered on the Ebisu, Sapporo, and Ginza dis-tricts. At the same time, we will contrib-ute to improving Group brands by promoting urban development in areas where the Group has a long history. At Yebisu Garden Place, a key Group property, we will work to enhance value in order to create new added value for the property and improve brand value. For GINZA PLACE, we will further enhance our ability to communicate information centered on the property’s concept of being a “base for information dissemination and exchange,” thereby improving brand value. Additionally, we will contribute to revitalizing and attract-ing customers to the area surrounding the property. Also, we are proceeding with the renovation of the Sapporo Factory commercial complex as part of Sapporo City’s urban development program focused on the nearby area on the east side of the Sosei River.

Consolidated SubsidiariesSAPPORO REAL ESTATE CO., LTD.

YGP REAL ESTATE CO., LTD.

TOKYO ENERGY SERVICE CO., LTD.

YOKOHAMA KEIWA BUILDING CO., LTD.

Real Estate

Offering a “Luxurious Time” in a “Luxurious Space” for Cities and for Society as a Whole

Market Environment Improvement in occupancy rates at office buildings in the Tokyo metropolitan area, gradual increase in rent levels

Steady market conditions in the Ebisu, Sapporo, and Ginza districts

Difficult market conditions expected in the future due to a rapid increase in supply in the Tokyo metropolitan area

Strengths Superior properties and strong relation-ships with local communities primarily in the Ebisu, Sapporo, and Ginza districts, grounded on the history of the Sapporo Group

Growth Strategies Maintain high occupancy rates by increasing property value and flexibly revise rent levels in accordance with market conditions

Build and deepen long-term relationships with local communities through collab-orative urban development

IFRS

171615

20.822.9

24.1 24.9 24.9

20(Target)

18(Plan)

IFRS

171615

12.4

59.6% 62.8% 64.7% 62.6% 65.4%

14.415.6 15.6

16.3

20(Target)

18(Plan)

Enhancing the Joy of Living for Our Customers through Our Restaurants




47


The Sapporo Group will inherit a brand story grounded in its over 140-year history as a collection of aspiration it wishes to

share with its stakeholders. In addition, through its CSR activities, the Group aims to connect this brand story to the future.

In line with our 4 Key Promises, which summarize our CSR initiatives, we will forge ahead with our CSR endeavors in a

bold and swift manner.

The Sapporo Group’s Basic CSR Policy

We are determined to remain a group that is trusted by society by conducting business in a way that keeps our customers happy.

Since the Sapporo Group’s founding in 1876, we have existed in harmony with society and have been sustained by the happiness of

our customers as we forged our path to the present. From here on, the Sapporo Group will aim to grow as a company and contribute

to sustainable social development by remaining an honest group that makes customers happy, based on its Management Philosophy:

“As an intrinsic part of people’s lives, Sapporo will contribute to the evolution of creative, enriching and rewarding lifestyles.”

Our 4 Key Promises for Strengthening Bonds through Our Brand Story

Promise 1

Promise 3 Promise 4

Promise 2

Contributing to Creative, Enriching and Rewarding Lifestyles Through Alcoholic

Beverages, Food, and Soft drinks

Promoting Environmental Conservation

Cultivating Highly Unique Employees

Promoting Coexistence with Society

Corporate Governance

BrandTrust Human

ResourcesEnvironment

Alcoholic Beverages, Food, and Soft Drinks

Society

Materiality Preventing global warming

Promoting the 3Rs

Harmonizing with nature

Materiality Health and productivity management

Diversity and human rights

Human resources development and training

Materiality Safety, reliability, and quality

Creating new value

Alcoholic Beverages-related issues

Materiality Supporting local communities

Sustainable procurement

Basic CSR Policy

48


Our Promise Our Priority Medium- to Long-Term Goals (KPI) Related SDG Goals

Promise 1

Contributing to Creative, Enriching and Rewarding Lifestyles Through Alcoholic Beverages, Food, and Soft drinksWe will offer the joy of living and richer lives to our customers by creating new value through “Alcoholic Beverages,” “Food,” and “Soft Drinks.”

Safety, reliability, and quality

By 2020, we intend to have a full set of quality assurance systems in place for each product category to ensure quality and safety so that anyone, from local residents to inbound visitors, can enjoy the “Alcoholic Beverages,” “Food,” and “Soft Drinks” produced by the Group. We will extend this commitment to include our exports and businesses overseas to facilitate further growth of the Group’s reputation as a trusted global brand.

Creating new value

By 2020, we will combine our food processing technologies with our research on the health benefits and taste of five key ingredients (barley, hops, lemons, soybeans, and lactic acid bacteria) to create and propose new value in the areas of “Alcoholic Beverages,” “Food,” and “Soft Drinks” based on the changing demands of the market and consumers. We will continue to spur innovation in both new and existing fields and strive to expand our distinctive value domestically and abroad.

Alcoholic Beverages-related issues

• By 2020, we plan to establish a concrete education program for proper drinking awareness with a focus on how to enjoy alcohol in a healthy manner.

• We will offer opportunities for customers to raise their awareness of Japan’s rich beer culture through contact points such as museums and open factory visits.

Promise 2

Promoting Coexistence with SocietyWe will contribute to the development of the commu-nity and solve issues as part of the local society, and create a better future along with everyone in society

Supporting local communities

• By 2020, we will establish a system to support local communities around all of our business sites.

• We will promote activities in the area of our founding, areas with Company offices, and disaster-affected areas to encourage the consump-tion of local goods, transmit information, and support the next generation. In addition, we will continue to strengthen our partnerships with local communities through urban development projects and the promotion of businesses centered on the enjoyment of food.

Sustainable procurement

By 2030, we will aim to have at least 90% of our major suppliers in support of CSR procurement.

Promise 3

Promoting Environmental ConservationIn order to pass on nature’s bounty to the future, we will strive to prevent global warming, promote 3Rs, and achieve symbiosis with nature at every phase.

Preventing global warming

By 2030, we will reduce CO2 emissions per unit 12% from levels detected in 2013.

Promoting the 3Rs

• We will continue to promote the 3Rs in all aspects of business, from raw material procurement to disposal and recycling.

• We will establish quantitative targets for water use in 2018 and strive for efficient usage.*

• By 2020, we will recycle 100% of waste at all of our domestic breweries and factories.

Harmonizing with nature

We will plan and implement measures every year for preserving biodiversity that leverage the specific attributes of each business.

Promise 4

Cultivating Highly Unique EmployeesWe respect all sorts of diver-sity of employees and bolster the development of an envi-ronment that allows each employee to demonstrate his or her individual ability to the maximum extent.

Health and productivity management

• We will improve efforts to promote employee health throughout the Group (via deployment of area nurses, declaration of employee health measures, etc.).

• We will develop food education programs for infants in collaboration with in-house childcare centers.

Diversity and human rights

• By 2020, we will double the number of women in management positions relative to 2014.

• We will achieve each target as set forth in the “General Employers Action Plan Based on the Act on Promotion of Women’s Participation and Advancement in the Workplace.”

Human resource development and training

We will continue to provide active support for diversity and inclusion through education aimed at supporting women, people with disabilities, those providing care, and members of the LGBT community.

Our 4 Key Promises and CSR Materiality Action Plan

* In May 2018, we formulated the target of reducing the amount of water used at the factories of Sapporo Breweries and POKKA SAPPORO Food & Beverage by 6% compared with 2013 amounts (target covers factories included in the business scope as of 2013).

49


Sapporo International Inc.

Sapporo Lion Limited

POKKA SAPPORO Food & Beverage Ltd.

Sapporo Real Estate Co., Ltd.

Sapporo Breweries, Ltd.

Basic CSR Policy

Identifying and Updating Materiality

The Sapporo Group identifies and maps CSR priority issues on a materiality

matrix, with significance to stakeholders on one axis and significance to manage-

ment on the other. From there, potential top materiality are analyzed from various

perspectives such as guidelines, and the viewpoints of both stakeholders and man-

agers. Based on that analysis, the materiality are identified and updated.

Sapporo Holdings Ltd.

Corporate Communications Department, CSR Office

Administration Department

Human Resources


Group Legal Affairs

Strategic Planning

Group Risk Management

Quality Assurance

Group CSR Promotion Committee Chair: President and Representative Director

Group CSR Representative

● Environmental communication● Work-life balance● Disaster recovery efforts● Disaster risk management● Rigorous information security● Reinforcing fair and impartial

partnerships● Dialogue and cooperation with

stakeholders

CSR Implementation Structure

Sapporo Holdings formulates the overall

policy for implementing the Sapporo

Group’s CSR management and has

established a Group CSR Promotion

Committee. This committee is chaired

by the President and representative

director of the Company, who is respon-

sible for coordination and adjustment

within the Group.

The CSR Office within Sapporo

Holdings’ Corporate Communications

Department develops and implements

various measures to promote CSR

activities in each Group company, holds

monthly meetings with CSR personnel,

and shares information and progress via

its CSR Office.

Listing up and update of materiality candidates

Sorting out issues in industry by analyzing guidelines

Grasping interest and needs by studying stakeholders

Quantitative needs / impact analysis based on scoring method

Analysis of consistency with CSR strategy through management review

Drafting materiality map and identifying materiality

Process 1

Process 2

Process 3

Process 4

Process 5

Process 6

CSR Department

CSR Department

CSR Department

CSR Department

CSR Department

Sapporo Group Management Ltd. Procurement Department

Sapporo Group Management Ltd. Reform Promotion Department

Impact on management

Impact on and interest of stakeholders

Materiality

Other issues

Other issues

Materiality

CSR Representative

CSR Representative

CSR Representative

CSR Representative

CSR Representative

● Procurement from companies fulfilling CSR

● Proper drinking awareness

● Enhancement of compliance/adherence

● Pursuit of quality that ensures customer satisfaction

● Ensuring safety, reliability, and quality

● Establishment/maintenance of corporate governance system

● Respect for human rights

● Environmental management

● Recycling-oriented society

● Pursuit of innovation

● Employee health management ● Diversity

● Measures against global warming

● HR development/training

● Community support

50


Stakeholder Engagement

As a business practice done in earnest and in accordance with its basic CSR policy, the Sapporo Group works toward

proactive and appropriate disclosure of information and mutual communication in order to deepen trust between

the Group and its stakeholders.

Specific Examples of Activities

At POKKA SAPPORO, we implemented

“Lemon University,” a food education program

designed to teach the next generation about

the power of lemons in an enjoyable manner.

In collaboration with distributors in each area, company

employees designated as “Lemon Meisters” (having received

internal qualification via

examination) work as

instructors. We also propose

ways for adults to incorporate

the health benefits of lemons

in their diets to promote

healthy and active lives.

Sapporo Breweries and POKKA SAPPORO

hold an annual policy briefing with their main

suppliers in Japan in order to share efforts

related to procurement. We ask suppliers to

implement and submit self-checks on their CSR efforts. At

the same time, we encourage any inquiries as to whether we

are performing activities in

line with the Group procure-

ment basic policy. In doing

so, we are working to build

a two-way relationship with

our suppliers.

SAPPORO GROUP

CustomersProviding valuable products and

services that build trust

• Customer consultation window • Brewery and factory tours • Events, etc.

Shareholders/ Investors

Adhering to the Corporate Governance Code, implementing appropriate shareholder returns

• General Meeting of Shareholders • Financial results briefings • Individual dialogues with

domestic and foreign institu-tional investors

• Publication of reports, etc.

SuppliersRespecting human rights and

promoting environment-friendly procurement

• Daily communication • Group procurement basic

policy, procurement from a CSR perspective, etc.

Community/ Society

Implementing training/food education for next generation, regional activities, and environmental conservation using

each business’ characteristics

• Next-generation training • Regional contribution activities • Disaster-recovery efforts • Environmental conservation

activities, etc.

EmployeesCreating an environment that embraces

diversity, promotes health improve-ment, and encourages challenge

• Graduated and department- specific training

• Mental health care • Corporate ethics hotline, etc.

Customers Suppliers

Supplier policy briefing sessions“Lemon University” food education program

51


Initiatives Based on Our 4 Key Promises

Promise 1 Promise 2

Contributing to Creative, Enriching and Rewarding Lifestyles Through Alcoholic Beverages, Food, and Soft drinks

Promoting Coexistence with Society

Establish CSR Procurement Guidelines for Suppliers

To contribute to the realization of a sustainable society, the

Sapporo Group believes it necessary to preserve the under-

standing and cooperation of the suppliers who share its raw

materials while also ensuring CSR throughout the entire

supply chain.

Up until now, our procurement activities were carried out

in accordance with our Sapporo Group basic procurement

policy; however, in March 2018 we established a new set of

Sapporo Group CSR procurement guidelines for suppliers

linked to the basic policy. We are working to promote two-way

communication with our suppliers and engage in collaborative

CSR in six main subjects: safety and quality, compliance with

laws, human rights and

labor, environmental con-

servation, coexistence with

society, and alcohol

beverage-related issues.

By maintaining this rela-

tionship, we aim to realize

a sound and rich society.

Initiatives toward supporting local communitiesSince the founding of the Sapporo Group, we have contributed to the social communities rooted in the countries and regions where we have expanded our businesses to show our appreciation for their sup-port. Just as before, all of our employees will take a proactive approach in enhancing understanding of a region’s strengths, sports, cultures, and traditions and will work toward collaboration in business solutions and regional development as members of those com-munities. In doing so, we hope to create a better future. In Nagoya City, the POKKA Lemon Fire Department Band, the orchestral group for the Nagoya City Fire Department, has put on over 200 performances a year since April 2016. With POKKA SAPPORO Food & Beverage receiving naming rights from the city of Nagoya, it became the first company in the country to gain naming rights over organiza-tions in local towns. In the same vein, 2017 marked the 60th anniver-sary of POKKA Lemon, originated in Nagoya, and its cooperation in creating community awareness with local municipalities.

Safety and Reliability Initiative— the Collaborative Contract Farming System

As a food manufacturer, the Sapporo Group makes every

effort to provide safe, reliable, and high-quality products

and services. As part of those efforts, we have employed the

Collaborative Contract Farming System (CCFS), Sapporo

Breweries’ proprietary raw material procurement system.

This system, of which there is no other in the world, is sup-

ported by the following three pillars.

Specifying growing areas and the growers

Specifying growing methods

Ensuring communication between growers and Sapporo

Breweries

Internal experts on malt and hops called “Fieldman”

make direct visits to CCFS production areas in about 10

countries around the world to engage in ongoing communi-

cation with growers. Not only does this enable the stable

procurement of raw materials for great-tasting beer, it also

ensures that the “where,” “who,” and “how” questions of

procurement have clear answers. In this way, Sapporo

Breweries is working

together with the suppliers

and growers to create safe,

reliable, and delicious raw

materials for its products.

Alcoholic beverage-related issuesThe Sapporo Group believes that, as a corporate entity engaged in the distribution of alcoholic bever-ages, it bears a responsibility to communicate proper drinking practices and a proper understanding about the characteristics of alcohol.

Policy related to proper drinking practices In light of the nature of alcohol, we must consider social impact when engaging in the manufacture, sale, and advertisement of alcohol.

We must support moderation in alcohol drinking consistent with a healthy and joyful lifestyle while moving forward with measures to prevent alcohol abuse, such as underage drinking, driving while intoxicated, and drinking by pregnant and nursing mothers.

52


Promise 3 Promise 4

Promoting Environmental Conservation Cultivating Highly Unique Employees

Toward further advancement of diversity

In the spirit of promoting a diverse environment, in

November 2017 the Sapporo Group held Groupwide train-

ing sessions in order to educate management and to spread

awareness of LGBT issues. In addition, as part of an effort

to create an environment where human resources with a

variety of ideas and ways of thinking can continue to work

safely, we changed the definition of spouses in our employ-

ment regulations.*4 As of January 2018, same-sex and

common-law partners will be seen as equivalent to spouses

in terms of receiving benefits and welfare.

Moving forward, we will continue to put our utmost

effort toward creating an environment that heightens

awareness of these respective differences.

*4 Relevant companies: Sapporo Holdings, Sapporo Breweries

Part of Ministry of the Environment’s Joint Crediting Mechanism Model ProjectIn August 2017, as part of the Ministry of the Environment’s Financing Programme for JCM Model Projects,*3 Sapporo International’s efforts in the introduction of energy-saving equipment in its brew-eries were approved for subsidy. This project, in accordance with the expansion of the Sapporo Vietnam Long An Brewery, will intro-duce high-efficiency, energy-saving equipment—an air compressor, cold water chiller, and once-through boiler—to reduce electric-ity and LPG consumption and is expected to reduce CO2 emissions by approx-imately 111 tons per year.

*3 The Ministry of the Environment aids with capital investment expenses to support projects for companies that introduce superior low-carbon technologies in developing countries to reduce greenhouse gas emissions on a global scale.

Support for balancing work and child careAt Sapporo Breweries, we are working for continu-ous system expansion and promotion of use centered on our “Next-Generation Development Project,” consisting of representatives of both the Company and labor unions. Based on our efforts up to the present as a top-level company that offers its support in raising chil-dren, we were recognized with a Platinum Kurumin mark in 2017 by the Ministry of Health, Labour and Welfare. Presently, in order to make work and family more compatible, we promote the use of systems such as flextime and telecommuting. Sapporo Breweries continues to support and implement mea-sures to ensure that its human resources maintain sound mental and physical health.

Platinum Kurumin mark in recognition of company support for raising children.

Recipient of the Agriculture, Forestry and Fisheries Minister’s Award at the 27th Grand Prize for the

Global Environment Awards

Sapporo Holdings was a recipient of the Agriculture,

Forestry and Fisheries Minister’s Award at the 27th Grand

Prize for the Global Environment Awards*1 based on the

evaluation of efforts toward bioethanol production from

cassava pulp.*2 These developments are a result of the

Sapporo Group’s work to create biomass energy technology

using brewing technology cultivated over the course of

many years of producing alcoholic beverages domestically

and overseas. Our goal is to disseminate biofuel production

technology to ASEAN countries where cassava cultivation

is prevalent, and contribute to solving energy and environ-

mental problems.

*1 Award system established in 1992 by Fujinsankei Communications Group

with special cooperation of World Wildlife Foundation (WWF) Japan, awarded to industries that work to balance production and development and environmental conservation.

*2 Refers to the byproducts of tapioca production from cassava roots.

53


The city of Sapporo is where the prede-cessor of Sapporo Breweries, Kaitakushi Brewery, was founded. This makes Sapporo the place in which the Sapporo Group was born as well as where genu-ine beer was first made by Japanese brewers. As such, it would be no exag-geration to refer to it as the birthplace of Japanese beer. As a reflection of that status, the city’s Sapporo Factory repre-sents the origin of beer breweries in Japan. In addition to tours where par-ticipants can learn about the history of the Kaitakushi Brewery era, the Sapporo Factory is home to various shops, res-taurants, cafés, and much more, making it a spacious facility that functions as a place of relaxation and refreshment for members of the local community. In 1972, Sapporo became a sister city of Munich, a German city famous for the global beer event Oktoberfest. In doing so, Sapporo concluded a one-of-a-kind sister city agreement for Japan. Since then, the city has deepened its friendship with Munich through various events in which the Sapporo Group has participated. In 2012, to celebrate the 40th anniversary of the sister city relationship, the City of Beer Sapporo Project was started. In 2011, the Autumn Beer Festival com-menced at the Sapporo Factory. At the events, people can come together to enjoy delicious beer and food. Inheriting Kaitakushi Brewery’s passion for manufactur-ing, we will continue to further improve the value of the Sapporo brand while cherishing the connections we have formed with the local community.

01 S A P P O R O

Special Feature 2

Sapporo Factory

Since its establishment, the Sapporo Group has been passionate about manufacturing, remaining

committed to using the finest raw materials and pursuing a wide variety of activities to attain the

highest levels of quality. At the same time, we have valued the points of contact and connections we

have made with local communities, society, and the earth. Through our various business activities, we

have delivered happiness, deliciousness, creativity, and enrichment to our customers, thereby earning

their trust. We will continue to be a corporate group that contributes to the development of local

communities and society as a whole.

Going forward, we will deepen our points of contact, connections, and relationships with local commu-

nities as we work to strengthen bonds with our stakeholders through our brand story well into the future.

Kaitakushi Brewery

Inheriting Aspirations by Strengthening Bonds through Our Brand Story

54


In 1889, construction of the Yebisu Brewery was completed in Mitamura Village, Ebara County (now the Mita district of Meguro Ward, Tokyo). In 1901, the Ebisu Railway Station was established for the purpose of shipping beer. This station would later become a passenger station (now JR Ebisu Station), which led to the surrounding area being renamed as Ebisu. This is an extremely rare case in which the name of a district originated from the brand name of a product. In 1994, Yebisu Garden Place was established on the site of the Yebisu Brewery follow-ing the brewery’s relocation. The name Yebisu Garden Place derives from the unique style of urban development that was formed through the integration of the GARDEN-CITY and MARKET-PLACE retail and entertainment areas. Yebisu Garden Place is made up of 60% open space and has an abundance of greenery. Such features create an urban setting where people can enjoy a rewarding experience in a spacious area. At this location, we will con-tinue to hold such events as the Yebisu Beer Festival, which aims to further enrich Japanese beer culture, and the Yebisu Culture Festival, which contributes to the revitalization of local culture. In doing so, we are working together with the local community to encourage the development of the Ebisu area.

The Sapporo Group has a deep connection with Ginza, one of Japan’s most well-known commercial districts. The connection started in 1887 with the establishment of the Japan Beer Brewery Company, a predecessor of Sapporo Breweries, in what is currently Ginza 2-chome. The connec-tion deepened in 1899 when Japan’s first beer hall, the YEBISU BEER HALL, opened in what is now Ginza 8-chome. In 1934, we opened Beer Hall Lion Ginza 7-chome. Currently the oldest existing beer hall in Japan, it is loved by our customers to this day. By giving thorough attention to quality assurance and traditional pouring techniques, this beer hall consistently offers draft beer that is of the highest quality. In 2016, we opened the commercial complex GINZA PLACE, which was developed under a concept of being a “base for information dissemination and exchange.” In the ever-growing district of Ginza, we aim to establish GINZA PLACE as a landmark that shapes the future of the district by realizing the further revitalization of the surrounding area and creating a lively atmosphere.

02

03

Y E B I S U

G I N Z A

Yebisu Garden Place

Beer Hall Lion Ginza 7-chome

GINZA PLACE

Forming Connections with Nagoya and Hiroshima through LemonsPOKKA CORPORATION, the predecessor of POKKA SAPPORO Food & Beverage Ltd., was founded in 1957 in Nagoya City, Aichi Prefecture, as a production and sales company of lemon prod-ucts used in cocktails. In the over 60 years since its establishment, POKKA SAPPORO Food & Beverage has not only worked to develop various lemon products but has also pursued lemon-related research and promoted activities to spread knowledge about the fruit. Recently, POKKA SAPPORO Food & Beverage has formed collaborative partnerships and alliances with Hiroshima Prefecture itself and Kure City, Osakikamijima Town, and agricultural cooperatives therein, to promote efforts to increase demand for Setouchi Hiroshima Lemons and enhance their brand value.

A lemon-producing area in Osakikamijima Town, Hiroshima Prefecture

Yebisu Brewery

YEBISU BEER HALL

55


Message from the Chairman

Emphasizing Dialogues Based on Various Opinions and Ways of Thinking

Since I was appointed as a director of Sapporo

Holdings in 2007, I have engaged in countless dia-

logues with our shareholders and other investors as

well as with members of companies possessing voting

rights. These experiences have taught me that there is

no one absolute answer for solving an issue. I am

currently involved in a variety of outside activities as

the chairman and representative director, and I have

witnessed many instances where the common ways of

thinking within Sapporo itself are not understood by

outside parties. I therefore place emphasis on engag-

ing in dialogues that do not simply assert the good

aspects and strengths of the Company but which

focus on clarifying the Company’s reasons for select-

ing its management policies and structure, based on

an understanding of the diverse range of opinions and

approaches that exist outside the Company. To this

end, in addition to maintaining an ability to clearly

summarize the Company’s approach so that I can

hold discussions at any time and location, I place

value on the issues brought up by our stakeholders

without fear of how that may change the course of

the conversation.

Considering the Ideal Approach for a Board of Directors That Utilizes Diverse, Outside Opinions

Under the Sapporo Group’s Long-Term Management

Vision “SPEED150,” which sets its sights on 2026, the

year marking the 150th anniversary of the Group’s

founding, we are working to realize steady profit

growth and establish a robust financial foundation.

At the same time, we are taking steps to ensure man-

agement transparency and fairness through the

enhancement of our corporate governance. In doing

so, we are striving to realize sustainable growth and

improve corporate value.

When it comes to the management of the Board of

Directors, I am aware that my most significant role as

its chairman is to draw on the abundance of knowl-

edge and experience that the outside directors pos-

sess. Taking into consideration the opinions offered to

us by our stakeholders, I communicate a wide range

of outside viewpoints and approaches to the inside

We will continue efforts to enhance and

strengthen a corporate governance system

that leverages stakeholder feedback

as we work to boost our corporate value

and improve our appeal.

Tsutomu KamijoChairman and Representative Director

56


directors while also making a point to draw out the

candid opinions and viewpoints of the outside direc-

tors. To ensure that the outside directors can make

sufficient use of their experience and capabilities, we

encourage them to visit our factories and research

labs and provide them with regular opportunities to

meet with Group executive officers and the presidents

of the operating companies. In these ways, we work

to offer information to the outside directors in an

appropriate fashion.

In the process of formulating the Long-Term

Management Vision and the First Medium-Term

Management Plan, we created opportunities aside from

Board meetings to explain to the outside directors the

content of the numerous internal discussions we had,

which allowed us to receive constructive feedback from

them. A particularly impressive takeaway from this

feedback was how highly our unique brands were

evaluated by the outside directors, higher, in fact, than

many of the evaluations conducted internally. As a

B-to-C corporate group, we pursue our business activi-

ties while forming deep connections with the daily lives

of our customers, and the high evaluation we received

from the outside directors allowed us to once again

recognize the significant level of impact we have on

society. In addition, we have fostered an understanding

among the outside directors regarding the environmen-

tal and regional contribution efforts we are promoting,

and they have indicated to us the importance of confi-

dently communicating these efforts to our stakeholders

and provided us with support to sufficiently do so. We

have reflected the opinions and approaches of the out-

side directors in our 4 Promises, which organize our

CSR priority issues. Going forward, we will steadily

work to fulfill these promises while taking into account

various social issues, starting with those laid out in the

Sustainable Development Goals (SDGs).

Boosting the Corporate Value and Appeal of the Sapporo Group

I feel that discussions on the corporate governance of

listed corporations have evolved over the years. In

response to the Corporate Governance Code, we

intend to implement specific initiatives based on the

themes of the code that are drawing the highest level

of interest. One particular theme of which we are

constantly aware is considering a management struc-

ture and design that can gain the understanding of

outside parties. Accordingly, at the Ordinary General

Meeting of Shareholders held at the end of March

2018, a resolution was passed to revise the Articles of

Incorporation and abolish the Senior Advisor System

to ensure that the former presidents of the Company

do not affect the Company’s current management.

Another important theme is promoting diversity on

the Board of Directors. With the aims of encouraging

interaction between Group personnel and promoting

the active role of women, we took the lead over other

companies in the industry and selected a woman to

serve as an internal member of the Board of Directors

in 2016. We also welcomed Mackenzie Clugston, a

Canadian national, as an outside director following the

innovative and leading-edge examples of general trad-

ing companies. Mr. Clugston has experience serving as

a diplomat in North America and Southeast Asia,

regions that are deeply connected to our businesses,

and also has a vibrant background with close connec-

tions to Japan, including a strong command of the

Japanese language. We believe that he will provide us

with valuable insight that will help us achieve our

Long-Term Management Vision.

Going forward, while taking steps to further invig-

orate discussions with the outside directors and out-

side Audit & Supervisory Board members, we will

promote improvements in terms of our organizational

and management structure and various other aspects,

including the approach for our overseas business

activities, which represent a significant growth driver.

As we work to receive comprehensive and positive

evaluations from our stakeholders, we will maintain

an awareness of the duties we need to fulfill as a

listed company. We will also promote efforts to boost

our corporate value and appeal as a company with

highly unique brands.

June 2018

Tsutomu Kamijo

Chairman and Representative Director

57



Format While Sapporo Holdings is a Company with Company Auditors, we voluntarily established a Nominating Committee and a Compensation Committee in November 1998 and have been making efforts to enhance the transparency of our management relating to the nomination and remuneration of directors, and to preserve a sound management structure. Furthermore, in December 2015, we set up the Outside Director Committee in an effort to strengthen the exchange of information and sharing of knowledge with the independent outside directors regarding such matters as Groupwide management strategies and corporate governance issues.

Governance Digest

By ageBoard of Directors Constituent members

Audit & Supervisory Board Constituent members

Independent outside Audit & Supervisory Board members

Independent outside directors

Female

Under 55 years

2

Under 60 years

3

60 years or older

4

Reasons for appointment of directorsTsutomu Kamijo

Mr. Kamijo has been representative director of the Company since 2011 and has a wealth of experience, a rich track record, and great insight as a manager. The Company has determined that he will be the right administrator and supervisor of overall Group management.

Masaki Oga

Mr. Oga has served as a director of the Company and president and representative director of an operating company, and has a wealth of experience, a rich track record, and great insight as a manager. The Company has determined that he will be the right person to promote Group management and strengthen the corporate governance of the Company.

Hiroyuki Nose

Mr. Nose has wide experience in sales and marketing departments of operating companies and has been in charge of the brand planning department. He therefore has the experience, track record, and insight for marketing strategies. The Company has determined that he will be the right person to formulate and promote the growth strategy of the Sapporo Group.

Shinichi Soya

Mr. Soya has had wide experience in the accounting and finance departments of operating companies and has been in charge of corporate planning and international departments. He therefore has the experience, track record, and insight for overall corporate planning. The Company has determined that he will be the right person to strengthen the Group management structure and global management of the Company.

Mayumi Fukuhara

Ms. Fukuhara has been in charge of the human resource departments of operating companies. She therefore has the experience, track record, and insight for overall human resource strategy. The Company has determined that she will be the right person to promote the diversity and strengthen human resource development of the Sapporo Group.

Ikuya Yoshida

Mr. Yoshida has a wealth of experience, a rich track record, and great insight for the planning and development of new products gained through his employment as a person in charge of the production and technology and product development departments of an operating company. The Company has determined that he will be the right person to promote research and development as well as quality improve-ment at the Sapporo Group.

Shigehiko Hattori

Outside Director

Mr. Hattori has a wealth of experience, a rich track record, and great insight as the president of a business corporation. He also has a wealth of overseas management experience. Mr. Hattori offers pertinent opinions and advice to the Company’s Board of Directors from his objec-tive standpoint, independent of the management team engaged in executing the operations of the Company. The Company has determined that he will contribute greatly to the corporate governance of the Company, which is moving forward with overseas expansion.

Shizuka Uzawa

Outside Director

Mr. Uzawa has a wealth of experience, a rich track record, and great insight as the president of a holding company as well as extensive insight in the treasury and corporate management fields. Mr. Uzawa offers pertinent opinions and advice to the Company’s Board of Directors from his objective standpoint, independent of the management team engaged in executing the operations of the Company. The Company has determined that he will contribute greatly to the corporate governance of the Company in such areas as the strengthening of the Group’s management structure.

Mackenzie Clugston

Outside Director

Mr. Clugston has extensive insight in the fields of diplomacy and trade in North America and Southeast Asia where the Company is pursuing business development. Based on that wealth of experience, rich track record, and great insight, Mr. Clugston can offer pertinent opinions and advice to the Board of Directors of the Company from his objective standpoint, independent of the management team engaged in executing the operations of the Company. The Company has determined that he will contribute greatly to the corporate governance of the Company, which is moving forward with global expansion.

58


Corporate Functions and Internal Control Relationships

Basic Governance ApproachThe Sapporo Group has enacted the Basic Policy on Corporate Governance for the purpose of specifying its thinking and

operational policy regarding corporate governance with the goal of attaining sustained growth and enhanced corporate

value over the medium to long term, and in light of the purport and spirit of the Corporate Governance Code set forth in the

Listing Rules of the Tokyo Stock Exchange.

As part of the policy, the Group’s basic philosophy is to regard strengthening and enhancing corporate governance as one

of its top management priorities. The Group is working to clarify supervisory, business execution, and auditing functions

throughout the Group under the holding company framework. The Group is also working to strengthen management super-

visory functions to increase management transparency and achieve management goals.

For details on the Company’s basic approach to corporate governance, management direction, and other policies, please refer to the Basic Policy on Corporate Governance.

http://www.sapporoholdings.jp/english/ir/management/pdf/basic_governance_approach.pdf

1 Board of DirectorsThe Board of Directors performs a supervisory role and makes decisions on statutory matters and important matters related

to business execution stipulated by the Board’s regulations. The Board of Directors also elects and supervises the business

execution of the representative director, president, directors, Group operating officers, and other key personnel.

About Independent Outside Directors

Three of the nine members of the Company’s Board of Directors are independent outside directors. All three have submitted

notification to the Tokyo Stock Exchange and the Sapporo Securities Exchange of their independent director status as stipu-

lated by the exchange regulations. The independent outside directors are expected to objectively advise and supervise the

management team from a neutral standpoint, based on their high perception. The independent outside directors offer advice

and suggestions from their independent and objective standpoints and are expected to fulfill a role raising corporate value.

Supervision

Appointment / Dismissal

Election/ SupervisionReport

Monitoring

Appointment / Dismissal

1 Board of Directors

Directors

Outside Directors

2 Group Companies

General Meeting of Shareholders

Internal Control/ Risk Management

Advice Audit4 Nominating Committee Compensation Committee

5 Independent Outside Directors CommitteePresident

Accounting Auditor (Independent Auditor)

Legal Advisor (Law Firm)

Management Council

Group Management Council

Group Risk Management Committee

Group Information Protection Committee

Group CSR Committee

Other Expert Committees

3 Audit & Supervisory Board Audit & Supervisory

Board MembersOutside Audit & Supervisory

Board Members

6 Group Audit Department

59


2 Group Operating OfficersThe president controls business execution across the entire Group based on the resolutions of the Board of Directors. The

Group operating officers, under the direct authority of the president, control business execution in the main business segments.

3 Audit & Supervisory BoardSapporo Holdings Ltd. uses the Audit & Supervisory Board Member system, in which Audit & Supervisory Board members,

who are completely independent from the Board of Directors, audit the job performance of directors from an independent

standpoint.

About Independent Outside Audit & Supervisory Board Members

Sapporo Holdings has four Audit & Supervisory Board members, two of whom are independent outside Audit &

Supervisory Board members. Both independent outside Audit & Supervisory Board members have submitted notification

to the Tokyo Stock Exchange and the Sapporo Securities Exchange of their independent auditor status as stipulated by the

exchange regulations. The independent outside Audit & Supervisory Board members audit the duties executed by the

directors from an objective and neutral standpoint, and offer input where fitting to preserve the propriety and appropriate-

ness of decisions by the directors. Similarly, the independent outside Audit & Supervisory Board members are expected to

provide input where needed during discussion on proposals and fulfill a role to secure sound management.

Standards and Policies Regarding Independence of Outside Directors and Outside Audit & Supervisory Board MembersSapporo Holdings’ Nominating Committee recommends personnel as candidates for outside director provided that they

meet the standards for independence set out by financial instrument exchanges that have applied them, and that they have a

strong background, track record, and insight into corporate management or certain specialist fields that will enable them to

offer accurate proposals and advice on the Company’s management issues. Moreover, outside Audit & Supervisory Board

member candidates are required to meet the standards for independence set out by financial instrument exchanges that have

applied them.

For details on the Company’s standards for the independence of outside officers, please refer to the separate document Basic Policy on Corporate Governance.

http://www.sapporoholdings.jp/english/ir/management/pdf/basic_governance_approach.pdf

All of the Company’s outside directors and outside Audit & Supervisory Board members satisfy the applicable standards

of independence specified by the financial instruments exchanges and are therefore registered as independent officers with

the Tokyo Stock Exchange and the Sapporo Securities Exchange.

NameImportant concurrent occupations or positions at other organizations

Policy on independence

Directors

Shigehiko Hattori

Senior Advisor of Shimadzu Corporation

Outside Director of Mitsubishi Tanabe Pharma Corporation

Outside Director of Brother Industries, Ltd.

Outside Director of Meiji Yasuda Life Insurance Company

Outside Auditor on Supervisory Board of Nikkei Inc.

Mr. Hattori was engaged in business execution at Shimadzu Corporation until June 2015. Although said company’s products were purchased by certain plants of the Company’s subsidiaries in the past, the amount of such transactions is immaterial, and the Company has determined Mr. Hattori is unlikely to have a conflict of interest with shareholders. The Company designated Mr. Hattori as an independent director as provided for by the rules of the Tokyo Stock Exchange and the Sapporo Securities Exchange and has notified each of the exchanges of his designation.

Shizuka Uzawa

External Executive Director of Japan Finance Corporation

Outside Director of Nichirei Corporation

Mr. Uzawa was engaged in business execution at Nisshinbo Holdings Inc. until June 2016. No transactions have or are being made between said company and the Company or its subsidiaries, and the Company has determined Mr. Uzawa is unlikely to have a conflict of interest with shareholders. The Company designated Mr. Uzawa as an independent director as provided for by the rules of the Tokyo Stock Exchange and the Sapporo Securities Exchange and has notified each of the exchanges of his designation.

Mackenzie Clugston

Outside Director of KAMEDA SEIKA CO., LTD.

Professor under special tenure program of Kwansei Gakuin University Outside Director of Idemitsu Kosan Co., Ltd.

Mr. Clugston satisfies “Standards for Independence of Outside Officers” estab-lished by the Company. Since September 2016, the Company’s management has been receiving advice from Mr. Clugston as a consultant of the Company. The remuneration paid to Mr. Clugston was compensation for his advice to the Company’s management based on his experience and insight, and such remunera-tion in the business term ended December 31, 2017 was ¥5 million or less; thus the arrangement does not affect Mr. Clugston’s independence.


60


NameImportant concurrent occupations or positions at other organizations

Policy on independence

Audit & Supervisory Board Members

Junya Sato

Lawyer at the Law Offices of Ishizawa, Ko & Sato

Outside Director of Nikki Co., Ltd.

Outside Director of Mitsui Mining & Smelting Co. Ltd.

Outside Audit & Supervisory Board Member of Taisho Pharmaceutical Holdings, Co., Ltd.

Although Mr. Sato has no experience directly managing a company aside from being an outside director or an outside corporate auditor, he has a wealth of practi-cal experience as an attorney, particularly regarding corporate law. The Company has determined that Mr. Sato will be able to monitor the performance of duties by directors of the Company from an objective and fair perspective, and he has been appointed as an outside Audit & Supervisory Board member.Mr. Sato is currently a lawyer at the law offices of Ishizawa, Ko & Sato. No trans-actions have or are being made between said firm and the Company or its subsid-iaries. Accordingly, the Company has determined Mr. Sato is unlikely to have a conflict of interest with shareholders. The Company designated Mr. Sato as an independent Audit & Supervisory Board member as provided for by the rules of the Tokyo Stock Exchange and the Sapporo Securities Exchange and has notified each of the exchanges of his designation.

Kazuo Sugie

As the president of a business corporation, Mr. Sugie has a wealth of experience and highly developed insight based on extensive knowledge and information. The Company has determined that, from his objective and neutral position as an outside Audit & Supervisory Board member, Mr. Sugie will monitor the perfor-mance of duties by directors of the Company and contribute greatly in strength-ening the Company’s Audit & Supervisory Board Member system, and he has been appointed as an outside Audit & Supervisory Board member.Mr. Sugie was involved in business execution at DIC Corporation until March 2015. Although there have been transactions of said company’s products between said company and the Company’s subsidiaries, the amount of such transactions in the most recent business term has been less than 0.1% of either the consoli-dated net sales of the Company or the consolidated net sales of said company. Accordingly, the Company has determined Mr. Sugie is unlikely to have a conflict of interest with shareholders. The Company designated Mr. Sugie as an indepen-dent Audit & Supervisory Board member as provided for by the rules of the Tokyo Stock Exchange and the Sapporo Securities Exchange and has notified each of the exchanges of his designation.

4 Nominating and Compensation CommitteesAlthough Sapporo Holdings is a Company with Company Auditors, it has also established a Nominating Committee and a

Compensation Committee with the goals of increasing transparency with respect to the nomination and remuneration of

directors and preserving a sound management structure. The three outside directors and the president and representative

director generally comprise the four members of both committees, while the committee chair of each committee is selected

from the outside directors. However, regarding the Nominating Committee, when it recommends Audit & Supervisory

Board member candidates, a standing Audit & Supervisory Board member joins the committee, thereby increasing its mem-

bers to five. Furthermore, when choosing president and representative director candidates from among Group operating

officers, the committee chair will stand in place of the incumbent president and representative director on the committee.

5 Outside Director CommitteeIn December 2015, the Company established the Outside Director Committee. This committee works to share information

with the Company’s independent outside officers pertaining to Groupwide management strategies, corporate governance

policies, and other matters, thereby fostering and strengthening a mutual understanding.

Nominating Committee Compensation Committee


Standing Audit & Supervisory Board

member

President and representative

director

The committee chair


President and representative

director

The committee chair

61



Compensation for Directors and Audit & Supervisory Board MembersCompensation for directors is decided within remuneration limits set by the General Meeting of Shareholders. Compensation

consists of a base salary for each director, determined by the duties performed, and that may, based on predetermined criteria,

be adjusted in line with job performance in the previous fiscal year. Compensation for Audit & Supervisory Board members is

also decided within remuneration limits set by the General Meeting of Shareholders, and consists of a base salary for each

Audit & Supervisory Board member calculated in accordance with standards decided by the Audit & Supervisory Board.

The compensation amounts in 2017 were as follows.

Classification Payment recipientPayment amount (Millions of yen)

Directors (including outside directors) 11 (3) 241 (25)

Audit & Supervisory Board members (including outside Audit & Supervisory Board members) 4 (2) 46 (17)

Total (including outside officers) 15 (5) 287 (42)

*1 The Company had nine directors and four Audit & Supervisory members as of December 31, 2017.*2 At the 93rd Ordinary General Meeting of Shareholders held on March 30, 2017, it was determined that director remuneration amounts should not exceed ¥500 million

(however, this amount does not include salaries in instances where employees serve concurrently as directors). At the 83rd Ordinary General Meeting of Shareholders held on March 29, 2007, it was determined that Audit & Supervisory Board member remuneration amounts should not exceed ¥84 million.

*3 The performance-linked, stock-based compensation of ¥34 million was calculated based on the book value.*4 The Company abolished and suspended reserves for its retirement benefit system for directors and Audit & Supervisory Board members at the close of the 80th Annual

Meeting of Shareholders held on March 30, 2004.

Assessment of the Effectiveness of the Board of DirectorsEvery year, the Company conducts an analysis and assessment of the effectiveness of the Board of Directors based on the self-evaluations of each director. The Company also discloses an overview of the results of the analysis and assessment.

(1) Initiatives in Response to the Results of Board of Directors’ Effectiveness Assessment for Fiscal 2016In response to the issues identified based on the results of the Board of Directors’ effectiveness assessment for fiscal 2016, the Company endeavored to create ample opportunities for not only the provision of the information necessary for decision-making processes, including reports starting from the project evaluation stage, but also prior explanations and off-site meetings other than Board of Directors’ meetings, as needed. These efforts were undertaken with the aim of ensuring constructive discussions based on medium- to long-term policies and the direction of management strategies. The Company also implemented officer training sessions and, through factory tours and other means, created opportunities for outside officers to develop an under-standing of the Sapporo Group’s corporate profile, industrial information, and various other important matters.

(2) Results of Board of Directors’ Effectiveness Assessment for Fiscal 2017With respect to the Board of Directors’ effectiveness assessment for fiscal 2017, in continuation of similar practices in fiscal 2016, all directors underwent an anonymous survey. In consideration of the results of this survey, the Board of Directors held a discussion at a Board meeting in December 2017 with the aim of ascertaining the current state of affairs and recognizing current issues. By means of an evaluative comparison with the results of the fiscal 2016 assessment and other similar activities, it was confirmed that there is room for further improvement in regard to the content and the volume of Board of Directors’ meeting materials. It was also verified that, in order to fulfill the First Medium-Term Management Plan 2020, there is a need for all directors to draw on their knowledge and experience to bring about more vigorous discussions. Through the resolution of acknowledged issues and the implementation of continuous assessments that make use of appropriate methods, the Company is making an effort to further improve the effectiveness of its Board of Directors.

62


In addition to the abovementioned payment amounts, Sapporo Holdings has introduced a performance-linked, stock-

based compensation system (Board Benefit Trust, or BBT) for directors (excluding outside directors), and contributed ¥445

million (over three business years) in accordance with the officer stock benefit rules stipulated by the system. The system is

separate from the abovementioned directors compensation, in accordance with a resolution of the 92nd Ordinary General

Meeting of Shareholders held on March 30, 2016. The system applies to Group operating officers of the Company, including

directors (excluding outside directors), and some of the directors of the Company’s subsidiaries, with the total number as of

December 31, 2017 being 28 persons.

6 Internal Audits Under instructions from the president, Sapporo Holdings has established a Group Audit Department as an internal auditing

organization independent of the executive chain of command. The Group Audit Department performs internal audits across

the entire Group, including operating companies and their subsidiaries. The Group Audit Department and the Audit &

Supervisory Board members meet regularly to exchange views on the results of the internal audits, the status of internal

control, and other related matters. The internal audit report of the Group Audit Department is read by the Audit &

Supervisory Board members as part of the information that they share.

Upgrading the Internal Control SystemTo ensure thorough implementation of the basic policies decided by the Board of Directors and carry out ongoing develop-

ment and strengthening of systems across the entire Group, the Board of Directors takes responsibility for appointing direc-

tors with specific responsibilities and promoting specific measures. Moreover, the Guidelines on the Construction of Internal

Control Systems at Sapporo Group have been enacted to set out specific matters in relation to internal control systems at the

Group, and these guidelines are used to confirm the level of progress being made in individual measures and to promote

collaboration.

Risk Management Sapporo Holdings manages risks relating to itself and its subsidiaries and prepares crisis management measures. To achieve a

more robust risk management structure for the entire Group, the Company has formulated basic policies and management

systems for Group risk management, as well as crisis management regulations. Specifically, Sapporo Holdings and its subsid-

iaries upgrade and develop systems for managing risks associated with important decisions made during business execution

or risks inherent to it, and systems for managing crisis situations that may arise. These efforts are governed by the basic

policies for the development of internal control systems.

Compliance The Group has set out the Sapporo Group Code of Business Conduct to provide a solid set of ethical guidelines for the con-

duct of all executives and employees. The Group CSR Committee has created a Groupwide compliance system and estab-

lished a Whistle-Blower’s Hotline and Helpline to help with prevention and early detection of misconduct. In addition, the

Group Audit Department, which is an internal auditing body that is independent of the executive chain of command, audits

the general business operations of Sapporo Holdings and its subsidiaries to ensure compliance with laws and regulations, the

Company’s Articles of Incorporation, and internal rules.

63


Board of Directors, Audit & Supervisory Board Members, and Group Operating Officers

Tsutomu Kamijo Chairman and Representative Director

(January 6, 1954)

Shigehiko Hattori Outside Director (Independent Officer)

(August 21, 1941)

Mackenzie ClugstonOutside Director (Independent Officer)

(June 19, 1950)

Hiroyuki Nose Director

(February 3, 1963)

Mayumi Fukuhara Director

(April 2, 1964)

Masaki Oga President and Representative Director

(December 2, 1958)

Shizuka Uzawa Outside Director (Independent Officer)

(January 30, 1946)

Shinichi Soya Director

(September 20, 1963)

Ikuya Yoshida Director

(December 21, 1961)

Apr. 1976 Joined the Company

Mar. 2001 Director (Member of the Board), Director of Sales Planning Department, of Sapporo Beverage Co., Ltd.

Mar. 2007 Director (Member of the Board), Director of Corporate Planning Department of the Company

Mar. 2009 Managing Director (Member of the Board) of the Company

Mar. 2011 President of Sapporo Beverage Co., Ltd. President of the Company and CEO of the Group

Jan. 2017 Chairman and Representative Director (up to the present)

Apr. 1964 Joined Shimadzu Corporation

June 1993 Director (Member of the Board) of Shimadzu Corporation (seconded to the United States of America)

June 2003 President and Representative Director of Shimadzu Corporation

June 2009 Chairman and Representative Director of Shimadzu Corporation

Mar. 2012 Outside Director (Member of the Board) of the Company (up to the present)

June 2015 Senior Advisor of Shimadzu Corporation (up to the present)


Mar. 2011 Director of Shochu Planning Department, of Sapporo Breweries Limited

Mar. 2013 Director of Brand Planning Department of Sapporo Breweries Limited

Mar. 2015 Director (Member of the Board), Director of Business Planning Department, of the Company (up to the present)

Mar. 2018 Director, Sapporo International Inc. (up to the present)

June 1982 Joined Ministry of Foreign Affairs, Trade and Development Canada

Aug. 2000 Consul General of Canada in Osaka

Aug. 2003 Minister, Embassy of Canada in Japan

Aug. 2009 Ambassador of Canada to the Republic of Indonesia, to the Democratic Republic of Timor-Leste and to the Association of Southeast Asian Nations (ASEAN)

Nov. 2012 Ambassador Extraordinary and Plenipotentiary of Canada to Japan

Sept. 2016 Consultant of the Company



Mar. 2013 Director of Human Resources and General Affairs Department of Sapporo Breweries Limited

Mar. 2014 Director of Human Resources Department of Sapporo Breweries Limited

Mar. 2016 Director (Member of the Board), Director of Human Resources Department of the Company (up to the present)


Oct. 2006 Director, Tokyo Headquarters Office, Tokyo Metropolitan Area Sales and Marketing Division of Sapporo Breweries Limited

Mar. 2009 Operating Officer, Director of Hokkaido Sales & Marketing Division of Sapporo Breweries Limited

Mar. 2010 Director (Member of the Board) and Managing Officer, Director of Marketing Department of Sapporo Breweries Limited

Mar. 2013 President and Representative Director of Sapporo Breweries Limited Director (Member of the Board) and Group Operating Officer of the Company

Mar. 2015 Group Operating Officer of the Company

Jan. 2017 President and Group Operating Officer of the Company

Mar. 2017 President and Representative Director of the Company (up to the present)

Apr. 1969 Joined Nisshinbo Industries, Inc. (currently Nisshinbo Holdings Inc.)

June 2001 Director (Member of the Board), Chief of Accounting and Finance Division of Nisshinbo Industries, Inc.

June 2009 President and Representative Director of Nisshinbo Holdings Inc.

June 2013 Chairman and Representative Director of Nisshinbo Holdings Inc.


June 2016 Advisor of Nisshinbo Holdings Inc.


Oct. 2006 Director of Strategic Planning Department, Hokkaido Headquarters, of Sapporo Breweries Limited

Nov. 2009 Director (Member of the Board) of POKKA CORPORATION (currently POKKA SAPPORO Food & Beverage Ltd.)

Mar. 2015 Director (Member of the Board) and Managing Executive Officer of POKKA SAPPORO Food & Beverage Ltd.

Mar. 2016 Director (Member of the Board), Director of Corporate Finance and Business Management Department of the Company (up to the present)

Mar. 2018 Director, Sapporo International Inc. (up to the present) Director, Sapporo Real Estate Co., Ltd. (up to the present)


Sept. 2010 Director of Kyushu Hita Brewery of Sapporo Breweries Limited. President and Representative Director of Tanoshimaru Shuzo Co., Ltd.

Mar. 2013 Operating Officer and Director of Chiba Brewery of Sapporo Breweries Limited

Mar. 2015 Senior Operating Officer and Director of Chiba Brewery of Sapporo Breweries Limited

Mar. 2017 Director (Member of the Board), Director of Group Research and Development Division of the Company (up to the present)

As of March 29, 2018

64


Board of Directors, Audit & Supervisory Board Members, and Group Operating Officers

Audit & Supervisory Board Members

Group Operating Officers

Shouji Osaki Standing Audit & Supervisory Board Member

(August 17, 1955)

Junya Sato Outside Audit & Supervisory Board Member (Independent Officer)

(May 4, 1953)

Tetsuo Seki Audit & Supervisory Board Member

(July 29, 1938)

Kazuo Sugie Outside Audit & Supervisory Board Member (Independent Officer)

(October 5, 1945)


Mar. 2010 Managing Officer and Director of Tokai Hokuriku District Headquarters, of Sapporo Breweries Limited

Mar. 2013 Standing Audit & Supervisory Board Member of POKKA SAPPORO Food & Beverage Ltd.

Mar. 2015 Standing Audit & Supervisory Board Member of the Company (up to the present)

Apr. 1982 Registered as a lawyer (Daiichi Tokyo Bar Association) Joined the Law Offices of Furness, Sato & Ishizawa (currently the Law Offices of Ishizawa, Ko & Sato) (up to the present)

Oct. 1990 Registered as a lawyer in the state of New York

Apr. 2011 Vice Chairman of Daiichi Tokyo Bar Association

Mar. 2012 Outside Audit & Supervisory Board Member of the Company (up to the present)

Hideya TakashimaExecutive Group Operating OfficerPresident and Representative Director, Sapporo Breweries Limited

Yoshihiro IwataExecutive Group Operating OfficerPresident and Representative Director, POKKA SAPPORO Food & Beverage Ltd.

Yuichiro MiyakeExecutive Group Operating OfficerPresident and Representative Director, Sapporo Lion Limited

Toshiyuki IkomaExecutive Group Operating OfficerPresident and Representative Director, Sapporo Real Estate Co., Ltd.

Toshio MizokamiExecutive Group Operating OfficerPresident and Representative Director, Sapporo Group Management Ltd.

Hirofumi KishiGroup Operating OfficerPresident, Sapporo North America Inc.

Apr. 1963 Joined Yawata Iron & Steel Co., Ltd. (currently NIPPON STEEL & SUMITOMO METAL CORPORATION)

June 1993 Director (Member of the Board) of Nippon Steel Corporation (currently NIPPON STEEL & SUMITOMO METAL CORPORATION)

Mar. 2007 Outside Director (Member of the Board) of the Company (until September 2008)

Oct. 2007 Chairperson of the Japan Audit & Supervisory Board Members Association

Oct. 2008 President and Representative Director of The Shoko Chukin Bank, Ltd.

June 2015 Honorary Advisor of The Shoko Chukin Bank, Ltd. (up to the present)

Mar. 2016 Audit & Supervisory Board Member of the Company (up to the present)

Aug. 1970 Joined Dainippon Ink and Chemicals, Inc. (currently DIC Corporation)

June 2001 Director of Dainippon Ink and Chemicals, Inc.

Apr. 2009 Representative Director, President and CEO of DIC Corporation

Apr. 2012 Chairman of the Board of DIC Corporation

Mar. 2013 Outside Audit & Supervisory Board Member of the Company (up to the present)

Mar. 2015 Senior Advisor of DIC Corporation

65


Eleven-Year Summary of Financial and Non-Financial Data

Millions of yen

For the Year: 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Net sales

Including liquor tax 449,011 414,558 387,534 389,244 449,452 492,490 509,834 518,740 533,748 541,847 551,548

Excluding liquor tax 309,794 284,411 264,604 269,874 336,837 379,792 395,377 401,813 418,319 424,059 433,260

Operating profit before goodwill amortization 13,232 15,552 13,922 16,575 21,994 18,294 19,329 18,493 18,103 24,188 20,987

Operating profit 12,362 14,685 12,895 15,403 18,883 14,414 15,344 14,728 13,950 20,267 17,032

EBITDA 37,759 37,157 36,469 39,080 46,476 44,099 44,388 42,974 42,327 46,529 44,558

Profit attributable to owners of parent 5,508 7,640 4,535 10,772 3,164 5,393 9,451 340 6,108 9,469 10,977

Capital expenditures (cash basis) 19,883 27,342 21,909 19,801 13,422 53,870 13,768 19,133 20,339 21,809 15,253

Depreciation 24,526 21,604 22,546 22,504 24,482 25,805 25,058 24,481 24,224 22,341 23,571

Goodwill amortization 869 867 1,027 1,172 3,110 3,879 3,985 3,764 4,153 3,920 3,954

Cash flows from operating activities 30,690 22,291 12,454 27,431 22,313 29,618 32,861 22,284 35,265 32,570 30,004

Free cash flow 17,195 39,147 (19,773) 24,837 (28,578) (29,867) 19,593 5,055 25,510 4,984 12,182

At Year-End:

Total assets 561,858 527,286 506,874 494,798 550,784 597,636 616,752 625,439 620,388 626,351 630,630

Net assets 125,189 116,862 118,590 126,645 124,775 134,946 155,366 160,004 163,822 166,380 177,662

Net financial liabilities 205,952 166,758 190,406 167,944 209,963 247,891 236,275 237,775 224,310 227,553 220,871

Other Indicators:

Overseas sales ratio (excluding liquor tax) 9.0% 8.8% 8.5% 9.4% 11.0% 14.1% 18.3% 19.2% 22.6% 20.5% 21.2%

Operating profit to net sales

Excluding liquor tax; before goodwill amortization 4.3% 5.5% 5.3% 6.1% 6.5% 4.8% 4.9% 4.6% 4.3% 5.7% 4.8%

Excluding liquor tax 4.0% 5.2% 4.9% 5.7% 5.6% 3.8% 3.9% 3.7% 3.3% 4.8% 3.9%

Net debt-to-equity ratio (times) 1.6 1.4 1.6 1.3 1.7 1.8 1.5 1.5 1.4 1.4 1.2

Equity ratio 22.3% 22.1% 23.4% 25.3% 22.4% 22.1% 24.6% 25.0% 25.5% 25.7% 27.5%

ROE (before goodwill amortization) 5.3% 7.0% 4.7% 9.8% 5.1% 7.3% 9.5% 2.7% 6.5% 8.4% 8.9%

ROE 4.6% 6.3% 3.9% 8.9% 2.5% 4.2% 6.7% 0.2% 3.9% 5.9% 6.6%

Interest coverage ratio*1 (times) 7.2 6.0 3.5 7.6 6.2 8.4 11.9 8.9 14.8 14.9 15.3

Number of employees*2 (people) 4,075 3,858 3,895 3,983 6,649 7,264 7,434 7,014 7,484 7,858 7,902

Groupwide ratio of women in management positions*2, 3 — — — — — — — — 8.1% 7.6% 8.1%

Groupwide CO2 emissions*4 (kt) — — — — — — 304.6 279.6 306.2 305.7 —

Domestic groupwide water use*5 (1,000 m3) — — — — — — 6,861 6,492 6,498 6,500 —

*1 Interest coverage ratio calculated as operating cash flow divided by interest payment.*2 As of December 31st of each period.*3 Percentage of women in management positions at domestic and overseas Group companies.*4 In Japan, uses figures as per periodic report submitted in accordance with Act on Rationalizing Energy Use. Applicable to Sapporo Breweries, POKKA SAPPORO Food & Beverage,

Pokka Create, Sapporo Lion, and Sapporo Real Estate. Applicable to production facilities of overseas Group companies (2013–2014: 4 companies, 2015–2016: 6 companies). Amounts totaled from April to March of the following year.

*5 Applicable to Sapporo Breweries, POKKA SAPPORO Food & Beverage production facilities, Sapporo Lion, and Sapporo Real Estate. Amounts totaled from April to March of the following year.

66


Millions of yen

For the Year: 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Net sales

Including liquor tax 449,011 414,558 387,534 389,244 449,452 492,490 509,834 518,740 533,748 541,847 551,548

Excluding liquor tax 309,794 284,411 264,604 269,874 336,837 379,792 395,377 401,813 418,319 424,059 433,260

Operating profit before goodwill amortization 13,232 15,552 13,922 16,575 21,994 18,294 19,329 18,493 18,103 24,188 20,987

Operating profit 12,362 14,685 12,895 15,403 18,883 14,414 15,344 14,728 13,950 20,267 17,032

EBITDA 37,759 37,157 36,469 39,080 46,476 44,099 44,388 42,974 42,327 46,529 44,558

Profit attributable to owners of parent 5,508 7,640 4,535 10,772 3,164 5,393 9,451 340 6,108 9,469 10,977

Capital expenditures (cash basis) 19,883 27,342 21,909 19,801 13,422 53,870 13,768 19,133 20,339 21,809 15,253

Depreciation 24,526 21,604 22,546 22,504 24,482 25,805 25,058 24,481 24,224 22,341 23,571

Goodwill amortization 869 867 1,027 1,172 3,110 3,879 3,985 3,764 4,153 3,920 3,954

Cash flows from operating activities 30,690 22,291 12,454 27,431 22,313 29,618 32,861 22,284 35,265 32,570 30,004

Free cash flow 17,195 39,147 (19,773) 24,837 (28,578) (29,867) 19,593 5,055 25,510 4,984 12,182

At Year-End:

Total assets 561,858 527,286 506,874 494,798 550,784 597,636 616,752 625,439 620,388 626,351 630,630

Net assets 125,189 116,862 118,590 126,645 124,775 134,946 155,366 160,004 163,822 166,380 177,662

Net financial liabilities 205,952 166,758 190,406 167,944 209,963 247,891 236,275 237,775 224,310 227,553 220,871

Other Indicators:

Overseas sales ratio (excluding liquor tax) 9.0% 8.8% 8.5% 9.4% 11.0% 14.1% 18.3% 19.2% 22.6% 20.5% 21.2%

Operating profit to net sales

Excluding liquor tax; before goodwill amortization 4.3% 5.5% 5.3% 6.1% 6.5% 4.8% 4.9% 4.6% 4.3% 5.7% 4.8%

Excluding liquor tax 4.0% 5.2% 4.9% 5.7% 5.6% 3.8% 3.9% 3.7% 3.3% 4.8% 3.9%

Net debt-to-equity ratio (times) 1.6 1.4 1.6 1.3 1.7 1.8 1.5 1.5 1.4 1.4 1.2

Equity ratio 22.3% 22.1% 23.4% 25.3% 22.4% 22.1% 24.6% 25.0% 25.5% 25.7% 27.5%

ROE (before goodwill amortization) 5.3% 7.0% 4.7% 9.8% 5.1% 7.3% 9.5% 2.7% 6.5% 8.4% 8.9%

ROE 4.6% 6.3% 3.9% 8.9% 2.5% 4.2% 6.7% 0.2% 3.9% 5.9% 6.6%

Interest coverage ratio*1 (times) 7.2 6.0 3.5 7.6 6.2 8.4 11.9 8.9 14.8 14.9 15.3

Number of employees*2 (people) 4,075 3,858 3,895 3,983 6,649 7,264 7,434 7,014 7,484 7,858 7,902

Groupwide ratio of women in management positions*2, 3 — — — — — — — — 8.1% 7.6% 8.1%

Groupwide CO2 emissions*4 (kt) — — — — — — 259.1 239.3 263.7 263.1 —

Domestic groupwide water use*5 (1,000 m3) — — — — — — 6,861 6,492 6,498 6,500 —

*1 Interest coverage ratio calculated as operating cash flow divided by interest payment.*2 As of December 31st of each period.*3 Percentage of women in management positions at domestic and overseas Group companies.*4 In Japan, uses figures as per periodic report submitted in accordance with Act on Rationalizing Energy Use. Applicable to Sapporo Breweries, POKKA SAPPORO Food & Beverage,

Pokka Create, Sapporo Lion, and Sapporo Real Estate. Applicable to production facilities of overseas Group companies (2013–2014: 4 companies, 2015–2016: 6 companies). Amounts totaled from April to March of the following year.

*5 Applicable to Sapporo Breweries, POKKA SAPPORO Food & Beverage production facilities, Sapporo Lion, and Sapporo Real Estate. Amounts totaled from April to March of the following year.

67


Management’s Discussion and Analysis

Business Overview

During the fiscal year under review, the Japanese economy

showed signs of a gradual recovery due to a rebound in

exports and an improved employment environment. On the

other hand, the future outlook of the economy remained

uncertain as geopolitical risks and unfavorable weather placed

downward pressure on investments and personal consumption.

Conditions in the industries in which the Group conducts

operations were as follows.

In the Japanese alcoholic beverages industry, demand declined

due to higher store prices following a revision to Japan’s liquor

tax law, unseasonable summer weather, and the downward

pressure of consumer thriftiness on demand at drinking outlets.

Overseas, the North American beer market performed at a level

lower than that of the previous fiscal year, while the Asian beer

market continued to grow. Demand in the domestic soft drinks

industry was relatively flat. In the real estate industry, vacancy

rates in the office leasing market in the Tokyo metropolitan area

improved, while rent levels rose gradually.

Under these circumstances, in the Japanese Alcoholic

Beverages segment, we focused our efforts on strengthening

core brands under our “Beer Revival Declaration.” Specifically,

we implemented a consistent marketing strategy for our main-

stay beer brand, Sapporo Draft Beer Black Label. Attesting to

the success of this approach, we achieved a sales increase for

the third consecutive year for this brand, amid a decline in

overall beer demand. In non-beer growth areas, we focused on

high-value-added products in the wine and spirits categories,

thereby promoting further diversification.

In the International segment, Sleeman Breweries Ltd. in

Canada and Sapporo U.S.A., Inc., in the United States of America

aggressively implemented sales promotions in the premium beer

markets in North America. Additionally, in September we

acquired Anchor Brewing Company, LLC, in a move to acceler-

ate growth in this region. In the U.S. soft drinks market, while

sales increased at Country Pure Foods, Inc., Silver Springs Citrus,

Inc., was adversely affected by such factors as changing consumer

tastes. In Vietnam, we revised our sales promotion methods and

moved forward with efforts to improve profitability.

In the Food & Soft Drinks segment, we endeavored to

strengthen marketing and lower costs in Japan as part of our

management initiatives. We also concentrated investments on

core brands centered on soft drinks, for which we carefully

select ingredients, as well as lemon-based and soup products,

which are areas where we have a strong competitive edge.

In the Restaurants segment, we continued to open new outlets,

focusing on our core GINZA LION and YEBISU BAR formats,

while closing or changing the formats of unprofitable outlets

in a bid to improve profitability. In Singapore, we continued

with initiatives aimed at spreading the reputation of our

GINZA LION brand throughout the world.

In the Real Estate segment, we continued to enjoy high

occupancy rates at our rental properties. In addition, we pur-

sued efforts to improve the dining area of Yebisu Garden

Place, our core property, in order to enhance its property value

and the appeal of the surrounding area. GINZA PLACE,

a commercial complex conceptualized as a “base for informa-

tion dissemination and exchange,” also contributed to improv-

ing the overall performance of this segment.

In terms of the scope of consolidation, the Company had

57 consolidated subsidiaries and two equity-method affiliates

as of December 31, 2017.

Consolidated Operating Results

Net SalesNet sales increased ¥9,701 million, or 1.8% year on year, to

¥551,548 million.

In the Japanese Alcoholic Beverages segment, despite the

strong performance of beer, which was a result of efforts to

enhance our brands, and the diverse lineup of alcoholic beverage

products, sales declined as sales volumes in the happoshu and

new-genre beer categories were lower than those in the previous

fiscal year. Meanwhile, in the International segment, sales

increased due in part to a rise in the sales volume of the Sapporo

brand and contributions from the frozen fruit juice business of

Country Pure Foods. In the Food & Soft Drinks segment, a rise

in sales volumes of lemon-based and soup products in Japan

was offset by a decline in both domestic and export sales in

Singapore. As a result, sales remained at around the same level

as the previous fiscal year. Sales in the Restaurants segment grew

on the back of solid sales at existing outlets in Japan and full-

year contributions from two new subsidiaries that were consoli-

dated in June 2016—Marushinkawamura Inc. and Ginrin

Suisan Inc. In the Real Estate segment, sales increased thanks in

part to full-year contributions from GINZA PLACE, which

opened in September 2016.

1413

551,548

16 170

100,000

300,000

500,000

400,000

600,000

200,000

15

278,692

69,837

137,89829,14024,13411,845

Net Sales by Segment

Japanese Alcoholic Beverages International Food & Soft Drinks Restaurants Real Estate Other

Millions of yen

68


Cost of Sales and Selling, General and Administrative ExpensesCost of sales rose ¥6,152 million, or 1.7%, year on year to

¥358,572 million, due to the impact of the rise in raw material

costs in the International segment and the depreciation of the

yen. The cost of sales ratio was 65%, the same as in the previ-

ous fiscal year, owing to improved cost of sales ratios in the

Japanese Alcoholic Beverages segment and the Food & Soft

Drinks segment, which helped offset the increase in raw mate-

rial costs in the International segment.

Selling, general and administrative (SG&A) expenses rose

¥6,784 million, or 4.0%, year on year to ¥175,943 million.

This increase was attributable mainly to increases in sales

promotion expenses and labor costs in the Japanese Alcoholic

Beverages segment.

Operating ProfitOperating profit declined ¥3,235 million, or 16.0%, year on

year to ¥17,032 million.

Profits in the Japanese Alcoholic Beverages segment were up

year on year, despite lower sales, as strong sales growth of

beer and multilayered alcoholic beverage products helped

enhance our product mix and reduce manufacturing costs. In

the International segment, robust sales of alcoholic beverages

in North America were offset by lower sales volumes at Silver

Springs Citrus and expenses related to the acquisition of

Anchor Brewing Company, with profits declining as a result.

In the Food & Soft Drinks segment, profits were down due to

such factors as lower sales in Singapore. In the Restaurants

segment, despite solid sales, profits decreased due to the rising

costs of food materials and higher labor costs, among other

factors. In the Real Estate segment, profits were up due to an

increase in rental income at core properties and full-year con-

tributions from GINZA PLACE.

Other Income (Expenses)Other income was ¥769 million, compared with other

expenses of ¥3,863 million in the previous fiscal year.

With regard to net financial income (expenses), calculated

as the sum of interest and dividend income minus interest

expenses, the Company recorded net financial expenses of

¥597 million, which was an improvement from the previous

fiscal year due to lower interest rates.

The Company recorded gain on sales of investment securi-

ties of ¥4,836 million.

On the other hand, the Company recorded foreign exchange

losses totaling ¥86 million.

Loss on retirement of non-current assets of ¥1,068 million

was recorded. This loss was attributable primarily to the reno-

vation of beer production facilities and rental properties.

Impairment loss totaling ¥3,735 million was recorded, due

mainly to a decline in the profitability of beer production

facilities in the International segment and the closing of

unprofitable outlets in the Restaurants segment.

Income Taxes and Profit Attributable to Owners of ParentIncome taxes applicable to the Company, calculated as the sum

of corporation, inhabitants and enterprise taxes, were ¥8,182

million. Income taxes accounted for 46.0% of profit before

income taxes. The difference between this percentage and the

statutory effective tax rate of 31% mainly reflects the recording

of non-deductible depreciation expenses.

As a result, profit attributable to owners of parent increased

¥1,508 million, or 15.9%, year on year to ¥10,977 million.

Financial Position

AssetsTotal assets as of December 31, 2017, stood at ¥630,630 mil-

lion, up ¥4,279 million from a year earlier. This asset growth

reflects increases in notes and accounts receivable—trade, land,

and investment securities, which offset declines related to

amortization of goodwill and long-term loans receivable.

LiabilitiesTotal liabilities came to ¥452,968 million, down ¥7,003 mil-

lion from the end of the previous fiscal year, primarily owing

to decreases in long-term loans payable and net defined benefit

liability, which outweighed increases in short-term loans pay-

able, income taxes payable, and other liability categories.

Net AssetsNet assets totaled ¥177,662 million, an increase of ¥11,282

million from the end of the previous fiscal year. This increase

primarily reflects increases in profit attributable to owners of

parent and valuation difference on other securities, which

offset factors such as an increase in loss attributable to non-

controlling interests and the payment of year-end dividends.

13

551,548

16 17(10,000)

0

20,000

30,000

10,000

(2)

0

4

6

2

15

11,822

5042,685390

4.8%

(5,728)

11,261

14

Operating Profit by Segment (Before Goodwill Amortization) /Operating Margin*

Japanese Alcoholic Beverages International Food & Soft Drinks Restaurants Real Estate Other Companywide elimination Operating margin

* Operating margin calculated as operating profit before goodwill amortization divided by net sales excluding liquor tax.

Millions of yen %

69


Management Indicators

The current ratio declined 0.7 of a percentage point, from 77.4% to 76.7%. This decrease reflects a rise in current assets of ¥4,669 million and an increase in current liabilities of ¥8,050 million due to factors such as an increase in short-term loans payable. The equity ratio rose from 25.7% a year earlier to 27.5%. This increase mainly reflects a rise in shareholders’ equity due to increases in profit attributable to owners of parent and valua-tion difference on other securities, which was partially out-weighed by such factors as the recording of a loss attributable to non-controlling interests and the payment of year-end dividends. Return on equity (ROE) was up from 5.9% in the previous year to 6.6% due to the year-on-year rise in profit attributable to owners of parent.

The debt-to-equity (D/E) ratio, calculated as financial liabili-ties divided by net assets, was 1.3 times due to a decline in financial liabilities from the previous fiscal year.

Analysis of Resources for Capital and Liquidity of Funds

1. Cash FlowsCash and cash equivalents (collectively, “cash”) totaled ¥12,536 million as of December 31, 2017, a ¥2,061 million, or 19.7%, increase from December 31, 2016. The following is an explanation of consolidated cash flows by category and the factors that affected cash flows in each category.

Cash Flows from Operating ActivitiesNet cash provided by operating activities was ¥30,004 million, down ¥2,566 million, or 7.9%, from the previous fiscal year. Major sources of operating cash flow included ¥23,571 million from depreciation and ¥17,801 million from profit before income taxes. The largest cash outflow was the record-ing of ¥5,595 million in income taxes paid.

Cash Flows from Investing ActivitiesNet cash used in investing activities was ¥17,822 million, which was ¥9,764 million, or 35.4%, less than in fiscal 2016. Major investment outflows included ¥13,056 million for purchases of property, plant and equipment and ¥11,622 million for the purchase of subsidiaries’ shares resulting in change in scope of consolidation.

Cash Flows from Financing ActivitiesNet cash used in financing activities came to ¥10,171 million, up ¥5,344 million, or 110.7%, compared with net cash used in the previous fiscal year. The main inflows from financing activities included ¥12,500 million in proceeds from long-term loans payable and ¥9,960 million in proceeds from the issuance of bonds. These inflows were more than offset by outflows including ¥12,603 million for the repayment of long-term loans payable and ¥10,083 million for the redemption of bonds.

Management’s Discussion and Analysis

1413

551,548

16 170

2,000

6,000

10,000

8,000

12,000

4,000

0

2

6

10

8

12

4

15

10,977

6.6%

8.9%

Profit Attributable to Owners of Parent / ROE

Profit attributable to owners of parent ROE (before goodwill amortization) ROE

Millions of yen %

13

551,548

16 170

50,000

150,000

200,000

250,000

100,000

0

0.8

1.6

1.2

2.0

0.4

15

1.3

233,588

14

Financial Liabilities (Gross) / D/E Ratio

Financial liabilities (gross) D/E ratio

Millions of yen Times

13

551,548

16 17(30,000)

(20,000)

0

20,000

30,000

10,000

40,000

(10,000)

15

(10,171)

(17,822)

12,182

30,004

14

Cash Flows

Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Free cash flow

Millions of yen

70


2. Liquidity of FundsThe Sapporo Group has introduced a cash management system (CMS) that enables Sapporo Holdings to centrally manage fund allocation within the Group in Japan. The concentration at the Company of cash flows generated by individual Group companies helps preserve fund liquidity, while flexible and efficient fund allocation within the Group serves to minimize financial liabilities.

3. Procurement of FundsThe Company strives to secure fund procurement channels and liquidity to ensure that there are sufficient funds to cover present and future operating activities, as well as the repayment of debts and other funding needs. The necessary funds are procured mainly from cash flows from operating activities and loans, primarily from financial institutions.

Outlook for Fiscal 2018

In 2018, the second year of the Sapporo Group Long-Term Management Vision “SPEED150” and the First Medium-Term Management Plan 2020, we will redouble our efforts to provide distinctive products and services worldwide in our three core busi-ness areas—“Alcoholic Beverages,” “Food,” and “Soft Drinks”—and expand contact points with customers as we strive to achieve robust growth going forward.

In addition, from fiscal 2018 we have decided to voluntarily apply International Financial Reporting Standards (IFRS) to our con-solidated financial statements. Accordingly, business forecasts for fiscal 2018 were determined on an IFRS basis. The voluntary application of IFRS results in certain types of rebates on product sales being excluded from revenue, which in turn results in revenue on an IFRS basis being less than on the Japanese GAAP basis used until now. Operating profit, meanwhile, is positively affected (increased) by the exclusion of amortization of goodwill, a requirement under Japanese GAAP, but negatively affected (decreased) by the reclassification of income statement line items, changes in the method for calculating retirement benefit expenses, and other accounting changes.

Overall Forecasts

(Millions of yen) Revenue Operating profit Profit before tax Profit attributable to owners of parent

Fiscal 2018 forecast 555,800 18,700 17,700 11,100

Fiscal 2017 result 551,548 17,032 17,801 10,977

Difference (%) 0.8 9.8 (0.6) 1.1

Forecast by Segment

(Millions of yen)Revenue Operating profit

Fiscal 2017 result Fiscal 2018 forecast Difference (%) Fiscal 2017 result Fiscal 2018 forecast Difference (%)

Japanese Alcoholic

Beverages

278,692 272,500 (2.2) 11,767 10,500 (10.8)

International 69,837 81,900 17.3 (1,214) 1,400 —

Food & Soft

Drinks

137,898 135,600 (1.7) 564 3,600 538.2

Restaurants 29,140 28,800 (1.2) 330 100 (69.8)

Real Estate 24,134 24,900 3.2 11,261 10,500 (6.8)

71


Consolidated Balance SheetsDecember 31, 2015, 2016 and 2017

Millions of yen

Thousands of U.S. dollars

2015 2016 2017 2017

Assets

Current assets

Cash and deposits ¥ 10,430 ¥ 10,589 ¥ 12,717 $ 112,497

Notes and accounts receivable—trade 92,335 96,850 98,604 872,221

Merchandise and finished goods 24,912 24,657 24,681 218,319

Raw materials and supplies 13,722 13,315 13,638 120,638

Deferred tax assets 4,457 3,639 3,900 34,499

Other 10,570 15,213 15,413 136,340

Allowance for doubtful accounts (64) (82) (103) (912)

Total current assets 156,364 164,183 168,852 1,493,604

Non-current assets

Property, plant and equipment

Buildings and structures 383,087 393,022 395,836 3,501,426

Accumulated depreciation (213,567) (220,233) (224,311) (1,984,177)

Buildings and structures, net 169,519 172,788 171,524 1,517,248

Machinery, equipment and vehicles 227,534 231,559 230,812 2,041,686


Machinery, equipment and vehicles, net 44,368 43,898 42,419 375,228

Land 105,121 111,636 113,041 999,924

Leased assets 15,498 16,970 15,081 133,403

Accumulated depreciation (7,739) (7,694) (7,131) (63,083)

Leased assets, net 7,758 9,276 7,949 70,320

Construction in progress 6,637 3,694 4,363 38,597

Other 18,487 17,731 17,822 157,648


Other, net 3,636 4,201 4,464 39,487

Total property, plant and equipment 337,042 345,495 343,763 3,040,807

Intangible assets

Goodwill 30,235 27,439 26,948 238,373

Other 10,743 10,511 13,575 120,082

Total intangible assets 40,978 37,950 40,523 358,456

Investments and other assets

Investment securities 61,848 59,296 62,145 549,718

Long-term loans receivable 9,016 4,789 427 3,785

Deferred tax assets 1,009 1,070 1,306 11,556

Other 15,362 14,760 14,827 131,161

Allowance for doubtful accounts (1,234) (1,195) (1,216) (10,756)

Total investments and other assets 86,002 78,721 77,491 685,465

Total non-current assets 464,023 462,168 461,778 4,084,729

Total assets ¥ 620,388 ¥ 626,351 ¥ 630,630 $ 5,578,334

The U.S. dollar amounts represent the Japanese yen exchange rate against the U.S. dollar as of December 31, 2017 ($1 = ¥113.05).

72


Millions of yen


2015 2016 2017 2017

Liabilities

Current liabilities

Notes and accounts payable—trade ¥ 36,772 ¥ 38,503 ¥ 36,530 $ 323,133

Short-term loans payable 65,822 30,337 37,882 335,090

Commercial papers 17,000 33,000 32,000 283,060

Current portion of bonds 10,000 10,083 10,068 89,059

Lease obligations 2,932 3,024 2,690 23,803

Accrued alcohol tax 33,903 34,228 34,408 304,361

Income taxes payable 6,114 1,680 5,202 46,018

Provision for bonuses 2,219 2,980 3,089 27,332

Deposits received 8,824 8,214 7,817 69,148

Other 50,054 50,071 50,484 446,567

Total current liabilities 233,643 212,123 220,173 1,947,575

Non-current liabilities

Bonds payable 50,000 50,128 50,060 442,818

Long-term loans payable 91,919 114,593 103,578 916,214


Deferred tax liabilities 21,216 18,804 21,292 188,345

Net defined benefit liability 7,636 8,995 5,492 48,589

Guarantee deposits received 32,833 33,241 31,086 274,979

Other 13,963 15,115 15,323 135,550

Total non-current liabilities 222,921 247,847 232,794 2,059,218

Total liabilities 456,565 459,971 452,968 4,006,794

Net assets

Shareholders’ equity

Capital stock 53,886 53,886 53,886 476,662

Capital surplus 45,913 46,089 46,090 407,702

Retained earnings 35,189 41,932 50,022 442,481

Treasury shares (1,595) (1,795) (1,806) (15,981)

Total shareholders’ equity 133,394 140,112 148,193 1,310,865

Accumulated other comprehensive income

Valuation difference on other securities 23,926 22,517 25,951 229,556

Deferred gains or losses on hedges (11) 41 (6) (55)

Foreign currency translation adjustment (1,255) (1,943) (818) (7,241)

Remeasurements of defined benefit plans 1,874 (41) 148 1,309

Total accumulated other comprehensive income 24,533 20,574 25,274 223,569

Non-controlling interests 5,894 5,693 4,194 37,105

Total net assets 163,822 166,380 177,662 1,571,539

Total liabilities and net assets ¥620,388 ¥626,351 ¥630,630 $5,578,334

73


Consolidated Statements of Income and Consolidated Statements of Comprehensive IncomeThree years ended December 31

Consolidated Statements of Income

Millions of yen


2015 2016 2017 2017

Net sales ¥533,748 ¥541,847 ¥551,548 $4,878,803

Cost of sales 352,808 352,420 358,572 3,171,805

Gross profit 180,940 189,426 192,976 1,706,997

Selling, general and administrative expenses 166,990 169,159 175,943 1,556,334

Operating profit 13,950 20,267 17,032 150,663

Other income (expenses):

Interest income 252 231 164 1,453

Dividend income 1,123 1,111 1,162 10,282

Interest expenses (2,279) (2,142) (1,924) (17,021)

Share of profit of entities accounted for using equity method 17 15 19 170

Gain on sales of non-current assets 7,453 45 1,977 17,491

Loss on sales of non-current assets (24) (26) (38) (340)

Loss on retirement of non-current assets (1,534) (1,413) (1,068) (9,452)

Impairment loss (5,956) (1,018) (3,735) (33,043)

Gain on sales of investment securities 46 13 4,836 42,778

Gain on valuation of derivatives 468 — — —

Loss on valuation of derivatives — (252) (73) (652)

Foreign exchange losses (537) (217) (86) (767)

Gain on sales of shares of subsidiaries and associates 72 — — —

Subsidy income 322 — — —

Loss on valuation of investment securities (1,758) (22) (273) (2,415)

Compensation expenses (142) (376) (307) (2,716)

Other, net 217 188 117 1,035

Other income (expenses), net (2,259) (3,863) 769 6,803

Profit before income taxes 11,690 16,403 17,801 157,466

Income taxes—current 7,409 6,185 8,243 72,923

Income taxes—deferred (1,830) 838 (61) (543)

Total income taxes 5,578 7,023 8,182 72,379

Profit 6,112 9,380 9,619 85,087

Profit (loss) attributable to non-controlling interests 3 (89) (1,358) (12,018)

Profit attributable to owners of parent ¥ 6,108 ¥ 9,469 ¥ 10,977 $ 97,105


Consolidated Statements of Comprehensive Income

Millions of yen


2015 2016 2017 2017

Profit ¥ 6,112 ¥ 9,380 ¥ 9,619 $ 85,087

Other comprehensive income

Valuation difference on other securities 3,819 (1,408) 3,416 30,218

Deferred gains or losses on hedges (17) 52 (60) (533)

Foreign currency translation adjustment (3,767) (896) 1,019 9,016

Remeasurements of defined benefit plans, net of tax 1,434 (1,915) 189 1,675

Total other comprehensive income 1,467 (4,168) 4,564 40,377

Comprehensive income ¥ 7,579 ¥ 5,211 ¥14,183 $125,464

Comprehensive income attributable to

Comprehensive income attributable to owners of parent ¥ 7,506 ¥ 5,509 ¥15,677 $138,681

Comprehensive income attributable to non-controlling interests 73 (298) (1,494) (13,216)


74


Consolidated Statements of Changes in Net AssetsThree years ended December 31

Millions of yen


2015 2016 2017 2017


Capital stock:

Cumulative effects of changes in accounting policies ¥ — ¥ — ¥ — $ —

Restated balance of current period 53,886 53,886 53,886 476,662

Changes of items during period — — — —

Balance at end of current period ¥ 53,886 ¥ 53,886 ¥ 53,886 $ 476,662

Capital surplus:



Disposal of treasury shares 1 175 1 11


Retained earnings:

Cumulative effects of changes in accounting policies ¥ (3,105) ¥ — ¥ — $ —


Profit attributable to owners of parent 6,108 9,469 10,977 97,105

Dividends of surplus (2,727) (2,726) (2,887) (25,543)


Treasury shares:


Restated balance of current period (1,544) (1,595) (1,795) (15,883)

Purchase of treasury shares (54) (471) (17) (151)


Balance at end of current period (1,595) (1,795) (1,806) (15,981)

Total shareholders’ equity ¥133,394 ¥140,112 ¥148,193 $1,310,865


Valuation difference on other securities:



Net changes of items other than shareholders’ equity 3,813 (1,408) 3,433 30,371


Deferred gains or losses on hedges:


Restated balance of current period (0) (11) 41 366

Net changes of items other than shareholders’ equity (11) 52 (47) (421)

Balance at end of current period ¥ (11) ¥ 41 ¥ (6) $ (55)

Foreign currency translation adjustment:


Restated balance of current period 2,582 (1,255) (1,943) (17,191)

Net changes of items other than shareholders’ equity (3,838) (687) 1,124 9,950

Balance at end of current period ¥ (1,255) ¥ (1,943) ¥ (818) $ (7,241)

Remeasurements of defined benefit plans:


Restated balance of current period 440 1,874 (41) (365)

Net changes of items other than shareholders’ equity 1,434 (1,915) 189 1,675

Balance at end of current period 1,874 (41) 148 1,309

Total accumulated other comprehensive income ¥ 24,533 ¥ 20,574 ¥ 25,274 $ 223,569

Non-controlling interests



Net changes of items other than shareholders’ equity 2,193 (200) (1,498) (13,258)

Balance at end of current period 5,894 5,693 4,194 37,105

Total net assets ¥163,822 ¥166,380 ¥177,662 $1,571,539


75


Consolidated Statements of Cash FlowsThree years ended December 31

Millions of yen


2015 2016 2017 2017Cash flows from operating activities Profit before income taxes ¥ 11,690 ¥ 16,403 ¥ 17,801 $ 157,466

Depreciation 24,224 22,341 23,571 208,502

Impairment loss 5,956 1,018 3,735 33,043

Amortization of goodwill 4,153 3,920 3,954 34,980

Increase (decrease) in net defined benefit liability 446 (1,720) (3,229) (28,568)

Increase (decrease) in allowance for doubtful accounts (137) (53) 34 307

Interest and dividend income (1,376) (1,342) (1,326) (11,735)

Interest expenses 2,279 2,142 1,924 17,021

Loss (gain) on sales of non-current assets (7,453) (45) (1,977) (17,491)

Loss (gain) on sales and retirement of non-current assets 1,559 1,440 1,107 9,792

Loss (gain) on sales of investment securities (46) (13) (4,836) (42,778)

Loss (gain) on valuation of investment securities 1,758 22 273 2,415

Decrease (increase) in notes and accounts receivable—trade (2,779) (3,756) (1,152) (10,197)

Decrease (increase) in inventories (1,211) 968 196 1,734

Increase (decrease) in notes and accounts payable—trade (202) 1,608 (2,336) (20,670)

Increase (decrease) in accrued consumption taxes (3,057) (807) 291 2,576

Increase (decrease) in accrued alcohol tax 457 338 131 1,166

Increase (decrease) in deposits received (729) (623) (401) (3,553)

Increase (decrease) in guarantee deposits received 496 350 (2,155) (19,065)

Increase (decrease) in other current liabilities 376 173 316 2,802

Other, net (447) 1,999 (425) (3,766)

Subtotal 35,957 44,364 35,495 313,983

Interest and dividend income received 1,380 1,359 1,382 12,232

Interest expenses paid (2,384) (2,190) (1,963) (17,368)

Income taxes paid (2,944) (10,986) (5,595) (49,499)

Income taxes refund 3,257 22 685 6,063

Net cash provided by (used in) operating activities 35,265 32,570 30,004 265,411

Cash flows from investing activities Purchase of property, plant and equipment (18,298) (19,748) (13,056) (115,491)

Proceeds from sales of property, plant and equipment 19,563 428 3,085 27,296

Purchase of intangible assets (2,041) (2,060) (2,197) (19,435)

Purchase of investment securities (875) (235) (1,020) (9,026)

Proceeds from sales and redemption of investment securities 511 137 8,278 73,226

Purchase of shares of subsidiaries and associates (3,260) (154) (298) (2,637)

Proceeds from sales of shares of subsidiaries and associates 1,794 — — —

Purchase of shares of subsidiaries resulting in change in scope of consolidation (3,989) (438) (11,622) (102,810)

Payments for transfer of business — (1,493) — —

Increase in long-term loans receivable (304) (77) (68) (605)

Collection of long-term loans receivable 417 167 4,265 37,735

Other, net (3,273) (4,112) (5,189) (45,905)

Net cash provided by (used in) investing activities (9,755) (27,586) (17,822) (157,655)

Cash flows from financing activities Net increase (decrease) in short-term loans payable (3,366) (1,248) (3,076) (27,210)

Net increase (decrease) in commercial papers (13,000) 16,000 (1,000) (8,845)

Proceeds from long-term loans payable 14,319 32,746 12,500 110,570

Repayments of long-term loans payable (16,625) (46,594) (12,603) (111,481)

Proceeds from issuance of bonds 9,960 9,960 9,960 88,102

Redemption of bonds (12,000) (10,016) (10,083) (89,192)

Cash dividends paid (2,730) (2,730) (2,893) (25,590)

Dividends paid to non-controlling interests (28) (9) (19) (174)

Repayments of finance lease obligations (3,039) (2,910) (2,946) (26,066)


Proceeds from sales of treasury shares 4 447 7 65

Proceeds from share issuance to non-controlling shareholders 1,760 — — —

Net cash provided by (used in) financing activities (24,802) (4,827) (10,171) (89,974)

Effect of exchange rate change on cash and cash equivalents (56) (79) 50 450

Net increase (decrease) in cash and cash equivalents 651 76 2,061 18,232

Cash and cash equivalents at beginning of period 9,748 10,399 10,475 92,663

Cash and cash equivalents at end of period ¥ 10,399 ¥ 10,475 ¥ 12,536 $ 110,895


76


List of Group Companies

■ Consolidated subsidiary ● Equity-method affiliate

Company Name Business Lines


■ SAPPORO BREWERIES LIMITED Manufacture and sale of beer, wine and other alcoholic beverages

■ YEBISU WINEMART CO., LTD. Sale of alcoholic beverages, foods, and sundries

■ TANOSHIMARU SHUZO CO., LTD. Manufacture and sale of shochu

■ STARNET CO., LTD. In-store merchandising/draft beer quality improvement

■ SHINSEIEN CO., LTD. Operation of restaurants

● KEIYO UTILITY CO., LTD. Comprehensive management service for Keiyo combinat

International ■ SAPPORO INTERNATIONAL INC. Manage international liquor subsidiaries; others

■ SAPPORO NORTH AMERICA INC. Overseas Alcoholic Beverages subsidiary holding companies

■ SAPPORO U.S.A., INC. Sale of beer

■ ANCHOR BREWING COMPANY, LLC Manufacture and sale of beer

■ SAPPORO CANADA INC. Overseas Alcoholic Beverages subsidiary holding companies

■ SLEEMAN BREWERIES LTD. Manufacture and sale of beer

■ SAPPORO ASIA PRIVATE LIMITED Overseas Alcoholic Beverages subsidiary holding companies

■ SAPPORO VIETNAM LIMITED Manufacture and sale of beer

■ COUNTRY PURE FOODS, INC. Manufacture and sale of chilled beverages

13 other companies

Food & Soft Drinks ■ POKKA SAPPORO FOOD & BEVERAGE LTD. Beverage & food businesses, restaurant business, etc.

■ POKKA SAPPORO HOKKAIDO LTD. Sale and marketing of beverages and foods

■ OKINAWA POKKA CORPORATION CO., LTD. Sale and marketing of beverages and foods

■ POKKA CREATE CO., LTD. Operation of café chain

■ FOREMOST BLUE SEAL, LTD. Manufacture and sale of ice cream; operation of restaurants

■ PS BEVERAGE LTD. Operation of vending machines; tea dispenser business

■ PUBLIC VENDING SERVICE LTD. Operation of vending machines

■ OKINAWA SUN POKKA CO., LTD. Operation of vending machines

■ STAR BEVERAGE SERVICE CO., LTD. Operation of vending machines

■ IWATA POKKA FOODS CO., LTD. Manufacture of foods

■ OKINAWA POKKA FOODS CO., LTD. Manufacture of beverages and foods

■ POKKA CORPORATION (SINGAPORE) PTE. LTD. Manufacture and sale of beverages

■ POKKA INTERNATIONAL PTE. LTD. Sale and marketing of beverages

■ POKKA (MALAYSIA) SDN. BHD. Manufacture and sale of beverages

■ POKKA ACE (M) SDN. BHD. Manufacture and sale of beverages

■ PT. POKKA DIMA INTERNATIONAL Manufacture and sale of beverages

1 other company

Restaurants ■ SAPPORO LION LIMITED Operation of restaurants

■ NEW SANKO INC. Operation of restaurants

■ MARUSHINKAWAMURA. INC. Operation of restaurants

■ GINRIN SUISAN. INC. Sale of fresh fish, operation of restaurants

■ SAPPORO LION (SINGAPORE) PTE. LTD. Operation of restaurants; manufacture and sale of fresh cakes and patisseries

Real Estate ■ SAPPORO REAL ESTATE CO., LTD. Leasing and rental of real estate, real estate development, operation of restaurants

■ YGP REAL ESTATE CO., LTD. Sale of real estate, rental management for real estate

■ TOKYO ENERGY SERVICE CO., LTD. Utility services

■ YOKOHAMA KEIWA BUILDING CO., LTD. Real estate rental

● THE CLUB AT YEBISU GARDEN CO., LTD. Real estate rental

Other Companies ■ SAPPORO GROUP MANAGEMENT LTD. Acts in a corporate capacity for the Sapporo Group and handles Groupwide operational tasks

■ SAPPORO GROUP LOGISTICS CO., LTD. Consigned freight forwarding, cargo handling, and ware-housing; packaging and distribution processing, etc.

■ SAPPORO LOGISTICS SYSTEMS CO., LTD. Freight forwarding, cargo handling, and warehousing; distribution processing, etc.

■ SHINSYU-ICHI MISO CO., LTD. Manufacture and sale of miso, instant miso soup, and freeze-dried products

Consolidated subsidiaries: 57, equity-method affiliates: 2


77


Corporate Data

Corporate Information Stock Information

Trends in Stock Price and Volume

Breakdown of Shareholders by Investor Type

Company Name SAPPORO HOLDINGS LIMITED

Business Holding company

Date of Establishment September 1, 1949

Head Office 20-1, Ebisu 4-chome, Shibuya-ku, Tokyo 150-8522, Japan

Capital ¥53,886 million

Fiscal Year-End Date December 31 on an annual basis

Number of Employees 7,902 (Consolidated) 187 (Parent company)

Total Number of Authorized Shares

200,000,000

Total Number of Issued Shares

78,794,298

Number of Shareholders 53,667

Securities Traded Tokyo Stock Exchange, First SectionSapporo Securities Exchange(Securities Code: 2501)

Shareholder Register Manager

Mizuho Trust & Banking Co., Ltd.

Major Shareholders

Name of ShareholderNumber of

Shares (Thousands)

Percentage (%)

The Master Trust Bank of Japan, Ltd. 4,916 6.30

Japan Trustee Services Bank, Ltd. 3,362 4.31

STATE STREET BANK AND TRUST COMPANY 505001 2,546 3.26

Trust & Custody Services Bank, Ltd., as retirement benefit trust

assets Mizuho Trust and Banking Co., Ltd.2,442 3.13

Nippon Life Insurance Company 2,237 2.87

Meiji Yasuda Life Insurance Company 2,236 2.87

The Norinchukin Bank 1,875 2.40

Mizuho Bank, Ltd. 1,806 2.32

Marubeni Corporation 1,649 2.11

Trust & Custody Services Bank, Ltd., as trustee for Mizuho Bank Ltd.

Retirement Benefit Trust Account re-entrusted by

Mizuho Trust and Banking Co., Ltd.

1,594 2.04

150 20,000

125 15,000

100 10,000

75

0 0

5,000

2015 2016 2017

*1 The stock prices of Sapporo Holdings and TOPIX are indexed with the closing price data of December 2014 set at 100.*2 Stock prices have been adjusted to reflect the impact of the stock consolidation.

Note: Shareholding ratios are calculated after deduction of treasury stock (752,472).

● Japanese financial institutions 32,259 thousand

● Foreign institutions and individuals 16,230 thousand

● Japanese individuals 15,570 thousand

● Japanese corporations 12,815 thousand

● Japanese securities firms 1,166 thousand

● Treasury stock 752 thousand

0.95%

40.94%

20.60%

19.76%

16.26%

1.48%

Sapporo Holdings TOPIX Volume (thousand)


78


Website InformationFor further details (activities by each business,

financial and non-financial data, CSR, governance

information, etc.), please visit our Company website.

Investor Relations

http://www.sapporoholdings.jp/english/ir/index.html

CSR

http://www.sapporoholdings.jp/english/csr/index.html

Outside Evaluations

Included in SRI Indices

• FTSE4Good Global Index (FTSE Russell, the United Kingdom)

• FTSE Blossom Japan Index (FTSE Russell, the United Kingdom)

• MSCI Japan ESG Select Leaders Index (MSCI Inc., the United States)

• SNAM Sustainability Index (Sompo Japan Nipponkoa Asset Management, Japan)

Major Evaluations and Awards for Our R&D Activities • Best Poster Award at the 36th European Brewery Convention Title: Identification of geranic acid* contributing to the varietal

aroma of Sorachi Ace and synergy with other hop-derived flavor compounds.

* Geranic acid is an organic compound found in citrus and wine and produces a woody- and lemongrass-like aroma.

• Industrial Award for Food Immunization from the Japanese Association for Food Immunology

Reason for receiving award: Verified the allergy prevention proper-ties of hops and the anti-inflammatory properties of Lactobacillus brevis SBC8803 through fundamental research and undertook clinical studies to pave the way for the practical application of the effects of these materials.

• The Brewing Society of Japan Technology Award from the Brewing Society of Japan

Title: Beer proteome analysis for improvement of foam quality, and its application to malting barley breeding.

• Topics Award from the Japan Society for Bioscience, Biotechnology, and Agrochemistry

Identification and characterization of unique flavor compounds contributing to the specific flavor of the Japanese hop Sorachi Ace.

• Human Communication Award from the Institute of Electronics, Information and Communication Engineers

Title: Interaction among sweetness, sourness, and lemon flavor on sensory evaluation of lemon-flavor beverages.

• Award of Excellence from the Japan Transporter Research Association

Title: Xanthohumol, a hop-derived prenylated flavonoid, promotes urate excretion from the intestine.

79


SAPPORO HOLDINGS LIMITED20-1, Ebisu 4-chome, Shibuya-ku, Tokyo 150-8522, Japan

http://www.sapporoholdings.jp/english/ Printed in Japan

Contents

1. Consolidated Financial Statements: P.1~

2. Notes to the Consolidated Financial Statements: P.9~

3. Independent Auditor's Report: P.77

Financial Section 2017

- 1 -

1. Consolidated Financial Statements(1) Consolidated Financial Statements

i) Consolidated Balance Sheets

(Millions of yen) (Thousands of U.S. dollars)

As of December 31,

2015 December 31,

2016 December 31,

2017 December 31,

2017

Assets Current assets

Cash and deposits (Note 4) 10,430 10,589 12,717 112,497 Notes and accounts receivable – trade (Note 2)

92,335 96,850 98,604 872,221

Merchandise and finished goods (Note 4) 24,912 24,657 24,681 218,319 Raw materials and supplies (Note 4) 13,722 13,315 13,638 120,638 Deferred tax assets 4,457 3,639 3,900 34,499 Other 10,570 15,213 15,413 136,340Allowance for doubtful accounts (64) (82) (103) (912)

Total current assets 156,364 164,183 168,852 1,493,604

Non-current assets Property, plant and equipment

Buildings and structures (Notes 3 and 4)

383,087 393,022 395,836 3,501,426


Buildings and structures, net 169,519 172,788 171,524 1,517,248

Machinery, equipment and vehicles 227,534 231,559 230,812 2,041,686 Accumulated depreciation (183,165) (187,660) (188,393) (1,666,457)

Machinery, equipment and vehicles, net

44,368 43,898 42,419 375,228

Land (Notes 3 and 4) 105,121 111,636 113,041 999,924 Leased assets 15,498 16,970 15,081 133,403


Leased assets, net 7,758 9,276 7,949 70,320

Construction in progress 6,637 3,694 4,363 38,597 Other 18,487 17,731 17,822 157,648


Other, net 3,636 4,201 4,464 39,487

Total property, plant and equipment 337,042 345,495 343,763 3,040,807

Intangible assetsGoodwill 30,235 27,439 26,948 238,373Other 10,743 10,511 13,575 120,082

Total intangible assets 40,978 37,950 40,523 358,456

Investments and other assets Investment securities (Notes 1 and 4) 61,848 59,296 62,145 549,718 Long-term loans receivable 9,016 4,789 427 3,785 Deferred tax assets 1,009 1,070 1,306 11,556 Other (Notes 1 and 4) 15,362 14,760 14,827 131,161 Allowance for doubtful accounts (1,234) (1,195) (1,216) (10,756)

Total investments and other assets 86,002 78,721 77,491 685,465

Total non-current assets 464,023 462,168 461,778 4,084,729

Total assets 620,388 626,351 630,630 5,578,334

The accompanying notes to consolidated financial statements are an integral part of these statements.

- 2 -

(Millions of yen) (Thousands of

U.S. dollars)

As of December 31,

2015 December 31,

2016 December 31,

2017

December 31, 2017

Liabilities Current liabilities

Notes and accounts payable – trade (Note 2)

36,772 38,503 36,530 323,133

Short-term loans payable (Note 4) 65,822 30,337 37,882 335,090 Commercial papers 17,000 33,000 32,000 283,060 Current portion of bonds 10,000 10,083 10,068 89,059 Lease obligations 2,932 3,024 2,690 23,803 Accrued alcohol tax 33,903 34,228 34,408 304,361 Income taxes payable 6,114 1,680 5,202 46,018 Provision for bonuses 2,219 2,980 3,089 27,332 Deposits received 8,824 8,214 7,817 69,148 Other 50,054 50,071 50,484 446,567

Total current liabilities 233,643 212,123 220,173 1,947,575

Non-current liabilities Bonds payable 50,000 50,128 50,060 442,818 Long-term loans payable (Note 4) 91,919 114,593 103,578 916,214 Lease obligations 5,353 6,968 5,960 52,721 Deferred tax liabilities 21,216 18,804 21,292 188,345 Net defined benefit liability 7,636 8,995 5,492 48,589 Guarantee deposits received 32,833 33,241 31,086 274,979 Other 13,963 15,115 15,323 135,550

Total non-current liabilities 222,921 247,847 232,794 2,059,218

Total liabilities 456,565 459,971 452,968 4,006,794

Net assets Shareholders’ equity

Capital stock 53,886 53,886 53,886 476,662 Capital surplus 45,913 46,089 46,090 407,702 Retained earnings 35,189 41,932 50,022 442,481 Treasury shares (1,595) (1,795) (1,806) (15,981)


Accumulated other comprehensive income Valuation difference on other securities 23,926 22,517 25,951 229,556 Deferred gains or losses on hedges (11) 41 (6) (55)Foreign currency translation adjustment (1,255) (1,943) (818) (7,241)Remeasurements of defined benefit plans

1,874 (41) 148 1,309

Total accumulated other comprehensive income

24,533 20,574 25,274 223,569

Non-controlling interests 5,894 5,693 4,194 37,105

Total net assets 163,822 166,380 177,662 1,571,539

Total liabilities and net assets 620,388 626,351 630,630 5,578,334


- 3 -

ii) Consolidated Statements of Income and Consolidated Statements of Comprehensive Income



U.S. dollars)

For the fiscal year ended December 31,

2015 December 31,

2016 December 31,

2017

December 31, 2017

Net sales 533,748 541,847 551,548 4,878,803 Cost of sales (Notes 1 and 3) 352,808 352,420 358,572 3,171,805

Gross profit 180,940 189,426 192,976 1,706,997 Selling, general and administrative expenses (Notes 2 and 3)

166,990 169,159 175,943 1,556,334

Operating profit 13,950 20,267 17,032 150,663

Other income (expenses): Interest income 252 231 164 1,453 Dividend income 1,123 1,111 1,162 10,282 Interest expenses (2,279) (2,142) (1,924) (17,021)Share of profit of entities accounted for using equity method

17 15 19 170

Gain on sales of non-current assets (Note 4) 7,453 45 1,977 17,491 Loss on sales of non-current assets (Note 5) (24) (26) (38) (340)Loss on retirement of non-current assets (Note 6)

(1,534) (1,413) (1,068) (9,452)

Impairment loss (Note 7) (5,956) (1,018) (3,735) (33,043)Gain on sales of investment securities 46 13 4,836 42,778 Gain on valuation of derivatives 468 – – – Loss on valuation of derivatives – (252) (73) (652)Foreign exchange losses (537) (217) (86) (767)Gain on sales of shares of subsidiaries and associates

72 – – –

Subsidy income 322 – – – Loss on valuation of investment securities (1,758) (22) (273) (2,415)Compensation expenses (142) (376) (307) (2,716)Other, net 217 188 117 1,035

Other income (expenses), net (2,259) (3,863) 769 6,803

Profit before income taxes 11,690 16,403 17,801 157,466

Income taxes - current 7,409 6,185 8,243 72,923 Income taxes – deferred (1,830) 838 (61) (543)

Total income taxes 5,578 7,023 8,182 72,379

Profit 6,112 9,380 9,619 85,087 Profit (loss) attributable to non-controlling interests

3 (89) (1,358) (12,018)



- 4 -



U.S. dollars)


2015 December 31,

2016 December 31,

2017

December 31, 2017

Profit 6,112 9,380 9,619 85,087Other comprehensive income

Valuation difference on other securities 3,819 (1,408) 3,416 30,218Deferred gains or losses on hedges (17) 52 (60) (533)Foreign currency translation adjustment (3,767) (896) 1,019 9,016Remeasurements of defined benefit plans, net of tax

1,434 (1,915) 189 1,675

Total other comprehensive income (Note 1) 1,467 (4,168) 4,564 40,377

Comprehensive income 7,579 5,211 14,183 125,464

Comprehensive income attributable to Comprehensive income attributable to owners of parent

7,506 5,509 15,677 138,681

Comprehensive income attributable to non-controlling interests

73 (298) (1,494) (13,216)


- 5 -

iii) Consolidated Statements of Changes in Net Assets


U.S. dollars)


2015 December 31,

2016 December 31,

2017

December 31, 2017


Capital stock:

Cumulative effects of changes in accounting policies

– – – –


Changes of items during period – – – –


Capital surplus:


– – – –




Retained earnings:


(3,105) – – –



Dividends of surplus (2,727) (2,726) (2,887) (25,543)


Treasury shares:


– – – –

Restated balance of current period (1,544) (1,595) (1,795) (15,883)



Balance at end of current period (1,595) (1,795) (1,806) (15,981)





– – – –


Net changes of items other than shareholders’ equity

3,813 (1,408) 3,433 30,371




– – – –

Restated balance of current period (0) (11) 41 366


(11) 52 (47) (421)

Balance at end of current period (11) 41 (6) (55)



– – – –

Restated balance of current period 2,582 (1,255) (1,943) (17,191)


(3,838) (687) 1,124 9,950

Balance at end of current period (1,255) (1,943) (818) (7,241)

- 6 -


U.S. dollars)


2015 December 31,

2016 December 31,

2017

December 31, 2017

Remeasurements of defined benefit plans:


– – – –

Restated balance of current period 440 1,874 (41) (365)


1,434 (1,915) 189 1,675

Balance at end of current period 1,874 (41) 148 1,309

Total accumulated other comprehensive income

24,533 20,574 25,274 223,569

Non-controlling interests


– – – –



2,193 (200) (1,498) (13,258)

Balance at end of current period 5,894 5,693 4,194 37,105Total net assets 163,822 166,380 177,662 1,571,539


- 7 -

iv) Consolidated Statements of Cash Flows


U.S. dollars)


2015 December 31,

2016 December 31,

2017

December 31, 2017

Cash flows from operating activities Profit before income taxes 11,690 16,403 17,801 157,466 Depreciation 24,224 22,341 23,571 208,502 Impairment loss 5,956 1,018 3,735 33,043 Amortization of goodwill 4,153 3,920 3,954 34,980 Increase (decrease) in net defined benefit liability

446 (1,720) (3,229) (28,568)

Increase (decrease) in allowance for doubtful accounts

(137) (53) 34 307

Interest and dividend income (1,376) (1,342) (1,326) (11,735)Interest expenses 2,279 2,142 1,924 17,021 Loss (gain) on sales of non-current assets (7,453) (45) (1,977) (17,491)Loss (gain) on sales and retirement of non-current assets

1,559 1,440 1,107 9,792

Loss (gain) on sales of investment securities

(46) (13) (4,836) (42,778)

Loss (gain) on valuation of investment securities

1,758 22 273 2,415

Decrease (increase) in notes and accounts receivable – trade

(2,779) (3,756) (1,152) (10,197)

Decrease (increase) in inventories (1,211) 968 196 1,734 Increase (decrease) in notes and accounts payable – trade

(202) 1,608 (2,336) (20,670)

Increase (decrease) in accrued consumption taxes

(3,057) (807) 291 2,576

Increase (decrease) in accrued alcohol tax 457 338 131 1,166 Increase (decrease) in deposits received (729) (623) (401) (3,553)Increase (decrease) in guarantee deposits received

496 350 (2,155) (19,065)

Increase (decrease) in other current liabilities

376 173 316 2,802

Other, net (447) 1,999 (425) (3,766)

Subtotal 35,957 44,364 35,495 313,983

Interest and dividend income received 1,380 1,359 1,382 12,232 Interest expenses paid (2,384) (2,190) (1,963) (17,368)Income taxes paid (2,944) (10,986) (5,595) (49,499)Income taxes refund 3,257 22 685 6,063

Net cash provided by (used in) operating activities

35,265 32,570 30,004 265,411


- 8 -


U.S. dollars)


2015 December 31,

2016 December 31,

2017

December 31, 2017

Cash flows from investing activities Purchase of property, plant and equipment (18,298) (19,748) (13,056) (115,491)Proceeds from sales of property, plant and equipment

19,563 428 3,085 27,296

Purchase of intangible assets (2,041) (2,060) (2,197) (19,435)Purchase of investment securities (875) (235) (1,020) (9,026)Proceeds from sales and redemption of investment securities

511 137 8,278 73,226

Purchase of shares of subsidiaries and associates

(3,260) (154) (298) (2,637)

Proceeds from sales of shares of subsidiaries and associates

1,794 – – –

Purchase of shares of subsidiaries resulting in change in scope of consolidation (Notes 2 and 3)

(3,989) (438) (11,622)

(102,810)

Payments for transfer of business (Note 4) – (1,493) – – Increase in long-term loans receivable (304) (77) (68) (605)Collection of long-term loans receivable 417 167 4,265 37,735 Other, net (3,273) (4,112) (5,189) (45,905)

Net cash provided by (used in) investing activities

(9,755) (27,586) (17,822) (157,655)

Cash flows from financing activities Net increase (decrease) in short-term loans payable

(3,366) (1,248) (3,076) (27,210)

Net increase (decrease) in commercial papers

(13,000) 16,000 (1,000) (8,845)

Proceeds from long-term loans payable 14,319 32,746 12,500 110,570 Repayments of long-term loans payable (16,625) (46,594) (12,603) (111,481)Proceeds from issuance of bonds 9,960 9,960 9,960 88,102 Redemption of bonds (12,000) (10,016) (10,083) (89,192)Cash dividends paid (2,730) (2,730) (2,893) (25,590)Dividends paid to non-controlling interests (28) (9) (19) (174)Repayments of finance lease obligations (3,039) (2,910) (2,946) (26,066)Purchase of treasury shares (56) (471) (17) (151)Proceeds from sales of treasury shares 4 447 7 65 Proceeds from share issuance to non-controlling shareholders

1,760 – – –

Net cash provided by (used in) financing activities

(24,802) (4,827) (10,171) (89,974)

Effect of exchange rate change on cash and cash equivalents

(56) (79) 50 450

Net increase (decrease) in cash and cash equivalents

651 76 2,061 18,232

Cash and cash equivalents at beginning of period

9,748 10,399 10,475 92,663

Cash and cash equivalents at end of period (Note 1)

10,399 10,475 12,536

110,895


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Notes to the Consolidated Financial Statements

Basis of Presentation

Sapporo Holdings Limited (the “Company”) and its consolidated subsidiaries maintain their accounting records and prepare their financial statements in accordance with accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards. The accompanying financial statements have been compiled from the consolidated financial statements prepared by the Company as required by the Financial Instruments and Exchange Act of Japan.

Certain reclassifications of previously reported amounts have been made to reconcile the consolidated financial statements for the years ended December 31, 2015 and 2016 to the 2017 presentation.

For the convenience of the reader, the accompanying consolidated financial statements as of and for the year ended December 31, 2017 have been translated from yen amounts into U.S. dollar amounts at the rate of ¥113.05=U.S.$1.00, the exchange rate as of December 31, 2017.

Uncertainties of Entity’s Ability to Continue as Going Concern

Not applicable

Significant Accounting Policies for Preparation of Consolidated Financial Statements

1. Disclosure of scope of consolidation

(1) Consolidated subsidiaries

The Company has 57 consolidated subsidiaries (55 as of December 31, 2016 and 54 as of December 31, 2015)

(Increase due to new establishment)

SAPPORO NORTH AMERICA, INC.

(Increase due to equity acquisition)

Anchor Brewing Company, LLC and one other company

(Extinction by merger)

Sapporo Engineering Limited

(2) Unconsolidated subsidiaries

Sapporo Energy Service Co., Ltd. and others

None of total assets, net sales, profit or loss (amount corresponding to the Company’s equity interest) and retained earnings (amount corresponding to the Company’s equity interest) of unconsolidated subsidiaries on aggregate has significant effects on the consolidated financial statements.

2. Disclosure about application of equity method

(1) Associates accounted for using equity method

The Company has 2 associates accounted for using equity method (2 as of December 31, 2016 and 2 as of December 31, 2015)

(2) Companies not accounted for using equity method

Since unconsolidated subsidiaries (Sapporo Energy Service Co., Ltd. and others) and associates (SAITAMA ARENA Co., Ltd. and others) that are not accounted for using equity method have

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insignificant effects on profit or loss and retained earnings and have no significance as a whole, investments in these companies are not accounted for using equity method, and are valued at cost.

3. Disclosure about fiscal years, etc. of consolidated subsidiaries

The fiscal year-ends of all consolidated subsidiaries are aligned to the consolidated fiscal year-end.

4. Disclosure of accounting policies

(1) Accounting policy for measuring significant assets

i) Inventories

Merchandise, finished goods, semi-finished goods, raw materials (such as barley, malt, bottles and boxes) and supplies for sale: Stated principally at the lower of cost or net realizable value, cost being determined by the average method.

Real estate for sale: Stated principally at the lower of cost or net realizable value, cost being determined by the identification method.

Production supplies: Stated at the last cost method. (The value stated in the balance sheet is determined in consideration of write-downs based on the decreased profitability of assets.)

ii) Securities

Held-to-maturity debt securities: Stated at amortized cost method.

Other securities

Securities with readily determinable fair value: Stated at fair value, determined mainly based on market quotation at the consolidated balance sheet date. (Net unrealized holding gains and losses on these securities, net of applicable income taxes, are included directly in accumulated other comprehensive income of net assets. The cost of securities sold is determined based on the moving-average method.)

Securities without readily determinable fair value: Stated at cost determined based on the moving-average method.

iii) Derivatives: Stated at fair value.

(2) Accounting policy for depreciation of significant assets

i) Property, plant and equipment (except for leased assets)

Depreciated mainly by the straight-line method.

Main useful lives of property, plant and equipment are as follows.

Buildings and structures: 2-65 years

Machinery, equipment and vehicles: 2-17 years

ii) Intangible assets (except for leased assets)

Amortized by the straight-line method. Software for internal use is amortized by the straight-line method over the internally estimated useful lives (5 years).

iii) Leased assets

Leased assets are amortized by the straight-line method with useful life which is the lease period as well as residual value which is the guaranteed residual value.

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Finance lease transactions that do not transfer ownership whose transaction commenced on or before December 31, 2008, are accounted for using the accounting treatment that conforms to methods for operating lease transactions.

(3) Accounting policy for deferred assets

Bond issuance costs are fully recognized as expenses when incurred.

(4) Accounting policy for significant allowance/provisions

i) Allowance for doubtful accounts

To prepare for losses from bad debt, an estimated uncollectible amount is provided either by making an estimation using the historical rate of credit loss for normal receivables, or based on individual consideration of collectibility for specific receivables such as highly doubtful receivables.

ii) Provision for bonuses

To prepare for payment of bonuses to employees, a portion of the estimated future bonus payment attributable to the current fiscal year is provided.

(5) Accounting policy for retirement benefits

To prepare for employees’ retirement benefits, net defined benefit liability is provided based on estimated amounts of retirement benefit obligation and pension plan assets for the current fiscal year.

i) Method of attributing the projected amount of retirement benefit to the period

In calculating retirement benefit obligation, the Company uses the benefit formula basis to allocate the projected retirement benefit payment to the period up to the end of the current fiscal year.

ii) Method of amortizing actuarial gains or losses and past service cost

Past service cost is amortized by the straight-line method over a certain number of years (10-14 years) within the average remaining years of service of the employees as occurred.

Actuarial gains or losses are amortized using the straight-line method over a certain number of years (10-14 years) within the average remaining years of service of the employees as occurred from the following fiscal year of the fiscal year in which such gains or losses are incurred.

(6) Basis for translating significant assets or liabilities denominated in foreign currencies into Japanese yen

Monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the spot exchange rates at the consolidated balance sheet date. The resulting exchange gain or loss is recognized as profit and loss.

All assets and liabilities of foreign subsidiaries are translated into Japanese yen at the spot exchange rates prevailing at the consolidated balance sheet date. Revenues and expenses of foreign subsidiaries are translated into Japanese yen at the average exchange rate for the period. Any translation differences are included in foreign currency translation adjustment and non-controlling interests in the net assets section of the consolidated balance sheets.

(7) Accounting policy for hedging

i) Accounting policy for hedging

The deferred hedge method is applied. If foreign currency monetary payables with currency swaps or forward foreign exchange contracts and others satisfy requirements for allocation treatment (furiate shori: exceptional hedge accounting under Japanese GAAP), this accounting treatment is employed. In addition, interest-rate swaps that satisfy requirements for special treatments are accounted for by the special treatment.

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ii) Hedging instruments and hedged items

Hedging instruments: Interest-rate swaps transactions, currency swaps transactions and forward foreign exchange contracts

Hedged items: General external financing (loans payable) and foreign currency transactions (monetary payables, forecast transactions and others)

iii) Hedging policy

In accordance with internal regulations that provide for authority related to derivatives transactions, interest rate fluctuation risks and foreign exchange rate fluctuation risks associated with hedged items are hedged within a certain range.

iv) Method of assessing hedge effectiveness

Hedge effectiveness is determined by comparing the cumulative changes in the hedged item with those in the hedging instrument.

(8) Accounting policy for goodwill

Goodwill is amortized over a reasonable period not exceeding 20 years.

(9) Scope of cash and cash equivalents in consolidated statements of cash flows

Cash in the consolidated statements of cash flows (cash and cash equivalents) consists of cash on hand, deposits which can be withdrawn as needed, and short-term investments with a maturity within three months from the acquisition date that can be easily converted into cash and are not exposed to significant risk of changes in value.

(10) Other basis of preparing consolidated financial statements

i) Accounting policy for consumption taxes

Transaction subject to consumption taxes are recorded at amounts exclusive of consumption taxes.

ii) Application of consolidated taxation system

The Company has applied a consolidated taxation system.

ii) Shareholders’ equity

The Companies Act of Japan (the “Companies Act”) provides that an amount not exceeding one half of the issue price of new shares may, with the approval of the Board of Directors, be accounted for as capital surplus.

Retained earnings include a legal reserve provided in accordance with the provisions of the Companies Act. This reserve is not available for the payment for dividends, but it may be used to reduce or eliminate a deficit by resolution of the shareholders or may be transferred to capital stock by resolution of the Board of Directors.

If the sum of legal capital surplus and legal retained earnings exceeds 25 percent of the capital stock account, the excess may be distributed to the shareholders either as a return of capital or as dividends subject to the approval of the shareholders.

Changes in Accounting Policies

(Application of Accounting Standard for Retirement Benefits and its Guidance)

Effective from the fiscal year ended December 31, 2015, the Sapporo Group has applied the Accounting Standard for Retirement Benefits (Accounting Standards Board of Japan - ASBJ - Statement No. 26 of May 17, 2012) and the Guidance on Accounting Standard for Retirement Benefits (ASBJ Guidance No. 25 of March 26, 2015), in accordance with the provisions specified in the main clauses of paragraph 35 of the Accounting Standard for Retirement Benefits and paragraph 67 of the Guidance on Accounting Standard for Retirement Benefits. As a result, the method for calculating retirement benefit obligation and service cost has been revised, and the method for attributing projected amount of retirement benefit to

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periods has been changed from the straight-line basis to the benefit formula basis. As to the discount rate, it used to be calculated based on the periods, comparable to employees’ average remaining years of service. Under the new accounting standard, however, the method of determining the discount rate has now been changed to use a single weighted-average discount rate that reflects the periods until the expected payment of retirement benefits and the amount of projected benefits for every such period.

In applying the Accounting Standard for Retirement Benefits and its Guidance and in accordance with the transitional treatment provided in paragraph 37 of the Accounting Standard for Retirement Benefits, the effect of the change in calculation method for retirement benefit obligation and service cost has been recognized by adjusting retained earnings at the beginning of the fiscal year ended December 31, 2015.

Consequently, as of the beginning of the fiscal year ended December 31, 2015, net defined benefit liability increased by ¥4,799 million, while retained earnings decreased by ¥3,105 million. Furthermore, during the fiscal year ended December 31, 2015, operating profit and profit before income taxes increased each by ¥168 million.

(Changes in accounting policies)

Effective from the fiscal year ended December 31, 2016, the Sapporo Group has applied the Accounting Standard for Business Combinations (Accounting Standards Board of Japan - ASBJ - Statement No. 21 of September 13, 2013), the Accounting Standard for Consolidated Financial Statements (ASBJ Statement No. 22 of September 13, 2013), the Accounting Standard for Business Divestitures (ASBJ Statement No. 7 of September 13, 2013), etc. Accordingly, in cases where the parent company continues to have control, differences arising from changes in the Company’s ownership interests in subsidiaries are now recorded in capital surplus, and acquisition-related expenses are now treated as expenses in the consolidated financial statements for the fiscal year in which they arise. Regarding business combinations that take place on or after the beginning of the fiscal year ended December 31, 2016, any change to the purchase price allocation arising from finalization of the provisional accounting treatment must now be reflected in the consolidated financial statements for the fiscal year in which the business combination occurred. In addition, the presentation of the profit category has been revised and minority interests has been renamed to non-controlling interests. Consolidated financial statements for the fiscal year ended December, 2015 have been reclassified in order to reflect these changes in presentation.

In the consolidated statements of cash flows, cash flows related to the purchase or sales of subsidiaries’ shares not resulting in change in scope of consolidation are included in “Cash flows from financing activities.” Cash flows related to expenses incurred in the purchase of subsidiaries’ shares resulting in change in scope of consolidation as well as cash flows related to expenses incurred in connection with the purchase or sales of subsidiaries’ shares not resulting in change in scope of consolidation are included in “Cash flows from operating activities.”

Application of the newly applied accounting standards has been implemented from the beginning of the fiscal year ended December 31, 2016, in accordance with the transitional provisions in paragraph 58-2 (4) of the Accounting Standard for Business Combinations, paragraph 44-5 (4) of the Accounting Standard for Consolidated Financial Statements, and paragraph 57-4 (4) of the Accounting Standard for Business Divestitures.

The impact of these changes on profit or loss is immaterial.

(Changes in accounting policies which are difficult to distinguish from changes in accounting estimates)

The Sapporo Group has in the past applied the declining-balance method for depreciation of property, plant and equipment (however, the straight-line method was applied to the Hokkaido Brewery, rental properties acquired since January 1988, Yebisu Garden Place, Sapporo Factory, buildings (excluding fixtures and equipment) acquired since April 1, 1998, Kyushu Hita Brewery, the Gunma Brewery’s Japanese liquor manufacturing equipment, and Nasu Brewery). However, from the fiscal year ended December 31, 2016 all property, plant and equipment are depreciated using the straight-line method.

The Company’s consolidated subsidiaries Sapporo Breweries Ltd. and POKKA SAPPORO Food & Beverage Ltd. have carried out aggressive capital investments on the assumption that growth in total demand would deliver early returns on those investments. However, in recognition of the maturation of our markets and operating environment, we plan to formulate a policy prioritizing stable supply from

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existing facilities and to invest mainly in the renewal of existing facilities. In the fiscal year ended December 31, 2016, we established new manufacturing facilities to secure additional stable supplies of core products. Under this environment, in preparation for the drafting of the next long-term and medium-tem management plans to be implemented from January 1, 2017, we have examined the current state of usage of the Group’s property, plant and equipment and plans for future capital investments. This examination indicates that we will be able to maintain stable utilization of such domestic property, plant and equipment, which in turn has led to the decision that using the straight-line method to evenly distribute the purchase price of these assets over their useful lives will lead to more appropriate calculations of profit and loss for the period.

As a result of this change, depreciation decreased by ¥1,750 million, operating profit increased by ¥1,688 million, and profit before income taxes increased ¥1,701 million in the fiscal year ended December 31, 2016, compared with their respective figures calculated using the former method.

Changes in Presentation

(Consolidated Statements of Cash Flows)

Effective from the fiscal year ended December 31, 2017, “increase (decrease) in guarantee deposits received” under “cash flows from operating activities,” which was previously included in “other, net” under “cash flows from operating activities,” is individually presented because of an increase in its quantitative materiality. Furthermore, effective from the fiscal year ended December 31, 2017, “collection of sales of shares of subsidiaries for prior periods” under “cash flows from investing activities” is included in “other, net” under “cash flows from investing activities” because of a decrease in its quantitative materiality. Accordingly, the consolidated statements of cash flows for the fiscal year ended December 31, 2015 and the fiscal year ended December 31, 2016 have been reclassified to reflect the change.

As a result, ¥48 million included in “other, net” under “cash flows from operating activities” in the consolidated statements of cash flows for the fiscal year ended December 31, 2015 is presented as “increase (decrease) in guarantee deposits received” of ¥496 million and “other, net” of ¥(447) million. ¥2,349 million included in “other, net” under “cash flows from operating activities” in the consolidated statements of cash flows for the fiscal year ended December 31, 2016 is presented as “increase (decrease) in guarantee deposits received” of ¥350 million and “other, net” of ¥1,999 million. Furthermore, ¥3,198 million and ¥30 million presented as “collection of sales of shares of subsidiaries for prior periods” under “cash flows from investing activities” for the fiscal years ended December 31, 2015 and 2016, respectively, are included in “other, net” under “cash flows from investing activities” of ¥(3,273) million and ¥(4,112) million, respectively.

Additional Information

(Board Benefit Trust (BBT) for directors, group operating officers of the Company, and some directors of the Company’s subsidiaries)

Following the approval of shareholders of a resolution at the 92nd Ordinary General Meeting of Shareholders held on March 30, 2016, the Company on May 31, 2016, introduced a new stock-based compensation system (Board Benefit Trust, or BBT) (hereinafter referred to as the “System”), for directors, group operating officers of the Company, and some of the directors of the Company’s subsidiaries (excluding outside directors, hereinafter referred to as the “Group Target Officers”). The new System is designed to increase Group Target Officers’ awareness of their contributions to improving the performance of the Company over the medium to long term and to enhancing corporate value.

1. Overview of transaction

The Company shall grant points to the Group Target Officers according to their respective positions and performance achievements. The BBT will then provide the Company’s shares to Group Target Officers who meet certain conditions in proportion to the points granted to them.

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In principle, Group Target Officers will receive the Company’s shares when they retire.

The shares to be awarded to Group Target Officers, including shares for future allocation, shall be purchased using money trusted by the Company at the time of the System’s establishment, and shall be managed separately as trust property.

2. Company shares remaining in the trust

Upon the introduction of the System during the current fiscal year, Trust & Custody Services Bank, Ltd. (Trust Account E) acquired 754,600 shares of the Company.

The book value (excluding incidental costs) of the Company shares now held by the trust are accounted for as treasury shares in the net assets section of the Company’s balance sheet. As of December 31, 2016, the book value and total number of the treasury shares are ¥445 million and 150,920, respectively.

With an effective date of July 1, 2016, the Company implemented a consolidation of shares at a ratio of one share for each five shares of the Company’s common shares.

(Implementation Guidance on Recoverability of Deferred Tax Assets)

Effective from the fiscal year ended December 31, 2017, the Company has applied the Implementation Guidance on Recoverability of Deferred Tax Assets (ASBJ Guidance No. 26 of March 28, 2016).

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Consolidated Balance Sheets

1 Major assets and liabilities related to the investments in unconsolidated subsidiaries and associates are as follows:


As of December 31,

2015 December 31,

2016 December 31,

2017

December 31, 2017

Investment securities (shares) 2,206 2,704 1,963 17,368

Other under investments and

other assets (capital investments) 215 429 429 3,802

2 Treatment of notes matured at the end of the fiscal year

Since the final day of the fiscal year falls on a holiday of financial institutions, the method where payments for notes matured at the end of the fiscal year are accounted for on their clearing day is applied.

Accordingly, the following notes matured at the end of the fiscal year are included in the balance at the end of the fiscal year:


As of December 31,

2015 December 31,

2016 December 31,

2017

December 31, 2017

Notes receivable – trade 17 22 18 167

Notes payable – trade 2 62 – –

3 Accumulated reduction entry that was deducted from acquisition cost of property, plant and equipment due to state subsidy and others


As of December 31,

2015 December 31,

2016 December 31,

2017

December 31, 2017

882 1,053 1,291 11,424

4 Pledged assets and secured liabilities

The assets pledged as collateral are as follows:

(1) Assets pledged as collateral


As of December 31,

2015 December 31,

2016 December 31,

2017

December 31, 2017

Inventories – 643 666 5,899

Buildings and structures 73 407 397 3,517

Land 612 2,050 2,050 18,139

Investment securities 8,885 7,498 8,692 76,894

Other under investments and other assets 25 25 25 221

Total 9,597 10,624 11,833 104,672

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(2) Debt relating to the above pledged assets


As of December 31,

2015 December 31,

2016 December 31,

2017

December 31, 2017

Short-term loans payable 6,150 5,902 5,610 49,624


Total 18,970 21,211 20,080 177,629

In addition, cash and deposits of POKKA INTERNATIONAL PTE. LTD. (¥28 million as of December 31, 2015, ¥26 million as of December 31, 2016 and ¥27 million ($247 thousand) as of December 31, 2017) are pledged as collateral for a credit limit (¥921 million as of December 31, 2015, ¥870 million as of December 31, 2016 and ¥912 million ($8,073 thousand) as of December 31, 2017). Short-term loans payable (¥16 million as of December 31, 2015, ¥9 million as of December 31, 2016 and ¥7 million ($67 thousand) as of December 31, 2017) have been borrowed against said credit limit.

5 Contingent liabilities

The Company has provided guarantees for borrowings of its employees and others as follows:

(Guarantee obligations)


As of December 31,

2015 December 31,

2016 December 31,

2017

December 31, 2017

Employees (loans for employees’

housing) 367 307 272 2,408

Other 1,300 691 501 4,440

Total 1,668 999 774 6,848

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1 Amount of write-downs due to the decreased profitability of inventories held for regular sales



2015 December 31,

2016 December 31,

2017

December 31, 2017

Cost of sales 928 838 882 7,806

2 Components of selling, general and administrative expenses



2015 December 31,

2016 December 31,

2017

December 31, 2017

Selling, general and administrative expenses:

Sales incentives and commissions 35,841 38,750 39,918 353,107

Advertising expenses 21,982 20,420 20,239 179,030

Salaries and allowances 31,954 32,039 33,493 296,269

Provision for bonuses 1,218 1,726 1,921 16,999

Retirement benefit expenses 2,690 784 715 6,326

Other 73,303 75,438 79,655 704,601

Total selling, general and administrative expenses 166,990 169,159 175,943 1,556,334

3 Research and development expenses included in production cost and general and administrative expenses



2015 December 31,

2016 December 31,

2017

December 31, 2017

2,724 2,766 2,791 24,689

4 Components of gain on sales of non-current assets are as follows:



2015 December 31,

2016 December 31,

2017

December 31, 2017

Land 5,396 – 1,871 16,555

Buildings and structures 1,998 11 77 682

Machinery, equipment and

vehicles 57 32 28 252

Other 1 1 0 1

Total 7,453 45 1,977 17,491

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5 Components of loss on sales of non-current assets are as follows:



2015 December 31,

2016 December 31,

2017

December 31, 2017

Land – 4 0 7

Buildings and structures 20 13 10 91


vehicles 2 7 26 234

Other 1 1 0 7

Total 24 26 38 340

6 Components of loss on retirement of non-current assets are as follows:



2015 December 31,

2016 December 31,

2017

December 31, 2017

Buildings and structures 610 1,004 568 5,028


vehicles 651 295 187 1,654

Other 272 113 313 2,769

Total 1,534 1,413 1,068 9,452

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7 Components of impairment loss are as follows:

The Sapporo Group recorded impairment loss on the following asset groups:

Fiscal year ended December 31, 2015

Location Use Classification Impairment loss(Millions of yen)

Sapporo Breweries Ltd. (Seirou-machi, Niigata and another)

Idle real estate/Welfare facilities

Land and others 3,083

Sapporo Vietnam Ltd. (Long An Province, Vietnam)

International business Goodwill 2,082

PS Beverage Ltd. (Koto-ku, Tokyo)

Machinery for operations Leased assets and others 332

Sapporo Lion Ltd. (Chiyoda-ku, Tokyo and other 6)

Restaurants for operations Buildings and others 177

POKKA SAPPORO Food & Beverage Ltd. (Toyota-shi, Aichi)

Beverage manufacturing facilities

Machinery, equipment and others 137

Pokka Create Co., Ltd. (Nakagyo-ku, Kyoto and other 5)


Public Vending Service Co., Ltd. (Koto-ku, Tokyo)


Sapporo Lion (Singapore) Pte. Ltd. (Singapore)

Restaurants for operations Buildings 2

Okinawa Pokka Foods Co., Ltd. (Kunigami-gun, Okinawa)


Machinery and equipment 0

The Sapporo Group groups its assets in consideration of the units in management accounting. The assets for business and beverage manufacturing facilities are grouped into respective businesses, the restaurants are grouped mainly into respective stores, and the idle real estate and company condominiums are grouped based on each real estate.

Idle real estate and welfare facilities have been written down to the recoverable amount upon sale. The amount of the write-down has been recorded in other expenses as an impairment loss (¥3,083 million), which is broken down into idle real estate of ¥1,688 million (land of ¥1,652 million, buildings and structures of ¥35 million, and other of ¥0 million) and welfare facilities of ¥1,394 million (land of ¥1,291 million, buildings and structures of ¥102 million, and other of ¥0 million).

In the international business, assets have been written down to the recoverable amount as it is expected to be difficult to recover the investment due mainly to declining profitability. The amount of the write-down has been recorded in other expenses as an impairment loss (¥2,082 million).

Machinery for operations has been written down to the recoverable amount as it is expected to be difficult to recover the investment due mainly to declining profitability. The amount of the write-down has been recorded in other expenses as an impairment loss (¥386 million), which is broken down into machinery for operations of ¥386 million (leased tangible assets of ¥192 million, land of ¥130 million, buildings and structures of ¥34 million, and other of ¥28 million).

Restaurants for operations have been written down to the recoverable amount as it is expected to be difficult to recover the investment due mainly to declining profitability. The amount of the write-down has been recorded in other expenses as an impairment loss (¥266 million), which is broken down into restaurants for operations of ¥266 million (buildings and structures of ¥233 million, machinery, equipment and vehicles of ¥15 million, and other of ¥18 million).

Beverage manufacturing facilities have been written down to the recoverable amount due mainly to the termination of production of roasted beans. The amount of the write-down has been recorded in other expenses as an impairment loss (¥138 million), which is broken down into beverage manufacturing facilities of ¥138 million (buildings and structures of ¥78 million, machinery, equipment and vehicles of ¥55 million, and other of ¥4 million).

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The recoverable amount is measured by the net realizable value and the value in use, with the net realizable value determined based on an appraisal value provided by a real estate appraisal company. The value in use is calculated based on future cash flows discounted by the rate of 6.6% to 14.7%.


Location Use Classification Impairment loss(Millions of yen)

Nihon Beans Co., Ltd. (Isesaki-shi, Gunma)

Food manufacturing facilitiesMachinery, equipment and others 415

Pokka Create Co., Ltd. (Fukuoka-shi, Fukuoka and other)


PS Beverage Ltd. (Koto-ku, Tokyo)


Sapporo Lion Ltd. (Sendai-shi, Miyagi and other)


POKKA SAPPORO Food & Beverage Ltd. (Kitanagoya-shi, Aichi)


Machinery, equipment and others 64

Sapporo Breweries Ltd. (Ota-shi, Gunma)


Public Vending Service Co., Ltd. (Koto-ku, Tokyo)


Miyasaka Jozo Co., Ltd. (Kofu-shi, Yamanashi)


The Sapporo Group groups its assets in consideration of the units in management accounting. The assets for business, beverage manufacturing facilities and food manufacturing facilities are grouped into respective businesses, and the restaurants are grouped mainly into respective stores.

Food manufacturing facilities have been written down to the recoverable amount as it is expected to be difficult to recover the investment due mainly to declining profitability. The amount of the write-down has been recorded in other expenses as an impairment loss (¥476 million), which is broken down into machinery and equipment of ¥328 million, goodwill of ¥53 million, leased assets of ¥50 million and other of ¥44 million.

Restaurants for operations have been written down to the recoverable amount as it is expected to be difficult to recover the investment due mainly to declining profitability. The amount of the write-down has been recorded in other expenses as an impairment loss (¥294 million), which is broken down into buildings and structures of ¥265 million, machinery, equipment and vehicles of ¥14 million, leased assets of ¥6 million, and other of ¥8 million.

Machinery for operations has been written down to the recoverable amount as it is expected to be difficult to recover the investment due mainly to declining profitability. The amount of the write-down has been recorded in other expenses as an impairment loss (¥183 million), which is broken down into leased tangible assets of ¥171 million, and other of ¥11 million.

Beverage manufacturing facilities have been written down to the recoverable amount due to the termination of some parts of the production line. The amount of the write-down has been recorded in other expenses as an impairment loss (¥64 million), which is broken down into machinery, equipment and vehicles of ¥61 million, buildings and structures of ¥3 million, and other of ¥0 million.


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Location Use Classification Impairment loss (Millions of yen)

Impairment loss(Thousands of U.S. dollars)

Sapporo Vietnam Ltd. (Long An Province, Vietnam)

Beer manufacturing facilities

Machinery, equipment and others 2,686 23,761

Sapporo Lion Ltd. (Chuo-ku, Tokyo and other)

Restaurants for operations

Buildings and others 505 4,471

Shinsyu-ichi Miso Co., Ltd. (Note 1) (Uenohara-shi, Yamanashi and other)

Food manufacturing facilities

Machinery, equipment and others 164 1,458

PS Beverage Ltd. (Koto-ku, Tokyo and other)

Machinery for operations

Leased assets and others 156 1,386

Pokka Create Co., Ltd. (Toshima-ku, Tokyo and other)


Buildings and others 104 927

Sapporo Lion (Singapore) Pte. Ltd. (Singapore)


Buildings and others 43 382

Public Vending Service Co., Ltd. (Koto-ku, Tokyo and other)

Machinery for operations

Leased assets and others 43 381

POKKA SAPPORO Food & Beverage Ltd. (Kitanagoya-shi, Aichi and other)

Idle real estate Buildings and others 29 265

NH Beans Co., Ltd. (Note 2) (Isesaki-shi, Gunma)

Food manufacturing facilities

Other 0 8

(Notes) 1. In the fiscal year ended December 31, 2017, “Miyasaka Jozo Co., Ltd.” changed its company name to “Shinsyu-ichi Miso Co., Ltd.”

2. In the fiscal year ended December 31, 2017, “Nihon Beans Co., Ltd.” changed its company name to “NH Beans Co., Ltd.”

The Sapporo Group groups its assets in consideration of the units in management accounting. The assets for manufacturing facilities and business are grouped into respective businesses. The restaurants are grouped mainly into respective stores, and idle real estate and company condominiums are grouped based on each real estate.

Beer manufacturing facilities have been written down to the recoverable amount as it is expected to be difficult to recover the investment due mainly to declining profitability. The amount of the write-down has been recorded in other expenses as an impairment loss (¥2,686 million ($23,761 thousand)), which is broken down into machinery, equipment and vehicles of ¥2,057 million ($18,200 thousand), buildings and structures of ¥626 million ($5,545 thousand), and other of ¥1 million ($14 thousand).

Restaurants for operations have been written down to the recoverable amount as it is expected to be difficult to recover the investment due mainly to declining profitability. The amount of the write-down has been recorded in other expenses as an impairment loss (¥653 million ($5,782 thousand)), which is broken down into buildings of ¥524 million ($4,639 thousand), machinery, equipment and vehicles of ¥72 million ($637 thousand), leased assets of ¥13 million ($119 thousand), and other of ¥43 million ($385 thousand).

Food manufacturing facilities have been written down to the recoverable amount as it is expected to be difficult to recover the investment due mainly to declining profitability. The amount of the write-down has been recorded in other expenses as an impairment loss (¥165 million ($1,467 thousand)), which is broken down into machinery, equipment and vehicles of ¥153 million ($1,356 thousand), structures of ¥3 million ($28 thousand) and other of ¥9 million ($82 thousand).

Machinery for operations has been written down to the recoverable amount as it is expected to be difficult to recover the investment due mainly to declining profitability. The amount of the write-down has been recorded in other expenses as an impairment loss (¥199 million ($1,767 thousand)), which is broken down into leased tangible assets of ¥170 million ($1,510 thousand), land of ¥15 million ($136 thousand), buildings and structures of ¥3 million ($33 thousand) and other of ¥9 million ($86 thousand).

- 23 -

Since there is no specific future plan for use of idle real estate and this asset is not expected to be used in the future, its carrying value has been written down to the recoverable amount and the amount of the write-down has been recorded in other expenses as an impairment loss (¥29 million ($265 thousand)), which is broken down into buildings of ¥26 million ($237 thousand), machinery and equipment of ¥2 million ($18 thousand), and land of ¥1 million ($8 thousand).


- 24 -


1 Reclassification adjustments and tax effects relating to other comprehensive income



2015 December 31,

2016 December 31,

2017

December 31, 2017


Amount arising during the year 4,220 (3,144) 10,101 89,354

Reclassification adjustments (45) (35) (4,829) (42,723)

Before tax effects 4,175 (3,180) 5,271 46,631

Tax effects (356) 1,771 (1,855) (16,412)

Valuation difference on other securities

3,819 (1,408) 3,416 30,218


Amount arising during the year (5) 76 (75) (669)

Reclassification adjustments (13) – – –

Before tax effects (19) 76 (75) (669)

Tax effects 1 (23) 15 136

Deferred gains or losses on hedges

(17) 52 (60) (533)


Amount arising during the year (3,767) (896) 1,019 9,016

Reclassification adjustments – – – –

Before tax effects (3,767) (896) 1,019 9,016

Tax effects – – – –

Foreign currency translation adjustment

(3,767) (896) 1,019 9,016

Remeasurements of defined benefit plans, net of tax

Amount arising during the year 472 (2,434) 775 6,863

Reclassification adjustments 1,635 (425) (503) (4,450)

Before tax effects 2,107 (2,860) 272 2,413

Tax effects (673) 944 (83) (738)

Remeasurements of defined benefit plans, net of tax

1,434 (1,915) 189 1,675

Total other comprehensive income

1,467 (4,168) 4,564 40,377

- 25 -

Consolidated Statement of Changes in Net Assets


1. Matters concerning class and total number of shares issued and class and number of treasury shares

(Thousands of shares)

Number of shares at beginning of fiscal

year

Increase in shares during fiscal year

Decrease in shares during fiscal year

Number of shares at end of fiscal year

Shares issued

Common shares 393,971 – – 393,971

Total 393,971 – – 393,971

Treasury shares

Common shares (Notes 1., 2.)

4,348 113 9 4,451

Total 4,348 113 9 4,451

(Notes) 1. The increase of 113 thousand shares in the number of treasury shares of common shares is an increase due to buyback request of shares less than one unit.

2. The decrease of 9 thousand shares in the number of treasury shares of common shares is a decrease due to demand for sale of shares less than one unit.

2. Matters concerning subscription rights to shares and treasury subscription rights to shares

Not applicable

3. Matters concerning dividend

(1) Dividend payment

Resolution Class of shares Total amount of

dividends (Millions of yen)

Dividends per share (Yen)

Record date Effective date

Ordinary General Meeting of Shareholders on March 27, 2015

Common shares 2,727 7.00December 31,

2014 March 30, 2015

(2) Dividend with a record date that falls in the current fiscal year but whose effective date falls in the following fiscal year

Resolution Class of shares

Total amount of dividends (Millions of

yen)

Source of dividends




Common shares

2,726Retained earnings

7.00December 31,

2015 March 31, 2016

- 26 -





year




Shares issued

Common shares (Note 1.) 393,971 – 315,177 78,794

Total 393,971 – 315,177 78,794

Treasury shares

Common shares (Notes 2., 3., 4.)

4,451 772 4,324 898

Total 4,451 772 4,324 898

(Notes) 1. Since the Company implemented a consolidation of shares at a ratio of one share for each five shares of common shares, effective as of July 1, 2016, the number of shares issued decreased by 315,177 thousand shares to 78,794 thousand shares.

2. The increase of 772 thousand shares in the number of treasury shares of common shares is due to an increase of 11 thousand shares because of buyback request of shares less than one unit conducted before the share consolidation, an increase of 754 thousand shares because of the acquisition of the Company’s shares by Board Benefit Trust (BBT), an increase of 1 thousand shares because of buyback request of shares less than one unit conducted after the share consolidation, and an increase of 4 thousand shares because of the purchase of allotted fractional shares upon the share consolidation.

3. The decrease of 4,324 thousand shares in the number of treasury shares of common shares consists of a decrease of 2 thousand shares due to demand for sale of shares less than one unit conducted before the share consolidation, a decrease of 754 thousand shares due to the transfer to Board Benefit Trust (BBT) conducted before the share consolidation, and a decrease of 3,567 thousand shares due to the share consolidation.

4. With regard to the number of own shares held by Trust & Custody Services Bank, Ltd. (Trust Account E) in association with BBT, 150 thousand shares were included in the number of treasury shares as of the end of the current fiscal year.


Not applicable




dividends (Millions of yen)




Common shares 2,726 7.00December 31,

2015 March 31, 2016

(Note) The Company implemented a consolidation of shares at a ratio of one share for each five shares of common shares, effective as of July 1, 2016. Dividends per share for the fiscal year ended December 31, 2015 represent the actual amount of dividends before the share consolidation.

- 27 -



Total amount of dividends (Millions of

yen)

Source of dividends




Common shares

2,887Retained earnings

37.00December 31,

2016 March 31, 2017

(Note) The total amount of dividends based on the resolution of the Ordinary General Meeting of Shareholders on March 30, 2017 includes dividends of ¥5 million on own shares held by Trust & Custody Services Bank, Ltd. (Trust Account E).





year




Shares issued

Common shares 78,794 – – 78,794

Total 78,794 – – 78,794

Treasury shares

Common shares (Notes 1., 2., 3.)

898 5 2 901

Total 898 5 2 901

(Notes) 1. The increase of 5 thousand shares in the number of treasury shares of common shares is an increase due to buyback request of shares less than one unit.

2. The decrease of 2 thousand shares in the number of treasury shares of common shares consists of a decrease of 0 thousand shares due to demand for sale of shares less than one unit, and a decrease of 1 thousand shares due to the transfer to Board Benefit Trust (BBT).

3. With regard to the number of own shares held by Trust & Custody Services Bank, Ltd. (Trust Account E) in association with BBT, 149 thousand shares were included in the number of treasury shares as of the end of the current fiscal year.


Not applicable




dividends Dividends per share



Common share ¥2,887 million

[$25,543 thousand]¥37.00[$0.32]

December 31, 2016

March 31, 2017

(Note) The total amount of dividends based on the resolution of the Ordinary General Meeting of Shareholders on March 30, 2017 includes dividends of ¥5 million ($49 thousand) on own shares held by Trust & Custody Services Bank, Ltd. (Trust Account E).

- 28 -



Total amount of dividends

Source of dividends

Dividends per share



Common share

¥3,121 million[$27,613 thousand]

Retained earnings

¥40.00[$0.35]

December 31, 2017

March 30, 2018

(Note) The total amount of dividends based on the resolution of the Ordinary General Meeting of Shareholders on March 29, 2018 includes dividends of ¥5 million ($52 thousand) on own shares held by Trust & Custody Services Bank, Ltd. (Trust Account E).

Consolidated Statements of Cash Flows

1 Reconciliation between the ending balance of cash and cash equivalents and the amounts recorded in the items shown on the consolidated balance sheets



2015 December 31,

2016 December 31,

2017

December 31, 2017

Cash and deposits 10,430 10,589 12,717 112,497

Time deposits with maturity over 3 months (31) (113) (181) (1,601)

Cash and cash equivalents 10,399 10,475 12,536 110,895

2 Major components of assets and liabilities of company that became new consolidated subsidiary through share acquisition


Components of assets and liabilities at the inception of consolidation upon the new consolidation of Country Pure Foods, Inc. (and other 10 companies), PT.POKKA DIMA INTERNATIONAL and Nihon Beans Co., Ltd. through share acquisition, and the relationship between the amount of the share acquisition and payments for the acquisition (net amount) are as follows:

(Millions of yen)

Current assets 5,174

Non-current assets 11,159

Goodwill 4,242

Current liabilities (3,302)

Non-current liabilities (10,532)

Foreign currency translation adjustment 10

Non-controlling interests (928)

Share acquisition price

Cash and cash equivalents of newly consolidated subsidiaries

5,824

(1,835)

Net: purchase of shares of subsidiaries resulting in change in scope of consolidation 3,989

- 29 -


Components of assets and liabilities at the inception of consolidation upon the new consolidation of Marushinkawamura Inc., Ginrin Suisan Inc. and Miyasaka Jozo Co., Ltd. through share acquisition, and the relationship between the amount of the share acquisition and payments for the acquisition (net amount) are as follows:

(Millions of yen)

Current assets 2,303

Non-current assets 3,420

Goodwill 346

Current liabilities (1,970)

Non-current liabilities (3,247)

Non-controlling interests (103)

Share acquisition price


747

(309)

Net: purchase of shares of subsidiaries resulting in change in scope of consolidation 438

3 Major components of assets and liabilities of company that became a new consolidated subsidiary through equity acquisition


Components of assets and liabilities at the inception of consolidation upon the new consolidation of Anchor Brewing Company, LLC and one other company through equity acquisition, and the relationship between the amount of the equity acquisition and payments for the acquisition (net amount) are as follows:


Current assets 1,126 9,963

Non-current assets 4,029 35,641

Goodwill 3,532 31,248

Other intangible assets 4,005 35,432

Current liabilities (778) (6,883)

Non-current liabilities (1) (16)

Foreign currency translation adjustment (60) (532)

Equity acquisition price


11,853

(230)

104,853

(2,042)

Net: purchase of shares of subsidiaries resulting in change in scope of consolidation 11,622 102,810

4 Main components of assets and liabilities in relation to the business transfer in exchange for cash and cash equivalents


Components of assets and liabilities acquired through transfer of business, and the relationship between the amount of the acquisition of business and payments for transfer of business are as follows:

(Millions of yen)

Current assets 121

Non-current assets 747

Goodwill 715

Current liabilities (77)

Foreign currency translation adjustment (13)

Acquisition cost for transfer of business 1,493

Payments for transfer of business 1,493

- 30 -

Leases

1. Finance lease transactions

(Lessee)

Finance lease transactions that do not transfer ownership

i) Contents of leased assets

(a) Property, plant and equipment

Furniture for operations (other) and vending machines (other)

(b) Intangible assets

Software

ii) Depreciation method of leased assets

Depreciation of leased assets is as stated in “iii) Leased assets” of “(2) Accounting policy for depreciation of significant assets” under “4. Disclosure of accounting policies” in Significant Accounting Policies for Preparation of Consolidated Financial Statements.

Finance lease transactions that do not transfer ownership whose transaction commenced on or before December 31, 2008, are accounted for using the accounting treatment that conforms to methods for operating lease transactions. The details are as follows:

(1) Amount equivalent to acquisition cost, amount equivalent to accumulated depreciation, amount equivalent to impairment loss and amount equivalent to year-end balance of leased properties

(Millions of yen)


Amount equivalent to acquisition cost

Amount equivalent to accumulated depreciation

Amount equivalent to impairment loss

Amount equivalent to year-end balance

Machinery, equipment and vehicles 48 48 – –

Other 4 3 – 0

Total 52 51 – 0

(Millions of yen)






Tools, furniture and fixtures 4 4 – 0

Total 4 4 – 0

(Millions of yen)






Tools, furniture and fixtures 4 4 – –

Total 4 4 – –

- 31 -

(Thousands of U.S. dollars)






Tools, furniture and fixtures 37 37 – –

Total 37 37 – –

(Note) The amount equivalent to acquisition cost is calculated using the interest-inclusive method because the year-end balance of future lease payments accounts for a low percentage of the year-end balance of property, plant and equipment and others.

(2) Amount equivalent to year-end balance of future lease payments

As of

(Millions of yen) (Thousands of U.S.

dollars)

December 31, 2015 December 31, 2016 December 31, 2017 December 31, 2017

Due within 1 year 0 0 – –

Due after 1 year 0 – – –

Total 0 0 – –

(Note) The amount equivalent to year-end balance of future lease payments is calculated using the interest-inclusive method because the year-end balance of future lease payments accounts for a low percentage of the year-end balance of property, plant and equipment and others.

(3) Lease payments, reversal of accumulated impairment loss on leased assets, amount equivalent to depreciation and impairment loss

For the fiscal year ended


dollars)


Lease payments 2 0 0 1

Reversal of accumulated impairment loss on leased assets

– – – –

Amount equivalent to depreciation 2 0 0 1

(4) Calculation method for the amount equivalent to depreciation

The amount is calculated using the straight-line method, with useful life which is the lease period, considering the residual value to be zero.

(Impairment loss)

There is no impairment loss allocated to leased assets.

- 32 -

2. Operating lease transactions

Future lease payments on non-cancellable transactions among operating lease transactions

(Lessee)



dollars)


Due within 1 year 1,867 1,951 2,212 19,570

Due after 1 year 7,923 7,678 10,270 90,848

Total 9,791 9,629 12,482 110,418

(Lessor)



dollars)


Due within 1 year 5,884 5,751 3,775 33,397

Due after 1 year 13,650 11,185 14,683 129,884

Total 19,534 16,936 18,458 163,281

Financial Instruments

1. Matters related to financial instruments

(1) Group policy regarding financial instruments

The Sapporo Group procures the funds it requires mainly through borrowings from banks and the issue of corporate bonds. Any temporary surpluses are then invested in highly secure, highly liquid financial assets. Short-term operating capital is procured through bank loans and commercial paper. Derivatives are not used for speculative purposes, but rather are used mainly to mitigate exposure to market risks associated with fluctuations in foreign exchange rates, interest rates and commodity values.

(2) Breakdown of financial instruments and related risks

Operating receivables, such as notes and accounts receivable – trade, are exposed to customer credit risks. To cope with these risks, the Sapporo Group, in line with internal regulations, engages in due date control and balance management for each respective business partner.

Securities and investment securities mainly consist of stocks of companies with which the Group has business relations and the investment of temporary surpluses in bonds. These securities are exposed to risks of market price volatility. The Sapporo Group periodically evaluates the fair value of these stocks and bonds. The Group also makes long-term loans to business partners and other entities.

Operating payables, such as notes and accounts payable – trade, are due for payment within 1 year.

Short-term loans payable and commercial paper consist mainly of operating funds procured for business transactions. Long-term loans payable and bonds payable are funds procured mainly for capital investment purposes. Long-term loans payable is exposed to risks of interest-rate and foreign exchange volatility. For certain long-term loans payable, the Sapporo Group uses derivatives transactions (interest rate swaps and currency swaps transactions) as a hedge against these risks.

- 33 -

Currency-related derivatives transactions consist of forward foreign exchange contracts and currency swap transactions. Interest-rate derivatives transactions are interest rate swaps. Derivative financial instruments consist of commodity futures and commodity option transactions.

(3) Risk management system for financial instruments

i) Management of credit risks (risks associated with default, etc. by business partners)

Regarding operating receivables and long-term loans receivable, the Company and its major consolidated subsidiaries, in line with internal regulations at each company, periodically monitor the status of main business partners engaging the executive department of each business division. Along with managing due dates and balances for each partner, the Company and its major subsidiaries take steps to preventatively assess and mitigate losses from instances in which the recovery of receivables or loans may become doubtful due to deterioration, etc., in financial condition.

In derivatives transactions, the Company and its major subsidiaries, based on internal regulations, only enter into contracts with financial institutions possessing high credit ratings. These controls are followed as a rule to prevent the emergence of possible credit risks.

ii) Management of market risks (risks from exchange-rate, interest-rate volatility, etc.)

With regard to operating receivables and payables denominated in foreign currencies, the Company and certain of its consolidated subsidiaries use forward foreign exchange contracts to mitigate the risks of exchange-rate volatility to a certain extent. Interest rate swaps are also used to control volatility risks involved in the interest rates on borrowings. To mitigate exchange-rate volatility risks associated with foreign currency transactions, currency swap transactions are used. Commodity futures and commodity option transactions are used to hedge the risk of fluctuating raw material purchase prices to limit such risk within a certain range.

For securities and investment securities, the Company and its major consolidated subsidiaries periodically assess the fair value of the securities and the financial condition, etc. of the issuer (business partners), and, as necessary, review the holding status of such securities, taking into account their relationship with the business partner.

Derivatives transactions are executed and managed pursuant to internal regulations. These controls clearly stipulate matters pertaining to derivatives, including their purpose, product range, transaction counterparties, settlement approval procedures, the segregation of duties within executive departments, and the system for reporting such transactions. The balance and status of profit (loss) for derivatives transactions are reported periodically to the Board of Directors.

iii) Management of liquidity risk associated with fund procurement (risk of failing to meet payment due dates)

To minimize financial liabilities, the Sapporo Group has introduced a cash management system (CMS) for the Company to centrally manage fund allocation to the Company and its major consolidated subsidiaries. Financial divisions formulate plans for fund procurement and fund management in an effort to manage liquidity risk.

(4) Supplementary explanation of matters concerning fair value, etc. of financial instruments

Fair values of financial instruments comprise values determined based on market prices and values calculated reasonably when there is no market price. Because variable factors are incorporated into the calculation of the relevant values, the adoption of different terms and assumptions can cause fair values to vary. Furthermore, contract amounts for derivatives transactions stated in the note “Derivatives,” in themselves, should not be considered indicative of the market risk associated with derivatives transactions.

- 34 -

2. Matters concerning fair value, etc. of financial instruments

Carrying value on the consolidated balance sheets, fair value and their variances are as follows. Items for which the assessment of fair value is not feasible were omitted (see Note 2).


(Millions of yen)

Carrying value Fair value Variance

(1) Cash and deposits 10,430 10,430 –

(2) Notes and accounts receivable – trade 92,335

Allowance for doubtful accounts (*1) (61)

92,273 92,273 –

(3) Investment securities

Other securities 54,653 54,653 –

(4) Long-term loans receivable (*2) 9,366


9,360 9,360 0

Total assets 166,718 166,718 0

(1) Notes and accounts payable – trade 36,772 36,772 –

(2) Short-term loans payable 19,219 19,219 –

(3) Commercial papers 17,000 17,000 –

(4) Accrued alcohol tax 33,903 33,903 –

(5) Income taxes payable 6,114 6,114 –

(6) Bonds payable (*3) 60,000 60,431 431

(7) Long-term loans payable (*4) 138,522 139,634 1,112

Total liabilities 311,532 313,075 1,543

Derivatives transactions to which (*5)

i) Hedge accounting is not applied 525 525 –

ii) Hedge accounting is applied (12) (12) –

Total derivatives transactions 513 513 –

(*1) Allowance for doubtful accounts corresponding to notes and accounts receivable – trade and long-term loans receivable has been deducted from the amount.

(*2) Current portion of long-term loans receivable is included in long-term loans receivable. (*3) Current portion of bonds is included in bonds payable. (*4) Current portion of long-term loans payable is included in long-term loans payable. (*5) Net receivables and payables resulted from derivatives transactions are presented on a net basis.

- 35 -


(Millions of yen)





96,773 96,773 –





9,102 9,102 0

Total assets 168,784 168,784 0






(6) Bonds payable (*3) 60,212 60,617 405

(7) Long-term loans payable (*4) 126,424 127,078 653



i) Hedge accounting is not applied 17 17 –

ii) Hedge accounting is applied 66 66 –

Total derivatives transactions 84 84 –



- 36 -


(Millions of yen)





98,535 98,535 –


Held-to-maturity bonds 1,000 1,040 40




4,694 4,695 1

Total assets 171,226 171,268 41






(6) Bonds payable (*3) 60,128 60,326 198

(7) Long-term loans payable (*4) 126,104 127,017 913



i) Hedge accounting is not applied (96) (96) –


Total derivatives transactions (81) (81) –

- 37 -







871,611 871,611 –


Held-to-maturity bonds 8,845 9,205 360




41,525 41,535 10

Total assets 1,514,610 1,514,981 370






(6) Bonds payable (*3) 531,877 533,629 1,751

(7) Long-term loans payable (*4) 1,115,472 1,123,552 8,080

Total liabilities 2,739,756 2,749,588 9,831


i) Hedge accounting is not applied (850) (850) –


Total derivatives transactions (722) (722)



- 38 -

(Note) 1. Calculation method for fair value of financial instruments and matters concerning securities and derivatives transactions

Assets

(1) Cash and deposits, and (2) Notes and accounts receivable – trade

Book value is used since the variance between fair value and book value is immaterial due to the short-term settlement of these accounts.


In determining fair value, the stock market price is used for stocks. For bonds, the method for determining fair value is to discount the sum total of the outstanding principal and interest at an interest rate reflecting the credit risks. For matters concerning securities according to holding purposes, please refer to the note “Securities.”

(4) Long-term loans receivable

Within the Sapporo Group, the fair value of long-term loans receivable is calculated as follows. Loans are first classified into certain periods. The fair value is then calculated at present value obtained by discounting the future cash flows at a rate that is derived by adding a credit spread on top of an appropriate indicator such as yield on a government bond, according to the credit risk category for credit management purposes. The fair value of potentially doubtful receivables is calculated either at discounted present value of estimated future cash flows using the same discount rate formula, or based on the projected amount of collateral or guarantees deemed recoverable and others.

Liabilities

(1) Notes and accounts payable – trade, (2) Short-term loans payable, (3) Commercial papers, (4) Accrued alcohol tax, and (5) Income taxes payable

Book value is used since the variance between market value and book value is immaterial due to the short-term settlement of these accounts.

(6) Bonds payable

The fair value of bonds issued by the Company is calculated based on the market price for bonds that have market prices.

(7) Long-term loans payable

For long-term loans payable, the method for determining fair value is to discount the sum total of the outstanding principal and interest by the estimated interest-rate cost of refinancing it. Long-term loans payable based on variable interest rates are subject to the special treatments for interest rate swaps and allocation treatments for currency swaps. This is calculated by discounting the sum total amount of principal and interest, which is treated as a unit including said interest rate swaps and currency swaps, at a reasonably estimated interest rate that applies when refinancing.

Derivatives transactions

Please refer to the note “Derivatives.”

(Note) 2. Financial instruments for which the assessment of fair value is extremely difficult

As of


dollars)


Unlisted stocks, etc. (*1) 7,194 6,977 6,866 60,741

Guarantee deposits received (*2) 32,833 33,241 31,086 274,979

(*1) Since unlisted stocks, etc. have no market price and their future cash flows cannot be estimated, it is considered

extremely difficult to assess the fair value. Therefore, unlisted stocks, etc. are not included in “(3) Investment

securities.”

(*2) Since guarantee deposits received have no market price and their future cash flows cannot be estimated, it is

considered extremely difficult to assess the fair value. Therefore, guarantee deposits received are not subject to

disclosure of the fair value.

- 39 -

(Note) 3. Estimate of monetary claims and securities with maturity due for redemption after the end of fiscal year


(Millions of yen)

Within 1 year Over 1 year and within 5 years

Over 5 years and within 10 years

Over 10 years

Cash and deposits 7,813 – – –

Notes and accounts receivable – trade 92,335 – – –

Long-term loans receivable 350 893 65 8,057

Total 100,499 893 65 8,057


(Millions of yen)



Over 10 years



Long-term loans receivable 4,319 4,616 47 126

Total 107,116 4,616 47 126


(Millions of yen)



Over 10 years



Long-term loans receivable 4,267 335 60 31

Total 110,568 335 60 31




Over 10 years



Long-term loans receivable 37,748 2,970 538 276

Total 978,048 2,970 538 276

- 40 -

(Note) 4. Estimate of bonds payable, long-term loans payable and other interest-bearing liabilities due for repayment after the end of fiscal year


(Millions of yen)

Category Within 1 year Over 1 year

and within 2 years

Over 2 years and

within 3 years

Over 3 years and

within 4 years

Over 4 years and

within 5 years Over 5 years

Short-term loans payable 19,219 – – – – –

Commercial papers 17,000 – – – – –

Bonds payable 10,000 10,000 10,000 10,000 20,000 –

Long-term loans payable 46,602 13,214 19,372 17,284 19,379 22,667

Total 92,822 23,214 29,372 27,284 39,379 22,667


(Millions of yen)


and within 2 years

Over 2 years and

within 3 years

Over 3 years and

within 4 years

Over 4 years and




Bonds payable 10,083 10,068 10,013 20,013 10,008 26


Total 73,420 32,611 30,531 39,803 27,475 34,300


(Millions of yen)


and within 2 years

Over 2 years and

within 3 years

Over 3 years and

within 4 years

Over 4 years and




Bonds payable 10,068 10,013 20,013 10,008 10,003 22


Total 79,950 30,467 39,524 29,551 24,543 29,551


Category Within 1

year

Over 1 year and

within 2 years

Over 2 years and

within 3 years

Over 3 years and

within 4 years

Over 4 years and




Bonds payable 89,059 88,573 177,029 88,528 88,484 201


Total 707,211 269,508 349,618 261,401 217,103 261,399

- 41 -

Securities

1. Trading securities

Not applicable

2. Held-to-maturity debt securities


Not applicable


Not applicable


(Millions of yen)

Classification Carrying value Fair value Variance

Securities whose fair value exceeds their carrying value

(1) Government

and municipal

bonds

– – –

(2) Corporate

bonds 1,000 1,040 40

(3) Other – – –

Subtotal 1,000 1,040 40

Securities whose fair value does not exceed their carrying value

(1) Government

and municipal

bonds

– – –

(2) Corporate

bonds – – –

(3) Other – – –

Subtotal – – –

Total 1,000 1,040 40

- 42 -


Classification Carrying value Fair value Variance

Securities whose fair value exceeds their carrying value

(1) Government

and municipal

bonds

– – –

(2) Corporate

bonds 8,845 9,205 360

(3) Other – – –

Subtotal 8,845 9,205 360

Securities whose fair value does not exceed their carrying value

(1) Government

and municipal

bonds

– – –

(2) Corporate

bonds – – –

(3) Other – – –

Subtotal – – –

Total 8,845 9,205 360

3. Other securities


(Millions of yen)

Classification Carrying value Acquisition cost Variance

Securities whose carrying value exceeds their acquisition cost

(1) Stock 50,713 15,305 35,407

(2) Debt securities 16 16 0

(3) Other – – –

Subtotal 50,729 15,321 35,407

Securities whose carrying value does not exceed their acquisition cost

(1) Stock 3,924 4,453 (529)

(2) Debt securities – – –

(3) Other – – –

Subtotal 3,924 4,453 (529)

Total 54,653 19,774 34,878

(Note) Unlisted stocks, etc. (carrying value: ¥7,194 million) have no observable market price and it is unfeasible to assess fair value. Such stocks have been excluded from the above.

- 43 -


(Millions of yen)



(1) Stock 48,751 16,654 32,096


(3) Other – – –

Subtotal 48,751 16,654 32,096


(1) Stock 3,566 3,965 (398)


(3) Other – – –

Subtotal 3,566 3,965 (398)

Total 52,318 20,620 31,698



(Millions of yen)



(1) Stock 53,294 16,037 37,257


(3) Other – – –

Subtotal 53,294 16,037 37,257


(1) Stock 984 1,249 (265)


(3) Other – – –

Subtotal 984 1,249 (265)

Total 54,278 17,286 36,991


- 44 -




(1) Stock 471,422 141,858 329,563


(3) Other – – –

Subtotal 471,422 141,858 329,563


(1) Stock 8,709 11,055 (2,345)


(3) Other – – –

Subtotal 8,709 11,055 (2,345)

Total 480,131 152,914 327,217

(Note) Unlisted stocks, etc. (carrying value: $60,741 thousand) have no observable market price and it is unfeasible to assess fair value. Such stocks have been excluded from the above.

4. The realized gain and loss on sales of other securities


(Millions of yen)

Classification Sales Gain on sales of

securities Loss on sales of

securities

(1) Stock 276 46 –

(2) Debt securities

i) Government and municipal bonds – – –

ii) Corporate bonds – – –

iii) Other – – –

(3) Other – – –

Total 276 46 –


(Millions of yen)



securities

(1) Stock 121 13 –

(2) Debt securities




(3) Other – – –

Total 121 13 –

- 45 -


(Millions of yen)



securities

(1) Stock 8,278 4,836 –

(2) Debt securities




(3) Other – – –

Total 8,278 4,836 –




securities

(1) Stock 73,226 42,778 –

(2) Debt securities




(3) Other – – –

Total 73,226 42,778 –

5. Marketable securities written down for impairment loss

Marketable securities were written down by ¥1,758 million for impairment loss (¥1,758 million of other securities) in the fiscal year ended December 31, 2015.

Marketable securities were written down by ¥22 million for impairment loss (¥22 million of other securities) in the fiscal year ended December 31, 2016.

Marketable securities were written down by ¥254 million ($2,246 thousand) for impairment loss (¥254 million ($2,246 thousand) of other securities) in the fiscal year ended December 31, 2017.

Marketable securities are written down when their market value falls by 50% or more than their acquisition cost at the fiscal year-end. If their value falls by between 30% and 50%, the Company records the amount of write-downs deemed necessary based on the possibility of recovery for individual securities.

- 46 -

Derivatives

1. Derivatives transactions to which hedge accounting is not applied

(1) Currency-related


(Millions of yen)

Category Type of transaction Contract amountContract

amount payable after one year

Fair value Valuation gain

(loss)

Transactions other than market transactions

Forward foreign exchange contract

Purchased

USD 2,384 1,072 334 334

Sold

USD 186 – (33) (33)

Currency swaps

Receiving in USD, paying in CAD 727 – 3 3

Total 3,298 1,072 304 304

(Note) Calculation method for fair value

It is calculated based on a price, etc. provided by counterparty financial institutions and others.


(Millions of yen)




(loss)



Purchased

USD 1,674 – 39 39

Sold

USD 114 – (16) (16)

Currency swaps

Receiving in USD, paying in CAD 116 – 0 0

Total 1,905 – 23 23



- 47 -


(Millions of yen)




(loss)



Purchased

USD 1,619 – 3 3

Sold

USD 40 – (2) (2)

Total 1,659 – 0 0





(loss)



Purchased

USD 14,323 – 29 29

Sold

USD 354 – (25) (25)

Total 14,677 – 4 4



- 48 -

(2) Commodity-related


(Millions of yen)




(loss)

Market transactions

Commodity option contract

Purchased

Call 2 – 14 14

Sold

Put 8 – 8 8

Commodity future trading

Purchased 2,010 – 198 198

Total 2,022 – 220 220


It is calculated based on the final price of the Intercontinental Exchange (ICE) in the U.S. and others as at the end of the fiscal year.


(Millions of yen)




(loss)

Market transactions


Purchased

Call 5 – (2) (2)

Sold

Put 7 – (0) (0)


Purchased 121 – (2) (2)

Total 134 – (5) (5)



- 49 -


(Millions of yen)




(loss)

Market transactions


Purchased

Call 0 – 0 0

Sold

Put 91 – (79) (79)


Purchased 413 – (17) (17)

Total 504 – (96) (96)





(loss)

Market transactions


Purchased

Call 2 – 0 0

Sold

Put 807 – (701) (701)


Purchased 3,653 – (153) (153)

Total 4,463 – (854) (854)



- 50 -

2. Derivatives transactions to which hedge accounting is applied

(1) Currency-related


(Millions of yen)

Hedge accounting method

Type of transaction Main hedged

item Contract amount

Contract amount payable after one year

Fair value

Allocation treatment applied to forward foreign exchange contracts


Purchased

USD Accounts payable 130 – (1)

EUR Accounts payable 600 – (10)

Allocation treatment applied to currency swaps

Receiving in USD, paying in JPY

Long-term loans payable 11,804 11,804 (Note 2.)

Total 12,534 11,804 (12)

(Notes) 1. Calculation method for fair value


2. Because those based on currency swap allocation treatments are treated as a unit with long-term loans payable, which are regarded as hedged items, their fair value is shown inclusive of the fair value of the long-term loans payable.


(Millions of yen)





Fair value



Purchased

USD Accounts payable 127 – 15

EUR Accounts payable 711 – 50

Sold

USD Accounts receivable 112 – 0




Total 12,755 6,804 66




- 51 -


(Millions of yen)





Fair value



Purchased

USD Accounts payable 167 – 3

EUR Accounts payable 617 – 8

Sold

USD Accounts receivable 192 – 0

USD Accounts receivable – other

693 – 1


Received in USD, paid in JPY


Total 8,476 1,804 14






Fair value



Purchased

USD Accounts payable 1,486 – 26

EUR Accounts payable 5,464 – 78

Sold

USD Accounts receivable 1,703 – 8

USD Accounts receivable – other

6,133 – 14



Long-term loans payable 60,188 15,960

Total 74,975 15,960 128




- 52 -

(2) Interest rate-related


(Millions of yen)





Fair value

Special treatment for interest rate swaps

Interest rate swaps Receive variable rate, pay fixed rate

Long-term loans payable 54,995 49,572 (Note)

(Note) Because those based on special treatment for interest rate swaps are treated as a unit with long-term loans payable, which are regarded as hedged items, their fair value is recorded inclusive of the fair value of the long-term loans payable.


(Millions of yen)





Fair value






(Millions of yen)





Fair value









Fair value





- 53 -

Retirement Benefits

1. Outline of the current retirement benefit plans

The Company and its consolidated subsidiaries have corporate welfare pension fund plans, defined contribution pension plans and lump-sum retirement payment plans. Certain consolidated subsidiaries have joined the Smaller Enterprise Retirement Allowance Mutual Aid System. In addition, certain consolidated subsidiaries have set up a retirement benefits trust. When employees leave, they are entitled, in certain circumstances, to receive additional retirement benefits, which are not included in retirement benefit obligation that are based on actuarial calculations as prescribed by retirement benefit accounting.

2. Defined benefit plans

(1) Reconciliation of balance of retirement benefit obligation at the beginning of the period and at the end of the period (except for plans applying simplified methods in (3))



2015 December 31,

2016 December 31,

2017

December 31, 2017

Balance of retirement benefit obligation at the beginning of the period

44,626 47,924 49,538 438,196

Cumulative effect of changes in accounting policies 4,799 – – –

Restated balance at the beginning of the period 49,425 47,924 49,538 438,196

Service cost 1,407 1,352 1,441 12,751

Interest cost 301 350 197 1,745

Actuarial gain or loss (694) 2,520 879 7,780

Payment of retirement benefits (2,516) (2,517) (2,508) (22,186)

Other – (92) – –

Balance of retirement benefit obligation at the end of the period 47,924 49,538 49,548 438,286

(2) Reconciliation of balance of pension plan assets at the beginning of the period and at the end of the period (except for plans applying simplified methods in (3))



2015 December 31,

2016 December 31,

2017

December 31, 2017

Balance of pension plan assets at the beginning of the period 41,152 41,789 42,319 374,340

Expected return on plan assets 956 963 960 8,493

Actuarial gain or loss (222) (6) 1,655 14,644

Contribution from employer 2,225 1,855 2,987 26,430

Payment of retirement benefits (2,323) (2,281) (2,317) (20,501)

Balance of pension plan assets at the end of the period 41,789 42,319 45,605 403,406

- 54 -

(3) Reconciliation of balance of net defined benefit liability at the beginning of the period and at the end of the period for plans applying simplified methods



2015 December 31,

2016 December 31,

2017

December 31, 2017

Balance of net defined benefit liability at the beginning of the period

1,037 1,501 1,776 15,714

Retirement benefit expenses 264 190 207 1,832

Payment of retirement benefits (106) (108) (408) (3,616)

Contribution to the plans (24) (27) (25) (222)

Other 330 220 – –

Balance of net defined benefit liability at the end of the period 1,501 1,776 1,549 13,708

(4) Reconciliation of balance of retirement benefit obligation and pension plan assets at the end of the period and net defined benefit liability and asset stated on the consolidated balance sheets



2015 December 31,

2016 December 31,

2017

December 31, 2017

Retirement benefit obligation for funded plans 45,732 47,260 47,210 417,602

Pension plan assets (42,036) (42,567) (45,859) (405,654)

3,695 4,693 1,350 11,948

Retirement benefit obligation for unfunded plans 3,940 4,301 4,142 36,640

Net amount of liabilities and assets on the consolidated balance sheets 7,636 8,995 5,492 48,589


Net amount of liabilities and assets on the consolidated balance sheets 7,636 8,995 5,492 48,589

- 55 -

(5) Amounts of retirement benefit expenses and breakdown



2015 December 31,

2016 December 31,

2017

December 31, 2017

Service cost 1,407 1,352 1,441 12,751

Interest cost 301 350 197 1,745

Expected return on plan assets (956) (963) (960) (8,493)

Amortization of net retirement benefit obligation at transition 1,503 – – –

Amortization of actuarial gain or loss 836 278 188 1,671

Amortization of past service cost (703) (703) (692) (6,122)

Retirement benefit expenses calculated by simplified methods 264 190 207 1,832

Retirement benefit expenses relating to defined benefit plans 2,653 504 382 3,386

(6) Remeasurements of defined benefit plans recognized during the period

The breakdown of remeasurements of defined benefit plans recognized during the period (before tax effects) is as follows.



2015 December 31,

2016 December 31,

2017

December 31, 2017

Net retirement benefit obligation at transition (1,503) – – –

Actuarial gain or loss (1,308) 2,156 (964) (8,535)

Past service cost 703 703 692 6,122

Total (2,107) 2,860 (272) (2,413)

(7) Remeasurements of defined benefit plans

The breakdown of remeasurements of defined benefit plans (before tax effects) is as follows.



2015 December 31,

2016 December 31,

2017

December 31, 2017

Unrecognized actuarial gain or loss 335 2,491 1,526 13,506

Unrecognized past service cost (3,136) (2,432) (1,740) (15,398)

Total (2,801) 59 (213) (1,891)

- 56 -

(8) Matters related to pension plan assets

i) Main breakdown of pension plan assets

The ratio of each major category to total pension plan assets is as follows.

For the fiscal year ended December 31, 2015 December 31, 2016 December 31, 2017

Bonds 44% 38% 39%

Stocks 22 28 30

Cash and deposits 2 2 1

Life insurance general account 23 24 23

Other 9 9 7

Total 100 100 100

ii) Method of determining expected long-term rate of return

To determine the expected long-term rate of return on pension plan assets, the Company considers the current and expected allocation of pension plan assets, and the current and expected long-term rates of return on the various assets comprising the pension plan assets.

(9) Matters related to actuarial assumptions

Major actuarial assumptions


Discount rate 0.5-0.7% 0.3-0.5% 0.5-0.7%

Expected long-term rate of return 0.8-2.5 0.8-2.5 0.5-2.5

Planned remuneration increase rate 0.8-5.7 0.8-5.7 1.5-5.7

3. Defined contribution plans

The required contribution amount for the defined contribution plans of the Company and its consolidated subsidiaries at December 31, 2015, 2016 and 2017 were ¥462 million, ¥504 million and ¥814 million ($7,201 thousand), respectively.

- 57 -

Tax Effect Accounting

1. Significant components of deferred tax assets and liabilities


dollars)

As of December 31, 2015 December 31, 2016 December 31, 2017 December 31, 2017

Deferred tax assets:

Tax loss carryforwards 2,506 8,130 10,297 91,090

Non-current assets 3,358 4,302 4,533 40,100

Accrued expenses 2,366 2,374 2,455 21,721

Securities 2,316 2,199 2,099 18,572


Gift coupon income 1,712 1,405 1,243 11,003

Provision for bonuses 588 856 829 7,335

Allowance for doubtful accounts 403 404 492 4,355

Asset retirement obligations 385 403 407 3,605

Other 2,192 1,911 1,852 16,405

Gross deferred tax assets 18,327 24,813 25,955 229,591

Valuation allowance (6,670) (13,797) (15,663) (138,553)

Total deferred tax assets 11,657 11,016 10,291 91,037

Deferred tax liabilities:

Valuation difference on other securities (11,199) (9,914) (11,349) (100,390)

Non-current assets (7,949) (7,724) (6,963) (61,599)

Reserve for advanced depreciation of non-current assets

(6,632) (6,272) (6,652) (58,842)

Gain on valuation of assets received through merger (469) (446) (427) (3,784)

Other (1,207) (847) (984) (8,711)

Total deferred tax liabilities (27,457) (25,206) (26,377) (233,327)

Net deferred tax liabilities (15,800) (14,190) (16,085) (142,290)

(Note) Net deferred tax liabilities are included in the following accounts on the consolidated balance sheets.

(Millions of yen)


As of December 31, 2015 December 31, 2016 December 31, 2017 December 31, 2017

Current assets - Deferred tax assets 4,457 3,639 3,900 34,499

Non-current assets - Deferred tax assets 1,009 1,070 1,306 11,556

Current liabilities - Other (51) (96) (0) (0)

Non-current liabilities - Deferred tax liabilities (21,216) (18,804) (21,292) (188,345)

- 58 -

2. Reconciliation of significant difference between the effective statutory tax rate and effective tax rates reflected in the consolidated statements of income


Effective statutory tax rates 35.6% 33.1% 30.9%

Effect of:

Disallowed expenses, including entertainment expenses 3.4 2.1 2.1

Dividends and other income deductible for income tax purposes (1.9) (0.8) (0.5)

Inhabitants’ per capita taxes 2.5 1.6 1.3

Tax deductions (4.3) (2.3) (1.7)

Changes in valuation allowance (7.6) 3.9 5.2

The tax rate difference of overseas subsidiary company 0.7 (0.5) 1.2

Amortization of goodwill 11.2 7.9 6.8

Loss on impairment of goodwill 6.3 0.1 –

Other, net 1.7 (2.3) 0.7

Effective tax rates reflected in the consolidated statements of income 47.7 42.8 46.0

3. Amendment to amounts of deferred tax assets and liabilities due to changes in income tax rates

For the fiscal year ended December 31, 2015

The “Act for Partial Amendment of the Income Tax Act, etc.” (Act No. 9 of 2015) and the “Act for Partial Amendment of the Local Tax Act, etc.” (Act No. 2 of 2015) were promulgated on March 31, 2015, and the income tax rates were lowered for the fiscal years beginning on or after April 1, 2015. Accordingly, the effective statutory tax rates used for calculation of deferred tax assets and liabilities were changed in the fiscal year ended December 31, 2015, from the previously applied rate of 35.6% to 33.1% for temporary differences which were expected to be reversed in the fiscal year beginning on January 1, 2016, and to 32.3% for temporary differences which were expected to be reversed in fiscal years beginning on or after January 1, 2017.

Consequently, as of December 31, 2015, the amount of deferred tax liabilities (net of the amount of deferred tax assets) decreased by ¥990 million, whereas deferred income taxes, valuation difference on other securities and deferred gains or losses on hedges increased by ¥159 million, ¥1,149 million and ¥0 million, respectively.


The “Act for Partial Amendment of the Income Tax Act, etc.” (Act No. 15 of 2016) and the “Act for Partial Amendment of the Local Tax Act, etc.” (Act No. 13 of 2016) were enacted in the Diet on March 29, 2016, and the “Act for Partial Amendment of the Act for Partial Amendment of the Consumption Tax Act and Others to Make Fundamental Reform of the Taxation System for Securing Stable Financial Resources for Social Security, etc.” (Act No. 85 of 2016) and the “Act for Partial Amendment of the Act for Partial Amendment of the Local Tax Act and the Local Allocation Tax Act to Make Fundamental Reform of the Taxation System for Securing Stable Financial Resources for Social Security, etc.” (Act No. 86 of 2016) were enacted in the Diet on November 18, 2016. Then, in the fiscal year ended December 31, 2016, the effective statutory tax rates used for calculation of deferred tax assets and liabilities were changed (only for those which are reversed on and after January 1, 2017) from 32.3% in the fiscal year ended December 31, 2015 to 30.9% for those which are expected to be collected or paid during the period from January 1, 2017 to December 31, 2018, and to 30.6% for those which are expected to be collected or paid on or after January 1, 2019.

- 59 -

Consequently, as of December 31, 2016, the amount of deferred tax liabilities (net of the amount of deferred tax assets) decreased by ¥481 million, whereas deferred income taxes, valuation difference on other securities and deferred gains or losses on hedges increased by ¥22 million, ¥503 million and ¥0 million, respectively.


On December 22, 2017 (U.S. local time), a tax reform act was enacted in the United States, effectively lowering the federal income tax rates for fiscal years beginning on and after January 1, 2018. Consequently, deferred tax assets and deferred tax liabilities in U.S. consolidated subsidiaries were calculated using the effective statutory tax rate based on the tax rate after the revision.

As a result, as of December 31, 2017, deferred tax liabilities (amount after deducting the amount of deferred tax assets) and deferred income taxes have both decreased by ¥366 million ($3,240 thousand).

Business Combinations

[Business combinations by acquisition]

(Country Pure Foods, Inc.)


The Company’s consolidated subsidiary Sapporo International Inc. (“SI”) and Toyota Tsusho Group company Toyota Tsusho America, Inc. (“TAI”) acquired the shares of Country Pure Foods, Inc. (“CPF”), a major food service juice manufacturer in the U.S., through Silver Springs Citrus, Inc. (“SSC”), a U.S. juice manufacturing joint venture of SI and TAI.

1. Outline of the business combination

(1) Name and business content of acquired company

Name: Country Pure Foods, Inc.

Location: Akron, Ohio, U.S.

Business content: Manufacture and sales of juices for commercial use (school and hospital catering services)

Manufacture and sales of retail chain private label juices

Licensed manufacture and sales of leading-brand juices

(2) Major reason for the business combination

The Sapporo Group formulated the Sapporo Group Medium-term Management Plan 2014-2016 in February 2014, and has accelerated its growth strategy as a “manufacturer of food products.” It is taking steps to achieve the financial targets for 2016 by generating synergies among Group companies and by pursuing M&As.

As part of the plan, SI has defined North America, its operational base, together with the fast-growing Asian market, as its first priority markets for the beer business. It has also launched its soft drinks business in North America by acquiring SSC in 2012. Since then, it has been accumulating expertise and knowledge in that market.

Looking ahead, SI will maximize synergies with SSC by bringing CPF into its corporate Group together with TAI, its partner in the North American soft drinks business, to accelerate its growth strategy for the international business in North America, including the beer business.

(3) Counterparty to the acquisition of shares

Mistral Winthorpe Holdings, LLC. and others

(4) Date of business combination

February 24, 2015

- 60 -

(5) Legal form of business combination

Shares were acquired for a cash consideration.

(6) Name of acquired company after acquisition

No change

(7) Share of acquired voting rights

51%

(8) Main grounds for determining the acquired company

A consolidated subsidiary of the Company acquired the shares for a cash consideration.

2. Period for which the acquired company’s results are included in the consolidated financial statements

The acquired company’s results from February 24, 2015 to December 31, 2015 are included.

3. Purchase price for the acquired company and its breakdown

Considerations transferred: ¥4,370 million

Costs incurred directly for acquisition: ¥491 million

Purchase price: ¥4,861 million

4. Amount of goodwill arising, reason for its recognition, amortization method and amortization period

(1) Amount of goodwill

¥4,162 million

The amount of goodwill is calculated on a tentative basis, because the designation and calculation of fair value of assets and liabilities that are identifiable on the date of business combination are incomplete and the purchase price allocation has not been completed.

(2) Reason for its recognition

Future business activities are expected to generate excess profitability.

(3) Amortization method and amortization period

9 years with the straight-line method

5. Amount and major components of assets acquired and liabilities assumed at the date of business combination

Current assets ¥3,306 million

Non-current assets ¥10,135 million

Total assets ¥13,441 million

Current liabilities ¥2,636 million

Non-current liabilities ¥8,982 million

Total liabilities ¥11,619 million

- 61 -

6. Approximate effects on the consolidated statements of income for the fiscal year ended December 31, 2015, assuming that the business combination was completed on January 1, 2015, and method of calculation

Net sales ¥3,008 million

Loss ¥(6) million

(Method adopted to estimate approximate effects)

The approximate effects correspond to net sales and profit and loss information recorded on the acquiring company’s consolidated statements of income assuming that the business combination was completed on January 1, 2015.


1. Content and amount of adjustment in the case where a significant adjustment was made to the initial allocation amount of acquisition cost

In the fiscal year ended December 31, 2015, provisional accounting treatment was conducted for the purchase price allocation of Country Pure Foods, Inc. based on reasonable information, etc. available at the time of preparing the consolidated financial statements, and the purchase price allocation had not been completed.

In the fiscal year ended December 31, 2016, the amount of adjustment to goodwill due to completion of the purchase price allocation is as follows:

Items relevant to adjustment Adjustment of goodwill

Goodwill (before adjustment) ¥4,162 million

Intangible assets ¥310 million

Deferred tax assets ¥(20) million

Deferred tax liabilities ¥(76) million

Other adjustment ¥51 million

Adjustment of goodwill ¥264 million

Goodwill (after adjustment) ¥4,426 million


i) Amount of goodwill

¥4,426 million

ii) Reason for its recognition


iii) Amortization method and amortization period


(Anchor Brewing Company, LLC)

The Company acquired 100% of the outstanding shares of Anchor Brewing Company, LLC (hereinafter referred to as “Anchor”) through a subsidiary newly established in the U.S.

- 62 -

1. Outline of the business combination

i) Name and business content of acquired company

• Name: Anchor Brewing Company, LLC (and one other company)

• Location: San Francisco, California, USA

• Business content: Beer brewing and sales

ii) Major reason for the business combination

In November 2016, the Sapporo Group formulated the new Long-Term Management Vision “SPEED 150” through 2026, the year marking the Group’s 150th anniversary since its founding. The vision set forth in SPEED 150 is for the Sapporo Group to be a company with highly unique brands in the fields of “Alcoholic Beverages,” “Food,” and “Soft Drinks” around the world.

Regarding its “Promote Global Business Expansion” policy, a key component of the Group’s growth strategy, the Sapporo Group is promoting a distinctive plan that prioritizes expanding business in North America, already a core part of the Group’s business foundation, and Southeast Asia, a regional market with high growth prospects.

The addition of Anchor’s strong brand power to the Sapporo Group’s US beer business portfolio through the equity acquisition is expected to generate further synergies and accelerate the growth of the Group’s US business.

iii) Counterparty to the acquisition of shares

Anchor Brewers & Distillers, LLC

iv) Date of business combination

August 31, 2017

v) Legal form of business combination

Equity shares were acquired for a cash consideration.

vi) Name of acquired company after acquisition

No change

vii) Proportion of equity shares acquired

100%

viii) Main basis for determining the acquiring company

A consolidated subsidiary of the Company acquired the equity shares for a cash consideration.

2. Period for which the acquired company’s results are included in the consolidated financial statements

The acquired company’s results from October 1, 2017 to December 31, 2017 are included.

3. Acquisition cost and consideration paid, by type, for the acquired company

Acquisition cost (cash): ¥11,913 million ($105,386 thousand)

4. Main acquisition-related expenses and amount

Advisory fees, commissions, etc.: ¥404 million ($3,576 thousand)

- 63 -


i) Amount of goodwill

¥3,532 million ($31,248 thousand)

ii) Reason for its recognition


iii) Amortization method and amortization period


6. Amount and major components of assets acquired and liabilities assumed at the date of business combination

Current assets ¥1,126 million ($9,963 thousand)

Non-current assets ¥8,034 million ($71,074 thousand)

Total assets ¥9,161 million ($81,037 thousand)

Current liabilities ¥778 million ($6,883 thousand)

Non-current liabilities ¥1 million ($16 thousand)

Total liabilities ¥780 million ($6,900 thousand)

7. Approximate effects on the consolidated statements of income for the fiscal year ended December 31, 2017, assuming that the business combination was completed on January 1, 2017, and method of calculation

Net sales ¥2,577 million ($22,801 thousand)

Operating loss ¥(217) million ($1,926 thousand)

Loss attributable to owners of parent ¥(126) million ($1,116 thousand)

(Method adopted to estimate approximate effects)

The approximate effects correspond to net sales and profit and loss information recorded on the acquiring company’s consolidated statements of income assuming that the business combination was completed on January 1, 2017.

This note has not received audit certification.

Real Estate for Lease, etc.

The Sapporo Group holds office buildings and commercial facilities (including land) for lease in the Tokyo metropolitan and other areas. Net leasing income on those properties in the fiscal year ended December 31, 2015 was ¥7,606 million (leasing income was recorded as operating revenue; leasing expenses were mainly recorded as operating expenses). Net leasing income on those properties in the fiscal year ended December 31, 2016 was ¥9,453 million (leasing income was recorded as operating revenue; leasing expenses were mainly recorded as operating expenses). Net leasing income on those properties in the fiscal year ended December 31, 2017 was ¥10,625 million ($93,986 thousand) (leasing income was recorded as operating revenue; leasing expenses were mainly recorded as operating expenses).

The carrying value of those properties on the consolidated balance sheets, change in carrying value during the fiscal years and the fair value as of December 31, 2015, 2016 and 2017 appear in the following table.

- 64 -



dollars)

December 31, 2015 December 31, 2016 December 31, 2017 December 31, 2017Carrying value on consolidated balance sheets

At the beginning of the period 207,864 197,666 201,763 1,784,727

Change during the period (10,198) 4,097 (1,761) (15,582)

At the end of the period 197,666 201,763 200,001 1,769,145

Fair value at the end of the period 357,395 389,101 397,581 3,516,862

(Notes) 1. Carrying value on the consolidated balance sheets represents acquisition costs net of accumulated depreciation and accumulated impairment loss.

2. The change during the fiscal year ended December 31, 2015 comprises increase mainly arising from property acquisitions (¥6,595 million) and decrease mainly due to depreciation (¥3,804 million), sales (¥12,535 million), and disposal (¥328 million).

The change during the fiscal year ended December 31, 2016 comprises increase mainly arising from property acquisitions (¥10,134 million) and decrease mainly due to depreciation (¥3,804 million) and disposal, etc. (¥1,911 million).

The change during the fiscal year ended December 31, 2017 comprises increase mainly arising from property acquisitions (¥3,742 million ($33,100 thousand)) and decrease mainly due to depreciation (¥4,000 million ($35,389 thousand)), sales (¥266 million ($2,356 thousand)), and disposal (¥405 million ($3,583 thousand)).

3. The fair value at the end of the period is mainly based on property valuations performed by third-party real estate appraisers.

Segment Information, etc.

[Segment information]

1. Description of reportable segments

The Company’s reportable segments are components of the Sapporo Group about which separate financial information is available. These segments are subject to periodic examinations to enable the Company’s board of directors to decide how to allocate resources and assess performance.

Each of the Group’s business operating companies proposes business development and strategies for the products, services and sales markets in which it is involved and conducts business activities under the corporate umbrella of the Company, which is a pure holding company.

Accordingly, when reporting segments, the Company reports its five businesses of “Japanese Alcoholic Beverages,” “International,” “Food & Soft Drinks,” “Restaurants,” and “Real Estate” as its reportable segments, which have been mainly organized according to the products, services and sales markets in which each of the business operating companies and their subsidiaries and associates are involved.

The Japanese Alcoholic Beverages segment produces and sells alcoholic beverages in Japan, while the International segment produces and sells alcoholic beverages and soft drinks overseas.

The Food & Soft Drinks segment produces and sells foods and soft drinks.

The Restaurants segment operates restaurants of various styles.

The Real Estate segment’s activities include leasing of real estate.

2. Explanation of measurements of sales, profit (loss), asset, and other items for each reportable segment

Accounting methods applied in reportable segments by business largely correspond to those presented under “Significant Accounting Policies for Preparation of Consolidated Financial Statements.” Reportable segment profit is based on operating profit. Intersegment sales or transfers are based on the transaction prices among third parties.

- 65 -

(Change to depreciation method)

As described in “Changes in accounting policies which are difficult to distinguish from changes in accounting estimates,” the depreciation method for property, plant and equipment in Japan has been changed with effect from the fiscal year ended December 31, 2016.

This change increased segment profit of Japanese Alcoholic Beverages segment by ¥957 million, Food & Soft Drinks segment by ¥374 million, Restaurants segment by ¥194 million and Real Estate segment by ¥105 million in the fiscal year ended December 31, 2016, compared with their respective figures calculated using the former method. The change also reduced segment loss of other businesses by ¥4 million and corporate costs by ¥51 million in the fiscal year ended December 31, 2016.

(Application of Accounting Standard for Retirement Benefits and its Guidance)

Effective from the fiscal year ended December 31, 2015, the Sapporo Group has applied the Accounting Standard for Retirement Benefits (Accounting Standards Board of Japan - ASBJ - Statement No. 26 of May 17, 2012) and the Guidance on Accounting Standard for Retirement Benefits (ASBJ Guidance No. 25 of March 26, 2015), in accordance with the provisions specified in the main clauses of paragraph 35 of the Accounting Standard for Retirement Benefits and paragraph 67 of the Guidance on Accounting Standard for Retirement Benefits. As a result, the method for calculating retirement benefit obligation and service cost has been revised, and the method for attributing projected amount of retirement benefit to periods has been changed from the straight-line basis to the benefit formula basis. As to the discount rate, it used to be calculated based on the periods, comparable to employees’ average remaining years of service. Under the new accounting standard, however, the method of determining the discount rate has now been changed to use a single weighted-average discount rate that reflects the periods until the expected payment of retirement benefits and the amount of projected benefits for every such period.

As a result, segment profit for Japanese Alcoholic Beverages increased by ¥160 million in the fiscal year ended December 31, 2015, compared with the figure calculated using the former method. The effect of the said revision on the segment profit in other segments than the Japanese Alcoholic Beverages is immaterial.

3. Disclosure of sales, profit (loss), asset, and other items for each reportable segment

Fiscal year ended December 31, 2015 (Millions of yen)

Reportable segments

Other (Note 1.) Total

Adjust-ment

(Note 2.)

Amounts reported on the

consoli-dated

financial statements (Note 4.)


Inter-national

Food & Soft

Drinks

Restau-rants

Real Estate Total

Sales Revenues from external customers 273,651 70,501 135,670 27,004 20,872 527,700 6,048 533,748 – 533,748

Intersegment sales and transfers 2,793 102 297 5 2,549 5,747 19,834 25,582 (25,582) –

Total 276,445 70,604 135,967 27,009 23,421 533,448 25,882 559,331 (25,582) 533,748

Segment profit 8,635 154 434 522 8,281 18,028 1 18,029 (4,079) 13,950

Segment assets 220,009 67,068 100,463 12,271 206,649 606,463 6,788 613,252 7,136 620,388

Other items Depreciation (Note 3.) 8,144 3,380 6,185 668 4,202 22,581 36 22,617 1,606 24,224

Increase in property, plant and equipment and intangible assets

4,607 2,558 5,117 844 6,196 19,324 2 19,326 1,256 20,583

(Notes) 1. “Other” comprises businesses, such as logistics businesses, that are not included in reportable segments.

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2. Among the adjustments, the adjustment to depreciation was depreciation and amortization of corporate assets, while the adjustment to increase in property, plant and equipment and intangible assets was mainly the increase in assets in the general administration divisions.

3. Depreciation includes amortization of long-term prepaid expenses.

4. Segment profit has been adjusted for operating profit on the consolidated statements of income.

Fiscal year ended December 31, 2016 (Millions of yen)

Reportable segments


Adjust-ment

(Note 2.)


consoli-dated



Inter-national

Food & Soft

Drinks

Restau-rants

Real Estate Total



Total 282,337 65,497 138,200 28,121 25,469 539,625 28,190 567,815 (25,968) 541,847

Segment profit 11,745 906 1,314 663 10,328 24,958 (95) 24,862 (4,595) 20,267

Segment assets 214,326 66,292 100,594 13,571 211,312 606,097 10,042 616,140 10,211 626,351



2,691 2,649 8,096 1,143 9,648 24,230 58 24,288 2,384 26,673






(Millions of yen)

Reportable segments


Adjust-ment

(Note 2.)


consoli-dated



Inter-national

Food & Soft

Drinks

Restau-rants

Real Estate Total



Total 282,218 69,945 138,185 29,141 26,804 546,296 32,847 579,143 (27,595) 551,548

Segment profit 11,767 (1,214) 564 330 11,261 22,709 51 22,761 (5,728) 17,032

Segment assets 218,403 76,535 95,907 12,550 212,010 615,406 10,254 625,661 4,969 630,630



3,468 3,529 4,486 800 2,812 15,097 207 15,305 2,225 17,530





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Reportable segments


Adjust-ment

(Note 2.)


consoli-dated



Inter-national

Food & Soft

Drinks

Restau-rants

Real Estate Total

Sales Revenues from external customers 2,465,210 617,757 1,219,801 257,763 213,484 4,774,018 104,784 4,878,803 – 4,878,803

Intersegment sales and transfers 31,195 958 2,538 8 23,622 58,323 185,773 244,097 (244,097) –

Total 2,496,406 618,716 1,222,340 257,772 237,106 4,832,342 290,558 5,122,901 (244,097) 4,878,803

Segment profit 104,094 (10,746) 4,990 2,926 99,618 200,884 454 201,338 (50,674) 150,663

Segment assets 1,931,917 677,005 848,365 111,016 1,875,365 5,443,670 90,704 5,534,375 43,959 5,578,334

Other items Depreciation (Note 3.) 67,729 27,944 50,393 5,389 39,239 190,696 756 191,453 17,048 208,502


30,677 31,216 39,689 7,077 24,882 133,543 1,839 135,383 19,686 155,070





4. Description of nature of differences between amounts of reportable segments total and consolidated financial statements

Profit



dollars)


Reportable segments total 18,028 24,958 22,709 200,884 Profit (loss) from other businesses 1 (95) 51 454 Unallocated corporate costs (Note) (4,002) (4,784) (5,880) (52,018) Intrasegment eliminations (77) 189 151 1,343 Operating profit on the consolidated financial statements 13,950 20,267 17,032 150,663

(Note) Unallocated corporate costs consist mainly of general and administrative expenses that are not attributable to reportable segments.

Assets

As of


dollars)


Reportable segments total 606,463 606,097 615,406 5,443,670 Assets of other businesses 6,788 10,042 10,254 90,704 Elimination of receivables due from the general administration divisions at the head office

(12,253) (11,134) (14,461) (127,920)

Unallocated corporate assets (Note) 19,390 21,345 19,431 171,880 Total assets on the consolidated financial statements 620,388 626,351 630,630 5,578,334

(Note) Unallocated corporate assets do not belong to reportable segments and consist mainly of working funds (cash and deposits and marketable securities), long-term investment funds, and assets related to general administration divisions.

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[Information associated with reportable segments]


1. Information for each product or service

Information for each product or service is omitted here, as the same information is disclosed in segment information.

2. Information for each region

(1) Revenues from external customers (Millions of yen)

Japan North America Asia Other Total

439,197 67,001 20,969 6,580 533,748

(Note) Revenues are classified by country or region based on the location of customers.

(2) Property, plant and equipment

Information is omitted as the amount of property, plant and equipment held in Japan constitutes more than 90% of that shown on the consolidated balance sheets.

3. Information for each of main customers (Millions of yen)

Name Net sales Segment

KOKUBU & CO., LTD. 79,177 Japanese Alcoholic Beverages, Food & Soft Drinks





(1) Revenues from external customers (Millions of yen)


455,001 61,915 19,910 5,020 541,847




3. Information for each of main customers

(Millions of yen)


KOKUBU & CO., LTD. 82,686 Japanese Alcoholic Beverages, Food & Soft Drinks

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(1) Revenues from external customers

(Millions of yen)


459,611 65,781 20,631 5,524 551,548



4,065,560 581,875 182,497 48,869 4,878,803




3. Information for each of main customers

(Millions of yen)


KOKUBU & CO., LTD. 77,851Japanese Alcoholic Beverages, Food & Soft Drinks



KOKUBU & CO., LTD. 688,651Japanese Alcoholic Beverages, Food & Soft Drinks

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[Disclosure of impairment loss on non-current assets for each reportable segment]


(Millions of yen)

Reportable segments

Other Unallocated amounts and elimination

Total


Inter-national

Food & Soft Drinks

Restaurants Real Estate Total

Impairment loss 3,083 2,082 610 179 – 5,956 – – 5,956


(Millions of yen)

Reportable segments


Total


Inter-national

Food & Soft Drinks


Impairment loss 55 – 819 138 – 1,014 4 – 1,018


(Millions of yen)

Reportable segments


Total


Inter-national

Food & Soft Drinks


Impairment loss – 2,686 335 548 – 3,570 164 – 3,735


Reportable segments


Total


Inter-national

Food & Soft Drinks


Impairment loss – 23,761 2,968 4,854 – 31,584 1,458 – 33,043

(Note) The amount in “Other” consists of an amount relating to Shinsyu-ichi Miso Co., Ltd.

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[Amortization and unamortized balance of goodwill for each reportable segment]


(Millions of yen)

Reportable segments


Total


Inter-national

Food & Soft Drinks


Amortization 41 1,833 2,278 0 – 4,153 – – 4,153

Unamortized balance as of December 31, 2015

343 12,122 17,769 – – 30,235 – – 30,235


(Millions of yen)

Reportable segments


Total


Inter-national

Food & Soft Drinks


Amortization 54 1,670 2,160 34 – 3,920 – – 3,920


288 11,214 15,556 379 – 27,439 – – 27,439


(Millions of yen)

Reportable segments


Total


Inter-national

Food & Soft Drinks


Amortization 54 1,719 2,121 59 – 3,954 – – 3,954


233 12,958 13,435 320 – 26,948 – – 26,948


Reportable segments


Total


Inter-national

Food & Soft Drinks


Amortization 485 15,207 18,763 523 – 34,980 – – 34,980


2,065 114,630 118,842 2,835 – 238,373 – – 238,373

[Information about gain on bargain purchase for each reportable segment]


Not applicable


Not applicable


Not applicable

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[Related parties]


Not applicable


Not applicable


Not applicable

Per Share Information


(Yen) (U.S. dollars)


Net assets per share 2,027.21 2,062.86 2,227.02 19.69

Basic earnings per share 78.40 121.56 140.93 1.24

(Notes) 1. Diluted earnings per share is not presented since no potential shares exist.

2. On July 1, 2016, the Company implemented a consolidation of shares at a ratio of 1 share for each 5 shares of the Company’s common shares. Assuming that the consolidation of shares was conducted at the beginning of the fiscal year ended December 31, 2015, net assets per share and basic earnings per share have been calculated.

3. Own shares held by Trust & Custody Services Bank, Ltd. (Trust Account E) in association with the “Board Benefit Trust (BBT)” system are included in treasury shares that are deducted in calculation of the year-end number of shares and the average number of outstanding shares during the period for the purpose of calculating net assets per share and basic earnings per share.

The year-end number and average number during the period of the treasury shares that were deducted for the purpose of calculating net assets per share and basic earnings per share were 149,320 shares for the fiscal year ended December 31, 2017 (150,920 shares for the fiscal year ended December 31, 2016) and 150,253 shares for the fiscal year ended December 31, 2017 (150,920 shares for the fiscal year ended December 31, 2016), respectively.

4. The basis of computation of basic earnings per share is as follows:



December 31, 2015 December 31, 2016 December 31, 2017 December 31, 2017Profit attributable to owners of parent in consolidated statements of income

6,108 9,469 10,977 97,105

Amount not attributable to common shareholders – – – –

Profit attributable to owners of parent related to common shares 6,108 9,469 10,977 97,105

Average number of outstanding shares during the period (Thousand shares)

77,917 77,900 77,894 77,894

Significant Subsequent Events

Not applicable

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v) Annexed consolidated detailed schedules

[Annexed consolidated detailed schedule of corporate bonds] (Millions of yen)

Company name Issue Date of issuance

Balance at beginning of

current period

Balance at end of current period

Interest rate(%)

Collateral Maturity

Sapporo Holdings Limited (the Company)

26th uncollateralized

straight corporate bonds March 2, 2012

10,000(10,000)

– 0.64 None March 2, 2017


straight corporate bonds March 14, 2013 10,000

10,000(10,000)

0.39 None March 14, 2018


straight corporate bonds December 5, 2013 10,000 10,000 0.61 None December 4, 2020


straight corporate bonds

September 12, 2014

10,000 10,000 0.31 None September 12, 2019



September 10, 2015

10,000 10,000 0.33 None September 10, 2020

31st uncollateralized

straight corporate bonds March 22, 2016 10,000 10,000 0.25 None March 22, 2021

32nd uncollateralized

straight corporate bonds June 1, 2017 – 10,000 0.15 None June 1, 2022

MARUSHIN-KAWAMURA INC. (Note 2.)

Straight corporate bonds

of subsidiaries

October 2, 2012 to March 14, 2016

212(83)

128(68)

0.47to

0.65None

September 25, 2017 to February 28, 2029

Total – – 60,212

(10,083)60,128

(10,068)– – –


Company name Issue Date of issuance

Balance at beginning of

current period


Interest rate(%)

Collateral Maturity

Sapporo Holdings Limited (the Company)


straight corporate bonds March 2, 2012

88,456(88,456)

– 0.64 None March 2, 2017


straight corporate bonds March 14, 2013 88,456

88,456(88,456)

0.39 None March 14, 2018


straight corporate bonds December 5, 2013 88,456 88,456 0.61 None December 4, 2020



September 12, 2014

88,456 88,456 0.31 None September 12, 2019



September 10, 2015

88,456 88,456 0.33 None September 10, 2020

31st uncollateralized

straight corporate bonds March 22, 2016 88,456 88,456 0.25 None March 22, 2021

32nd uncollateralized

straight corporate bonds June 1, 2017 – 88,456 0.15 None June 1, 2022

MARUSHIN-KAWAMURA INC. (Note 2.)

Straight corporate bonds

of subsidiaries

October 2, 2012 to March 14, 2016

1,875(735)

1,139(603)

0.47to

0.65None

September 25, 2017 to February 28, 2029

Total – – 532,613 (89,192)

531,877(89,059)

– – –

(Notes) 1. Amounts in the balance at end of current period shown in parentheses represent amounts to be redeemed within one year.

2. This represents corporate bonds issued by MARUSHINKAWAMURA INC., a domestic subsidiary, in the aggregate.

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3. Amounts to be redeemed on an annual basis within five years after the end of the fiscal year are as follows: (Millions of yen)





10,068 10,013 20,013 10,008 10,003






89,059 88,573 177,029 88,528 88,484

[Annexed consolidated detailed schedule of borrowings] (Millions of yen)

Category Balance at

beginning of current period


Average interest rate

(%) Repayment period

Short-term loans payable 18,506 15,355 0.79 –

Current portion of long-term loans payable 11,830 22,526 0.42 –

Current portion of lease obligations 3,024 2,690 2.88 –

Long-term loans payable (excluding current portion of long-term loans payable) 114,593 103,578 0.70 From 2019 to 2026

Lease obligations (excluding current portion of lease obligations) 6,968 5,960 3.19 From 2019 to 2023

Other interest-bearing liabilities

Commercial papers 33,000 32,000 0.00 –

Deposits received 343 289 0.03 –

Guarantee deposits received 32,856 30,663 1.01 –

Total 221,123 213,064 – –


Category Balance at

beginning of current period


Average interest rate

(%) Repayment period

Short-term loans payable 163,700 135,833 0.79 –

Current portion of long-term loans payable 104,652 199,257 0.42 –

Current portion of lease obligations 26,751 23,803 2.88 –

Long-term loans payable (excluding current portion of long-term loans payable) 1,013,657 916,214 0.70 From 2019 to 2026

Lease obligations (excluding current portion of lease obligations) 61,642 52,721 3.19 From 2019 to 2023

Other interest-bearing liabilities

Commercial papers 291,906 283,060 0.00 –

Deposits received 3,034 2,564 0.03 –

Guarantee deposits received 290,636 271,238 1.01 –

Total 1,955,981 1,884,694 – –

(Notes) 1. “Average interest rate” represents the weighted-average interest rate applicable to the balance of borrowings, etc. at end of period.

2. Since guarantee deposits received under other interest-bearing liabilities are not expected to be returned, as a general rule, during the period in which the business transaction is continued, their “repayment period” and “amounts to be repaid within five years after the end of the fiscal year (Note 3)” have not been provided.

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3. Amounts to be repaid within five years after the end of the fiscal year for long-term loans payable and leaseobligations (excluding current portion of them) are as follows:

(Millions of yen)

Category Over 1 year and within 2 years







Category Over 1 year and within 2 years






[Annexed consolidated detailed schedule of asset retirement obligations]

Since the amount of asset retirement obligations at the beginning and the end of the fiscal year ended December 31, 2017 was not more than one percent of the combined total of liabilities and net assets at the beginning and the end of the fiscal year ended December 31, 2017, this schedule has been omitted in accordance with the provisions of Article 92-2 of the Regulation on Terminology, Forms, and Preparation Methods of Consolidated Financial Statements.

(2) Other information

i) Quarterly information in the fiscal year ended December 31, 2017 and others

(Cumulative period) 1st quarter 2nd quarter 3rd quarter Full year

Net sales (Millions of yen) 117,788 257,970 400,845 551,548

Profit (loss) before income taxes (Millions of yen) (2,367) 1,928 9,940 17,801

Profit (loss) attributable to owners of parent (Millions of yen) (2,307) 222 5,424 10,977

Basic earnings (loss) per share (Yen) (29.62) 2.85 69.64 140.93

(Accounting period) 1st quarter 2nd quarter 3rd quarter 4th quarter

Basic earnings (loss) per share (Yen) (29.62) 32.48 66.79 71.29

(Cumulative period) 1st quarter 2nd quarter 3rd quarter Full year

Net sales (Thousands of U.S. dollars) 1,041,914 2,281,912 3,545,733 4,878,803

Profit (loss) before income taxes (Thousands of U.S. dollars) (20,945) 17,054 87,930 157,466

Profit (loss) attributable to owners of parent (Thousands of U.S. dollars) (20,412) 1,966 47,985 97,105

Basic earnings (loss) per share (U.S. dollars) (0.26) 0.02 0.61 1.24

(Accounting period) 1st quarter 2nd quarter 3rd quarter 4th quarter

Basic earnings (loss) per share (U.S. dollars) (0.26) 0.28 0.59 0.63

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ii) Litigation

On December 12, 2014 (Ontario, Canada local time), a lawsuit was filed against SLEEMANBREWERIES LTD. (“SBL”), a consolidated subsidiary of the Company, in the Superior Courtof Justice of Ontario, Canada, and SBL was served with the complaint effective January 14,2015 (Ontario, Canada local time). In this regard, a judgement dismissing the plaintiffs’ claimagainst SBL was issued on March 15, 2018 (Ontario, Canada local time).

1. Name and address of the consolidated subsidiary, and name of the representative

• Name: SLEEMAN BREWERIES LTD.• Address: Guelph, Ontario, Canada• Name of the representative: Yasuhiro Hanazawa

2. Date on which the lawsuit was filed

December 12, 2014 (Ontario, Canada local time)

3. Name and address of the plaintiffs, and name of the representative

1) Name: David HughesLocation: Ontario, Canada

2) Name: 631992 Ontario Inc.Location: Ontario, CanadaThe representative of this company is not described in the complaint.

4. Content of the lawsuit, amount of compensatory damages claimed and content of thejudgement

1) Reason for and background to the lawsuit

With regard to the fact that an agreement was made in June 2000 between LiquorControl Board of Ontario (a corporation that operates as a provincially owned enterprise;“LCBO”) and Brewers Retail Inc. (a corporation which operates retail stores under thetrade name “The Beer Store”; “TBS”) regarding their beer sales, two plaintiffs claimingthat they, and other beer purchasers in Ontario, paid, and continue to pay, higher pricesfor beer sold in Ontario, filed an action seeking status as a class action against fivecompanies; LCBO, TBS, Labatt Breweries of Canada LP, Molson Coors Canada andSBL.

The Company understands that SBL has been named as a defendant in this lawsuitbecause SBL is a shareholder of TBS. However, since SBL is only a non-controllingshareholder, it has not dispatched any member of the board of directors of TBS and is notinvolved in the management of TBS.

2) Amount of compensatory damages claimed

According to the complaint filed in the Ontario Superior Court of Justice, the plaintiffsclaim compensatory damages and others in the amount not exceeding 1,405,000,000Canadian dollars, etc.

3) Content of the judgement

A summary judgement dismissing the plaintiffs’ claim against SBL was issued.

5. Future prospects

The judgement has no impact on the future results of operations of the Company. If theplaintiffs appeal the judgement in the future, the Company will continue to take actions sothat the SBL’s arguments will be accepted.The Company will make a timely disclosure as necessary.

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