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SAPPORO HOLDINGS LIMITED

ANNUAL REPORT 2006

SAPPOROHOLDINGSLIMITEDANNUALREPORT2006

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CONTENTS ⁰¹

Financial Highlights

02

Message From the President

06

At a Glance

08

Review of Operations Alcoholic Beverages: Sapporo Breweries Ltd.

12

Soft Drinks:

Sapporo Beverage Co., Ltd.

13

Restaurants: Sapporo Lion Ltd.

14

Real Estate:

Yebisu Garden Place Co., Ltd.

16

Management

17

Five-Year Summary

18

Management’s Discussion and Analysis

24

Consolidated Balance Sheets

26

Consolidated Statements of Income

27

Consolidated Statements of Shareholders’ Equity

28

Consolidated Statements of Cash Flows

29

Notes to Consolidated Financial Statements

44

Corporate Data

The Sapporo Group adopted a holding company framework on July 1, 2003. Under this framework, Sapporo Holdings Limited (the Company), as the holding company, oversees four main operating companies in the Alcoholic Beverages, Soft Drinks, Restaurants and Real Estate businesses. Aiming to be powerful companies in their respective industries, the four main operating companies are implementing management reforms and building new business models.

In 2006, the Sapporo Group embarked on a medium-term management plan. One of the main strategies of this plan is to quickly create and then nurture businesses that will drive sustained growth in the Group. With 2006 being the inaugural year of the plan, substantial strategic investments and capital expenditures were made in new and peripheral businesses.

PROFILE

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FINANCIAL HIGHLIGHTS

Years ended December 31

Thousands of

Millions of yen U.S. dollars

2006 2005 2006

Net sales ¥435,090 ¥453,671 $3,652,538

Operating income 8,613 10,300 72,303

Net income 2,338 3,630 19,630

Yen U.S. dollars

Per share: Net income

Primary ¥6.38 ¥10.20 $0.05

Diluted 5.88 9.18 0.05

Cash dividends 5.00 5.00 0.04

Thousands of

Millions of yen U.S. dollars

Net assets ¥113,496 ¥111,411 $ 952,783

Total assets 589,597 563,845 4,949,607

Capital expenditures 30,790 16,218 258,483

Depreciation and amortization 21,930 22,075 184,099

Note: U.S. dollar amounts are translated from Japanese yen, for convenience only, at the rate of ¥119.12=US$1, the exchange rate prevailing on December 31, 2006.

NET SALES

(¥ Million)

NET INCOME

(¥ Million)

OPERATING INCOME

(¥ Million)

511,752 479,520 494,930 453,671 435,090

2002 2003 2004 2005 2006 0

100,000 200,000 300,000 400,000 500,000 600,000

10,978 13,331 23,648 10,300 8,613

2002 2003 2004 2005 2006 0

5,000 10,000 15,000 20,000 25,000

1,168 2,413 4,643 3,630 2,338

2002 2003 2004 2005 2006 0

1,000 2,000 3,000 4,000 5,000

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Please tell us what actions have been taken to create growth engines for the Sapporo Group.

In the past year, we implemented several initiatives to create growth drivers. One of those was to establish Sapporo International Limited. This company was formed to integrate our overseas alcoholic beverage operations. Its remit is to strengthen our strategy overseas, particularly in North America, and eventually evolve into the Sapporo Group’s fifth operating company.

The Sapporo brand commands the top market share of all Asian beer brands in the U.S. Sales are also rising. Nevertheless, we felt we needed to step up our activities in the North American market as there is still considerable room for us to grow there.

But we didn’t have a specialist decision-making body or marketing functions. So far, our overseas strategy has been executed by one business unit within our alcoholic beverage operations. To rapidly expand our international alcoholic beverage operations it was therefore vital that we changed the organization structure. That’s why we established an autonomous operating company and we believe it will allow us to develop our strategy in a

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MESSAGE FROM THE PRESIDENT

In 2006, the Sapporo Group embarked on a

medium-term management plan. One of the

main strategies of this plan is to quickly create

and then nurture businesses that will drive

sustained growth in the Group. With 2006 being

the inaugural year of the plan, substantial

strategic investments and capital expenditures

were made in new and peripheral businesses.

In this feature, Takao Murakami, president

and Group CEO of Sapporo Holdings Limited,

talks about the businesses the Group has

created and nurtured to raise corporate value.

Takao Murakami

President and Representative Director, Group CEO

QUESTION

01

^★

Creating Businesses

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Besides actions overseas, what other strategic investments and capital expenditures did you make during the past year?

In our alcoholic beverage business in Japan, we took over Kikkoman Corporation’s shochu (Japanese distilled spirits) business with the aim of bolstering our product lineup and enhancing our proposal capabilities. We also established a honkaku-shochu* company. While shochu sales began in April last year, we feel that operations are going well.

Manufacturing and marketing beer imbuing even higher added value is one of our key product development themes. However, we needed facilities capable of producing beer in small lots to achieve this goal. Recently, we acquired small-lot manufacturing facilities from a microbrewery to put in place a system for developing products that we have found difficult to bring to market in the past.

In our soft drinks operations, we made strategic investments to improve our functional drink and health food businesses. We are now working to bring products to market. We’re also strengthening R&D to create brands with new value. Representative of these efforts is the Hop Kenkyu-sho (Laboratory) series of drinks, which was launched earlier this year.

way that better reflects market conditions overseas.

Furthermore, we brought Canada’s Sleeman Breweries Ltd. into the Group as the nucleus of our overseas alcoholic beverage operations because securing production bases and distribution channels was vital to strengthening our overseas strategy, particularly in North America.

But that wasn’t the only reason. The Sleeman brand commands a strong premium and thus has earnings power. Sleeman and the Sapporo Group also share many common approaches to manufacturing.

This investment has bolstered the Sapporo Group’s international alcoholic beverage operations. However, we intend to redouble Group-wide efforts to nurture these operations in 2007 and beyond to make them an even stronger growth driver for the Sapporo Group.

That Will Drive Sustained Growth

QUESTION

02

^★

Sleeman’s Guelph brewery in Ontario, Canada

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Are you primed to compete this year?

We ignited several growth engines last year, but there are others that will take two to three years to get up and running. Therefore, it is crucial that we turn things around in existing business domains to prevail against the competition this year.

The restaurants and real estate businesses are already producing consistent earnings and we expect them to deliver more growth

QUESTION

04

^★

Your medium-term management plan earmarked ¥70.0 billion for strategic investments and capital expenditures over a 3-year period beginning in 2006. What progress have you made with this plan?

In 2006, which as you know was the first year of the plan, changes in the competitive landscape in our existing business domains and

QUESTION

03

^★

In the fiercely competitive restaurants business, we made progress reinforcing our financial position and are now much more competitive. Furthermore, strategic investments to revitalize existing restaurants have now produced growth in same-restaurant sales for two consecutive years and we boast a growth rate at the high end of the industry. By delivering results from the development of new formats, something we have been doing since last year, we will grow this business further in 2007.

Noteworthy achievements in the real estate business in the past year included the opening of STRATA GINZA in Tokyo’s Chuo Ward and the completion of FRONTIER-KAN, a new addition to Sapporo Factory complex in Hokkaido. Operations at both locations have made a smooth start and we believe they will contribute to our sustained growth in the years ahead.

in market conditions far exceeded our expectations. Consequently, our performance in relation to the plan was less than satisfactory. Naturally, we are trying to turn things around in our existing business domains this year. But it is also important that we create additional growth engines to achieve the goals of our medium-term management plan. We indeed indicated that we would invest ¥70.0 billion over 3 years, but we’re not going to be held back by that limit if presented with investment opportunities that will help raise our value. Our goal is sustainable growth of the Group and if the market environment changes faster than anticipated we must change our approach.

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Finally, what plans do you have for the Sapporo Group’s businesses this year and beyond?

In 2006, we laid some important stepping stones to sustained growth for the Group. We will continue these efforts in 2007 by making further strategic investments and through ongoing real estate development, R&D and other initiatives to create new growth engines.

As we tackle new challenges, we are mindful that management may become unwieldy unless we eliminate unwanted or otherwise low-priority operations. Therefore, in parallel with the investments and other initiatives I have just mentioned, we intend to step up the pace of management structural reforms as we seek to realize our goal of sustained growth by executing initiatives designed to raise our corporate value faster.

QUESTION

05

^★

this year. With our alcoholic beverages and soft drinks businesses we are pinning our hopes on new product launches based on R&D efforts to make a stronger showing than in 2006.

Since last year, we have invested substantially in facilities to strengthen our R&D capabilities in each business. Thanks to these investments, we already have several products we’re excited about. We expect to have an even larger number of products to choose from this year to bring to market. Having also accelerated the pace of product development, we believe that we can continue to offer new value propositions.

Values are changing rapidly in our markets. This is highlighted by polarization in consumer trends and diversifying preferences. Developing products that satisfy all consumers is extremely challenging. Notwithstanding, we are determined to bolster our R&D and product development capabilities and thus put in place a structure that will allow us to consistently create value in many more different ways.

Takao Murakami

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AT A GLANCE

Sapporo Lion Ltd.

Restaurants

Sapporo Beverage Co., Ltd.

Soft Drinks

Yebisu Garden Place Co., Ltd.

Real Estate

OPERATING REVENUES

Sapporo Holdings

Limited

NET SALES

(¥ Million)

OPERATING INCOME

(¥ Million)

Share of Net Sales 5.2%

Sapporo Breweries Ltd.

Alcoholic Beverages

(¥ Million)

494,930 453,671 435,090

2004 2005 2006 0

100,000 200,000 300,000 400,000 500,000

23,648 10,300 8,613

2004 2005 2006

0 5,000 10,000 15,000 20,000 25,000

364,585 341,077 326,420

2004 2005 2006

0 100,000 200,000 300,000 400,000

69,324 63,897 58,731

2004 2005 2006 0

20,000 40,000 60,000 80,000

26,611 26,331 26,995

2004 2005 2006

0 10,000 20,000 30,000

22,506 21,696 22,828

2004 2005 2006

0 5,000 15,000 10,000 20,000 25,000 Share of Net Sales

75.0%

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PRODUCTS AND SERVICES HIGHLIGHTS OPERATING INCOME (LOSS) (¥ Million)

18,810 6,555 4,184

2004 2005 2006

0 5,000 10,000 15,000 20,000

466 (693) (426)

2004 2005 2006 –1,000

–500 0 500 1,000

229 551 457

2004 2005 2006

0 200 400 600

5,973 5,840 6,414

0 2,000 4,000 6,000 8,000

★Beer

★Happo-shu (low-malt beer)

★Draft One

(new product genres)

★Wine and spirits

★Shochu

(Japanese distilled spirits)

★Soft drinks

★Mineral water products

★Ginza Lion and other general restaurant chains

★Yebisu Garden Place

★Sapporo Factory

★STRATA GINZA

★Total sales volume of beer, Happo-shu and new product genres declined 10% year on year. However, efforts to cut selling expenses, manufacturing costs and other costs limited the decline in earnings.

★Sales volume of Yebisu brand products was up 3% year on year, reaching an all-time high. The share of total beer demand com- manded by the brand also increased for the 14^th consecutive year.

★In April 2006, Sapporo Breweries entered the shochu business as part of the Group’s medium-term management plan. Aggressive sales activities centered on main brands in the korui-shochu and honkaku-shochu categories generated sales of ¥7.2 billion.

★Due to the effects of unseasonable summer weather and actions taken to review low-margin transactions, sales volume declined year on year.

★During 2006, Sapporo Beverage Co., Ltd. derived benefits from rigorous cost-cutting measures, one of the aims for the first year of the medium-term management plan. These benefits outweighed lower sales and other factors that impacted profits and resulted in improved earnings.

★Despite the closure of some unprofitable outlets, existing outlets performed well. Overall sales increased for the third consecutive year thanks to efforts to improve menus and service quality coupled with a boost to revenues from new outlets.

★Although 13 outlets were opened during the past year, the closure of 20 outlets due to the rebuilding of tenanted buildings and declining customer numbers meant that the number of outlets as of December 31, 2006 was 195.

★Revenues and earnings both steadily increased due to steps taken to strengthen functions in terms of facilities and services as well as to maintain high occupancy rates and raise rents amid continuing stable conditions for the real estate market in the Tokyo metropolitan area.

★We actively continued real estate development. One highlight was the completion of STRATA GINZA, a commercial building in Tokyo’s Chuo Ward. Additionally, a new commercial and office building, FRONTIER-KAN, was added to the Sapporo Factory complex, and a fitness club and spa, PAL Sapporo, opened for business in Sapporo, Hokkaido.

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As one of the Sapporo Group’s core operations, we will refine what

makes Sapporo unique, with a particular focus on the quality of ingredi-

ents and our ability to develop new products, to raise the Group’s

corporate value. Actions will include launching new products onto the

new product genre market, and expanding and enhancing the Yebisu

brand to bolster our distinctive strengths.

THE YEAR IN REVIEW

The Japanese economy in 2006, while remaining on a recovery track, failed to show clear signs of an upturn in personal spend- ing. In addition, the operating environment for this segment became increasingly difficult amid a further drop in beer demand as the population of legal-drinking-age consumers declines. Reflecting this, overall demand for beer, Happo-shu and new product genres is estimated to have contracted about 1% from the previous year.

Under these circumstances, segment operating revenues declined 4.3% to

¥326.4 billion, despite the boost to the top line from our April 2006 entry into the shochu business. The primary reason for the lower overall operating revenues was a large drop in sales volume of beer, Happo-shu and new product genres. Operating income fell 36.2% to ¥4.2 billion, mainly due to a large drop in sales volume of new product genres. On a positive note, however, improved margins from growth of value-added products, lower manufacturing costs from

improved manufacturing efficiency and reviews of selling expenses curbed the slide in earnings.

REVIEW BY CATEGORY

In beer, Yebisu brand products posted a record-high result on the back of 3% year- on-year growth. The limited offering of Kohaku Yebisu drew a strong response from customers, eclipsing sales targets and helping the Yebisu brand to increase its market share for the 14^th year running. Meanwhile, Sapporo Black Label saw sales volume drop 7%, despite marketing activities for this flagship product that promoted the appeal of our Collaborative Contract Farming System (CCFS) and the emphasis we place on the quality of ingredients.

Imported Guinness beer continued to perform strongly, delivering 2% growth in sales volume and setting a new sales record for the sixth year in a row.

In Happo-shu, May 2006 debutant Shizuku <Nama> sold strongly. As a result,

Sapporo Breweries Ltd.

while Happo-shu sales volume dropped 9% year on year, the decline was less than the 10% overall drop in market demand.

In new product genres, a market category we pioneered, competition is intensifying. Sales volume fell 24%, hurt by consumers trying out new products rolled out by competitors. However, mainstay Draft One turned in healthy sales volume growth following its relaunch in September, firmly establishing its position in the market in this category.

In April 2006, Sapporo Breweries entered the shochu (Japanese distilled spirits) business as part of the Group’s medium-term management plan. Aggressive sales activities were conducted centered on main brands Triangle and Triangle Indigo in the korui-shochu ⁽¹⁾ category and barley- based Waramugi and sweet potato-based Karari-Imo in the honkaku-shochu ⁽²⁾ category. Overall, these activities generated sales in monetary terms of ¥7.2 billion.

REVIEW OF OPERATIONS ALCOHOLIC BEVERAGES

OPERATING TARGETS FROM MEDIUM-TERM MANAGEMENT PLAN

2008

Targets 2006 2005 Operating Income

(¥ Billion) 20.0 4.2 6.5

Operating Income

Ratio (%) 5.3 1.3 1.9

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(1) Traditional Japanese white spirits distilled by continuous distillation. (2) Traditional Japanese white spirits made by pot still distillation.

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PLAYING TO OUR STRENGTHS 2007 marks the 131^st year since our founding. As in past years, we will adhere to a basic approach of strengthening our corporate brand by refining what makes Sapporo unique. The lynchpins of this approach will be our focus on the quality of ingredients and our ability to develop new products.

Playing to the strengths of the Group will be a key aspect of our business strategy in the Japanese market. In beer operations, we aim to grow earnings by staking out an unchallenged position in the expanding premium beer market by offering more value-added products in the form of new Yebisu brand beers. Spring 2007 saw the launch of two new products: Yebisu <The Black> and Yebisu <The Hop>. We will continue to take the initiative in bringing new products to the buoyant high-priced beer market. The new product genre market is also growing and we’re determined to draw on our collective strengths to regain market share and drive earnings higher there as

well. Leading the way in this market in 2007 was the February launch of Umai Nama.

These initiatives dovetail with our basic policy of raising Sapporo’s corporate value and presence in the alcoholic beverages market by enhancing our strengths and focusing on fields where we were the pacesetter. By rebuilding businesses in fields that we ourselves pioneered, and where we excel, we are committed to laying the foundations for consistent growth over the long term.

CONTINUING ON FROM 2006

In 2006, we initiated a number of actions, including entering the shochu business and acquiring small-lot production facilities to better enable us to manufacture value-added products. In 2007, we will continue to steadily advance these initiatives. In the wine business, Grand Polaire is enjoying a strong reception from the market, highlighted by a fourth consecutive gold award in the Japan Wine Competition. In 2007, we will pursue world-class quality, as well as

2007 Strategy (Japan)

develop products based on proprietary technology, propose value-added products and strengthen existing brands.

In addition to increasing sales by implementing these measures, we are determined to increase earnings by continuing to improve profit margins with a stronger lineup of value-added products and through ongoing reviews of our cost structure.

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ALCOHOLIC BEVERAGES

The Japanese Beer Market and Sapporo Breweries

THE BEER INDUSTRY TODAY-MARKET ENVIRONMENT

The alcoholic beverages market is in a period of dramatic change brought on by shifts in consumer values regarding alcohol, the social environment and distribution.

As consumers split into two camps— those favoring low-priced products and those prepared to pay more for higher quality— there is also rising awareness with regards to health, safety, reliability and the environment. More and more consumers are also embracing more moderate drinking habits. In terms of the social environment, a declining population of people over the legal drinking age and the retirement of baby boomers are expected to have a significant impact on future demand for alcohol. Regarding distribution, changes are afoot, such as signs of industry restructuring caused by stiffer competition both within and between business formats.

Competition among manufacturers is intensifying as a consequence of these sorts of dynamics in the market. Against this backdrop, the following trends today characterize Japan’s beer market, which is made up of three categories: beer, Happo- shu and new product genres.

In 2006, total demand slipped 1% year on year, with beer dropping 2% and Happo- shu 10%, although new product genres increased 21%. A 2006 survey of the home- use alcohol market found that beer

accounted for a share of 17.6%, down 0.3 of a percentage point, Happo-shu had a share of 23.8%, down 4.0 percentage points, and new product genres represented

24.7% of the market, up 4.1 percentage points year on year. New product genres have thus overtaken Happo-shu to command the top spot in terms of market share. However, there has been a noticeable drop- off in the growth rate of new product genres in recent times. Over the past few years, there has been a clear shift to otsurui- shochu and chuhai from some sectors of the beer market. However, based only on the findings of the 2006 survey, this trend seems to be coming to an end. It would be fair to say, therefore, that at present no alcoholic beverage genre is strong enough to stand apart from the rest. This suggests that rather than genre, the appeal and quality of the product itself will take on more impor- tance than ever in the years ahead.

SAPPORO’S APPROACH

Based on this analysis of the market, our approach will be to promote our commitment to brewing tasty beer through initiatives unique to Sapporo Breweries Ltd. One such

initiative is to source 100% of our malt and hops through our Collaborative Contract Farming System (CCFS), something we achieved in 2006. In addition, with regards to new product genres and Yebisu brand products, categories we pioneered and where we are strong, we will roll out the following marketing strategies.

In new product genres, we plan to capture a commanding position in the market for innovative refreshments with Draft One and enter the market for beer substitutes with Umai Nama. With these actions, our goal is to increase our collective strength and raise our presence within this genre.

Where Yebisu brand products are concerned, we will continue to develop various products and propose various lifestyle scenes in which to enjoy them inspired by the catchphrase of “Exceed Yebisu while being Yebisu.” Ultimately, we hope that our efforts will contribute to the creation of a new beer culture in Japan.

2006 SHARE BY ALCOHOL TYPE

2005 2006

Happo-shu 27.8%

New product genres 20.6%

Beer 17.9% New product

genres 24.7%

Happo-shu 23.8%

Beer 17.6%

Others 33.9%

Others 33.7%

(SCI data by INTAGE Inc.)

IN HOME-USE MARKET

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International Operations

SLEEMAN BREWERIES LTD.

Sleeman Breweries is Canada’s third largest beer maker in terms of sales volume, with a long tradition dating back to its foundation in 1834. Among the many breweries in North America, it has earned a strong reputation in the premium beer market. In terms of its philosophy toward its products and advanced technologies, Sleeman Breweries is an ideal partner for Sapporo, which prides itself on the effort it puts into selecting quality ingredients and manufacturing techniques to make delicious beer.

Sapporo has set its sights on establishing a solid position for the Sapporo brand in the North American market. The inclusion of Sleeman Breweries in the Sapporo Group holds significant meaning in this context. Plans call for capturing synergies in various fields with this company such as in terms of greater manufacturing efficiency, sales of each other’s products, product development and lowering the cost of procuring raw materials. Sleeman

Breweries has been conducting manufacturing on a contract basis for Sapporo Breweries since 2002, but we plan to use the recent acquisition of this company to strengthen operations throughout the whole of North America.

CAPITALIZING ON THE SLEEMAN BREWERIES ACQUISITION TO STRENGTHEN NORTH AMERICAN OPERATIONS

We have positioned international operations, particularly in North America, as a key business for us in 2007. Besides carrying on with past efforts to develop the Sapporo brand in overseas markets, we will take steps to further strengthen Sleeman Breweries, which became a Sapporo Group subsidiary in October 2006, as a premium beer brand in the Canadian market. In addition, we will work to solidify the positions of both Sleeman Breweries and Sapporo U.S.A., Inc. in the North American market. We will also take actions in respect of exporting to other countries and producing products locally. We aim to develop our business further and strengthen the foundations of our international alcoholic beverage operations by launching new products to increase sales and advancing into new regions.

Sapporo Breweries has long had a strong foothold in North America. For 22 years since 1985, we have been the leading Japanese beer brand in terms of market share. Strengthening our North American business is a key theme in our medium-term management plan to ensure we take full advantage of this competitive edge. We believe that the recent acquisition of Sleeman Breweries will lead to a stronger North American business.

CONTRIBUTING TO GROUP EARNINGS FROM THE OUTSET

In December 2006, we established Sapporo International Limited to coordinate and supervise the activities of our two operating companies in North America—namely Sleeman Breweries and Sapporo U.S.A.—and to strengthen and expand our international alcoholic beverage operations in the Asia- Pacific region and Europe. Our 2007 plan in our international alcoholic beverage operations is to grow net sales by roughly 4.9 times to ¥25.8 billion and operating income by about 6.7 times to ¥2.0 billion. We expect that it will make a significant contribution to Group earnings in its first year under the new

management framework overseen by Sapporo International. Moreover, Sleeman Breweries, whose operating results will be included in the consolidated income statement effective from January 2007, is expected to contribute ¥1.6 billion to operating income on an annual basis even after charges for the amortization of goodwill.

2008

Targets 2006 2005 Net Sales

(¥ Billion) 27.0 5.3 5.1

Operating Income

(¥ Billion) 2.1 0.3 0.2

Sleeman Breweries

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The soft drinks market in Japan in 2006 was affected by unsettled weather during the important summer months. Also shaping the market was negative growth in green tea, which had enjoyed several years of growth. Thanks mainly to mineral water and vegetable juice drinks, however, overall demand is estimated to have contracted by only about 1% in the past year.

In 2006, we worked to reach more customers through efforts to nurture and strengthen core brands, namely Yebisu Sabo, Gabunomi and Ribbon. In addition, we broadened the lineup of Ocean Spray Cranberry products as a key product with health benefits and different from anything else on the market. The launch of this series was tied in with TV commercials and various marketing campaigns. These promotional efforts paid off by generating higher sales and establishing the product in the market. Nevertheless, sales volume declined year on year due to lower sales in the oolong tea and canned coffee categories, as well as steps taken to address low-margin transactions. The current medium-term management plan targeted cost reductions as the key priority in its first year in this segment in

2006. Results were achieved according to plan as we lowered costs by ¥1.4 billion, which included cost savings in manufacturing of ¥0.7 billion and benefits stemming from amalgamating the Kanagawa Plant. These cost savings outweighed the effects of lower sales volumes, poorer transportation efficiency resulting from higher sales of products sold in large containers and the high cost of sugar, juice and other raw materials, all of which impacted earnings. As a result, the segment was able to deliver improved earnings. Efforts to achieve low- cost operations will be an ongoing theme.

HOP KENKYU-SHO—THE BRAINCHILD OF GROUP-K In 2006, we formed Group-K, a team to conduct R&D across the Sapporo Group. Group-K is at the heart of our R&D activities, which is a key thrust of the current medium-term management plan. Based on the wealth of expertise gained by the Sapporo Group from its focus on the quality of raw materials over many years, Group-K is overseeing multiple projects that

integrate R&D and product development. Its prime focus in all these projects is on creating new value and contributing to earnings. In January 2007, Group-K reaped the first fruits of its labor in the form of the launch of two health and functional drinks: Hop Kenkyu-sho (Laboratory) green tea and Hop Kenkyu-sho (Laboratory) hop extract drink.

REVIEW OF OPERATIONS SOFT DRINKS

Operating revenues in this segment declined ¥5.2 billion, or about 8.1%,

to ¥58.7 billion in 2006. However, as a result of vigorous efforts to cut

costs, a theme of our medium-term management plan, we achieved a

measure of success by reducing the operating loss by ¥0.3 billion from

2005 to ¥0.4 billion.

OFFERING PRODUCTS IMBUING NEW VALUE

In 2007, we will actively roll out products imbuing new value. This will include the launch of Sapporo Kanshoku Yasai, a revolutionary health drink that will be sold through a newly established mail-order sales channel. Through Stellar Beverage Services Co., Ltd., established in October 2006, we plan to expand sales and improve earnings by strengthening direct sales—this new company will spearhead efforts to increase the number of vending machines in the Tokyo, Nagoya and Osaka areas.

Sapporo Beverage Co., Ltd.

2008

(Loss) (¥ Billion) 2.5 (0.4) (0.7) Operating Income

Ratio (%) 3.1 – –

★★★★★

★ ★

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The Japanese restaurant industry grew steadily during the past year on the back of an upturn in the amount spent per customer in all formats. However, some sluggishness was seen through the end of the year due to fallout from a string of drink-driving accidents in Japan. Although there was an increase in the number of restaurants in the Japanese izakaya dining format, same- restaurant sales were lower than the previous year. All in all, the market could be characterized as fiercely competitive.

In this competitive landscape, the Restaurants segment worked to achieve higher earnings at existing establishments and higher sales on the back of the aggressive opening of new restaurants.

With regards to existing restaurants, sales increased for the third year running as efforts were made to set our operations apart from other chains through improvements to the quality of the cuisine and services. However, rising personnel expenses stemming from difficulties with recruitment and an increase in personnel expenses per employee pressured earnings.

With regard to new restaurants, we opened a total of 13 locations during 2006, including Kakoiya and Tomoru. However, because many of the new restaurants were opened in the second half of 2006 they didn’t make a major contribution to 2006 earnings given the limited number of business days. At the same time as opening new restaurants, we closed 20 locations for various reasons such as the rebuilding of tenanted buildings and declining customer numbers. As a result, we had 195 restaurants at the end of December 2006.

AN IMPORTANT LINK BETWEEN CUSTOMERS AND THE SAPPORO GROUP

Under the current medium-term management plan, the Restaurants segment is positioned as an important channel for serving customers the Group’s mainstay alcohol, soft drink and food products. Consequently, we plan to expand operations and establish a stronger earnings base.

To fulfill this mission, we will continue to actively open new restaurants in 2007. By concentrating the opening of new locations

in the first half of the year, we hope to lift earnings quickly. We will also continue with efforts to differentiate existing restaurants from other companies through enhance- ments to quality and the amount each customer spends. Another initiative will be to breathe new life into aging establishments by refurbishing them or converting them to a different format. Besides these strategies, we expect the 13 new restaurants opened in 2006 to contribute to segment performance in 2007 in their first full year of operations.

Responding to escalating personnel costs will be another theme in 2007. Through the introduction of a system to better manage the hiring of temporary and part-time workers, we aim to efficiently utilize and deploy personnel.

REVIEW OF OPERATIONS RESTAURANTS

During 2006, this segment closed a number of unprofitable restaurants.

Notwithstanding, it still recorded a ¥0.7 billion increase in operating revenues

to ¥27.0 billion due to strong performances at existing restaurants and higher

sales from new locations. In terms of earnings, however, the benefits of higher

revenues were negated by much higher personnel expenses, which brought

down segment operating income by ¥0.1 billion year on year to ¥0.4 billion.

Sapporo Lion Ltd.

2008

(¥ Billion) 1.5 0.4 0.5

Operating Income

Ratio (%) 4.3 1.7 2.1

★★★★★★

(16)

★★★★★

OVERVIEW OF RESULTS

Occupancy rates for office buildings were stable at high levels, particularly in the Tokyo metropolitan area, and rents rose, particularly for large city center buildings. On the other hand, the market remains generally stagnant in regional cities. In response to such market conditions, we endeavored to maintain high operating rates and increase rents by strengthening our capabilities in terms of facilities and services in leased office buildings in addition to actively promoting leasing operations. We also concentrated efforts on attracting customers and increasing sales at Yebisu Garden Place and Sapporo Factory complex by holding a number of events and fairs and striving to improve services for customers. These efforts translated into a ¥0.3 billion increase in earnings in the leasing division, as higher income from office rents as well as cost reductions offset start-up costs associated with real estate development.

In the sports business, PAL Kawaguchi performed well in its first full year of operation. We also moved forward with new real estate development. September saw the

completion of STRATA GINZA, a commercial building in Ginza, Tokyo, which has a hotel as its key tenant. Additionally, in November in Sapporo, Hokkaido, a new commercial and office building, FRONTIER-KAN, was added to Sapporo Factory complex; a fitness club and spa, PAL Sapporo, opened for business; and an extension to the SWING89 sports facility was completed.

OUTPERFORMING OUR PLAN In 2007, we will strengthen our asset management capability to enhance the earnings power of our existing leasing business based on the basic strategy for the real estate business in the medium-term management plan. We will also actively conduct real estate development. Our aim is to proceed towards sustained expansion and growth in the real estate business at a faster pace than targeted in the medium-term management plan.

In the real estate leasing business, we will continue to maintain a high operating rate and to increase rents, particularly at Yebisu Garden Place and other properties in the Tokyo metropolitan area. The development properties completed last year will also

REVIEW OF OPERATIONS REAL ESTATE

Operating revenues increased by ¥1.1 billion year on year to ¥22.8

billion due to higher rental income in leasing operations and sales of real

estate for sale. Operating income increased ¥0.6 billion to ¥6.4 billion

on rises of ¥0.3 billion in the sales division and ¥0.3 billion in the

leasing division. ROA, for which the medium-term management plan

target is 7.8%, was 7.2%.

Yebisu Garden Place Co., Ltd.

2008

(¥ Billion) 7.0 6.4 5.8

ROA* (%) 7.8 7.2 6.7

*Note: ROA based on EBITDA

contribute to earnings throughout 2007. Real estate development will also be actively expanded to also include the seven properties transferred from the Alcoholic Beverages segment in January 2007. In March, as well as completing construction of two rental apartment buildings aimed at university students in Sendai, Miyagi Prefecture, and Fukuoka, Fukuoka Prefec- ture, we are promoting a plan to utilize land surrounding Sapporo Garden Park in Sapporo, Hokkaido.

Also, in non-asset based businesses such as sports, we will develop an approach for future business expansion as we strive to strengthen our business base.

(17)

OPENING OF FRONTIER-KAN AND FITNESS CLUB AND SPA, PAL SAPPORO

FRONTIER-KAN, a project undertaken by Yebisu Garden Place Co., Ltd., was opened as part of the Sapporo Factory complex in Sapporo, Hokkaido, in November 2006. The name FRONTIER-KAN expresses the fact that the Sapporo Factory complex stands on the site that was the birthplace of beer in Japan as well as representing future development. The building houses a grocery supermarket on the first floor, retail outlets on the second floor, office space on the third and fourth floors and a large visitor car park with a capacity of 550 vehicles on floors 5 to 9.

At the same time, we added two tennis courts to the directly operated SWING89 sports club and opened a new adjacent facility, PAL Sapporo, a fitness club and spa. The relaxed atmosphere combined with large numbers of the latest exercise machines has attracted more members than initially planned, mainly from the local area. STRATA GINZA

STRATA GINZA, a commercial building built on the site of the old Sapporo Brewer- ies headquarters, was completed in September 2006, with a hotel as its key tenant. There are restaurants on the basement floor, retail outlets on floors 1 and 2 and floors 3 to 13 are occupied by the Washington Hotel, run by Fujita Kanko Inc. It is complete with an 80-vehicle capacity automated car park. This new building is situated in the 7-chome address in Tokyo’s Ginza district, Japan’s foremost shopping and entertainment district. As this places it in a prime position bordering the Ginza 4-chome and Shiodome areas, a healthy number of visitors is expected.

FRONTIER-KAN PAL Sapporo

(18)

MANAGEMENT

(As of March 30, 2007)

BOARD OF DIRECTORS

BOARD OF

CORPORATE AUDITORS

Tsutomu Kamijo

Director

Hiroaki Eto

Director *

* Outside Director

** Outside Auditor

Yoshiyuki Mochida

Managing Director

Shinji Saito

Representative Director and Executive Managing Director

Takao Murakami

Tetsuo Seki

Director*

Satoshi Noguchi Isao Takehara ^** Norio Henmi ^** Kazunori Kai

Kazuo Ushio

Director

Masaru Fukunaga

Director

(19)

FIVE-YEAR SUMMARY

Years ended December 31

Millions of yen

2006 2005 2004 2003 2002

Net sales ¥435,090 ¥453,671 ¥494,930 ¥479,520 ¥511,752

Alcoholic Beverages 326,420 341,077 364,585 341,924 374,524

Soft Drinks 58,731 63,897 69,324 65,169 70,512

Restaurants 26,995 26,331 26,611 26,591 28,050

Real Estate 22,828 21,696 22,506 33,430 24,999

Other 116 670 11,904 12,406 13,667

Operating cost and expenses 426,477 443,371 471,282 466,189 500,774

Operating income 8,613 10,300 23,648 13,331 10,978

Income (loss) before income taxes

and minority interests 3,978 6,573 7,762 2,270 (3,349)

Net income 2,338 3,630 4,643 2,413 1,168

Yen Per share:

Net income:

Primary ¥ 6.38 ¥ 10.20 ¥ 13.07 ¥ 6.95 ¥ 3.45

Diluted 5.88 9.18 12.01 – –

Shareholders’ equity 300.13 305.00 259.81 245.80 314.69

Cash dividends 5.00 5.00 5.00 5.00 5.00

Millions of yen Year-end data:

Net assets ¥113,496 ¥111,411 ¥ 92,263 ¥ 87,364 ¥106,527

Total assets 589,597 563,845 602,112 630,637 717,486

Financial liabilities 236,033 220,723 289,854 323,369 384,303

ROE (%) 2.1 3.6 5.2 2.5 1.1

Capital expenditures 30,790 16,218 10,269 10,081 13,640

Depreciation and amortization 21,930 22,075 25,330 28,435 31,463

(20)

SAPPORO HOLDINGS LIMITED AND THE SAPPORO GROUP The Sapporo Group adopted a holding company framework on July 1, 2003. Under this framework, Sapporo Holdings Limited (the Company), as the holding company, oversees four main operating companies in the Alcoholic Beverages, Soft Drinks, Restaurants and Real Estate businesses. Aiming to be powerful companies in their respective industries, the four main operating companies are implementing management reforms and building new business models.

In terms of the scope of consolidation, the Company had 28 consolidated subsidiaries and 5 equity-method affiliates in the year ended December 31, 2006.

OPERATIONAL OVERVIEW

The Japanese economy in the term under review continued expanding at a moderate pace amid rising capital expenditures supported by solid conditions in export industries and steadily improving corporate earnings. Personal consumption, on the other hand, remained slack despite an improving trend in employment.

In the industries in which the Sapporo Group is active, including alcoholic beverages, soft drinks, and restaurants, a bipolarization in consumption patterns and an increased awareness for health, food safety, and environmental issues have taken root, giving rise to the need to respond to diversifying customer needs. In the alcoholic beverages industry, the Group’s mainstay business domain, amid increasingly fierce competition, total demand continues to contract in line with the declining size of the demo- graphic segments the industry is targeting. In the real estate industry, on the other hand, rent levels continue to climb with the focus on large buildings in central metropolitan locations.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND PERCENTAGE OF NET SALES

(¥ Billion, %)

NET SALES AND COST OF SALES RATIO

(¥ Billion, %)

Net Sales (¥ Billion) Selling, General and

OPERATING INCOME

(¥ Billion)

CONSOLIDATED OPERATING RESULTS Net Sales

Net sales declined ¥18,581 million, or 4.1%, to ¥435,090 million. By business segment, Alcoholic Beverages saw a 4.3% decline in operating revenues to ¥326,420 million due to a large drop in total sales volume for beer, Happo-shu and new product genres, despite the boost given by the inclusion of sales from the newly entered shochu business. The Soft Drinks segment recorded an 8.1% decline in operating revenues to ¥58,731 million due to lower sales volumes, partly as a result of actions taken to review low-margin transactions. Operating revenues in the Restaurants segment rose 2.5% year on year to ¥26,995 million on strong sales at existing restaurants and the benefits of new openings. The Real Estate segment continued to grow, posting a year-on-year increase in operating revenues of 5.2% to ¥22,828 million. Sales in the Other business segment dropped 82.7% to ¥116 million because some operations were reclassified into the Real Estate segment and Sapporo Florist Co., Ltd. was sold in 2006.

Cost of Sales

The cost of sales declined ¥11,069 million, or 3.6%, from 2005 to

¥300,122 million in line with the decrease in net sales. The cost of sales ratio increased 0.4 of a percentage point to 69.0%, due in part to a drop in manufacturing efficiency resulting from lower production volumes.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses declined ¥5,825 million, or 4.4%, to ¥126,355 million, despite a ¥1,516 million

MANAGEMENT’S DISCUSSION AND ANALYSIS

2002 2003 2004 2005 2006

511.8 479.5 494.9 453.7 435.1

70.7 70.6 68.6 68.6 69.0 139.1 127.6 131.9 132.2 126.4

27.2 26.6 26.6 29.1 29.0

2002 2003 2004 2005 2006

11.0 13.3 23.6 10.3 8.6

2002 2003 2004 2005 2006

(21)

NET INCOME AND NET INCOME PER SHARE (PRIMARY)

(¥ Billion, ¥)

NET ASSETS AND ROE

(¥ Billion, %)

year-on-year increase in sales incentives and commissions caused mainly by entry into the shochu business. The main reason for the overall decrease was a ¥3,864 million reduction in advertising and promotion expenses achieved through a review of expenditures.

Operating Income

Operating income dropped ¥1,687 million, or 16.4%, to ¥8,613 million.

Other Income (Expenses)

Other expenses increased ¥908 million to ¥4,635 million. With regard to net financial income (expenses), calculated as the sum of interest and dividend income minus interest expense, the Company recorded expenses of ¥2,127 million, compared with

¥2,672 million in expenses in 2005. The substantial improvement reflected a large decrease in the average balance of borrowings during the fiscal year. There was, however, an increase in financial liabilities at the end of the year, as the Company aggressively conducted M&As and took other actions.

The Company booked a ¥952 million loss on disposal of inventories, but this was ¥232 million less than a year earlier, the result of measures to tightly manage inventories in the Soft Drinks business.

The Company recorded a ¥2,222 million gain on sales of investment securities. To provide funds for M&As and other strategic investments, the Company reduced assets based on a consideration of investment return profiles by selling securities issued by listed and other companies.

On the other hand, a loss on sales and disposal of property, plant and equipment and intangibles, net of ¥2,450 million was recorded. The loss on disposal related to production facilities.

The Company also booked impairment losses of ¥1,785 million. Impairment losses were recognized with respect to property where recovery of investment is expected to be difficult following a review of classifications for management accounting purposes, property where there has been a fall in fair value, and property that the Company has decided to stop using.

Income Before Income Taxes and Minority Interests

As a result of the above and other factors, income before income taxes and minority interests declined ¥2,595 million, or 39.5%, to

¥3,978 million.

Income Taxes and Net Income

Income taxes applicable to the Company, calculated as the sum of corporation, inhabitants’ and enterprise taxes, and deferred income taxes, totaled ¥1,642 million. The effective tax rate for income before income taxes and minority interests was 41.3%. The 0.6 percentage point difference from the statutory tax rate of 40.7% was mainly due to deferred income taxes.

As a result, net income was ¥2,338 million, down 35.6% year on year.

SEGMENT INFORMATION Alcoholic Beverages

Total demand for beer, Happo-shu and new product genres in 2006 was estimated to be about 1% lower year on year, with beer dropping 2% and Happo-shu around 10%, while new product genres saw an approximate 21% increase. Against this market backdrop, the following results were posted and marketing initiatives taken.

1.2 2.4 4.6 3.6 2.3

3.5 7.0 13.1 10.2 6.4

2002 2003 2004 2005 2006

106.5 87.4 92.3 111.4 113.5

1.1 2.5 5.2 3.6 2.1

2002 2003 2004 2005 2006

(22)

With Yebisu brand products, overall sales volume was a record, increasing 3% year on year. In addition, their share of total beer demand increased for the 14^th consecutive year. A highlight of the past year was the enormous market response to Kohaku Yebisu, a limited offering that eclipsed sales targets.

With Sapporo Black Label, we conducted marketing activities for this flagship product to promote the appeal of our Collaborative Contract Farming System (CCFS) and the emphasis we place on the quality of ingredients. Notwithstanding these efforts, sales volume was down 7% year on year.

Imported Guinness beer continued to perform strongly, delivering 2% growth in sales and setting a new sales record for the sixth year in a row.

In Happo-shu, while sales were affected by new product genres, Shizuku <Nama>, which went on sale in May 2006, sold well. Overall, Happo-shu sales volume was down 9%, but this fall was not as large as the decline in the market overall.

In new product genres, which the Sapporo Group pioneered, competition is intensifying. As a result, sales volume dipped 24% year on year, with sales affected by consumers trying out the new products rolled out by other companies. However, mainstay Draft One turned in healthy sales growth following its relaunch in September, firmly establishing its position in this category. All told, total sales volume for beer, Happo-shu and new product genres was 10% lower year on year.

In wine operations, in March, we launched a wine naturally rich in polyphenols and organic acids with positive benefits for people’s health in the rapidly expanding market in Japan for products containing no antioxidant additives. This wine won strong accep- tance from the market. Furthermore, premium domestic wine Grand Polaire became the only wine to pick up a gold award four years in a row in the Japan Wine Competition. In imported wines, we worked to strengthen main brands such as Yellow Tail, Beringer and La Cuvee Mythique. In parallel, active steps were taken to respond to the growing sparkling wine market. Combined sales volumes of domestic and imported wines were on a par with 2005.

In April 2006, Sapporo Breweries entered the shochu (Japanese distilled spirits) business as part of the Group’s medium-term management plan. Aggressive sales activities were conducted centered on main brands Triangle and Triangle Indigo in the korui-shochu category and wheat-based Waramugi and sweet potato-based Karari-Imo in the honkaku-shochu category. Overall, these activities generated sales in monetary terms of ¥7.2 billion.

Segment operating revenues declined ¥14,657 million, or 4.3%, year on year to ¥326,420 million, reflecting in part a large decline in sales volumes in new product genres. Segment operating income decreased ¥2,371 million, or 36.2%, to ¥4,184 million due to the lower operating revenues, despite reducing selling expenses, manufacturing costs and other costs.

Soft Drinks

The soft drinks market in Japan in 2006 is estimated to have contracted about 1% year on year due to the combined effects of unsettled weather during the summer and negative growth in the green tea sector, which had expanded for a number of years. Total demand was supported mainly by mineral water and vegetable juice drinks.

Against this market backdrop, we worked to reach more customers through efforts to nurture and strengthen core brands, namely Yebisu Sabo, Gabunomi and Ribbon. In addition, we broadened the lineup of Ocean Spray Cranberry products as a key product line with health benefits and different from anything else on the market. This was tied in with TV commercials and various marketing campaigns. These efforts paid off by generating higher sales and establishing the product line in the market. Nevertheless, sales volume declined year on year due to lower sales in the oolong tea and canned coffee categories, as well as steps taken to address low-margin transactions.

The current medium-term management plan targeted cost reductions as the key priority in its first year in this segment. Progress was made according to plan with a measure of success achieved in this regard. The success of these cost-reduction efforts enabled the segment to deliver improved earnings as the benefits of cost reductions countered the effects of lower sales volumes, poorer transportation efficiency resulting from higher sales of products sold in large containers and the high cost of sugar, juice and other raw materials, all of which impact earnings.

As a whole, the segment recorded a ¥5,166 million, or 8.1%, decline to ¥58,731 million in operating revenues. While the segment posted an operating loss of ¥426 million, this was ¥267 million less than a year earlier.

Restaurants

The restaurant industry grew steadily during the past year on the back of an upturn in the amount spent per customer in all formats. However, some sluggishness was seen through the end of the year due to the fallout from a string of drink-driving accidents in Japan and other factors. Although there was an increase in the number of restaurants in the Japanese izakaya dining format, same-restaurant sales were lower than the previous year. All in all, the market could be characterized as fiercely competitive.

In this competitive landscape, the Restaurants segment worked to achieve higher earnings at existing establishments and higher sales on the back of the aggressive opening of new restaurants.

With regards to existing restaurants, sales increased for the third year running as efforts were made to set our operations apart from other izakaya chains through improvements to menus and the quality of service. However, rising personnel expenses stemming from difficulties with recruitment and an increase in the number of part- time staff joining the social insurance system pressured earnings.

(23)

With regards to new openings, we opened a total of 13 restaurants during 2006, including Kakoiya and Tomoru. However, because many of the new restaurants were opened in the second half of 2006 they didn’t make a major contribution to earnings given the limited number of trading days. At the same time as opening new restaurants, we closed 20 locations for various reasons such as the rebuilding of tenanted buildings and declining customer numbers. As a result, we had 195 restaurants at the end of December 2006.

Segment operating revenues were ¥26,995 million, up ¥664 million, or 2.5%, year on year. However, operating income dropped

¥94 million, or 17.0%, to ¥457 million.

Real Estate

In the real estate industry in the past year, occupancy rates for office buildings, chiefly in the Tokyo metropolitan area, were high and stable and rents rose, particularly for large buildings in central Tokyo. On the other hand, market conditions in regional cities remained sluggish as a whole.

Under these circumstances, we took steps to strengthen capabilities in terms of facilities and services at leased office buildings, especially Yebisu Garden Place. At the same time, we worked to maintain high operating rates and raise rents in leasing

CAPITAL EXPENDITURES

(¥ Billion)

LONG-TERM DEBT

(¥ Billion)

TOTAL ASSETS AND ROA

(¥ Billion, %)

activities. At Yebisu Garden Place and Sapporo Factory complex, the focus was on attracting customers and increasing sales. Actions in this regard included holding a variety of events and fairs and upgrading services for customers. On the cost front, while energy, personnel, building and certain other expenses increased, we implemented measures to cut costs such as by conserving energy.

In the sports business, Sapporo Sports Plaza PAL Kawaguchi made its first full-year contribution to results in the past year and is performing well.

In other news, we made progress with new real estate develop- ments. Construction of STRATA GINZA, a commercial building with a hotel as the anchor tenant, was completed in September in the Ginza district of Chuo Ward, Tokyo. The following November saw the opening of FRONTIER-KAN, a new commercial and office building that is part of Sapporo Factory complex in Sapporo. We also opened PAL Sapporo, a fitness club and spa, and completed an extension to the SWING89 sports facility the same month.

Due to higher rental income in real estate leasing operations and sales of real estate for sale, the Real Estate segment recorded operating revenues of ¥22,828 million, up ¥1,132 million, or 5.2%. Segment operating income was ¥6,414 million, up ¥574 million, or 9.8%.

717.5 630.6 602.1 563.8 589.6

0.2 0.4 0.8 0.6 0.4

2002 2003 2004 2005 2006

13.6 10.1 10.3 16.2 30.8

2002 2003 2004 2005 2006

254.1 279.2 209.2 157.8 132.0

2002 2003 2004 2005 2006 (Millions of yen)

Operating Operating Depreciation and Capital Revenues Income (Loss) Amortization Expenditures

Alcoholic Beverages 326,420 4,184 13,473 20,224

Soft Drinks 58,731 (426) 285 1,020

Restaurants 26,995 457 648 1,108

Real Estate 22,828 6,414 7,523 8,438

アニュアルレポート・DATA BOOK | サッポロホールディングス

SAPPORO HOLDINGS LIMITED

ANNUAL REPORT 2006

CONTENTS 01

02

06

08

12

13

14

16

17

18

24

26

27

28

29

44

PROFILE

FINANCIAL HIGHLIGHTS

MESSAGE FROM THE PRESIDENT

In 2006, the Sapporo Group embarked on a

medium-term management plan. One of the

main strategies of this plan is to quickly create

and then nurture businesses that will drive

sustained growth in the Group. With 2006 being

the inaugural year of the plan, substantial

strategic investments and capital expenditures

were made in new and peripheral businesses.

In this feature, Takao Murakami, president

and Group CEO of Sapporo Holdings Limited,

talks about the businesses the Group has

created and nurtured to raise corporate value.

01

Creating Businesses

That Will Drive Sustained Growth

02

04

03

05

AT A GLANCE

Sapporo Lion Ltd.

Sapporo Beverage Co., Ltd.

Yebisu Garden Place Co., Ltd.

Sapporo Holdings

Limited

Sapporo Breweries Ltd.

As one of the Sapporo Group’s core operations, we will refine what

makes Sapporo unique, with a particular focus on the quality of ingredi-

ents and our ability to develop new products, to raise the Group’s

corporate value. Actions will include launching new products onto the

new product genre market, and expanding and enhancing the Yebisu

brand to bolster our distinctive strengths.

Sapporo Breweries Ltd.

REVIEW OF OPERATIONS ALCOHOLIC BEVERAGES

2007 Strategy (Japan)

ALCOHOLIC BEVERAGES

The Japanese Beer Market and Sapporo Breweries

International Operations

REVIEW OF OPERATIONS SOFT DRINKS

Operating revenues in this segment declined ¥5.2 billion, or about 8.1%,

to ¥58.7 billion in 2006. However, as a result of vigorous efforts to cut

costs, a theme of our medium-term management plan, we achieved a

measure of success by reducing the operating loss by ¥0.3 billion from

2005 to ¥0.4 billion.

Sapporo Beverage Co., Ltd.

REVIEW OF OPERATIONS RESTAURANTS

During 2006, this segment closed a number of unprofitable restaurants.

Notwithstanding, it still recorded a ¥0.7 billion increase in operating revenues

to ¥27.0 billion due to strong performances at existing restaurants and higher

sales from new locations. In terms of earnings, however, the benefits of higher

revenues were negated by much higher personnel expenses, which brought

down segment operating income by ¥0.1 billion year on year to ¥0.4 billion.

Sapporo Lion Ltd.

REVIEW OF OPERATIONS REAL ESTATE

Operating revenues increased by ¥1.1 billion year on year to ¥22.8

billion due to higher rental income in leasing operations and sales of real

estate for sale. Operating income increased ¥0.6 billion to ¥6.4 billion

on rises of ¥0.3 billion in the sales division and ¥0.3 billion in the

CONTENTS ⁰¹