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Third Quarter Financial Report for the Year Ending March 2017

Despite the ongoing severe economic conditions and household consumption expenditures on a downward swing since the beginning of the year in comparison to last year, we have been able to end the period with an increase in gross sales at JPY19,631 million.
We have been responding to consumers’ savings-oriented mindset and demand for home meal replacements by enhancing sales of “to-go” menus and increasing delivery services which have resulted in the strong performance of our core brands, Sagami and Ajino-Mingei.
Operating profits were lower than last year at JPY783 million but it had amounted to what we had forecasted in our plans. Outlet renewals were the main factors attributing to the decrease.

Participation in Activities and Events in the Tokyo Metropolitan Area

Although the outlets of our core brand Sagami is located in areas ranging from the Tokai region (central region of Japan where Sagami’s HQ is located) to the Kanto (Tokyo metropolitan area) and Kansai (southern central region of Japan) regions, we are aware that we need to improve the brand awareness in the Tokyo metropolitan area so we have proactively participated in IR events as well as events to promote “Aichi prefecture” and “Nagoya Meshi” (specialty food from Nagoya area).
As we move forward, we will continue to participate in events to raise awareness and strengthen our brand.

Ajino-Mingei

Ajino-Mingei, which mainly serves Tenobe Udon (hand-stretched type Udon) dishes, had had great performance.
In 2016, all existing outlets exceeded the sales of the previous year in every month and this record has continued for 35 consecutive months as of January 2017.
This has been achieved due to the menu and service that has been well received by those in the local areas, and we are very grateful for the ongoing support.

Received the “Omotenashi Standard Certification 2016” from the Ministry of Economy, Trade and Industry

We received the Omotenashi (Japanese Hospitality) Standard Certification System, implemented by the Ministry of Economy, Trade and Industry in September 2016 for the 252 outlets in our group. The Omotenashi standard is intended to activate and increase the productivity of the service providers by promoting the transparency of service quality.
We have been making efforts to date, such as increasing connectivity by setting up a Wi-Fi environment and facilitating ease of ordering by providing information in foreign languages. We will continue to provide a high level of service quality that is highly transparent for our outlets to be the restaurant of choice for our guests.

Sales of Dattan Soba Dishes using “Manten Kirari”

Since October 2016, we have started the sales of Dattan (Tartary) Soba dishes using Manten Kirari (new variety of Tartary with reduced bitterness as compared to the conventional Tartary buckwheat), produced in Oumu town, Monbetsu district, Hokkaido.
Manten Kirari is a new variety of Tartary developed in Japan with the bitter taste of Dattan significantly reduced, and it is said that it contains approximately 100 times more Rutin, (one type of functional component of polyphenol) than Soba. As the leading company in the category for Soba in the restaurant dining industry, we will continue to develop our Soba dishes to offer Soba with superior nutritional value and hence improve our brand value.

Opening of Directly Managed Outlet in Milan, Italy

We participated in the Japan pavilion of the Milan Expo hosted in 2015, and after test operations in Milan in the spring of 2016, we opened “Sagami Milan” at the end of December 2016.
In addition to Soba and Nagoya Meshi which were very popular during the test operations, we offer dishes that have the feeling of Japanese culture and its seasonality.
There are very few restaurants that serve Japanese noodles in Italy, the home of pasta, and we will continue to examine our opportunities for our future roll out in Europe. In order to thrive in this competitive market, as a group, we will continue to stick resolutely to the customer’s perspective and strengthen the organization into one that responds timely to the changes of the times.

Second Quarter Financial Report

Amid the growing the savings-oriented mindset during this period, the performance of our core brands Sagami and Ajino-Mingei was very strong and led to sales slightly exceeding our forecasts.
The limited seasonal menus at Sagami were very popular amongst our guests, resulting in an increase in the average price per guest, and further pursuing the integration of distribution and back offices at Ajino-Mingei proved successful, and because of the strong performance of our core brands, on November 7, we announced the upward revisions to our initial sales and revenue forecasts.
However, because the future market prospects remain uncertain, we left the projections for the full fiscal year unchanged.

Our Company’s Strengths

From this fiscal year, we have employed the phrase “The Healthy-Menu Company” to convey our company’s strengths and I will hereby explain the origin of these words. Average life expectancy and healthy life expectancy do not only stem from diet but is determined by several factors such as exercise and stress, and by the social environment. However, for the purposes of our discussion, we restricted ourselves to thinking only about “diet”.
Amongst the countries with populations over 10 million people, Japan has the highest average life expectancy. By prefecture in Japan, Nagano, a prefecture in eastern Japan, has the highest life expectancy. Nagano prefecture also has highest number of soba restaurants per 100,000 persons in Japan. It is said that “aging begins in the blood vessels” and Rutin, which is contained in Soba, is said to be effective in strengthening and maintaining flexibility in the blood vessels, so it can be thought that there perhaps is some kind of correlation between longevity and Soba.
With regard to healthy life expectancy, amongst the countries with over 10 million people, Japan ranks first for both males and females, and Aichi prefecture ranks first for males and ranks third for females. One of the characteristics of the diet in Aichi prefecture is that the expenditures for dining out at Japanese cuisine restaurants is the highest in the country. The characteristic Japanese cuisine dish served at restaurants in Aichi prefecture is “Nagoya Meshi” (specialty food from Nagoya) and we think that there could be some correlation here as well.
While this is only based on research conducted by ourselves, as a food service company, we have the highest number of outlets serving Soba as the main dish on the menu and the majority of Nagoya Meshi is served at all Sagami outlets. So it can be said that we are the leading company in Soba and at the same time, we can also be called “the Nagoya Meshi company” and hence, “The Healthy-Menu Company”.
In order to respond to the increasing health conscious mindset, this year we included dishes with reduced salt, as well as Dattan (Tartary) soba that is said to contain more than 100 times Rutin than the usual Soba, in our menus. In the hopes that it would connect to the improvement in company’s brand value, we are working to develop products that are tasty and very high in health value.

*Average life expectancy / Healthy life expectancy related data source: Published data from World Health Organization, Ministry of Health Welfare and Labor, Ministry of Internal Affairs and Communications

IR Activities

As part of promoting dialogue with our shareholders and investors, we are strengthening our IR activities. As we did last year, this year we also participated in the Nagoya Stock Exchange IR Expo held at the Fukiage Hall in Nagoya city, and for the first time attended the Nikkei IR/ Investment Fair held in August at Tokyo Big Site in Tokyo.
At both events, we had a booth for company information and also talked during the seminar about the current conditions of the company and our future strategic plans. Until last year, we had stopped attending IR Fairs but because we were able to receive very valuable opinions from those in attendance, we will make efforts to participate on an ongoing basis. In achieving our group vision as the “No.1 Noodle Restaurant Company”, we will work together with all employees of the group.

In closing, we thank you and request for your continued support and encouragement as we move forward.

Financial Results for First Quarter of FY 2017

Ajino-Mingei

At the end of the first quarter, the existing outlets of Ajino-Mingei, which joined our group in January 2014, had sales exceeding the net sales of the previous year by 100% for 28 consecutive months.
As a restaurant with Japanese noodles as its specialty menu, it has many commonalities with Sagami, and therefore the synergy effects of joining together has been invaluable. We are grateful to the support of all of our guests for the great performance.

General Meeting of Shareholders

On June 29 (Wednesday), we held our Annual General Meeting of Shareholders at the Owariasahi City Community Hall in Owariasahi city in Aichi prefecture. The six items on the agenda for this years’ meeting included the appropriation of surplus, election of 7 Board of Directors, election of 1 corporate auditor, election of 1 substitute corporate auditor, new compensation system for the board of directors, and the Continuation of Measures Against Large-Scale Purchases of the Company’s Shares (Takeover Defense Measures), and we received approval on all bills. We send our heartfelt gratitude to all our shareholders.
This year, we welcomed Shugo Fukui, a lawyer, as our external auditor. With Mr. Fukui, we now have 10 executive officers, of which 4 members are external officers (2 Board of Directors, 2 Auditors).
We received many questions from our shareholders during the meeting and this invaluable dialogue reaffirmed to us the immense support we continue to receive from all our shareholders. Going forward, we will commit to undertaking further reforms to fulfill and exceed the expectations of our valued shareholders and customers.

New Outlet Opening

In April, we opened a Sagami Sukoyaka Shokudo (“healthy menu” restaurant) on the 6th floor of the municipal office of Obu city, Aichi prefecture, which is a city known for advocating healthy food. We want the residents of the city to become more familiar with the Sagami brand as we accumulate our know-how of healthy foods through the development of a proprietary healthy menu.
In July, we opened Sagami Tei, a Japanese cuisine restaurant, in the basement of the Castle Plaza Hotel located in front of Nagoya station, a location in which we had long sought to open. We also opened a specialty tonkatsu (deep-fried pork cutlet) restaurant, Katsutani, that serves as a prototype for a new franchise roll-out.
With regard to our overseas developments, on July 30, we opened a Tenobe Udon (hand-stretched type Udon) restaurant “Suizan” and fresh pasta “JINJIN” in the Takashimaya in Ho Chi Minh City. It is our goal that by 2020 we will have opened 20 outlets in the ASEAN countries.
Currently, our overseas outlets include 3 in Thailand, 1 in Indonesia, 2 in Vietnam, 2 in Shanghai - a total of 8 outlets in Asia.

Raising Awareness of Soba and Nagoya-Meshi

or one month and a half since April, we have been conducting a test marketing case in Milan, because we wanted to test the demands and viability of our main products Soba (buckwheat noodles) and Nagoya-Meshi (specialty food from Nagoya area) in a more open and public location, after our great success at the Milan Expo. We serve about 15 dishes with Soba and Nagoya-Meshi as the main dishes. If this test case is well-received, we would like to consider opening in Europe in the long-term.
We participated in the G7 Ise-Shima Summit held from May 25-May 27 and served Udon (Japanese wheat noodles), Tempura, and Ise Udon for the journalists from around the world at the international media center (press center). It was a great opportunity to appeal the Japanese food culture to people from abroad.

We will continue moving forward to realize our group vision as the “No. 1 Noodle Restaurant Company” and commit to doing our best. In closing, we thank you and request for your continued support and encouragement as we move ahead.

Financial Report for FY 2015

Review of FY2015

The slowdown of the economic growth of China and emerging markets and the steep fall in natural resources and crude oil prices have been increasing anxiety regarding the global market, while negative interest rates and speculations on the consumption tax increase, sudden drop in stock prices due to foreign exchange fluctuations, continue to keep the Japanese economy is uncertainty. In addition, the tight labor market has been giving rise to personnel costs, increasing the challenges for the restaurant industry.
Given such circumstances, we implemented the “Sagami Group Philosophy” for us to have a common and shared thinking, values, and behavioral principles and to strengthen our thinking from the customer perspective.
In terms of our business performance, as a result of transfers of parts of our business and the change in the business operations in China from direct operations to franchise operations, our revenues fell short of our budgeted plans, but our profits exceeded our plans. On March 1, 2016, 6 outlets of a Japanese cuisine restaurant, Hamacho, in the Kanagawa prefecture joined our group, of which one outlet was converted into Sagami brand. This was the first “Sagami” to open in 8 years and sales have been performing well.
Our core restaurant, Sagami, expanded its delivery operations and executed measures such as unique menus for each outlet, increase of the internal owner system of outlets, and as a result sales increased by 103.8% over the previous year.
Ajino-Mingei Food Service, which joined the group in January 2014, achieved profitability in the first half of 2014 and in its second year of operations in 2015, all outlets were profitable and we are sure it will continue to contribute to the group.
With regard to our overseas business, we participated in the “Milan Expo” and had a booth in the Japan Pavilion from May 2017 for six months. In the long history of expos, this was the first time that “food” was the main theme of the expo, and as it was held in Italy, the home of pasta, we thought our participation would contribute to the realization of our vision. Our sales were 1.5 times what we had ambitiously planned, and were able to end our participation with a huge success. We mainly served Tenzaru (cold buckwheat noodles with Tempura), Tempura Soba (hot buckwheat noodles with tempura), and Tenmusu (rice ball with a tempura inside) at the Milan Expo, and as the leading company of “Soba” and “Nagoya-Meshi” we think we were able to raise awareness of the Sagami name to the world.
With regard to the ASEAN countries, which remain our area of focus for our outlet roll-out, we opened “Sagami Aeon Mall BSD City” in Jakarta, Indonesia in May 2015, and “Sagami Silom Complex” in Bangkok, Thailand in January 2016.
With these recent openings, we now have a total of 7 outlets in the Asia region. We introduced Soba at the Japan Healthy Lifestyle Exhibition held in Vietnam, Thailand, Myanmar, and also served Soba at the Jakarta Japan Festival held in Indonesia. As the leading restaurant in Soba, we will continue our efforts in promoting and raising the awareness of Soba.

Initiatives for FY 2016

The recent Japanese economy continues to be fraught with uncertainty with the downturn risks of the economy as well as the prolonged economic slowdown of China. In our company, a series of reforms have been bearing fruit, such as “consciousness reform”, “system reform”, and “organizational reform”.
In 2016, with the slogan “Let’s Master!” we will engage in our business aggressively and encourage our staff to “think for themselves”, “master their craft”, and “take the initiative and act”.
This fiscal year, we prepared a “Rolling Plan 2018” for our new 3-year medium-term business plan, for the first time. We will be reviewing the plans every year so that we could be flexible in responding to the quickly changing business environment.
We have been executing a test marketing case of Soba and Nagoya-Meshi (specialty food from Nagoya area) in Milan, Italy, since April 13. Because we saw great success at the Milan Expo, we will be opening an outlet in the city to determine our business potential and viability in an open and public location as opposed to a closed location like the expo.
Although it will be opened for only a limited time until May 30, as of now, we have received a favorable reputation and going forward, we would like to consider opening in Europe as well. In July, we are planning the opening of our 2nd outlet in Vietnam, and we are moving step-by-step towards the realization of our group vision as the “No. 1 Noodle Restaurant Company”.