KFC Holdings Japan / 9873

R KFC Holdings Japan / 9873

COVERAGE INITIATED ON: 2016.10.31 LAST UPDATE: 2018.12.07

Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg.

Research Coverage Report by Shared Research Inc. KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

INDEX

How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the business section later in the report.

Executive summary ------3 Key financial data ------5 Recent updates ------6 Highlights ------6 Trends and outlook ------8 Monthly trends ------8 Quarterly trends and results ------9 Outlook------21 Business ------24 Overview ------24 KFC business ------26 Other business ------31 Earnings structure ------32 Market and value chain ------34 Strengths and weaknesses ------38 Financial statements------39 Income statement ------39 Balance sheet ------40 Cash flow statement ------41 ROE, ROA, ROIC ------42 Historical performance ------43 News and topics ------47 Other information ------48 History ------48 Corporate governance and top management ------49 Dividend policy ------50 Major shareholders (As of March 31, 2018) ------50 Principal group companies (as of March 2018) ------50 Employees ------51 By the way ------51 Profile ------52

02/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Executive summary

Core businesses

Under a master franchise agreement with Yum! Brands Inc., KFC Holdings Japan operates KFC brand restaurants in Japan. The company also acts as a franchisor in Japan for the KFC brand, earning royalties and other revenues.

The company says the KFC business had a leading domestic share of the fried chicken market, at 37% in 2015. As of end March 2018 the company had 329 directly operated restaurants primarily in Greater Tokyo, and 824 restaurants run by franchisees mainly in regional areas.

Japan’s fried chicken market has been relatively flat since 2000, and in 2003 major convenience stores began entering the fried chicken market. KFC is distinctive due to the brand power of its “original chicken,” which it has cultivated since its launch in Japan in 1970, and procurement arrangements with major trading company Mitsubishi Corporation (TSE1: 8058) for high-quality chicken. Convenience stores primarily use imported frozen chicken 50 days old or older, while KFC uses only Japan-raised chickens (about 40 days old), which are more tender but make stable procurement difficult.

Trends and outlook

Total revenues have been in the JPY70–90bn region since FY03/11. The company’s restaurant sales are sensitive to consumer trends because its meals are higher priced than other fast food and often purchased for special occasions, rather than as casual dining options. Operating profit declined from a peak of JPY3.5bn in FY03/11 to JPY700mn in FY03/15 due in part to deterioration of the Pizza Hut business, but recovered to JPY2.6bn in FY03/17 (+27.2% YoY) on cost cuts in the Pizza Hut business. Then in FY03/18, the company sold the Pizza Hut business, and operating profit fell to JPY500mn due to increases in ingredient and personnel costs and falling customer count in the KFC business.

Company forecasts for FY03/19 For FY03/19, the company forecasts revenues of JPY73.0bn (-0.6% YoY), operating profit of JPY1.0bn (2.1x YoY), recurring profit of JPY1.1bn (+75.4% YoY), and net income of JPY700mn (+21.1% YoY). Excluding the impact of the sale of the Pizza Hut business, this represents a 3.2% increase in revenues, effectively meaning forecasts of both higher revenues and higher profits.

As the company works to achieve this plan, Shared Research is watching the following initiatives in particular: a) To increase revenues, the company is strengthening efforts related to the robust delivery and proxy delivery services (diversifying sales formats); b) To increase revenues, it is revising its marketing strategy; c) To reduce costs, it is revamping store operations and some products; and d) To increase net income, it is promoting the shift of directly operated restaurants to a franchise format.

In addition, the company plans to have 1,159 stores (with fewer directly operated restaurants and more franchises) by end-FY03/19, a net increase of six (31 openings and 25 closings), with 119 renovations. It aims to increase comparable store sales by 4.9% primarily through a recovery in customer count.

The hurdle is high for the comparable store sales target, but the company expects the effects of new marketing measures and the steady progress of delivery stores (about 120 as of May 2018, of which 28 use proxy delivery) to accumulate toward 2H. It will be worth watching M&A initiatives as well. Risk factors include more expensive ingredients, rising labor costs, and competition in the prepared meals market (about 70% of store sales are from takeout).

03/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Strengths and weaknesses

Shared Research thinks the company’s strengths are brand power cultivated since its founding; a business model built on a relationship with Mitsubishi; and economies of scale. We think its weaknesses are constraints imposed by franchise agreements with Yum! Brands and constraints on KFC sales promotions due to using 100% domestically raised chicken.

04/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Key financial data

Income statement FY11/08 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Total revenues 86,762 124,815 88,823 88,124 85,864 83,436 84,605 88,180 88,032 73,457 73,000 YoY 2.2% - - -0.8% -2.6% -2.8% 1.4% 4.2% -0.2% -16.6% -17.1% Gross profit 40,745 59,116 41,108 39,683 39,656 38,460 38,206 39,364 39,887 31,604 GPM 47.0% 47.4% 46.3% 45.0% 46.2% 46.1% 45.2% 44.6% 45.3% 43.0% SG&A expenses 39,627 53,862 37,576 37,293 37,261 36,638 37,536 37,352 37,328 31,127 YoY 1.0% 35.9% -30.2% -0.8% -0.1% -1.7% 2.5% -0.5% -0.1% -16.6% SG&A rat io 45.7% 43.2% 42.3% 42.3% 43.4% 43.9% 44.4% 42.4% 42.4% 42.4% Operating profit 1,117 5,253 3,531 2,390 2,395 1,822 670 2,011 2,558 477 1,000 YoY -60.6% 370.3% -32.8% -32.3% 0.2% -23.9% -63.2% 200.1% 27.2% -81.4% 109.6% OPM 1.3% 4.2% 4.0% 2.7% 2.8% 2.2% 0.8% 2.3% 2.9% 0.6% 1.4% Recurring profit 1,207 5,459 3,708 2,469 2,506 1,856 667 1,866 2,425 627 1,100 YoY -57.6% 352.3% -32.1% -33.4% 1.5% -25.9% -64.1% 179.8% 30.0% -74.1% 75.4% RPM 1.4% 4.4% 4.2% 2.8% 2.9% 2.2% 0.8% 2.1% 2.8% 0.9% 1.5% Net income attributable to parent company shareholders 483 2,570 1,891 1,102 1,203 441 -524 730 1,365 578 700 YoY -65.1% 432.1% -26.4% -41.7% 9.2% -63.3% - - 86.9% -57.8% 21.0% Net margin 0.6% 2.1% 2.1% 1.3% 1.4% 0.5% -0.6% 0.8% 1.6% 0.8% 1.0% Per share data (split-adjusted; JPY) Shares issued (year end; '000) 22,983 22,783 22,783 22,783 22,783 22,783 22,783 22,783 22,783 22,783 EPS 21.15 112.89 83.21 49.09 53.64 19.69 -23.38 32.59 60.90 25.83 31.32 EPS (fully dilut ed) ------Dividend per share 50.0 70.0 100.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 Book value per share 1,017.97 1,082.73 1,035.25 1,031.31 1,034.60 1,002.93 946.18 932.24 944.43 922.83 - Balance sheet (JPYmn) Current assets 19,902 23,549 22,549 23,500 23,340 21,682 22,332 21,390 20,721 15,194 Cash and cash equivalents 13,888 13,596 15,808 13,058 13,502 16,146 16,804 15,339 14,571 9,757 Accounts receivable 3,336 3,093 2,947 3,729 3,544 3,701 3,546 3,855 4,007 3,562 Inventories 812 650 671 733 729 518 397 697 450 414 Others 1,866 6,210 3,123 5,980 5,565 1,317 1,585 1,499 1,693 1,461 Fixed assets 21,032 18,836 18,461 17,882 16,968 16,301 16,085 17,902 18,762 20,552 T angible fixed asset s 8,899 7,925 7,228 6,681 6,184 5,703 6,093 7,178 8,506 7,734 Int angible fixed asset s 1,052 1,763 2,555 3,128 2,950 2,924 2,874 2,828 2,206 1,704 Investments and other assets 11,081 9,148 8,678 8,073 7,834 7,674 7,118 7,896 8,050 11,113 Total assets 40,934 42,385 41,011 41,383 40,308 37,984 38,418 39,292 39,484 35,746 Current liabilit ies 13,922 13,470 13,046 13,837 13,029 11,203 13,166 13,070 13,033 10,929 Accounts payable 7,621 5,699 5,680 7,603 6,568 5,754 5,978 6,232 5,824 5,735 Short-term debt - - 140 193 211 193 187 531 618 531 Ot her current liabilit ies 6,301 7,771 7,226 6,041 6,250 5,256 7,001 6,307 6,591 4,663 Fixed liabilit ies 3,829 4,271 4,648 4,392 4,065 4,283 4,031 5,317 5,272 4,190 Long-term debt - - 359 359 207 188 432 1,533 1,142 666 Others 3,829 4,271 4,289 4,033 3,858 4,095 3,599 3,784 4,130 3,524 Net assets 23,181 24,643 23,317 23,153 23,214 22,497 21,219 20,904 21,178 20,626 Capit al st ock 7,297 7,297 7,297 7,297 7,297 7,297 7,297 7,297 7,297 7,297 Capit al surplus 10,430 10,430 10,430 10,430 10,430 10,430 10,430 10,430 10,430 10,430 Retained earnings 5,910 6,945 6,105 6,083 6,165 5,485 4,228 3,837 4,082 3,539 Treasury stock -418 -41 -531 -683 -710 -722 -733 -739 -739 -887 Accum. other comprehensive income -38 12 16 25 31 7 -2 79 108 246 Share subscription rights ------Minorit y int erest s ------T ot al liabilit ies and capit al 40,934 42,385 41,011 41,383 40,308 37,984 38,418 39,292 39,484 35,746 Statement of cash flows (JPYmn) Cash flow s from operat ing act ivit ies 4,171 6,108 4,186 3,814 3,370 1,717 4,574 1,519 4,424 1,928 Cash flow s from invest ing act ivit ies -1,929 -6,485 1,869 -5,108 -1,558 2,287 -1,556 -298 -3,679 -4,863 Cash flow s from financing act ivit ies -1,332 -1,212 -3,343 -1,456 -1,367 -1,360 -1,360 -1,686 -1,512 -1,878 Financial rat ios Interest-bearing debt - - 499 552 418 381 619 2,064 1,760 1,197 Net cash 13,888 13,596 15,309 12,506 13,084 15,765 16,185 13,275 12,811 8,560 ROA (RP-based) 3.0% 13.1% 8.9% 6.0% 6.1% 4.7% 1.7% 4.8% 6.2% 1.7% ROE 2.0% 10.7% 7.9% 4.7% 5.2% 1.9% -2.4% 3.5% 6.5% 2.8% Current ratio 143% 175% 173% 170% 179% 194% 170% 164% 159% 139% Fixed rat io 90.7% 76.4% 79.2% 77.2% 73.1% 72.5% 75.8% 85.6% 88.6% 99.6% Equit y rat io 56.6% 58.1% 56.9% 55.9% 57.6% 59.2% 55.2% 53.2% 53.6% 57.7% Source: Shared Research based on company data Note: Data for FY03/10 are for 16 months due to change in balance date. Note: Accounts receivable figures are after deducting bad debt provisions. Note: Figures may differ from company materials due to differences in rounding methods.

05/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Recent updates

Highlights

On December 7, 2018, KFC Holdings Japan, Ltd announced monthly sales data for November 2018; see the monthly trends section for details.

On December 4, 2018, Shared Research updated the report following interviews with the company.

On November 7, 2018, the company announced earnings results for 1H FY03/19; see the results section for details.

On the same day, 2018, the company announced monthly sales data for October 2018.

On October 9, 2018, the company announced monthly sales data for September 2018.

On September 12, 2018, the company unveiled its “Toward Our 50th Anniversary” medium-term management plan, which calls for FY03/21 revenues of JPY75.0bn, operating profit of JPY2.4bn, OPM of 3.2%, and net income of JPY1.6bn. The plan factors in new M&A activity in Japan and overseas, and targets 2,000 restaurants across the group over the medium to long term. An overview of the plan is shown below.

Medium-term management plan FY03/18 FY03/21 (JPYmn) Act. MTP Change KFC Holdings Total revenues 70,800 75,000 +4,200 Japan Operating profit 480 2,400 +1,920 OPM 0.6% 3.2% +2.6pp Net income 580 1,600 +1,020 KFC business System sales 113,200 125,000 +11,800 System store count 1,153 1,180 +27 Source: Shared Research based on company data Note: FY03/18 excludes results for the Pizza Hut business (April 1, 2017 to June 11, 2017). Japan KFC Holdings Under its corporate philosophy of “creating delicious meals and happiness,” the company will establish a structure focused on the mainstay KFC business, and aims to become a comprehensive food services group by building up its portfolio through new M&A deals. The key themes of the medium-term management plan are the development of a structure to support all businesses and business expansion through M&A activity.

Development of a structure to support all businesses

Development of holding company structure: The company will review the structure of its group companies, and develop a ▷ structure that facilitates rapid and effective business support. Rationalization of headquarter costs: The company aims to consolidate and enhance efficiency of its operations as a holding ▷ company (e.g., improving company-wide productivity and reviewing administration costs, including IT-related costs) to establish a foundation conducive to sustainable growth from 2020 and with an eye toward group-wide business expansion.

06/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Business expansion through M&A activity

Increase corporate value of capital and business partners: Invested in Restaurants Development Co., Ltd. (2016), which ▷ operates part of the KFC restaurants in Thailand; entered capital and business alliance with BYO Co., Ltd. (2018), which operates several Japanese-food restaurant brands such as washoku sake EN, Obon de Gohan Pursue new M&A deals: 1) strengthen foundation in Japan: invest in food-related businesses in which KFC Holdings Japan can ▷ leverage its strengths (expertise in operating restaurant chains, franchise network), attract premium overseas brands to Japan; 2) make inroads in overseas growth markets: invest in brands (businesses) expected to become competitive forces in Asian and other growth markets, develop new businesses, and expand existing brands overseas Target 2,000 restaurants across the group over the medium to long term, factoring in business expansion through M&A ▷ activity

KFC business

Under the slogan “Nothing like KFC for a special day,” the medium-term plan positions the years through FY03/21, which coincides with the 50th anniversary of KFC, as a period to rebuild the foundations of the KFC business and support sustainable brand growth. Key medium-term themes for the KFC business are 1) getting back to the roots of the business, 2) customer orientation (focus on frontline operations), and 3) the cultivation of human resources.

Customer orientation (focus on frontline operations)

The KFC business has identified the following conditions as its present challenges: 1) it is strongly associated with special occasions such as Christmas by many customers, who therefore do not visit KFC restaurants on regular days; and 2) it is perceived as a takeout restaurant, and not as a place where customers can enjoy food or drinks or relax inside a restaurant. To address these challenges, the business will adopt a two-pronged strategy of optimizing operations by targeting customer visits on regular days (generating opportunities for visits on regular days and promoting visits on days other than special occasions) and improving experiential value

(focusing on safety and peace of mind, delicious food, and comfort).

To optimize operations (targeting customer visits on regular days), KFC Holdings plans to drive a recovery in the comparable-store customer count (secure new customers and increase frequency of customer visits) by 1) increasing convenience via strengthened KFC online orders, 2) promoting restaurant visits on regular days through the introduction of weekly and monthly value menus, and 3) moving into areas with demand through expansion of home delivery services and KFC Stations (takeout stands located inside train stations). Comparable store sales rose a strong 11.4% YoY in August, and this was mainly attributable to a JPY500 lunch offered from July 23 to September 5 to attract visitors on regular days. We will be closely monitoring the effects of these new initiatives.

To increase experiential value, KFC Holdings intends to foster customer loyalty through various initiatives. It will strengthen its digital strategy by revamping its KFC app (over 9.5mn downloads as of June 2018) and expanding its mileage program. The company continues committing to high-quality “original-recipe chicken” and hospitality. It also plans to provide comfortable spaces (strategic remodeling) for customers by adopting a no-smoking policy for its restaurants (all seats) by March 2019, introducing digital signage, and installing separate counters (for order payment and pickup).

For previous releases and developments, please refer to the News and topics section.

07/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Trends and outlook

Monthly trends

FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Average system sales per store 5.7% -2.6% -5.0% -3.3% 3.5% 7.4% -0.9% -1.7% Sales at directly operated comparable stores 4.2% -3.5% -4.1% -3.4% 2.9% 8.8% -0.8% -1.4% Customer count 3.7% -2.5% -1.5% -4.0% 0.2% 1.6% -2.5% -4.2% Spend per customer 0.5% -0.9% -2.7% 0.6% 2.6% 7.1% 1.7% 3.0% FY03/13 (JPY mn) Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar FY Avg. monthly sales All stores 7.95 7.40 7.53 8.15 8.79 8.10 7.28 6.90 12.23 7.88 6.85 7.50 8.05 Directly operated stores 8.75 8.19 8.42 9.13 9.50 8.82 8.00 7.75 13.37 8.58 7.64 8.09 8.86 Franchised stores 7.64 7.11 7.20 7.78 8.52 7.83 7.02 6.58 11.80 7.61 6.56 7.29 7.75 YoY All stores 8.9% -0.3% 6.9% -14.0% -6.4% 3.0% -6.9% -8.3% -8.8% -5.4% -11.8% -10.6% -5.0% Directly operated comp. stores 10.1% -0.8% 7.7% -11.5% -5.0% 3.2% -7.7% -6.8% -7.9% -5.1% -7.4% -11.9% -4.1% Customer count 10.2% 7.3% 5.5% -4.8% 1.0% 1.6% -7.7% -6.5% -3.1% -1.3% -6.7% -10.5% -1.5% Spend per customer -0.1% -7.5% 2.1% -7.0% -5.9% 1.6% 0.1% -0.4% -5.0% -3.8% -0.8% -1.5% -2.7% FY03/14 (JPY mn) Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar FY Avg. monthly sales All stores 7.37 6.69 6.86 7.23 8.23 7.86 6.89 6.87 12.35 7.95 6.81 7.95 7.75 Directly operated stores 8.06 7.47 7.61 8.08 8.87 8.59 7.81 7.88 13.68 8.66 7.76 8.81 8.60 Franchised stores 7.11 6.40 6.59 6.91 7.99 7.60 6.56 6.51 11.87 7.70 6.46 7.64 7.45 YoY All stores -7.3% -9.7% -8.9% -11.3% -6.3% -2.8% -5.4% -0.5% 1.0% 1.0% -1.0% 5.9% -3.3% Directly operated comp. stores -8.6% -9.1% -10.4% -12.1% -7.0% -3.0% -3.0% 0.8% 1.5% 0.4% 1.1% 8.6% -3.4% Customer count -6.5% -11.2% -7.5% -9.3% -7.4% -1.3% 0.5% 0.8% -4.6% -3.1% -3.4% 8.7% -4.0% Spend per customer -2.2% 2.3% -3.1% -3.1% 0.4% -1.7% -3.4% 0.0% 6.4% 3.5% 4.6% -0.1% 0.6% FY03/15 (JPY mn) Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar FY Avg. monthly sales All stores 7.29 6.81 7.30 7.45 8.29 8.34 6.89 7.98 12.78 8.50 6.94 8.02 8.05 Directly operated stores 8.19 7.73 8.12 8.46 8.83 9.07 7.87 8.82 14.10 8.23 7.77 8.72 8.91 Franchised stores 6.97 6.49 7.02 7.10 8.10 8.08 6.55 7.69 12.31 8.23 6.65 7.77 7.74 YoY All stores -1.0% 2.1% 6.4% 3.1% 0.8% 5.7% -0.6% 15.2% 2.8% 6.1% 1.6% 0.6% 3.5% Directly operated comp. stores 0.8% 3.1% 6.2% 4.1% -1.4% 5.1% 0.2% 11.0% 2.6% 5.8% -0.5% -1.7% 2.9% Customer count 1.1% -0.5% 1.6% 2.3% -1.3% 1.7% -2.3% 6.3% 1.5% 1.2% -5.1% -3.9% 0.2% Spend per customer -0.3% 3.6% 4.6% 1.8% 0.0% 3.4% 2.6% 4.4% 1.0% 4.6% 4.8% 2.2% 2.6% FY03/16 (JPY mn) Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar FY Avg. monthly sales All stores 6.77 8.26 8.05 8.60 9.77 7.51 7.74 8.61 13.29 9.07 7.36 8.85 8.66 Directly operated stores 7.82 9.27 8.88 9.69 10.67 8.62 8.98 9.70 15.11 10.25 8.60 9.90 9.79 Franchised stores 6.39 7.89 7.76 8.20 9.45 7.12 7.30 8.23 12.65 8.65 6.93 8.49 8.26 YoY All stores -7.8% 20.2% 9.5% 14.5% 16.9% -10.1% 12.1% 7.9% 4.5% 7.3% 6.6% 10.6% 7.4% Directly operated comp. stores -5.6% 18.4% 8.3% 13.3% 19.6% -5.8% 13.5% 9.2% 6.7% 10.7% 6.7% 13.1% 8.8% Customer count -9.4% 6.6% -1.2% 3.9% 10.1% -7.2% 6.6% 0.3% 0.2% 3.5% 2.9% 4.0% 1.6% Spend per customer 4.2% 11.1% 9.6% 9.1% 8.6% 1.5% 6.5% 8.8% 6.4% 7.0% 3.7% 8.8% 7.1% FY03/17 (JPY mn) Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar FY Avg. monthly sales All stores 7.14 7.53 7.21 9.34 8.66 8.21 8.34 8.58 13.57 8.84 6.89 8.21 8.55 Directly operated stores 8.34 8.64 8.29 10.60 9.69 9.18 9.50 9.83 15.52 9.89 7.92 9.14 9.72 Franchised stores 6.73 7.16 6.84 8.91 8.31 7.88 7.95 8.16 12.91 8.48 6.55 7.90 8.15 YoY All stores 6.2% -8.1% -9.9% 9.1% -10.7% 9.8% 8.2% -0.2% 2.1% -2.7% -6.3% -7.2% -0.9% Directly operated comp. stores 6.4% -7.0% -7.2% 8.8% -9.6% 6.0% 6.3% 1.4% 2.2% -3.9% -4.9% -7.9% -0.8% Customer count 3.1% -5.2% -3.9% 3.7% -8.5% 0.6% 0.1% -1.4% -1.7% -6.2% -5.6% -4.6% -2.5% Spend per customer 3.3% -1.9% -3.4% 4.8% -1.3% 5.4% 6.2% 2.8% 4.0% 2.5% 0.7% -3.5% 1.7% FY03/18 (JPY mn) Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar FY Avg. monthly sales All stores 7.43 7.24 7.81 8.44 8.49 8.75 8.00 8.23 13.45 8.54 6.38 7.93 8.40 Directly operated stores 8.54 8.35 8.85 9.70 9.42 9.84 9.19 9.45 15.33 9.66 7.57 9.08 9.61 Franchised stores 7.05 6.87 7.47 8.03 8.17 8.38 7.57 7.79 12.76 8.14 5.97 7.55 7.99 YoY All stores 4.3% -3.7% 8.2% -9.5% -2.1% 6.5% -4.0% -4.0% -0.9% -3.4% -7.5% -3.4% -1.7% Directly operated comp. stores 2.6% -2.8% 6.9% -8.3% -2.8% 6.6% -3.7% -4.1% -1.3% -2.5% -4.4% -0.9% -1.4% Customer count 0.7% -4.5% 0.5% -11.2% -7.1% 3.2% -6.2% -4.4% -4.7% -4.6% -6.2% -4.9% -4.2% Spend per customer 1.9% 1.8% 6.3% 3.3% 4.6% 3.3% 2.6% 0.3% 3.6% 2.2% 1.9% 4.1% 3.0% FY03/19 (JPY mn) Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar FY* Avg. monthly sales All stores 7.03 6.94 7.58 9.28 9.86 9.14 8.36 - Directly operated stores 8.19 8.11 8.68 10.56 10.62 10.26 - - Franchised stores 6.60 6.51 7.19 8.83 9.60 8.75 - - YoY All stores -6.4% -5.1% -3.5% 9.0% 15.4% 3.3% 4.8% -1.5% 2.5% Directly operated comp. stores -5.5% -4.2% -2.7% 7.6% 11.4% 3.6% 3.8% -3.0% 1.5% Customer count -8.5% -8.1% -5.5% 4.8% 9.0% 1.0% 5.1% -2.0% -0.5% Spend per customer 3.4% 4.2% 2.9% 2.7% 2.1% 2.6% -1.2% -1.0% 2.0% Source: Shared Research based on company data Note: FY* growth is on a year-to-date basis from April. Note: Figures may differ from company materials due to differences in rounding methods.

08/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Quarterly trends and results

Quarterly earnings FY03/17 FY03/18 FY03/19 FY03/17 FY03/18 FY03/19 FY03/17 FY03/18 FY03/19 YoY change (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1H 1H 1H FY FY Est.% o f FY Q1 Q2 1H Total revenues 19,207 22,544 25,983 20,298 18,968 17,890 20,895 15,704 15,420 19,650 41,751 36,858 35,070 88,032 73,457 73,000 48.0% -3,548 +1,760 -1,788 KFC 14,884 17,969 20,487 15,911 15,449 17,057 19,761 15,114 - - 32,853 32,506 - 69,251 67,381 Pizza Hut 3,516 3,695 4,178 3,533 2,721 - - - - - 7,211 2,721 - 14,922 2,721 Other 2,669 2,878 3,473 2,634 2,515 2,410 2,912 2,130 - - 5,547 4,925 - 11,654 9,967 Adjustments -1,862 -1,998 -2,156 -1,780 -1,718 -1,577 -1,778 -1,540 - - -3,860 -3,295 - -7,796 -6,613 YoY -4.1% 0.8% 3.1% -1.4% -1.2% -20.6% -19.6% -22.6% -18.7% 9.8% -1.5% -11.7% -4.9% -0.2% -16.6% -0.6% KFC -3.7% 3.5% 3.9% 0.2% 3.8% -5.1% -3.5% -5.0% - - 0.1% -1.1% - 1.2% -2.7% Pizza Hut -1.8% -6.4% 0.1% -5.1% -22.6% ------4.2% -62.3% - -3.3% -81.8% Other -17.7% -2.7% 2.6% -6.2% -5.8% -16.3% -16.2% -19.1% - - -10.5% -11.2% - -6.0% -14.5% Gross profit 8,656 10,188 11,748 9,295 8,391 7,585 8,842 6,786 6,560 8,394 18,844 15,976 14,954 39,887 31,604 -1,831 809 -1,022 GPM 45.1% 45.2% 45.2% 45.8% 44.2% 42.4% 42.3% 43.2% 42.5% 42.7% 45.1% 43.3% 42.6% 45.3% 43.0% -1.7pp +0.3pp -0.7pp SG&A expenses 8,763 9,246 10,053 9,266 8,501 7,347 7,967 7,312 7,075 7,393 18,009 15,848 14,468 37,328 31,127 -1,426 46 -1,380 YoY -5.4% 0.3% 2.6% 2.3% -3.0% -20.5% -20.8% -21.1% -16.8% 0.6% -2.6% -12.0% -8.7% -0.1% -16.6% SG&A rat io 45.6% 41.0% 38.7% 45.6% 44.8% 41.1% 38.1% 46.6% 45.9% 37.6% 43.1% 43.0% 41.3% 42.4% 42.4% +1.1pp -3.4pp -1.7pp Operating profit -106 940 1,695 29 -109 236 876 -526 -515 1,000 834 127 485 2,558 477 1,000 48.5% -406 +764 +358 KFC -306 561 1,421 -137 -273 -84 679 -821 - - 255 -357 - 1,539 -499 Pizza Hut -131 44 191 49 -0 - - -0 - - -87 -0 - 153 -0 Other 299 315 55 244 137 294 172 279 - - 614 431 - 913 882 Adjustments 32 19 28 -128 26 28 23 17 - - 51 54 - -49 94 YoY - 4.3% 19.5% 20.8% - -74.9% -48.3% - - 323.7% 46.8% -84.8% 281.9% 27.2% -81.4% 109.6% KFC - -16.1% -6.3% - - - -52.2% - - - -51.7% - - -23.8% - Pizza Hut - 63.0% ------Other -39.2% 77.0% - - -54.2% -6.7% 212.7% 14.3% - - -8.4% -29.8% - 282.0% -3.4% OPM -0.6% 4.2% 6.5% 0.1% -0.6% 1.3% 4.2% -3.3% -3.3% 5.1% 2.0% 0.3% 1.4% 2.9% 0.6% 1.4% -2.8pp +3.8pp +1.0pp KFC -1.6% 2.5% 5.5% -0.7% -1.4% -0.5% 3.2% -5.2% - - 0.6% -1.0% - 1.7% -0.7% Pizza Hut -0.7% 0.2% 0.7% 0.2% -0.0% - - -0.0% - - -0.2% -0.0% - 0.2% -0.0% Other 1.6% 1.4% 0.2% 1.2% 0.7% 1.6% 0.8% 1.8% - - 1.5% 1.2% - 1.0% 1.2% Non-operating income (expenses) -19 -32 -23 -59 44 58 76 -28 68 -6 -133 150 100 Net financial income -10 -6 -8 -9 -8 -3 -6 -7 -5 2 -33 -24 Rent income (expenses) 1 -2 -1 -6 6 15 13 9 19 19 -8 43 Equit y in earnings of affiliat es - - - -16 36 -11 5 -81 2 -81 -16 -51 Outsourcing income - - - - 14 67 66 62 61 59 - 209 Other -10 -24 -14 -28 -4 -10 -2 -11 -9 -5 -76 -27 Recurring profit -125 908 1,672 -30 -65 294 952 -554 -447 994 783 229 547 2,425 627 1,100 49.7% -382 +700 +318 YoY - 3.9% 22.4% - - -67.6% -43.1% - - 238.1% 63.5% -70.8% 138.9% 30.0% -74.1% 75.4% RPM -0.7% 4.0% 6.4% -0.1% -0.3% 1.6% 4.6% -3.5% -2.9% 5.1% 1.9% 0.6% 1.6% 2.8% 0.9% 1.5% -2.6pp +3.4pp +0.9pp Net income attrib. to parent company shareholders -124 541 1,043 -95 639 205 586 -852 -324 691 417 844 367 1,365 578 700 52.4% -963 +486 -477 YoY - 2.5% 18.9% - - -62.1% -43.8% - - 237.1% 124.2% 102.4% -56.5% 87.0% -57.7% 21.1% Net margin -0.6% 2.4% 4.0% -0.5% 3.4% 1.1% 2.8% -5.4% -2.1% 3.5% 1.0% 2.3% 1.0% 1.6% 0.8% 1.0% -5.5pp +2.4pp -1.2pp KFC directly operated store sales YoY -5.3% 0.1% 3.0% -5.0% 4.4% -0.9% - - - - -2.4% 1.6% 1.3% -1.5% -0.0% 1.8% Store count (year end) 1,148 1,152 1,154 1,149 1,150 1,153 1,157 1,153 1,147 1,146 1,152 1,153 1,146 1,149 1,153 1,159 -3 -7 -7 Directly operated 324 326 323 329 319 324 323 319 326 329 315 Franchised 828 823 830 824 827 828 830 827 823 824 844 Openings 7 8 4 6 5 11 8 7 5 10 15 16 15 25 31 31 48.4% - -1 -1 Directly operated 2 2 2 2 2 3 6 4 5 13 8 - - 1 1 Franchised 3 9 6 5 3 7 9 12 10 12 23 - - -2 -2 Closures -3 -4 -2 -11 -4 -8 -4 -11 -11 -11 -20 -27 -25 - -7 -3 - Directly operated -7 -10 - Franchised -13 -17 - Renovations 37 46 51 85 18 16 48 83 34 102 219 119 28.6% -19 -30 -49 Directly operated 9 17 12 13 5 2 25 26 7 53 51 19 36.8% -4 -15 -19 Franchised 28 29 39 72 13 14 23 57 27 49 168 100 27.0% -15 -15 -30 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Revenues and operating profit tend to peak in Q3, which includes Christmas. Note: As of Q1 FY03/19, KFC consists of a single segment and segment information disclosures have been omitted accordingly.

09/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

1H FY03/19 results (out on November 7, 2018)

1H: Revenues at existing stores up 1.9%, and operating profit was JPY500mn. Sales promotions and marketing initiatives were ▷ successful in Q2, leading to increased customer count and revenues in the quarter

 Quarterly results: Significant improvement in Q2 (revenues up 10%, operating profit of JPY1.0bn) compared to Q1 (revenues down 19%, operating loss of JPY500mn)

 KFC business: Excluding impact from the sale of the Pizza Hut business, revenue increased by JPY934mn and operating profit increased by JPY357mn

 Existing stores: On the whole, sales rose by 1.9% in 1H, after a 4.9% decline in Q1. The customer count and average customer spending for each month were both higher in Q2 FY03/19 than in Q2 FY03/18 Initiatives: The JPY500 lunch menu captured demand for weekday lunch and contributed to increases in the frequency of store ▷ visits and customer count.

 Marketing: Shift to marketing that promotes everyday consumption, effective two-layer structure that interlocked product campaigns with value promotions

 Success of the associated JPY500 lunch promotion (from July 23 to September 5), produced recovery in revenue at existing locations by raising the standard number of customers during lunchtime hours

 Product offerings: Third variety of chicken “hot and spicy chicken” debuted in April; seasonal menu item “red hot chicken” launched in July

 Interlocked the Wednesdays-only JPY1,500 9-piece bucket campaign with the JPY500 lunch value promotion. The company also plans to commit to the same strategy of interlocking campaigns during 2H Single KFC segment as of Q1 FY03/19; segment information disclosures omitted accordingly ▷ Medium-term plan: KFC Holdings Japan announced its medium-term management plan in September 2018. Through this plan, ▷ the company is aiming for revenues of JPY75.0bn, operating profit of JPY2.4bn, and net income attributable to parent company shareholders of JPY1.6bn in FY03/21

Quarterly performance

(JPYbn) (JPYbn) Revenues YoY (left axis) Operating profit OPM (left axis) 15% 32 8% 2.0 1.7 10% 26.0 28 1.4 25.2 6% 1.5 23.5 24.2 22.4 22.5 5% 24 1.0 20.8 21.2 20.6 20.9 1.0 0.9 20.1 20.420.0 20.3 19.7 0.9 0.9 0.9 19.0 18.8 19.2 19.0 4% 1.0 0% 17.9 20 0.5 15.715.4 0.5 -5% 16 2% 0.3 0.2 0.5 -10% 12 0.0 0.0 0% 0.0 -15% 8 -0.1 -0.1 -0.1 -0.1 -2% -0.4 -0.3 -0.5 -20% 4 -0.5 -0.5 -25% 0 -4% -1.0 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Source: Shared Research based on company data

Results overview In 1H FY03/19, revenues were JPY35.1bn (down JPY1.8bn, -4.8% YoY), and operating profit was JPY485mn (+JPY358mn YoY), with revenues falling and profits rising for the half, cumulatively. However, excluding impact from the sale of the Pizza Hut business, revenues increased by JPY934mn (+2.7% YoY), GPM rose by 3.6pp, and operating profit climbed by JPY357mn (2.8 times higher YoY), which are all results worthy of noting. The company revised its promotional campaign calendar at the beginning of FY03/19 and found success with a two-layer structure that interlocked product campaigns with value promotions. In particular, the JPY500 lunch promotion greatly increased standard customer numbers and sales during lunch hours, which led to a recovery in revenue at existing locations.

10/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Net income attributable to parent company shareholders was JPY367mn (JPY477mn decline YoY), as the company recorded JPY1.4bn in gains from the sale of subsidiaries in FY03/18. However, excluding impact from the sale of the Pizza Hut business, profit increased by JPY258mn.

In Q1, comparable store sales at directly operated locations and average sales per store at all stores declined YoY every month, but Q2 saw a major turnaround, with increases of both figures recovering each month; comparable store sales at directly operated locations increased 1.9% in 1H (customer count declined by 1.1%, and average customer spending rose by 3.0%), and average system sales increased by 2.8%, showing recovery from the Q1 slump. Thanks to promotions such as the JPY500 lunch menu (from July 23 to September 5) and marketing focusing on everyday consumption, it seems that the decline in customer count has been put to a halt (4.8% increase for July, 9.0% increase for August, 1.0% increase for September), which is a point worthy of attention. The company appears to have secured new clientele in addition to bringing back members of their core customer base. These core base members make highly frequent purchases, and the company noted a recovery in their numbers during October. In addition to promotional campaigns, the company also benefitted from contributions from its KFC mileage program, which began in March 2018 (the related app was downloaded more than 10mn times as of end-August 2018).

GPM also rose YoY, when excluding impact from the sale of the Pizza Hut business, and improved slightly in Q2 compared to Q1. The company is enhancing its management of SG&A expenses, and labor costs, which had been an unresolved issue, fell YoY. Employee numbers increased overall but the company was apparently able to curtail labor costs primarily through more efficient use of its part-time staff. Shared Research will follow this trend to see if it continues in Q3. Expenses related to renovations also abated due to renovation numbers that were below forecasts and lower than they were in FY03/18.

It has revised its segments, paring down the original KFC, Pizza Hut, and Other segments to a single KFC segment as of Q1 FY03/19. Accordingly, segment information disclosures have been omitted.

Progress with initiatives launched in FY03/19 In FY03/19, the company is proceeding with companywide efforts to secure new customers. Specifically, with the aim of promoting everyday consumption under its communication and brand strengthening measures, the company is working on overhauling its marketing strategy, strengthening delivery services, and promoting product development. The company restructured the department in charge of marketing in April 2018. Further, it completely revised the content and timing of promotions, and plans to launch highly effective promotions extensively upon carefully choosing the timing of launch. As mentioned previously, these measures were particularly effective in Q2. Progress with each initiative is outlined below.

Marketing KFC Holdings Japan revised its FY03/19 promotional campaign calendar and rolled out value promotions that interlocked with product campaigns (two-layer structure). The company is also strengthening its delivery service. As promotional campaigns began to have a positive effect in Q2, the company expanded its delivery service to include 159 out of 1,146 locations (14%) by end-Q2.

The company implemented the following initiatives in Q1:

Product campaign: Hot and spicy chicken (on sale April 19) ▷ Value promotions: The Wednesdays-only “9-piece bucket for JPY1,500,” which ran from May 9 through June 27, proved ▷ popular Delivery: Offered at 138 locations (43 of which participate in UberEats) ▷ The Wednesdays-only promotion was popular and brought in strong results on targeted Wednesdays, but it had limited effect on other days. Further, the share of stores offering delivery services gradually increased to make up about 12% of 1,147 total stores, contributing to growth in comparable store sales. From Q2 onward, the company had been proceeding with initiatives aimed at expanding delivery services centered on high-demand areas, such as the Greater Tokyo and Kansai regions. Further, it had been gradually expanding the service to regional cities.

11/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

The company implemented the following initiatives in Q2:

Product campaign: Red hot chicken, a signature seasonal product, sold from July 5 to August 15 ▷

Value promotions: The JPY500 lunch menu from July 23 to September 5; 30%-off bucket from September 6 to September 26 ▷ (simultaneously introduced two types of Tsukimi Sandwich) Promoting everyday consumption: from the beginning of FY03/19, the company changed its slogan from “Nothing like KFC for ▷ a special day” to “Let’s have KFC today” with an aim of promoting everyday consumption rather than occasional consumption on special occasions. In conjunction with this shift, the company implemented a JPY500 lunch promotion. The JPY500 lunch appears to have enabled the company to capture demand for weekday lunches, leading to acquisition of new customers and increased usage frequency, as shown in the Q2 customer count increase. Average customer spending increased YoY (as it did in Q1 FY03/19), and increased revenues compensated for the decline in GPM, which had been a point of concern (GPM for the KFC business rose YoY in 1H). As of end-Q2, 159 locations (69 of which participate in UberEats) offered delivery services and the company forecasts further expansion in 2H.

Q3 is an important quarter that includes December, the month that attracts the highest levels of demand. As previously announced, KFC Holdings Japan began its pre-Christmas sales strategy on November 22 by selling small premium bowls, which are decorated with 2018 limited-edition designs featuring Moomin characters, along with its red hot chicken and chicken cream pot pie, both signature seasonal products. The company began taking reservations for its Christmas campaign on November 1 and will offer a limited-time Christmas menu, which includes the company’s signature Christmas party barrel, for five days (December 21–25). The weekend closest to Christmas Day 2018 will be a three-day holiday spanning from Saturday, December 22 to Monday, December 24. This stands in contrast to the typical two-day weekend of 2017 (Saturday, December 23 and Sunday, December 24). As in 2017, Christmas Day 2018 will be a weekday, but the long weekend is noteworthy.

KFC business monthly sales

All stores Directly operated comp. stores Customer count Customer spend 25% 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% -5% -5% -10% -10% -15% -15% Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Source: Shared Research based on company data

Regarding the number of locations, there were 15 new store openings (five directly operated restaurants, ten franchises) and 34 renovations (seven directly operated, 27 franchises). The company is still targeting 31 store openings in FY03/19, as well as 119 store renovations. The company apparently intends to promote store renovations as it continues to consider store locations and customer base. Despite these goals, the company faces a high possibility of not meeting these targets when considering 1H results. KFC Holdings Japan appears to be making steady progress in converting directly operated restaurants to franchise stores (booked extraordinary gains on store transfers of JPY57mn in Q1 and JPY113mn in Q2).

FY03/19 forecast Results appeared as if they would fall short of full-year forecasts at the end of Q1 but recovered in Q2, recording a strong overall finish in 1H. Q3 typically entails a large seasonal contribution to results in the KFC business (FY03/18 consolidated operating profit/loss was -JPY109mn in Q1, +JPY236mn in Q2, +JPY876mn in Q3, and -JPY526mn in Q4, recording profit only in Q2 and Q3). For this reason, initiatives in December, the highest period of demand throughout the year, are important. Apparently, the

12/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

company will not proceed with the same Q3 campaigns from FY03/18 but will instead pursue a new hook with brand-enhancing television advertisements featuring Mitsuki Takahata, a famous young actress (previously, the company had not been airing advertisements that prominently featured celebrities). The company appears as if it will continue to review measures aimed at raising standard levels of demand during certain times of day in 2H. Shared Research will monitor the company’s response during Q3, its highest period of demand, and Q4, its lowest.

The new location at LaLaport NAGOYA minato AQULS shopping center, which opened on September 28, 2018, is performing favorably. Shared Research anticipates that these new store openings and other initiatives geared toward raising standard levels of demand outside of lunch hours will contribute positively to results moving forward.

Product strategy (for reference: as of Q1 FY03/19) Looking at product offerings, sales of “hot and spicy chicken,” a third variety of chicken and number one seller in the Asia region, began on April 19. Comparable store sales at directly operated locations fell YoY (April -5.5%, May -4.2%, June -2.7%, cumulative Q1 -4.9%; foot traffic -8.3%; average customer spend +3.8%). It seems that even the company found it difficult to deem the strategy successful.

Outlook for Q2 FY03/19 and beyond and full-year FY03/19 (for reference: as of Q1 FY03/19) Red hot chicken contributes to revenue growth As conditions in Q2 differed from those in Q1, the company posted strong performance for the first half of Q2 (July to the first half of August). In addition to the effects of marketing strategy overhaul, initiatives geared toward improving product offerings seemed to be making steady progress. In specific, the company began sales of its signature seasonal product red hot chicken from July 5 through August 15 and JPY500 lunch menu from July 23 through September 5; both have been well-received. In July, revenue increased 7.6% (customer count, +4.8%; spend per customer, +2.7%), an increase for the first time in ten months since September 2017, with customer counts reaching high level in the last five years. The positive momentum of July continued through the first half of August. The company began selling red hot chicken from June 22 in 2017, and the difference in launch timing seemed to have affected YoY performance in Q1.

JPY500 lunch menu succeeded in promoting everyday consumption From FY03/19, the company changed its slogan from “Nothing like KFC for a special day” to “Let’s have KFC today” with an aim of promoting everyday consumption instead of for special occasions only. With the new slogan, JPY500 lunch menu were launched to encourage customers to have KFC on regular days. The launch of JPY500 lunch menu enabled the company to capture demand for weekday lunches that it had overlooked, leading to acquisition of new customers and increased usage frequency, which in turn contributed to an increase in customer count. The growth in customer count compensated for declines in spend per customer and GPM. The momentum seen in July continued in early August, but the company does not plan on extending the JPY500 lunch menu promotion. From September onward, upon carefully choosing the timing of promotions, the company plans to extensively introduce highly effective promotions centered on those well-received in the past.

Keeping an eye on 2H promotions and their effectiveness The company is working to reduce costs by cutting down advertising expenses. As a result of such efforts, costs are falling by a greater extent than initially planned; Shared Research expects to see positive results on the costs front in Q2. Further, it would be worth noting what kind of promotions the company would launch during the pre-Christmas period at end-October and typically sluggish Q4 to achieve its full-year targets. The company is making steady progress in its capital and business alliance with BYO.

Medium-term management plan On September 12, 2018, the company unveiled its “Toward Our 50th Anniversary” medium-term management plan, which calls for FY03/21 revenues of JPY75.0bn, operating profit of JPY2.4bn, OPM of 3.2%, and net income of JPY1.6bn. The plan factors in new M&A activity in Japan and overseas, and targets 2,000 restaurants across the group over the medium to long term. An overview of the plan is shown below.

13/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Japan KFC Holdings Under its corporate philosophy of “creating delicious meals and happiness,” the company will establish a structure focused on the mainstay KFC business, and aims to become a comprehensive food services group by building up its portfolio through new M&A deals. The key themes of the medium-term management plan are the development of a structure to support all businesses and business expansion through M&A activity.

Development of a structure to support all businesses

Business expansion through M&A activity

operates several Japanese-food restaurant brands such as washoku sake EN, Obon de Gohan Pursue new M&A deals: 1) strengthen foundation in Japan: invest in food-related businesses in which KFC Holdings Japan can ▷ leverage its strengths (expertise in operating restaurant chains, franchise network), attract premium overseas brands to Japan; 2) make inroads in overseas growth markets: invest in brands (businesses) expected to become competitive forces in Asian and other growth markets, develop new businesses, and expand existing brands overseas Target 2,000 restaurants across the group over the medium to long term, factoring in business expansion through M&A ▷ activity (the company held 1,146 restaurants in the KFC business alone as of September 30, 2018)

KFC business

Customer orientation (focus on frontline operations)

3) moving into areas with demand through expansion of home delivery services and KFC Stations (takeout stands located inside train

14/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

stations).1H comparable store sales recovered, posting a 1.9% increase YoY as Q2 sales rallied back from their 4.9% decrease YoY in Q1. Behind these favorable Q2 results was the JPY500 lunch, which was adopted to encourage customers to visit restaurants daily and ran from July 23 to September 5. The company’s two-layer sales structure, which interlocked product campaigns, such as the red hot chicken campaign, with value promotions, effectively contributed to sales. Shared Research expects similar results moving forward.

To increase experiential value, KFC Holdings intends to foster customer loyalty through various initiatives. It will strengthen its digital strategy by revamping its KFC app (over 10mn downloads as of September 30, 2018) and expanding its mileage program. The company continues committing to high-quality “original-recipe chicken” and hospitality. It also plans to provide comfortable spaces (strategic remodeling) for customers by adopting a no-smoking policy for its restaurants (all seats) by March 2019, introducing digital signage, and installing separate counters (for order payment and pickup).

Supplementary data

GPM-related

(JPY/kg) (JPY/kg) Chicken breast meat (JPY/kg) GPM (right axis) Chicken breast meat (JPY/kg) GPM (right axis) 400 41% 350 42%

350 42% 300 43% 300 43% 43.0% 250 44.6% 44% 250 44% 45.0% 45.2% 200 45.3% 45% 200 45% 46.1% 46.3% 46.2% 150 46% 150 46% 100 47% 100 47% 50 48% 50 48%

- 49% - 49% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Source: Shared Research based on company data

Comparable store sales YoY (left) and average monthly sales for all stores (right)

Directly operated comp. stores Customer count Customer spend (JPYmn) FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 20% 14

15% 13

10% 12 11 5% 10 0% 9 -5% 8 -10% 7 -15% 6 Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Jul Oct Jan FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Source: Shared Research based on company data

Average monthly sales

(J PYmn) (J PYmn) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 14 14

13 13

12 12

11 11

10 10

9 9

8 8

7 7

6 6 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Source: Shared Research based on company data

For details on previous results, please refer to the Historical performance section.

15/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Full-year company forecasts

Income statement FY11/05 FY11/06 FY11/07 FY11/08 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Total revenues 77,667 80,579 84,900 86,762 124,815 88,823 88,124 85,864 83,436 84,605 88,180 88,032 73,457 73,000 YoY 5.4% 3.7% 5.4% 2.2% 43.9% -28.8% -0.8% -2.6% -2.8% 1.4% 4.2% -0.2% -16.6% -0.6% Cost of revenue 40,124 40,405 42,830 46,017 65,699 47,715 48,441 46,208 44,976 46,399 48,816 48,144 41,852 42,100 Cost ratio 51.7% 50.1% 50.4% 53.0% 52.6% 53.7% 55.0% 53.8% 53.9% 54.8% 55.4% 54.7% 57.0% 57.7% Gross profit 37,543 40,174 42,070 40,745 59,116 41,108 39,683 39,656 38,460 38,206 39,364 39,887 31,604 30,800 GPM 48.3% 49.9% 49.6% 47.0% 47.4% 46.3% 45.0% 46.2% 46.1% 45.2% 44.6% 45.3% 43.0% 42.2% SG&A expenses 35,293 37,309 39,236 39,627 53,862 37,576 37,293 37,261 36,638 37,536 37,352 37,328 31,127 29,800 YoY 2.8% 5.7% 5.2% 1.0% 35.9% -30.2% -0.8% -0.1% -1.7% 2.5% -0.5% -0.1% -16.6% -4.3% SG&A rat io 45.4% 46.3% 46.2% 45.7% 43.2% 42.3% 42.3% 43.4% 43.9% 44.4% 42.4% 42.4% 42.4% 40.8% Operating profit 2,249 2,865 2,833 1,117 5,253 3,531 2,390 2,395 1,822 670 2,011 2,558 477 1,000 YoY 71.9% 27.4% -1.1% -60.6% 370.3% -32.8% -32.3% 0.2% -23.9% -63.2% 200.1% 27.2% -81.4% 109.6% OPM 2.9% 3.6% 3.3% 1.3% 4.2% 4.0% 2.7% 2.8% 2.2% 0.8% 2.3% 2.9% 0.6% 1.4% Non-operating income 156 109 13 90 206 177 79 111 34 -3 -145 -133 150 100 Rents income 98 85 53 83 227 226 228 222 143 177 148 161 227 - Rents expenses ------108 99 73 145 161 169 184 - Other 58 24 -40 7 -21 -49 -41 -12 -36 -35 -132 -125 107 100 Recurring profit 2,405 2,974 2,846 1,207 5,459 3,708 2,469 2,506 1,856 667 1,866 2,425 627 1,100 YoY 64.2% 23.7% -4.3% -57.6% 352.3% -32.1% -33.4% 1.5% -25.9% -64.1% 179.8% 30.0% -74.1% 75.4% RPM 3.1% 3.7% 3.4% 1.4% 4.4% 4.2% 2.8% 2.9% 2.2% 0.8% 2.1% 2.8% 0.9% 1.5% Extraordinary gains (losses) -239 -458 -207 -87 -584 -596 26 -164 -588 -512 -391 -96 840 - Income taxes 1,053 1,305 1,258 636 2,305 1,220 1,392 1,138 826 680 744 964 889 - Implied t ax rat e 48.6% 51.9% 47.7% 56.8% 47.3% 39.2% 55.8% 48.6% 65.1% 438.7% 50.4% 41.4% 60.6% - Net income attributable to parent company shareholders 1,112 1,211 1,382 483 2,570 1,891 1,102 1,203 441 -524 730 1,365 578 700 YoY - 8.9% 14.1% -65.1% 432.1% -26.4% -41.7% 9.2% -63.3% - - 87.0% -57.7% 21.1% Net margin 1.4% 1.5% 1.6% 0.6% 2.1% 2.1% 1.3% 1.4% 0.5% -0.6% 0.8% 1.6% 0.8% 1.0% Depreciat ion and amort izat ion 2,297 2,848 2,358 2,404 2,394 2,325 2,404 2,649 2,747 2,355 EBITDA 3,414 8,101 5,889 4,794 4,789 4,147 3,074 4,660 5,305 2,832 EBITDA margin 3.9% 6.5% 6.6% 5.4% 5.6% 5.0% 3.6% 5.3% 6.0% 3.9% KFC store count - - - - 1,180 1,171 1,155 1,144 1,149 1,153 1,159 Directly operated - - - - 329 329 330 316 326 329 315 Franchised - - - - 851 842 825 828 823 824 844 Openings - - - - - 33 26 15 25 31 31 Directly operated - - - - - 14 11 5 13 8 - Franchised - - - - - 19 15 10 12 23 - Closures ------42 -42 -26 -20 -27 -25 Directly operated ------12 -14 -11 -7 -10 - Franchised ------30 -28 -15 -13 -17 - Renovations ------65 102 219 119 Directly operated ------23 53 51 19 Franchised ------42 49 168 100 Average monthly sales 8.49 8.05 7.75 8.05 8.66 8.55 8.40 Directly operated 9.21 8.86 8.60 8.91 9.79 9.72 9.61 Franchised 8.21 7.75 7.45 7.74 8.26 8.15 7.99 YoY -5.2% -3.7% 3.8% 7.6% -1.3% -1.7% Directly operated -3.8% -2.9% 3.6% 9.9% -0.7% -1.2% Franchised -5.6% -3.9% 4.0% 6.6% -1.3% -2.0% All st ores 5.7% -2.6% -5.0% -3.3% 3.5% 7.4% -0.9% -1.7% - Directly operated comp. stores 4.2% -3.5% -4.1% -3.4% 2.9% 8.8% -0.8% -1.4% 4.9% Customer count 3.7% -2.5% -1.5% -4.0% 0.2% 1.6% -2.5% -4.2% - Customer spend 0.5% -0.9% -2.7% 0.6% 2.6% 7.1% 1.7% 3.0% - Performance by segment FY11/05 FY11/06 FY11/07 FY11/08 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Total revenues 77,667 80,579 84,900 86,762 124,815 88,823 88,124 85,864 83,436 84,605 88,180 88,032 73,457 73,000 KFC 64,566 68,410 69,251 67,381 Pizza Hut 15,525 15,425 14,922 2,721 Other 12,038 12,393 11,654 9,967 KFC (old segment) 60,496 61,202 63,708 67,339 98,615 72,521 71,544 69,199 67,056 68,016 Pizza Hut (old segment ) 17,171 19,376 21,192 19,423 25,913 15,850 16,086 16,126 15,890 15,900 Other (old segment) - - - - 285 450 493 538 489 689 YoY 5.4% 3.7% 5.4% 2.2% 43.9% -28.8% -0.8% -2.6% -2.8% 1.4% 4.2% -0.2% -16.6% KFC 6.0% 1.2% -2.7% Pizza Hut -0.6% -3.3% -81.8% Other 2.9% -6.0% -14.5% KFC (old segment) 5.1% 1.2% 4.1% 5.7% 46.4% -26.5% -1.3% -3.3% -3.1% 1.4% Pizza Hut (old segment ) 6.6% 12.8% 9.4% -8.3% 33.4% -38.8% 1.5% 0.2% -1.5% 0.1% Other (old segment) 57.9% 9.6% 9.1% -9.1% 40.9% Operating profit 2,249 2,865 2,833 1,117 5,253 3,531 2,390 2,395 1,822 670 2,011 2,558 477 KFC 1,849 2,020 1,539 -499 Pizza Hut -1,477 -351 153 -0 Other 697 239 913 882 Adjustments -399 102 -49 94 KFC (old segment) 3,089 3,268 3,014 1,960 10,355 7,493 6,213 6,595 6,221 6,026 Pizza Hut (old segment ) -839 -402 -180 -842 771 -33 57 -2 -36 -1,164 Other (old segment) - - - - -194 -158 -71 -73 -133 -266 Company-wide expenses (old segment) -5,679 -3,769 -3,809 -4,124 -4,229 -3,925 YoY 71.9% 27.4% -1.1% -60.6% 370.3% -32.8% -32.3% 0.2% -23.9% -63.2% 200.1% 27.2% -81.4% KFC 9.2% -23.8% - Pizza Hut - - - Other -65.7% 282.0% -3.4% KFC (old segment) 58.7% 5.8% -7.8% -35.0% - -27.6% -17.1% 6.1% -5.7% -3.1% Pizza Hut (old segment ) ------Other (old segment) ------OPM (excl. adjustments) 2.9% 3.6% 3.3% 1.3% 4.2% 4.0% 2.7% 2.8% 2.2% 0.8% 2.3% 2.9% 0.6% KFC 2.9% 3.0% 2.2% -0.7% Pizza Hut -9.5% -2.3% 1.0% -0.0% Other 5.8% 1.9% 7.8% 8.8% KFC (old segment) 5.1% 5.3% 4.7% 2.9% 10.5% 10.3% 8.7% 9.5% 9.3% 8.9% Pizza Hut (old segment ) -4.9% -2.1% -0.8% -4.3% 3.0% -0.2% 0.4% -0.0% -0.2% -7.3% Other (old segment) -68.1% -35.1% -14.4% -13.6% -27.2% -38.6% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

16/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Company forecasts for FY03/19 (out May 9, 2018; initial plan)

For FY03/19, the company forecasts revenues of JPY73.0bn (-0.6% YoY), operating profit of JPY1.0bn (2.1x YoY), recurring profit of JPY1.1bn (+75.4% YoY), and net income of JPY700mn (+21.1% YoY). Excluding the impact of the sale of the Pizza Hut business, this represents a 3.2% increase in revenues, effectively meaning forecasts for both higher revenues and higher profits.

Earnings (KFC business)

KFC Other Pizza Hut Adjustments KFC Other Pizza Hut Adjustments Operating profit OPM 100 4.0% 88.8 88.1 85.9 88.2 88.0 90 83.4 84.6 8,000 4% 2.9% 2.7% 2.8% 80 73.5 73.0 6,000 3% 12.4 11.7 2.2% 2.3% 0.5 0.5 12.0 10.0 70 0.5 0.5 4,000 7,493 1.4% 2% 60 6,213 6,595 6,221 0.8% 50 2,000 0.6% 1% 40 1,849 2,020 1,539 72.5 71.5 69.2 67.1 68.4 69.3 67.4 0 0% 30 64.6 -499 20 -2,000 -1% 10 -4,000 -2% 0 -7.5 -8.0 -7.8 -6.6 -10 -6,000 -3% FY03/11 FY03/13 FY03/15 FY03/17 FY03/19 FY03/11 FY03/13 FY03/15 FY03/17 FY03/19 (JPYbn) Est. (JPYmn) Est.

KFC business: Comparable store sales growth (left), average sales per store (right)

(JPYmn) Directly operated comp. stores Customer count Customer spend FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 20% 14

15% 13 12 10% 11 5% 10 0% 9 -5% 8

-10% 7

-15% 6 Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Jul Oct Jan FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Source: Shared Research based on company data Business environment and FY03/19 initiatives The following factors are of particular concern in regard to the business environment in which the company operates: (1) Declining birthrate, aging population, and increase in the number of small households (2) Growing interest in food safety (3) Digitization (4) Drastic changes in the labor market

In particular, in regard to FY03/18 performance, (1) affected revenues and (4) affected costs. The company’s customer base centers on families buying takeout, but there are fewer and fewer such families as the number of one- or two-person households increases. There is also growing competition in the prepared meals market, where convenience stores, supermarkets, and boxed lunch shops have now been joined by drugstores and discount stores. With the increase in choices available to consumers, it is all the more important to get them to recall and choose KFC over other possible choices.

Delivery and proxy delivery Given this environment, in FY03/19 the company plans to grow its customer base by revising its market strategy and strengthening the development of delivery and proxy delivery services, for which there has been growing demand. As of end May 2018, it already had about 120 stores with delivery services (of which 28 use proxy delivery), but looks to double that

17/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

number during FY03/19. In addition to its own delivery service, the company plans to actively use proxy delivery and home delivery services (for example, Demae-can) via smartphone, which ties in with its digital strategy.

22 stores in Greater Tokyo had adopted proxy delivery as of May 2017, with another six adopting the service in Osaka from April 2018. KFC plans to have more stores use proxy delivery, primarily in high-demand regions. There is concern of the impact this may have on comparable stores, but Shared Research understands that KFC plans to accelerate the rollout through a process of trial and error, and the company expects results at a relatively low cost, since the companies with which it partners for proxy delivery also conduct advertising. The impact on overall expenses therefore appears to be minor.

Marketing The company transformed its marketing team in April 2018. It plans to revise the content and scheduling of events, focusing on those promotions that prove the most effective. The first such promotion was launched on May 9, 2018 (continuing through June 27), with a 9-piece bucket at JPY1,500 only on Wednesdays. Ordinarily an 8-piece bucket goes for JPY1,960 and a 10-piece bucket for JPY2,450, so the special price gives customers a genuine feeling they are getting a bargain. The company is also conducting initiatives to increase the customer spend, such as providing purchasers of buckets with a side menu at the special price of JPY500. The effect of this promotion is not yet clear, but KFC expects to contribute to an increase in comparable store sales with a variety of new campaigns.

Drastic changes in the labor market In FY03/18, higher ingredient prices pushed the GPM 2.3pp lower YoY and rising labor costs brought on by the labor shortage pushed SG&A expenses higher. In FY03/19, the company is taking measures to improve the profitability of some products to improve the GPM. By improving operational efficiency and increasing revenues, it also aims to lower the SG&A-to-revenues ratio.

In terms of hiring, although the labor shortage does not appear to be worsening at present, to prepare for the future the company plans to implement measures to secure personnel based on the concept of a “people company.” Specific measures include a geographically confined employee system, a comeback system (to get former employees to return), effective recruitment of part-timers (blanket hiring by head office and use of a call center to take applications), and enhancement of the part-timer introduction system.

Tokyo broiler wholesale prices

(JPY/kg) (JPY/kg) Chicken breast meat (JPY/kg) GPM (right axis) Chicken breast meat (JPY/kg) GPM (right axis) 400 41% 350 42%

350 42% 300 43% 300 43% 43.0% 250 44.6% 44% 250 44% 45.0% 45.2% 200 45.3% 45% 200 45% 46.2% 46.1% 150 46.3% 46% 150 46% 100 47% 100 47%

50 48% 50 48%

- 49% - 49% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Shared Research based on Ministry of Agriculture, Forestry and Fisheries data

18/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

SG&A expenses

(JPYbn) Personnel-related Rents Advertising Depreciation and amortization Other Personnel Rents Advertising Dep. And amortization Other SG&A expenses 37.6 25% 50% 40 37.3 37.3 36.6 37.5 37.4 37.3 43.4% 43.9% 44.4% 42.3% 42.3% 42.4% 42.4% 45% 35 31.1 18.7% 19.3% 10.4 20% 18.2% 18.5% 18.5% 40% 10.5 10.6 10.4 10.9 11.0 11.2 17.8% 17.9% 30 35% 2.3 2.2 2.2 2.2 2.3 2.3 2.4 25 15% 12.9% 30% 3.8 12.3% 12.5% 12.4% 12.7% 4.2 4.4 3.8 4.6 4.3 3.7 11.7% 11.9% 25% 20 4.4 4.3 4.3 4.2 4.2 4.1 4.3 10% 20% 15 5.4% 15% 4.8% 5.1% 4.8% 10 4.3% 4.5% 4.2% 16.7 16.0 15.9 16.1 15.6 15.7 15.8 5% 10% 5.0% 4.9% 5.0% 5.0% 4.9% 5 4.7% 4.9% 5% 2.6% 2.5% 2.6% 2.6% 2.7% 2.6% 2.7% 0 0% 0% FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18

Store development In addition, the company plans to have 1,159 stores (with fewer directly operated restaurants and more franchises) by end-FY03/19, a net increase of six (31 openings and 25 closings), with 119 renovations. It aims to increase comparable store sales by 4.9% primarily through a recovery in customer count.

The hurdle is high for the comparable store sales target, but the company expects the effects of new marketing measures and the steady progress of stores using proxy delivery (about 120 as of end May 2018) to accumulate toward 2H. It will be worth watching M&A initiatives as well. Risk factors include more expensive ingredients, rising labor costs, and competition in the prepared meals market (about 70% of store sales are from takeout).

Toward long-term growth After the sale of the Pizza Hut business in FY03/18, the company is working to revise its medium-term management plan. The details are currently unclear, so Shared Research plans to provide an overview once the announcement is made.

However, the company says that, in anticipation of how it envisions itself in 2020 and what the business environment is expected to be, it will continue looking into M&A and business alliances as part of its growth strategy. Specifically, the company will work on the following: 1) Strengthening domestic base: Leveraging its expertise in running restaurant chains and its franchising base to actively invest in food businesses; 2) Efforts in overseas growth markets: Tapping into new markets through brands (companies) that have a competitive edge; and 3) Overseas rollout of existing brands.

The following is a simple overview of overseas business and M&A and alliances.

Overseas business In August 2016, the company established the investment holding company Fast Restaurant International Pte. Ltd. (FRI) in Singapore, and its first foray overseas was when it began to participate in the KFC business in Thailand through FRI. This project involved investing in Bamboo (Thailand) Holding Pte. Ltd., a holding company of an operating company that operates part of KFC restaurants in Thailand. The company also injected capital into Restaurants Development Co., Ltd. (RDCL), which as of end March 2018 operates 145 stores mainly in greater Bangkok and southern Thailand. There are more than 600 KFC stores in Thailand (well ahead of McDonald’s with 240 stores as of end December 2017 and Starbucks with 321) and KFC enjoys excellent brand recognition as a fast food store operator. Although there will be no direct contribution to the company’s operating profit, RDCL plans a net increase of 35 stores in 2018, to reach a total of 180. It is also considering expanding into neighboring Laos, Cambodia, and Myanmar.

Capital and business alliance with BYO On February 23, 2018, the company announced a capital and business alliance with restaurant operator BYO Co., Ltd. Details follow.

19/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

the same business philosophy that focuses on hand-made products using selected ingredients, and provision of food that is enriching. The two companies decided to enter into a capital and business alliance thinking that the partnership will allow them to create new business opportunities and generate synergies that would increase the corporate value of both companies in the medium to long-term. As stated in the new medium-term plan “Building the Future 2017” (announced in 2015), KFC Holdings considers M&A and business alliances as one of its growth strategies and intends to achieve further growth through such initiatives.

Overview of the capital and business alliance KFC Holdings plans to acquire a certain amount of BYO common shares from existing shareholders. At the same time, it plans to subscribe to the shares newly issued by BYO through third party allocation (25% of voting rights). Details of the business alliance will be discussed between the two companies going forward.

20/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Outlook

The following comments were based on the company’s medium-term management plan – Building the Future 2017 – released on August 7, 2015. The company explains that it may revise the medium-term plan in light of the planned sale of Pizza Hut announced in May 2017.

Medium- to long-term targets

In 2020, when KFC Japan marks its 50th anniversary, it aims to have 2,000 KFC and Pizza Hut stores (+32.3% versus 1,512 as of March 31, 2016) and system sales of JPY200bn (+42.9% versus JPY139.9bn). In April 2014, KFC Japan adopted a holding company structure. By separating group management and oversight from business execution, the roles and responsibilities of the holding company and group companies have been clarified, streamlining business execution.

Medium-term plan

The company has a three-year medium-term plan started in August 2015. In FY03/18, the last year of the plan, targets are for system sales (directly operated plus franchise store sales) of JPY150bn (average annual growth of 3.9%). It also targets total revenues (directly operated store sales plus licensing fee revenues) of JPY96.0bn (average annual growth of 4.3%) and operating profit of JPY3.6bn (75.1%). The key themes in the medium-term plan are on personnel, improved profitability, and growth.

FY03/17 targets Average (JPYmn) Initial medium-term plan targets annual growth

FY03/15 FY03/16 FY03/17CE FY03/16CE FY03/17CE FY03/18CE (FY03/15-FY03/18 ） System sales 133,842 139,935 145,676 140,000 145,000 150,000 3.9%

Number of stores 1,523 1,512 1,546 1,563 1,599 1,637 -

Revenues 84,605 88,180 92,000 90,000 93,000 96,000 4.3%

Operating profit 670 2,011 2,500 1,500 2,500 3,600 75.1%

OPM 0.8% 2.3% 2.7% 1.7% 2.7% 3.8 - ％ Recurring profit -524 730 1,300 600 1,300 2,000 - Source: Shared Research based on company data Personnel strategy The company is focusing on building inviting restaurants. On April 1, 2015, it established a Communication Division to connect customers and employees and facilitate the creation of restaurants that are welcoming, appealing, and positive for customers. At the same time, the strategy aims to create stores that employees consider fun and can confidently recommend to friends and family.

Specific plans of the personnel strategy:

Promote the participation of women. In the KFC business, women are the key customer segment (70% of customers), and in ◤ order to meet their needs the company aims to create an organization that can reflect the ideas of female employees.

Increase the employment of women and seniors. ◤ Revamp systems such as implementing measures that improve restaurant hospitality and repositioning toward smaller ◤ operating areas to support closer ties between stores and the community. Roll out planning and public relations initiatives that improve internal information sharing.

One initiative to obtain personnel for future restaurant openings is a shift from individual stores hiring part-time and temporary workers to the head office overseeing all hiring. This reduces the burden on individual stores and enables working patterns (more flexible working hours) that make it easier for homemakers and seniors to work.

21/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Strategy to improve profitability After peaking at 4.0% in FY03/11 (excluding 4.2% in the 16-month period of FY03/10), KFC Holdings Japan’s OPM slumped to 0.8% in FY03/15. The company aims to extend the headquarter functions of the holding company by consolidating and streamlining each group company’s shared operations, while optimizing operations from the customer’s view. To control head office personnel expenses, the company plans to increase labor productivity by improving employee training. It also aims to reduce head office management costs by sharing IT infrastructure among group companies.

Growth strategy To meet its target of 2,000 stores by 2020 and system sales of JPY200bn, the company is considering the following three M&A and alliance options. 1) Consider food businesses that could support domestic operations and leverage the company’s expertise in running restaurant chains. 2) In overseas growth markets, tap into new markets through brands (companies) that have a competitive edge. 3) Consider overseas rollout of existing KFC brand (expand outside Japan with approval of Yum! Brands).

In August 2016, the company established the holding company Fast Restaurant International Pte. Ltd. (FRI) to invest in the restaurant industry in Southeast Asia. The company’s first foray overseas was in August 2016, when it began to participate in the KFC business in Thailand through FRI. The company said it would utilize the knowledge and expertise gained over 45+ years of operating KFC in Japan to grow the KFC business Thailand, a promising market. The company intends to actively tap into new markets by investing overseas through FRI.

Targets by segment KFC business (Kentucky Fried Chicken Japan Limited) The company plans to grow year-end restaurant count from 1,155 in FY03/15 to 1,234 in FY03/18, and system sales from JPY109.9bn to JPY122.5bn.

Targets for KFC business in FY03/18

（Number of stores）（JPYmn） KFC system sales KFC: number of stores (year-end) 125,000 1,260 122,500 1,240 120,000 1,234 1,220 119,778 1,200 115,000 116,943 1,180 115,487 1,171 116,150 1,180 1,155 1,161 1,150 1,144 1,160 110,000 1,166 111,405 109,860 1,140 107,618 105,000 1,120 1,100 100,000 1,080 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17CE FY03/18CE Source: Shared Research based on company data

22/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Historical results vs. estimates

Results vs. Initial Est. FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. T ot al revenues (Init ial Est .) 90,000 92,000 89,100 85,000 90,000 92,000 77,400 Total revenues (Results) 88,124 85,864 83,436 84,605 88,180 88,032 73,457 Results vs. Initial Est. -2.1% -6.7% -6.4% -0.5% -2.0% -4.3% -5.1% Operat ing profit (Init ial Est .) 2,600 2,800 2,410 1,600 1,500 2,500 1,200 Operat ing profit (Result s) 2,390 2,395 1,822 670 2,011 2,558 477 Results vs. Initial Est. -8.1% -14.5% -24.4% -58.1% 34.1% 2.3% -60.3% Recurring profit (Init ial Est .) 2,700 2,900 2,550 1,700 1,600 2,400 1,000 Recurring profit (Result s) 2,469 2,506 1,856 667 1,866 2,425 627 Results vs. Initial Est. -8.6% -13.6% -27.2% -60.8% 16.6% 1.0% -37.3% Net income attributable to owners of parent (Initial Est.) 1,400 1,600 1,350 700 600 1,300 1,500 Net income attributable to owners of parent (Results) 1,102 1,203 441 -524 730 1,365 578 Results vs. Initial Est. -21.3% -24.8% -67.3% - 21.7% 5.0% -61.5% Source: Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

23/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Business Overview Under a franchise agreement with Yum! Brands Inc., KFC Holdings Japan operates KFC restaurants in Japan. It also acts as a franchisor for the KFC brand and earns royalties and other revenues.

Yum! Brands Inc. Yum! Brands Inc. is a major global fast food chain operator, with the restaurant brands including Kentucky Fried Chicken (KFC), Pizza Hut, and Taco Bell. The company was established via a spinoff from major soft drink manufacturer PepsiCo in 1997 (at that time the company name was Tricon Global Restaurants, Inc.). The KFC brand was acquired by PepsiCo Inc. in 1986 after a series of M&A deals following the sale of franchise rights by its founder, Colonel Harland Sanders in 1964.

Master franchises and sublicenses KFC Holdings Japan has both master franchisee and sublicense agreements. It is a master franchisee of KFC Restaurants Asia Pte Ltd. (member of the Yum Brands Inc. group). The company pays initial setup fees to the Yum! Brands group for opening restaurants, as well as renewal fees and ongoing royalties.

In turn, KFC Holdings Japan provides sublicensing rights to franchisees in Japan and receives initial setup payments when restaurants are opened, as well as renewal payments and ongoing royalties. (For details refer to discussion of business models for KFC).

Two layers of franchise agreements

Master franchise contract Sublicense contract

Master license agreement Sublicense agreement

Yum! Initial set-up fee Initial (store opening) fee Franchise KFC Holdings Brands, restaurants Japan, Ltd. Inc. Renewal fee Renewal fee

Continuing fee (royalty) Continuing fee (royalty)

Source: Shared Research based on company data

Since FY11/05 (excluding the 16-month period of FY03/10 due to a change in balance date), the company has received royalties of JPY1.8–2.0bn and paid royalties of JPY1.2–1.3bn annually, for steady net royalty revenues of JPY0.5–1.0bn.

Net royalty revenues

Royalt y FY11/05 FY11/06 FY11/07 FY11/08 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 (JPYmn) Par. Par. Par. Par. Par. Par. Par. Par. Par. Royalty received 2,153 2,063 2,042 1,931 2,639 1,958 1,889 1,812 1,761 Royalt y paid 1,186 1,270 1,364 1,333 1,858 1,303 1,280 1,268 1,291 Net royalty revenue 967 793 678 598 781 655 609 544 470 Source: Shared Research based on company data Note: FY03/10 was a 16-month period due to balance date change. Data not disclosed for FY03/15 onward.

In April 2014, KFC Holdings Japan moved to a holding company structure to maximize the corporate value of the group. Under the management of KFC Holdings Japan, restaurants are managed by Kentucky Fried Chicken Japan, Ltd. Advertising for each company is handled by K Ad, Ltd.

24/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Business organization

Yum! Brands, KFC Holdings Japan, ltd. Inc. group K Ad Ltd. (Contract advertising services) Kentucky Fried Chicken Grant sublicense; supply ingredients Japan Limited and materials Franchisees Provide food Grant master license Pay royalty; pay for ingredients Consumers KFC Restaurants Directly operated and materials Asia Pte. Ltd. stores Provide food

Pay royalty

K Foods Ltd. Provide food

Source: Shared Research based on company data

Japan’s restaurant market (dining out plus prepared meals) has shown steady annual average growth of 1.4% since 2010, due to the shift to nuclear families and increasing female participation in the labor force (Japan Food Service Association survey).

Yet total revenues for KFC Holdings Japan have trended sideways since FY03/11. Shared Research thinks this is because the company’s revenues tend to be affected by economic fluctuations rather than structural shifts in society. Revenues track the Total Cash Earnings Index published by the Ministry of Health, Labour and Welfare.

KFC Japan’s operating profit declined from a peak of JPY3.5bn in FY03/11 to JPY700mn in FY03/15 due to increases in ingredient and personnel costs, but recovered to JPY2.6bn in FY03/17 (+27.2% YoY) due to cost cutting in the Pizza Hut business. The company was able to generate steady operating profit and avoid losses despite tough operating conditions. This is partly due to its efforts to cut fixed costs by shifting the emphasis from directly operated restaurants to franchises.

Consolidated results

Revenues Operating profit

80,000 4,000

60,000 3,000

88,823 88,124 85,864 88,180 88,032 40,000 83,436 84,605 2,000 73,457

20,000 1,000

0 0 (JPYmn) FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Source: Shared Research based on company data Note: FY03/10 was a 16-month period due to balance date change.

Tokyo broiler wholesale prices

(JPY/kg) (JPY/kg) Chicken breast meat (JPY/kg) GPM (right axis) Chicken breast meat (JPY/kg) GPM (right axis) 400 41% 350 42%

350 42% 300 43% 300 43% 43.0% 250 44.6% 44% 250 44% 45.0% 45.2% 200 45.3% 45% 200 45% 46.2% 46.1% 150 46.3% 46% 150 46% 100 47% 100 47%

50 48% 50 48%

25/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

KFC business Business model Overview Under a holding company structure, Kentucky Fried Chicken Japan runs the KFC business. KFC had a 37% share of Japan’s fried chicken market in 2015 (worth nearly JPY120bn, according to the company). It had 329 directly operated restaurants primarily in Greater Tokyo, and 824 franchises mainly in regional areas as of end March 2018.

KFC revenue breakdown In FY03/17, the breakdown of the JPY69.3bn in KFC revenues before eliminations were directly operated restaurant sales, around 50%; revenues from providing ingredients and materials to franchisees, around 45%; and equipment rental revenues and franchise royalties from franchisee restaurants, around 5%.

Franchise agreement The master license agreement between the company and KFC Restaurants Asia Pte. Ltd. covers the following:

1) Use trademarks relating to the KFC business in restaurants.

2) Selling products using methods and trade secrets disclosed by the licensor that meet the licensor’s quality standards.

3) The above rights and conditions may be sublicensed to restaurants.

Compensation under the master franchise and sublicense agreements with franchisees is as shown below.

Compensation under franchise agreements in KFC business

Master franchise agreement Sublicense agreement

Initial (store opening) fee JPY1.5mn/store* JPY2.5mn/store*

Renewal fee Per store renewed Per store renewed July 11, 2004–November 30, 2014 JPY250,000 No charge December 1, 2014–November 30, 2019 JPY360,000 JPY180,000 December 1, 2019–November 30, 2024 JPY180,000 JPY180,000

Continuing fee Share of total sales Share of total sales July 11, 2004–November 30, 2005 2.3 4.0 ％％ December 1, 2005–November 30, 2011 +0.1pp p.a. from Dec. 1, 2005 4.0 ％ December 1, 2011–November 30, 2014 3.0 4.0 ％％ December 1, 2014–November 30, 2019 5.0 5.0 ％％ December 1, 2019–November 30, 2024 6.0 6.0 ％％ Store certification period For directly operated stores For franchise stores July 11, 2004–November 30, 2014 Seven-year contract period Two-year contract period December 1, 2014–November 30, 2019 Ten-year contract period Five-year contract period December 1, 2019–November 30, 2024 Five-year contract period Five-year contract period

Contributions for advertising Contributions of a minimum of 4% of total sales to the KFC Advertising Association, an organization formed by the company and franchisees, (outsourced to 100% subsidiary K Ad) to create nationwide ad campaigns Source: Shared Research based on company data Note: Adjusted for inflation starting from December 1, 2014 Note: Continuing fee under sublicense agreements (% share of total sales) includes portion retained by KFC Japan.

The approval of the master franchisor, Yum! Brands, is required for all aspects of franchise agreements including products, ingredients, restaurants, and equipment.

Mainstay product: “original chicken” KFC’s mainstay “original chicken” is made from chicken raised in Japan on feed mixed with herbs that mask certain chicken odors, and accounts for roughly 40% of KFC’s system sales (FY03/17).

Once a chick has hatched and has undergone a health check, the chicken is raised at one of 200 KFC-registered farms nationwide, which all meet strict standards for equipment, animal breeding methods, feed, and health management. The chickens are

26/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

slaughtered and cut into nine pieces using KFC’s original nine-cut method when they are 38–42 days old. They are slaughtered in the morning and shipped to individual stores on the same afternoon. KFC’s original nine-cut chicken cutting method Breast Wings Soft, drier meat. Ribs Thigh Breast Drumstick

Ribs Ribs

Wing Wing

Fuller flavor, high Thigh Thigh With a deep umami gelatin and fat content, flavor, even meat rich in collagen. surrounding the bone can be enjoyed.

Drum- Drum- High iron content, with a stick stick Both tender and firm. richer taste. Easy to hold, making it popular among children.

Source: Shared Research based on company data

Employees conduct further quality checks of the meat in the restaurants, assessing temperature, freshness, and whether any feathers remain, preparing only the chickens that meet stringent standards. “Original chicken” is prepared by staff accredited as “chicken specialists” under the company’s certification system.

Distribution chart for “original chicken” chickens

Direct delivery to stores KFC Factories Directly-operated registered accredited to Hatcheries stores and Consumers breeding produce KFC Chicken franchise stores farms cut chicken distribution centers

Number of farms: 200 Number of factories: 7 Number of centers: 10 Breeding period: 38–42 days (nationwide)

Hatching and selection Raise chicks feeding Ensure safety and quality Herb-fed chickens cut in the - Check temperature, freshness, cut Check the health of herbal raw materials maintenance based on the morning are shipped out in conditions, and weight chicks STAR standards the afternoon - Hand-cooked by staffs supervised by "Chicken Specialist" title holders Source: Shared Research based on company data

STAR (Supplier Tracking Assessment & Recognition) standards: Global food safety and quality management standards for KFC and Pizza Hut set by the US headquarters of Yum! Brands Inc. In Japan, factories accredited to produce KFC cut chicken must reach a certain level of STAR standards to fulfill the company’s safety and quality maintenance requirements. The standards cover a wide scope, including facility equipment, machinery, and surrounding environment, conditions, organization, and management structure.

Customer demographic Some 70% of KFC’s customers are women in their 30s through 50s. Around 70% of customers order takeout such as “original chicken” meals, and the remaining 30% dine in, ordering sets such as chicken fillet sandwiches or chicken cutlet sandwiches that come with a soft drink. Customers in their 40s and 50s are familiar with the taste of KFC since their younger days, and tend to be big KFC fans. Since 2013, when convenience stores entered the fried chicken market, it appears that customers in their 20s, who are more accustomed to convenience stores, have become less frequent at KFC. The company plans to capture this younger generation by opening KFC cafes and other new formats.

Spend per customer At directly operated restaurants in Greater Tokyo, average spend per customer is JPY900–1,000, whereas in regional areas it is JPY1,200–1,300. Average spend per customer is lower in Greater Tokyo due to the trend toward smaller, nuclear families. The

27/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

all-store average spend per customer figure is around JPY1,000. Around lunchtime, average spend is under JPY900 due to value sets of JPY500–700 featuring items such as chicken fillet sandwiches and chicken cutlet sandwiches. At dinnertime, many customers purchase larger meals such as “chicken buckets” to take home to their families for dinner, so average sales are JPY1,200–1,500. Although for most of the year average customer spend is JPY1,000, Q3 is the peak season for spend per customer and reaches nearly JPY1,200, as it includes Christmas (when it has become common in Japan to eat fried chicken).

Restaurant openings and closures Directly operated restaurants Store openings are primarily in the Kanto and Kansai regions, and consider the scope for new openings and trends in commercial areas. Locations also take into account profit and loss simulations based on restaurant format, i.e. stores in busy shopping areas, drive-through stores, or shopping center stores.

Restaurants with negative operating cash flow are designated as closure candidates. For restaurants where performance does not recover, the closure method and timing are based on overall expenses, such as the costs of restoring premises to their original condition.

Franchise restaurants The company makes recommendations regarding franchise restaurant openings based on the scope for new openings and trends in commercial areas. The final decision is made by individual franchisees, who receive support from KFC Holdings Japan.

Regarding closures, supervisors who are part of the company’s sales division provide management advice for underperforming restaurants, with the final decision left up to the franchisee.

Core strategy of KFC business

There are three key elements of the core strategy in the KFC business (see below for details):

Further strengthen the KFC brand ▷ Analyze consumer needs and plan initiatives ▷ Develop systems to strengthen on-site capabilities ▷

The company wants to strengthen the KFC brand and establish its position as an operator of unique fast-food restaurants that combine both sit-down and takeout restaurant elements. As convenience stores increase the proportion of food prepared on site and shift to higher value-added products, the company plans to work harder to differentiate and provide products that better appeal to its target customers.

KFC direction

Value Establish itself as a fast casual restaurant High

Delicatessen at department stores, and side dish chain stores

Family restaurants High Fast food and chain Degree of in-store Convenience chain stores stores stores preparation of food

Beef bowl chain stores

Source: Shared Research based on company data

28/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

The company’s strategy to differentiate itself entails providing a safe and tasty product not available anywhere else by maintaining high standards for its raw materials, ingredients, and handmade food, and enhancing product development. It is also tailoring restaurant services to each location, and developing different formats with various product lineups such as cafes, buffet restaurants, and café-bars. It plans to meet the growing demand for prepared meals by actively rolling out takeout-only restaurants, bicycle delivery, food carts, and drive-through restaurants in shopping centers.

New format 1: Café New format 2: Restaurant

New format 3: Café-bar

Source: Shared Research based on company data

In analyzing customer needs and creating business strategies, the company plans to use data taken from Ponta, a loyalty-point network shared by various businesses in Japan, as well as point-of-sales information from its nationwide stores. The company also plans to create databases for each of its restaurants. Further, to strengthen on-site capabilities, it plans to reorganize toward smaller operating areas and implement monitoring and control systems.

Distinctive elements of KFC business

Brand power underpinned by tasty food prepared on-site KFC is a global brand, with a presence in more than 125 countries worldwide and roughly 20,000 restaurants as of September 2016. The KFC brand is sustained by its mainstay product, “original chicken,” developed by Colonel Harland Sanders in 1939. It is prepared using 11 secret herbs and spices, and fried with pure vegetable oil in a pressure cooker.

The 11 secret herbs and spices are shrouded in mystery and attract much attention. The Chicago Tribune in August 2016 published an article stating that a memo with the secret recipe had been discovered. According to the company, even internally information on the 11 herbs and spices is closely guarded so that no individual knows the secret combination.

First mover advantage gives KFC high market share KFC was established in Japan in 1970 and opened its first location in Nagoya, one year before McDonald’s Corporation established McDonald's Japan. Subsequently, the KFC brand spread, along with statues of Colonel Sanders. In much of the world the custom is to eat turkey at Christmas, but in Japan chicken is the typical Christmas dinner. The company’s successful marketing has established a culture of eating fried chicken at Christmas. KFC Holdings Japan is the only company that has succeeded in establishing a fast food chain specialized in fried chicken. KFC leads the domestic fried chicken market, with a market share of 37% in 2015, according to a company survey.

29/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Steady, large-volume supplies of chicken raised in Japan All of the company’s chicken is raised in Japan. At about 40 days old, these young birds are juicy, tender, and indispensable for making KFC’s “original chicken.” In contrast, convenience stores primarily use frozen imported chicken over 50 days old for their fried chicken.

The company is able to obtain a steady, large (more than 200mn pieces per annum) supply of chicken by virtue of the feed and livestock value chain created by Mitsubishi Corporation, its major shareholder. The company obtains roughly half of the chicken used in its meals from Mitsubishi Corporation. Mitsubishi was the first company in Japan to introduce the end-to-end chicken farming system prevalent in the US that encompasses production, treatment, processing, and sales. Mitsubishi also built a value chain for chicken feed from procuring the grains used such as corn.

In the Mitsubishi Corporation group, Agrex Inc. procures grain and Nosan Corporation uses the grain to make formula feed. Japan Farm (the first factory accredited to produce KFC cut chicken) and Tokimeki farm produce chicken. The processed chicken produced by these two companies is sold to KFC Japan via Foodlink Corporation. In this manner the feed and livestock value chain run by the Mitsubishi group supports KFC’s restaurants.

Mitsubishi group’s feed and livestock value chain

Mitsubishi Corporation Group

Japan Farm Kentucky Fried AGREX INC. Nosan Corporation Foodlink Corporation Chicken Japan Tokimeki Farm Limited

Trading of grains Manufacture and sales of Production and Sales of foodstuff mixed feed processing of chicken

Source: Shared Research based on Nikkei Business materials Takeout accounts for 70% Around 70% of sales of the company’s mainstay “original chicken” is takeout, reflecting growth in prepared meal demand accompanying the trend toward nuclear families.

KFC earnings

In FY03/18, KFC revenues were JPY67.4bn (-2.7% YoY) and operating loss was JPY499mn (versus operating profit of JPY1.5bn in FY03/17). System sales were JPY113.2bn (-1.4%), with directly operated stores accounting for JPY33.8bn (-0.0%) and franchises for JPY79.4bn (-2.0%).

System sales System sales (directly operated store sales plus at franchises) for KFC declined continuously from FY03/12 to FY03/14. This was due to the impact of economic stagnation such as declining wages on KFC’s customer base and the launch of fried chicken prepared on-site by convenience stores. However, sales rose for two consecutive fiscal years starting in FY03/15 due to a recovery in wages and a 4.2% price bump for “original chicken” on March 25, 2015 (from JPY240 to JPY250 including tax.)

The share of sales accounted for by directly operated restaurants declined by 4.5pp from 34.3% in FY11/08 to 29.8% in FY03/18. This was due sluggish sales and rising personnel expenses, leading the company to reduce the number of directly operated restaurants, which have high fixed costs, as well as provide an avenue for employees to become heads of their own franchises. The company also promoted the opening of franchises by companies familiar with local circumstances to tap into previously unexplored territory in regional areas.

30/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Operating profit Because KFC Holdings Japan changed segment classifications in FY03/11 and FY03/16, year-on-year comparisons are difficult, but the operating profit margin bottomed at 2.9% in FY11/08 and FY03/15 and peaked at 10.9% in FY03/10 (a 16-month period, before eliminations). Profits fluctuate with the economic cycle and personnel expenses. However, as the company has reduced the number of directly operated restaurants and cut fixed costs, it has generated steady profits and avoided losses.

KFC business KPIs

KFC business KPI FY11/08 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Act. Act. Act. Act. Act. Act. Act. Act. Act. Act. Init. Est. System sales (JPYmn) 108,464 155,014 116,943 115,487 111,405 107,618 109,860 116,150 114,854 113,210 118,254 Directly operated store sales 37,172 51,703 36,195 34,752 33,072 31,809 32,197 34,279 33,762 33,762 34,386 Franchised store sales 71,292 103,311 80,747 80,735 78,333 75,809 77,663 81,871 81,091 79,447 83,867 System sales (YoY) -0.8% 42.9% -24.6% -1.2% -3.5% -3.4% 2.1% 5.7% -1.1% -1.4% 4.5% Directly operated store sales (YoY) 1.3% 39.1% -30.0% -4.0% -4.8% -3.8% 1.2% 6.5% -1.5% 0.0% 1.8% Franchised store sales (YoY) -1.8% 44.9% -21.8% -0.0% -3.0% -3.2% 2.4% 5.4% -1.0% -2.0% 5.6% % of system sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Directly operated store sales 34.3% 33.4% 31.0% 30.1% 29.7% 29.6% 29.3% 29.5% 29.4% 29.8% 29.1% Franchised store sales 65.7% 66.6% 69.0% 69.9% 70.3% 70.4% 70.7% 70.5% 70.6% 70.2% 70.9% Number of stores 1,150 1,127 1,150 1,166 1,180 1,171 1,155 1,144 1,149 1,153 1,159 Number of directly operated store 380 339 334 330 329 329 330 316 326 329 315 Number of franchised store 770 788 816 836 851 842 825 828 823 824 844 Number of stores (YoY) -0.2% -2.0% 2.0% 1.4% 1.2% -0.8% -1.4% -1.0% 0.4% 0.3% 0.5% Number of directly operated stores (YoY) 4.1% -10.8% -1.5% -1.2% -0.3% 0.0% 0.3% -4.2% 3.2% 0.9% -4.3% Number of franchised stores (YoY) -2.2% 2.3% 3.6% 2.5% 1.8% -1.1% -2.0% 0.4% -0.6% 0.1% 2.4% Sales per store (JPYmn) 94 138 102 99 94 92 95 102 100 98 102 Directly operated stores 98 153 108 105 101 97 98 108 104 103 109 Franchised stores 93 131 99 97 92 90 94 99 99 96 99 Sales per store (YoY) -0.6% 45.8% -26.1% -2.6% -4.7% -2.7% 3.5% 6.7% -1.5% -1.8% 3.9% Directly operated stores (YoY) -2.7% 55.9% -28.9% -2.8% -4.5% -3.8% 0.9% 11.2% -4.5% -0.9% 6.4% Franchised stores (YoY) 0.4% 41.6% -24.5% -2.4% -4.7% -2.2% 4.6% 5.0% -0.4% -2.1% 3.1% Source: Shared Research based on company materials Note: "System sales" refers to directly operated restaurant sales plus franchise restaurant sales. Note: Figures may differ from company materials due to differences in rounding methods.

Other business

In FY03/18 revenues for the Other segment (before eliminations) were JPY10.0bn (-14.5% YoY) and operating profit was JPY882mn (-3.4%).

Revenues and segment profits for the company’s subsidiary K Ad were first released from FY03/16 following segmentation changes.

K Ad handles advertising for the group using sales proceeds from KFC stores (4% of sales).

For KFC, ads emphasize that all of its chickens are raised in Japan, featuring the made-in-Japan logo.

31/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Earnings structure

Earnings structure (consolidated) FY11/08 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Total revenues 86,762 124,815 88,823 88,124 85,864 83,436 84,605 88,180 88,032 73,457 Sales 79,809 114,514 81,421 80,370 78,010 75,937 77,138 80,254 79,962 66,565 Other revenues 6,953 10,301 7,401 7,753 7,853 7,499 7,467 7,925 8,069 6,891 Cost of revenues 46,017 65,699 47,715 48,441 46,207 44,976 46,399 48,816 48,144 41,852 Cost of sales 40,692 57,651 42,063 42,185 40,457 39,753 41,234 43,418 42,717 37,250 Cost of other revenues 5,324 8,047 5,651 6,256 5,750 5,222 5,165 5,397 5,427 4,602 Gross profit 40,745 59,116 41,108 39,683 39,656 38,460 38,206 39,364 39,887 31,604 SG&A expenses 39,627 53,862 37,576 37,293 37,261 36,638 37,536 37,352 37,328 31,127 Salaries and allowances 16,953 23,552 15,257 15,043 14,941 15,098 14,879 14,767 14,799 Rents 4,722 6,344 4,408 4,315 4,255 4,181 4,151 4,130 4,274 Advertising and promotion 4,241 5,477 3,834 4,192 4,373 3,779 4,558 4,254 3,681 Depreciat ion 2,088 2,594 2,116 2,044 2,106 2,088 2,206 2,226 2,288 Other SG&A expenses 11,623 15,895 11,961 11,699 11,586 11,492 11,742 11,975 12,286 Operating profit 1,118 5,254 3,532 2,390 2,395 1,822 670 2,011 2,558 477 % of total revenues Sales 92.0% 91.7% 91.7% 91.2% 90.9% 91.0% 91.2% 91.0% 90.8% 90.6% Other revenues 8.0% 8.3% 8.3% 8.8% 9.1% 9.0% 8.8% 9.0% 9.2% 9.4% Cost of revenues 53.0% 52.6% 53.7% 55.0% 53.8% 53.9% 54.8% 55.4% 54.7% 57.0% Cost of sales 46.9% 46.2% 47.4% 47.9% 47.1% 47.6% 48.7% 49.2% 48.5% 50.7% Cost of other revenues 6.1% 6.4% 6.4% 7.1% 6.7% 6.3% 6.1% 6.1% 6.2% 6.3% Gross profit 47.0% 47.4% 46.3% 45.0% 46.2% 46.1% 45.2% 44.6% 45.3% 43.0% SG&A expenses 45.7% 43.2% 42.3% 42.3% 43.4% 43.9% 44.4% 42.4% 42.4% 42.4% Salaries and allowances 19.5% 18.9% 17.2% 17.1% 17.4% 18.1% 17.6% 16.7% 16.8% - Rents 5.4% 5.1% 5.0% 4.9% 5.0% 5.0% 4.9% 4.7% 4.9% - Advertising and promotion 4.9% 4.4% 4.3% 4.8% 5.1% 4.5% 5.4% 4.8% 4.2% - Depreciat ion 2.4% 2.1% 2.4% 2.3% 2.5% 2.5% 2.6% 2.5% 2.6% - Other SG&A expenses 13.4% 12.7% 13.5% 13.3% 13.5% 13.8% 13.9% 13.6% 14.0% - Operating profit 1.3% 4.2% 4.0% 2.7% 2.8% 2.2% 0.8% 2.3% 2.9% 0.6% Source: Source: Shared Research based on company data Note: Data for FY03/10 are for 16 months due to change in balance date. Revenues About 90% of the company’s total revenues were from directly operated restaurants and from selling ingredients to franchisees. The remaining 10% came from royalties for sublicensing to franchisees, rental revenues from POS systems and other restaurant materials, and ad revenues from franchisees.

Cost of revenues The total cost of revenues ratio is 57%, comprising cost of sales (narrowly defined) and other cost of revenues. The cost of sales was 49.2%, comprising ingredients and materials such as 100% made-in-Japan chicken and flour. The remaining 6.3% under other cost of revenues was the cost of procuring POS systems and other store materials.

The cost of sales ratio rose by 6.4pp from 44.3% in FY11/06 to 50.7% in FY03/18. This was owing to the fact that the price of domestically produced chicken rose in tandem with the price of imported chicken due to the weakness of the yen against the US dollar.

Cost of sales ratio (material costs and personnel expenses) and Japanese broiler prices (breast meat)

(JPY/kg) (JPY/kg) Chicken breast meat (JPY/kg) GPM (right axis) Chicken breast meat (JPY/kg) GPM (right axis) 400 41% 350 42%

350 42% 300 43% 300 43% 43.0% 250 44.6% 44% 250 44% 45.0% 45.2% 200 45.3% 45% 200 45% 46.2% 46.1% 150 46.3% 46% 150 46% 100 47% 100 47%

50 48% 50 48%

- 49% - 49% Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Source: Shared Research based on JACC and company materials Note: Data for FY03/10 are for 16 months due to change in balance date.

32/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

SG&A expenses The SG&A expenses were 42.4% of total revenues, and comprised mainly salaries (16.7% of sales), rent (4.7%), and advertising (4.8%). By limiting new hiring, the company reduced employee numbers, so the ratio of salaries to revenues declined from 20.0% in FY11/06 to 16.7% in FY03/16.

Ratio of salaries to revenues, consolidated employee numbers

（people） Salaries and allowances as % of total revenues (right axis) No. of employees (consolidated) 1,200 20.2% 1,189 22% 20.0% 1,150 1,138 20% 1,166 1,127 18.1% 19.5% 17.6% 17.2% 17.4% 18.9% 17.1% 16.7% 18% 1,100 1,103 16% 1,086 1,083 1,050 1,071 14% 1,045 1,048 1,000 12%

950 10% FY11/06 FY11/07 FY11/08 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16

Source: Shared Research based on company materials

33/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Market and value chain Trends in restaurant and prepared meals market Restaurant market (broad definition) According to the Japan Food Service Association, in the broadly defined restaurant market, which includes both dining out and prepared meal markets, was worth JPY32.4tn (+1.3% YoY) in 2016. After peaking at JPY32.9tn in 1998, it shrank to JPY28.6tn in 2011, and grew for five consecutive years through 2016.

Within the restaurant market, the other food and beverage industry, which includes the fast-food market where KFC operates, grew by 6.3% YoY in 2016 to JPY12.3tn.

Japan’s dining-out and prepared meal markets

（JPYtn） Restaurant market Prepared meal market YoY (right axis) 32.7 32.9 32.3 32.4 35 10.5% 31.0 31.9 32.0 31.0 32.0 12% 29.8 30.5 30.7 30.7 30.6 29.8 29.8 29.9 30.2 30.2 30.0 30.0 30.9 29.2 29.2 28.6 29.2 30 28.0 10% 8% 25 6.5% 6% 20 3.7% 3.0% 2.8% 4% 2.2% 2.3% 2.0% 2.9% 15 1.3% 0.6% 1.0% 0.6% 0.8% 2% 0.1% -0.1%0.3% 0.3% -0.2% 10 -0.9% -1.2% -0.7% -1.9% -2.0% 0% -2.6% -2.7% 5 -3.1% -2% 0 -4% 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Source: Japan Food Service Association Prepared meal market The prepared meal market, which includes takeout and delivery food and beverage services, grew by 6.0% YoY to JPY7.0tn. Excluding a 2.2% fall in 2008, it has grown every year since 1976. Driving the continued growth has been a rise in people eating alone due to an increase in single-person households and households where both partners work owing to increased participation of women in the workforce, and the trend toward nuclear families.

Japan’s prepared meal market

（JPYtn） Prepared meal market YoY (right axis) 8.0 30% 7.0 25% 7.0 6.0 24.6% 6.6 20% 21.7% 5.9 6.0 6.2 5.0 5.5 5.6 5.7 5.5 5.6 5.7 5.8 5.1 5.2 5.3 5.3 15% 4.0 4.9 5.0 4.4 10% 3.0 11.6% 3.6 11.4% 3.0 3.1 3.3 9.7% 5% 2.0 2.6 2.8 2.9 6.0% 2.3 5.5%5.2% 4.7%4.8% 5.7% 3.5% 3.7% 4.5% 0% 1.0 1.9%2.7% 2.2% 2.9% 0.9%1.7%1.2% 1.6%1.0% 0.7% 1.6% 0.6% 0.0 -2.2% -5% 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Source: Shared Research based on Teikoku Databank materials Restaurant meal price comparison According to July 2016 data from Recruit Lifestyle, spend per customer in fast food restaurants averaged JPY747, and family restaurants, JPY1,369, with KFC in the middle at JPY1,000.

34/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Average spend per customer by restaurant format and KFC Holdings Japan meal prices (Greater Tokyo, Kansai, and Tokai regions: July 2016)

（JPY） 5,000

4,000 4,051 3,684 3,000 3,335 2,800 2,614 2,000 2,088

1,000 1,369 1,000 747 684 0 French and Japanese (incl. Barbeque and Pizza Hut Asian Chinese (excl. Family KFC Fast food Beef bowl, Italian sushi) steak noodle shops) restaurants, and conveyor sushi curry and rice Source: Shared Research based on Recruit Lifestyle and company materials

KFC, which offers prepared meals, is influenced by economic developments rather than societal shifts. In fact, there is a strong correlation between the company’s sales growth and growth in the Total Cash Earnings Index published by the Ministry of Health, Labour and Welfare.

YoY growth in KFC Holdings Japan’s revenues and MHLW’s Total Cash Earnings Index

Total revenues (YoY) MHLW’s total cash earnings index (YoY; right axis) 6% 1.2% 4.2% 4% 0.8% 0.4% 2% 0.4% 1.4% 0% 0.0% -0.4% -0.2% -2.6% 0.1% -2% -0.4% -0.8% -4% -2.8% -0.8% -6% -0.9% -1.2% -8% -1.6% FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 Source: Shared Research based on Ministry of Health, Labour and Welfare and company materials

Japan’s fried chicken market

Per the company, in 2015 Japan’s fried chicken market was worth around JPY120bn, and KFC Japan was the market leader with a share of roughly 37%.

Competitors include hamburger chains such as McDonald’s and Mos Burger as well as supermarkets and convenience stores that offer prepared meals. Convenience stores have been particularly active in the fried chicken market since 2003 when Circle K Sunkus first started selling fried chicken.

According to the company, the KFC brand has the image of being more delicious, family-oriented, and suitable as a special occasion meal than its competitors. However, as shown in the data on average spend per customer by format, it is more expensive than other fast food such as hamburgers.

Entrants in the domestic fried chicken market

2003 Circle K Sunkus

2004 Family Mart

2005 Lawson

2007 Seven-Eleven

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Shared Research based on company materials

35/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Peer group

KFC Holdings Japan operates fried chicken chains, and no competitor has the same portfolio. In the KFC business, there is no fast food competitor who specializes in fried chicken.

Below are overviews of listed companies that are similar to KFC Holdings Japan as well as unlisted companies that compete with Pizza Hut.

McDonald’s Holdings Company Japan Ltd. (TSE JASDAQ: 2702) McDonald’s is a global hamburger chain with a presence in over 100 countries and over 36,000 restaurants. The Japanese subsidiary was established in 1971, and McDonald’s is the leading hamburger chain in Japan. Using chicken patties imported from Thailand (as of September 2016), it sells Chicken Filet-O sandwiches, Chicken Crisp sandwiches, Shaka Chicken and other products in addition to hamburgers. The company posted a double-digit revenue decline and operating losses in FY12/14 and FY12/15. Its financial woes stemmed from a 2014 scandal involving expired meat imported from China, as well as a 2015 incident involving foreign objects found in food.

Mos Food Services, Inc. (TSE1: 8153) Specialist hamburger franchise chain established in 1972, it has the second-largest market share in Japan after McDonald’s. The company has produced unique hit products using Japanese flavors including teriyaki burgers using miso and soy sauce and the rice-based Mos Rice Burger. The side menu features Mos Chicken with the price set at JPY270, similar to KFC’s JPY250 for its original chicken. Chicken used in Mos Chicken is produced in China (as of September 2016). In the five years through FY03/17, simple average sales growth was 2.5%, greater than for KFC Holdings Japan, which was largely flat. In FY03/17 its operating profit margin was 6.6%, versus 2.9% for KFC.

Royal Holdings Co., Ltd. (TSE1: 8179) Established in 1951. Business got its start providing in-flight catering and tea services for domestic Japan Airlines routes at Fukuoka Airport. Key current businesses are The Royal Host (family restaurant) and Tendon Tenya (tempura rice bowl restaurant) chains. Also operates Shakey’s Pizza restaurants. In the five years through FY03/17, simple average sales growth was 4.0%, greater than for KFC Holdings Japan, which was largely flat. In FY03/17 its operating profit margin was 3.9%, versus 2.9% for KFC Holdings Japan.

36/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Comparison with similar listed companies

Comparison of key financial data FY09-10 FY10-11 FY11-12 FY12-13 FY13-14 FY14-15 FY15-16 FY16-17 (JPYmn) KFC Holdings Japan (9873) FY03/11 Cons. FY03/12 Cons. FY03/13 Cons. FY03/14 Cons. FY03/15 Cons. FY03/16 Cons. FY03/17 Cons. FY03/18 Cons. Total revenues 88,823 88,124 85,864 83,436 84,605 88,180 88,032 73,457 YoY - -0.8% -2.6% -2.8% 1.4% 4.2% -0.2% -12.1% Gross profit 41,108 39,683 39,656 38,460 38,206 39,364 39,887 31,604 GPM 46.3% 45.0% 46.2% 46.1% 45.2% 44.6% 45.3% 0.0% Operating profit 3,531 2,390 2,395 1,822 670 2,011 2,558 477 OPM 4.0% 2.7% 2.8% 2.2% 0.8% 2.3% 2.9% 1.6% Net income attrib. to parent company shareholders 1,891 1,102 1,203 441 -524 730 1,365 578 Shareholders' equity 23,317 23,153 23,214 22,497 21,219 20,904 21,178 20,626 ROE 7.9% 4.7% 5.2% 1.9% -2.4% 3.5% 6.5% 2.8% Number of employees 1,127 1,086 1,083 1,045 1,071 1,048 1,063 927 Revenues per employee 79 81 79 80 79 84 83 79 McDonald's Holdings Japan (2702) FY12/10 Cons. FY12/11 Cons. FY12/12 Cons. FY12/13 Cons. FY12/14 Cons. FY12/15 Cons. FY12/16 Cons. FY12/17 Cons. Revenue 323,799 302,339 294,710 260,441 222,319 189,473 226,646 253,640 YoY -10.6% -6.6% -2.5% -11.6% -14.6% -14.8% 19.6% 11.9% Gross profit 67,686 63,629 60,117 38,188 19,834 1,807 31,348 45,528 GPM 20.9% 21.0% 20.4% 14.7% 8.9% 1.0% 13.8% 17.9% Operating profit 28,135 28,182 24,780 11,524 -6,714 -23,440 6,930 18,912 OPM 8.7% 9.3% 8.4% 4.4% -3.0% -12.4% 3.1% 7.5% Net income attrib. to parent company shareholders 7,864 13,298 12,870 5,138 -21,843 -34,951 5,366 24,024 Shareholders' equity 152,321 161,631 170,571 171,720 147,559 108,666 110,000 129,690 ROE 5.2% 8.5% 7.7% 3.0% -13.7% -27.3% 4.9% 20.0% Number of employees 3,419 3,128 2,775 2,764 2,679 2,419 2,239 2,194 Revenue per employee 95 97 106 94 83 78 101 116 MOS FOOD SERVICES (8153) FY03/11 Cons. FY03/12 Cons. FY03/13 Cons. FY03/14 Cons. FY03/15 Cons. FY03/16 Cons. FY03/17 Cons. FY03/18 Cons. Sales 63,175 62,672 62,371 65,330 66,310 71,114 70,929 71,387 YoY 5.3% -0.8% -0.5% 4.7% 1.5% 7.2% -0.3% 0.6% Gross profit 29,795 29,419 29,869 31,400 31,653 35,362 36,318 35,592 GPM 47.2% 46.9% 47.9% 48.1% 47.7% 49.7% 51.2% 49.9% Operating profit 3,223 2,087 1,889 2,157 1,555 3,824 4,664 3,736 OPM 5.1% 3.3% 3.0% 3.3% 2.3% 5.4% 6.6% 5.2% Net income attrib. to parent company shareholders 1,854 1,823 1,521 1,744 673 2,285 3,050 2,470 Shareholders' equity 36,973 38,152 39,690 41,242 42,295 43,714 45,969 47,852 ROE 5.1% 4.9% 3.9% 4.3% 1.6% 5.3% 6.8% 5.3% Number of employees 1,122 1,170 1,166 1,250 1,319 1,375 Sales per employee 56 54 53 52 50 52 ROYAL HOLDINGS (8179) FY12/10 Cons. FY12/11 Cons. FY12/12 Cons. FY12/13 Cons. FY12/14 Cons. FY12/15 Cons. FY12/16 Cons. FY12/17 Cons. Sales 110,440 109,260 114,957 120,730 124,857 130,327 133,025 135,563 YoY -1.3% -1.1% 5.2% 5.0% 3.4% 4.4% 2.1% 1.9% Gross profit 74,573 73,763 77,081 80,282 82,455 85,461 87,972 89,820 GPM 67.5% 67.5% 67.1% 66.5% 66.0% 65.6% 66.1% 66.3% Operating profit 2,054 2,153 2,623 3,498 4,417 4,899 5,222 5,952 OPM 1.9% 2.0% 2.3% 2.9% 3.5% 3.8% 3.9% 4.4% Net income attrib. to parent company shareholders 901 -3,177 1,137 1,663 1,866 2,728 2,377 3,533 Shareholders' equity 43,111 39,243 40,135 42,729 43,904 45,846 47,353 50,990 ROE 2.1% -7.7% 2.9% 4.0% 4.3% 6.1% 5.1% 7.2% Number of employees 2,353 2,324 2,381 2,386 2,437 2,538 2,617 2,646 Sales per employee 47 47 48 51 51 51 51 51 Source: Shared Research based on company materials

37/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Strengths and weaknesses Strengths Brand power nurtured since establishment The company opened its first restaurant in Nagoya in 1970. Since then, the KFC brand with its statues of Colonel Sanders and secret fried chicken recipe using 11 herbs and spices, and Pizza Hut offering pizzas hand-made on site, have spread throughout Japan. KFC Holdings Japan is the only fast food company to succeed as a fried chicken specialist. Even as convenience stores come to the fore, the company still had a 37% share of the fried chicken market in 2015 (KFC Holdings Japan survey) thanks to its brand power.

Business model built on support from Mitsubishi The company’s establishment was the fruit of four years of negotiations between Mitsubishi Corporation (stake: 34.56% as of March 31, 2016) and KFC founder Colonel Harland Sanders. The base for the original chicken is meat from 40-day-old chickens raised in Japan (convenience stores use frozen imported meat). KFC Japan obtains a steady supply through Mitsubishi using a value chain that extends from the corn and other grains for chicken feed through delivery of the pre-cut meat. In this manner, the company’s operations are built on the support by Mitsubishi. Shared Research thinks that it would be difficult for other companies to create a similar business model offering fast food that matches the quality of KFC Japan.

Scale economies Because KFC Japan’s “original chicken” uses 40-day-old chickens raised in Japan, procurement costs are relatively high compared with imported frozen roasters (which are older). Still, the company is able to keep costs low by obtaining volume discounts due to bulk procurements, leveraging its leading 37% share of the domestic fried chicken market. Shared Research thinks that this is a barrier to entry for competitors, especially convenience stores, which use imported frozen roasters. We think economies of scale in obtaining materials and advertising are another barrier to entry for companies attempting to enter the market as fast food chicken specialists.

Weaknesses Constraints imposed by the franchise agreements with Yum! Brands Approval from master franchisor Yum! Brands is needed for all aspects of the business under the franchise agreement, including products, ingredients, restaurants, and equipment. Shared Research thinks that constraints under the franchise agreement hinder the company’s ability to nimbly respond to changes in consumer demand.

Constraints on sales promotion due to using domestically raised chicken KFC Japan uses 100% domestically raised chicken. When conducting an intensive sales campaign, other fast food companies and convenience stores can adjust their schedules quickly because they use frozen imported poultry. However, KFC must take into account long lead times from the chicken feed stage through procuring the pre-cut chicken––over half a year. Shared Research thinks that this limitation is one of the company’s weaknesses.

38/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Financial statements

Income statement

Income statement FY11/08 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Total revenues 86,762 124,815 88,823 88,124 85,864 83,436 84,605 88,180 88,032 73,457 YoY 2.2% 43.9% -28.8% -0.8% -2.6% -2.8% 1.4% 4.2% -0.2% -16.6% Cost of revenue 46,017 65,699 47,715 48,441 46,208 44,976 46,399 48,816 48,144 41,852 Cost ratio 53.0% 52.6% 53.7% 55.0% 53.8% 53.9% 54.8% 55.4% 54.7% 57.0% Gross profit 40,745 59,116 41,108 39,683 39,656 38,460 38,206 39,364 39,887 31,604 GPM 47.0% 47.4% 46.3% 45.0% 46.2% 46.1% 45.2% 44.6% 45.3% 43.0% SG&A expenses 39,627 53,862 37,576 37,293 37,261 36,638 37,536 37,352 37,328 31,127 YoY 1.0% 35.9% -30.2% -0.8% -0.1% -1.7% 2.5% -0.5% -0.1% -16.6% SG&A rat io 45.7% 43.2% 42.3% 42.3% 43.4% 43.9% 44.4% 42.4% 42.4% 42.4% Operating profit 1,117 5,253 3,531 2,390 2,395 1,822 670 2,011 2,558 477 YoY -60.6% 370.3% -32.8% -32.3% 0.2% -23.9% -63.2% 200.1% 27.2% -81.4% OPM 1.3% 4.2% 4.0% 2.7% 2.8% 2.2% 0.8% 2.3% 2.9% 0.6% Non-operating income 90 206 177 79 111 34 -3 -145 -133 150 Rents income 83 227 226 228 222 143 177 148 161 227 Rents expenses - - - 108 99 73 145 161 169 184 Other 7 -21 -49 -41 -12 -36 -35 -132 -125 107 Recurring profit 1,207 5,459 3,708 2,469 2,506 1,856 667 1,866 2,425 627 YoY -57.6% 352.3% -32.1% -33.4% 1.5% -25.9% -64.1% 179.8% 30.0% -74.1% RPM 1.4% 4.4% 4.2% 2.8% 2.9% 2.2% 0.8% 2.1% 2.8% 0.9% Extraordinary gains (losses) -87 -584 -596 26 -164 -588 -512 -391 -96 840 Income taxes 636 2,305 1,220 1,392 1,138 826 680 744 964 889 Implied t ax rat e 56.8% 47.3% 39.2% 55.8% 48.6% 65.1% 438.7% 50.4% 41.4% 60.6% Minorit y int erest s ------Net income attributable to parent company shareholders 483 2,570 1,891 1,102 1,203 441 -524 730 1,365 578 YoY -65.1% 432.1% -26.4% -41.7% 9.2% -63.3% - - 87.0% -57.7% Net margin 0.6% 2.1% 2.1% 1.3% 1.4% 0.5% -0.6% 0.8% 1.6% 0.8% Performance by region FY11/08 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Total revenues 86,762 124,815 88,823 88,124 85,864 83,436 84,605 88,180 88,032 73,457 KFC (external customers) 64,566 68,410 69,251 67,381 Pizza Hut (external customers) 15,525 15,425 14,922 2,721 Other (external customers) 12,038 12,393 11,654 9,967 KFC (old segment) 67,339 98,615 72,521 71,544 69,199 67,056 68,016 Pizza Hut (old segment ) 19,423 25,913 15,850 16,086 16,126 15,890 15,900 Other (old segment) 285 450 493 538 489 689 YoY 2.2% 43.9% -28.8% -0.8% -2.6% -2.8% 1.4% 4.2% -0.2% -16.6% KFC (external customers) 6.0% 1.2% -2.7% Pizza Hut (external customers) -0.6% -3.3% -81.8% Other (external customers) 2.9% -6.0% -14.5% KFC (old segment) 5.7% 46.4% -26.5% -1.3% -3.3% -3.1% 1.4% Pizza Hut (old segment ) -8.3% 33.4% -38.8% 1.5% 0.2% -1.5% 0.1% Other (old segment) 57.9% 9.6% 9.1% -9.1% 40.9% Operating profit 1,117 5,253 3,531 2,390 2,395 1,822 670 2,011 2,558 477 KFC 1,849 2,020 1,539 -499 Pizza Hut -1,477 -351 153 -0 Other 697 239 913 882 Adjustments -399 102 -49 94 KFC (old segment) 1,960 10,355 7,493 6,213 6,595 6,221 6,026 Pizza Hut (old segment ) -842 771 -33 57 -2 -36 -1,164 Other (old segment) -194 -158 -71 -73 -133 -266 Company-wide expenses (old segment) -5,679 -3,769 -3,809 -4,124 -4,229 -3,925 YoY -60.6% 370.3% -32.8% -32.3% 0.2% -23.9% -63.2% 200.1% 27.2% -81.4% KFC 9.2% -23.8% - Pizza Hut - - - Other -65.7% 282.0% - KFC (old segment) -35.0% - -27.6% -17.1% 6.1% -5.7% -3.1% Pizza Hut (old segment ) ------Other (old segment) ------OPM (excl. adjustments) 1.3% 4.2% 4.0% 2.7% 2.8% 2.2% 0.8% 2.3% 2.9% 0.6% KFC 2.9% 3.0% 2.2% -0.7% Pizza Hut -9.5% -2.3% 1.0% -0.0% Other 5.8% 1.9% 7.8% 8.8% KFC (old segment) 2.9% 10.5% 10.3% 8.7% 9.5% 9.3% 8.9% Pizza Hut (old segment ) -4.3% 3.0% -0.2% 0.4% -0.0% -0.2% -7.3% Other (old segment) -68.1% -35.1% -14.4% -13.6% -27.2% -38.6% Source: Shared Research based on company data Note: Data for FY03/10 are for 16 months due to change in balance date. Note: Figures may differ from company materials due to differences in rounding methods.

39/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Balance sheet

Balance sheet FY11/08 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Current assets 19,902 23,549 22,549 23,500 23,340 21,682 22,332 21,390 20,721 15,194 Cash and deposits 13,888 13,596 15,808 13,058 13,502 16,146 16,804 15,339 14,571 9,757 Accounts receivable 3,336 3,093 2,947 3,729 3,544 3,701 3,546 3,855 4,007 3,562 Inventory assets 812 650 671 733 729 518 397 697 450 414 Others 1,866 6,210 3,123 5,980 5,565 1,317 1,585 1,499 1,693 1,461 Noncurrent assets 21,032 18,836 18,461 17,882 16,968 16,301 16,085 17,902 18,762 20,552 T angible fixed asset s 8,899 7,925 7,228 6,681 6,184 5,703 6,093 7,178 8,506 7,734 Int angible fixed asset s 1,052 1,763 2,555 3,128 2,950 2,924 2,874 2,828 2,206 1,704 Investments and other assets 11,081 9,148 8,678 8,073 7,834 7,674 7,118 7,896 8,050 11,113 Total assets 40,934 42,385 41,011 41,383 40,308 37,984 38,418 39,292 39,484 35,746 Current liabilit ies 13,922 13,470 13,046 13,837 13,029 11,203 13,166 13,070 13,033 10,929 Accounts payable 7,621 5,699 5,680 7,603 6,568 5,754 5,978 6,232 5,824 5,735 Short-term debt - - 140 193 211 193 187 531 618 531 Ot her current liabilit ies 6,301 7,771 7,226 6,041 6,250 5,256 7,001 6,307 6,591 4,663 Fixed liabilit ies 3,829 4,271 4,648 4,392 4,065 4,283 4,031 5,317 5,272 4,190 Long-term debt - - 359 359 207 188 432 1,533 1,142 666 Others 3,829 4,271 4,289 4,033 3,858 4,095 3,599 3,784 4,130 3,524 Tot al liabilit ies 17,751 17,741 17,694 18,229 17,094 15,486 17,197 18,387 18,305 15,120 Net assets 23,181 24,643 23,317 23,153 23,214 22,497 21,219 20,904 21,178 20,626 Capit al st ock 7,297 7,297 7,297 7,297 7,297 7,297 7,297 7,297 7,297 7,297 Capit al surplus 10,430 10,430 10,430 10,430 10,430 10,430 10,430 10,430 10,430 10,430 Retained earnings 5,910 6,945 6,105 6,083 6,165 5,485 4,228 3,837 4,082 3,539 Treasury stock -418 -41 -531 -683 -710 -722 -733 -739 -739 -887 Accumulated other comprehensive income -38 12 16 25 31 7 -2 79 108 246 Minorit y int erest s ------Tot al capit al and liabilit ies 40,934 42,385 41,011 41,383 40,308 37,984 38,418 39,292 39,484 35,746 W orking capit al -3,473 -1,956 -2,062 -3,141 -2,295 -1,535 -2,035 -1,680 -1,367 -1,759 Total interest-bearing debt - - 499 552 418 381 619 2,064 1,760 1,197 Net cash 13,888 13,596 15,309 12,506 13,084 15,765 16,185 13,275 12,811 8,560 Accounts receivable days 12 9 12 14 15 16 16 15 16 19 Days in inventory 7 4 5 5 6 5 4 4 4 4 Accounts payable days 54 37 44 50 56 50 46 46 46 50 W orking capit al efficiency -36 -24 -26 -31 -35 -29 -27 -26 -25 -28 Current ratio 143% 175% 173% 170% 179% 194% 170% 164% 159% 139% Fixed rat io 90.7% 76.4% 79.2% 77.2% 73.1% 72.5% 75.8% 85.6% 88.6% 99.6% Equit y rat io 56.6% 58.1% 56.9% 55.9% 57.6% 59.2% 55.2% 53.2% 53.6% 57.7% Source: Source: Shared Research based on company data Note: Data for FY03/10 are for 16 months due to change in balance date. Note: Accounts receivable figures are after deducting bad debt provisions. Note: Figures may differ from company materials due to differences in rounding methods.

Cash and deposits Cash and deposits were the largest component of the company’s total assets. The share of cash and deposits increased from 32.6% in FY11/07 by 4.3pp to 36.9% in FY03/17. This is because KFC was reducing the number of directly operated stores and upped the number of franchises.

Working capital Working capital was negative because accounts payable are greater than the combined total of accounts receivable and inventories. Negative working capital shrank from -JPY2.8bn in FY11/07 to -JPY1.4bn in FY03/16. As was the case with cash and deposits, this is because KFC reduced the number of directly operated stores and increased the number of franchises. Accompanying growth in franchisee sales, the company’s accounts receivable rose by 61.1%, from JPY2.5bn in FY11/07 to JPY4.0bn in FY03/17.

Net assets and shareholders’ equity The shareholders’ equity ratio decreased by 8.7pp from 62.3% in FY11/07 to 53.6% in FY03/17. The key factor was a decline in retained earnings from JPY6.6bn in FY11/07 to JPY4.1bn in FY03/17. This is because the company has paid dividends in excess of net income since FY03/11 (except in FY03/13 and FY03/17). The company places importance on having a stable dividend, and since FY03/12 has paid a consistent annual JPY50 dividend per share.

40/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Cash flow statement

Cash flow statement FY11/08 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cash flows from operat ing act ivit ies 4,171 6,108 4,186 3,814 3,370 1,717 4,574 1,519 4,424 1,928 Cash flows from invest ing act ivit ies -1,929 -6,485 1,869 -5,108 -1,558 2,287 -1,556 -298 -3,679 -4,863 Free cash flow 2,242 -377 6,055 -1,294 1,812 4,004 3,018 1,221 745 -2,935 Cash flows from financing act ivit ies -1,332 -1,212 -3,343 -1,456 -1,367 -1,360 -1,360 -1,686 -1,512 -1,878 Net income attributable to parent company shareholders 483 2,570 1,891 1,102 1,203 441 -524 730 1,365 578 Depreciat ion 2,297 2,848 2,358 2,404 2,394 2,325 2,404 2,649 2,747 2,355 Amortization of goodwill ------Purchase of tangible fixed assets -1,516 -1,937 -1,311 -1,256 -1,074 -1,125 -1,236 -1,163 -2,113 -1,855 Purchase of int angible fixed asset s -372 -1,355 -1,072 -1,671 -709 -807 -1,702 -894 -528 -402 Change in working capital -705 1,517 -106 -1,079 846 760 -500 355 313 -392 Free cash flow 1,597 609 1,972 1,658 968 74 -558 967 1,158 1,068 Cash and cash equivalents (year end) 13,888 13,596 15,808 13,058 13,502 16,146 16,804 15,339 14,571 9,757 Source: Shared Research based on company data Note: Data for FY03/10 are for 16 months due to change in balance date. Figures may differ from company materials due to differences in rounding methods

Cash flows from operating activities In FY03/18, operating cash inflows were JPY1.9bn. This was mainly because of JPY578mn in net income and JPY2.4bn in depreciation expenses.

Cash flows from investing activities In FY03/18, cash outflows from investing activities were JPY4.9bn. This was primarily due to JPY1.9bn spent for the acquisition of tangible fixed assets related to new store openings and renovations.

Cash flows from financing activities In FY03/18, cash outflows from financing activities were JPY1.9bn. This was primarily due to JPY1.1bn in dividend payments.

41/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

ROE, ROA, ROIC

FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. ROE 7.8% 7.9% 4.7% 5.2% 1.9% -2.4% 3.5% 6.5% 2.8% Net margin 2.1% 2.1% 1.3% 1.4% 0.5% -0.6% 0.8% 1.6% 0.8% Total asset turnover 3.00 2.13 2.14 2.10 2.13 2.21 2.27 2.23 1.95 Financial leverage (equit y mult iplier) 1.27 1.74 1.77 1.76 1.71 1.75 1.84 1.87 1.80 ROA (RP-based) 13.1% 8.9% 6.0% 6.1% 4.7% 1.7% 4.8% 6.2% 1.7% ROIC 13.0% 8.6% 6.0% 6.3% 4.9% 1.9% 6.0% 7.7% 1.5% NOPAT 3,116 2,094 1,418 1,485 1,129 431 1,346 1,769 330 Net assets + Interest-bearing debt 23,912 24,230 23,761 23,669 23,255 22,358 22,403 22,953 22,381 ROIC (before tax) 22.0% 14.6% 10.1% 10.1% 7.8% 3.0% 9.0% 11.1% 2.1% OPM 4.2% 4.0% 2.7% 2.8% 2.2% 0.8% 2.3% 2.9% 0.6% Revenues / Invested capital 5.22 3.67 3.71 3.63 3.59 3.78 3.94 3.84 3.28

ROE

14% ROE ROA (RP-based) ROIC 12% 10% 8% 7.8% 7.9% 6% 6.5% 4% 4.7% 5.2% 2% 3.5% 1.9% 2.8% 0% -2% -4% -2.4% FY03/10 FY03/15

10% 3 ROE Net margin Total asset turnover (right axis) Financial leverage (equity multiplier; right axis) 8%

6% 2 4% 1.8 1.9 1.8 1.7 1.8 1.8 1.7 1.7 2% 1.3 1 0%

-2%

-4% 0 FY03/10 FY03/15

ROIC

25% ROIC (before tax) OPM Revenues / Invested capital (right axis) 6 5.2 5 20% 3.8 3.9 3.8 3.7 3.7 3.6 3.6 4 15% 3.3 3 10% 2 4.2% 4.0% 5% 2.9% 2.7% 2.8% 2.2% 2.3% 1 0.8% 0.6% 0% 0 FY03/10 FY03/15

(JPYbn) (JPYbn) Net assets Interest-bearing debt Operating profit (right axis) 25 6 0.0 24 5.3 5 0.5 0.6 0.4 23 3.5 0.4 4 22 2.1 1.8 0.6 2.6 3 24.6 2.4 2.4 1.2 21 2.0 23.3 23.2 23.2 1.8 22.5 2 20 21.2 21.2 0.5 0.7 20.9 19 20.6 1

18 0 FY03/10 FY03/15 Source: Shared Research based on company data

42/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Historical performance

Q1 FY03/1 9 results (out on August 8, 2018)

Q1: Revenues at existing stores down 4.9%, operating loss JPY500mn. Operating loss widened despite rebound in sales on ▷ overhaul of marketing initiatives and efforts to curb overhead Bolstered delivery efforts (direct delivery and through delivery agents): Delivery service offered at 138 locations (of which 43 ▷ participate in UberEats, primarily in Greater Tokyo and the Kansai regions) Product offerings: Third variety of chicken “hot and spicy chicken” debuted in April; seasonal menu item “red hot chicken” ▷ launched in July

Single KFC segment as of Q1 FY03/19; segment information disclosures omitted accordingly ▷ Q2: Captured demand for weekday lunch with JPY500 lunch menu, which contributed to increases in the frequency of store visits ▷ and customer count. Strong performance continued in July and the first half of August

Quarterly performance (JPYbn)

Revenues YoY (left axis) (JPYbn) 6% 30 Operating profit OPM (left axis) 26.0 8% 2.0 25.2 1.7 24.2 23.5 0% 22.4 22.5 24 6% 1.4 20.8 21.2 20.9 20.1 20.420.0 20.6 20.3 19.2 19.0 18.8 19.0 1.0 17.9 0.9 0.9 0.9 0.9 -6% 18 4% 1.0 15.715.4 0.5 0.5 2% 0.3 0.2 -12% 12 0.0 0.0 0% 0.0 -18% 6 -0.1 -0.1 -0.1 -0.1 -2% -0.4 -0.3 -0.5 -0.5 -24% 0 -4% (1.0) Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 (JPYbn) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Source: Shared Research based on company data

Results overview In Q1 FY03/19, revenues were JPY15.4bn (down JPY3.5bn, -18.7% YoY) and operating loss was JPY515mn (JPY109mn operating loss in Q1 FY03/18), a decline in both revenues and profits. Net loss attributable to parent company shareholders was JPY324mn (JPY963mn decline YoY), as gains from the sale of stores (registered a year earlier) dropped off. Even after excluding the impact of the sale of the Pizza Hut business, revenues fell manly due to a large decline in customer counts at existing stores. The company was able to reduce expenses by a greater extent than initially planned thanks to thorough cost management, but operating loss widened as the decline in expenses could not offset the drop in revenues. While it appears as though results are falling behind the initial full-year forecasts of JPY73.0bn in revenues and JPY1.0bn in operating profit, the company has retained its full-year targets.

It has revised its segments, paring down the original KFC, Pizza Hut, and Other segments to a single KFC segment as of Q1 FY03/19. Accordingly, segment information disclosures have been omitted.

Progress with initiatives launched in FY03/19 In FY03/19, with the aim of promoting everyday consumption under its Weekly Value measure, the company is working on overhauling its marketing strategy, strengthening delivery services, and promoting product development. The company restructured the department in charge of marketing in April 2018. Further, it completely revised the content and timing of promotions, and plans to launch highly effective promotions extensively upon carefully choosing the timing of launch. Progress with each initiative is outlined below.

Marketing The company implemented the following initiatives in Q1:

43/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Promotions: the Wednesdays-only “9-piece bucket for JPY1,500,” which ran from May 9 through June 27, proved popular ▷ Delivery: offered at 138 locations (43 of which participate in UberEats) ▷ The Wednesdays -only promotion was popular and brought in strong results on targeted Wednesdays, but it had limited effect on other days. Further, the share of stores offering delivery services gradually increased to make up about 10% of the total stores, contributing to growth in comparable store sales. The company is working on expanding delivery services centered on high-demand areas such as Greater Tokyo and the Kansai regions from Q2 onward. Further, it is gradually expanding the service to regional cities.

Product strategy Looking at product offerings, sales of “hot and spicy chicken,” a third variety of chicken and number one seller in the Asia region, began on April 19. Comparable store sales at directly operated locations fell YoY (April -5.5%, May -4.2%, June -2.7%, cumulative Q1 -4.9%; foot traffic -8.3%; average customer spend +3.8%). It seems that even the company found it difficult to deem the strategy successful.

KFC business monthly revenues

25% All stores 25% Directly operated comp. stores Customer count Customer spend 20% 20%

15% 15%

10% 10%

5% 5%

0% 0%

-5% -5%

-10% -10%

-15% -15% Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Source: Shared Research based on company data

Regarding the number of locations, there were five new store openings (two directly operated restaurants, three franchises), and 18 renovations (five directly operated, 13 franchises). The number of stores undergoing a renovation was in line with the full-year target of 119. The number of store openings and closures was also in line with plan, with more store openings and closures typically taking place in Q2 and Q3. The company intends to promote store renovations as it continues to consider store locations and customer base. The company is making steady progress with shifting directly operated restaurants to franchise stores (booked an extraordinary gain of JPY57mn on store transfers in Q1).

Outlook for Q2 FY03/19 and beyond and full-year FY03/19 Red hot chicken contributes to revenue growth As conditions in Q2 differed from those in Q1, the company posted strong performance for the first half of Q2 (July to the first half of August). In addition to the effects of marketing strategy overhaul, initiatives geared toward improving product offerings seemed to be making steady progress. In specific, the company began sales of its signature seasonal product red hot chicken from July 5 through August 15 and JPY500 lunch menu from July 23 through September 5; both have been well-received. In July, revenue increased 7.6% (customer count, +4.8%; spend per customer, +2.7%), an increase for the first time in ten months since September 2017, with customer counts reaching high level in the last five years. The positive momentum of July continued through the first half of August. The company began selling red hot chicken from June 22 in 2017, and the difference in launch timing seemed to have affected YoY performance in Q1.

44/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

extending the JPY500 lunch menu promotion. From September onward, upon carefully choosing the timing of promotions, the company plans to extensively introduce highly effective promotions centered on those well-received in the past.

Toward FY03/19 (for reference: as of Q3 FY03/18): Heading into FY03/19, the company is considering conducting aggressive renovations, strengthening product development, and developing new business as in FY03/18. In addition, the company plans to aggressively open franchise stores, centered on priority areas where it’s possible to open stores. In terms of costs, the company will respond to rising raw materials and labor costs by carefully raising prices paid per set by each customer, etc., further limiting SG&A expenses, increasing the number of items purchased, and developing attractive products.

Medium-term management plan: The company will commemorate its 50th anniversary in July 2020. Regarding the current medium-term management plan, due to the sale of the Pizza Hut business in June and in light of changes in the business environment, the company plans to formulate a new medium-term business plan that will begin in FY03/19 and end in FY03/21. Driven by the KFC business, the company will strengthen its domestic base with the addition of new brands through M&A and other methods and appears poised to expand overseas. KFC’s franchise stores are largely owned by companies, including major companies. Franchise owners have indicated that they are eager to develop stores using a new brand, and supposing KFC is able to acquire a new brand, it may be able to quickly increase store openings.

Supplementary data

GPM-related

(JPY/kg) (JPY/kg) Chicken breast meat (JPY/kg) GPM (right axis) Chicken breast meat (JPY/kg) GPM (right axis) 400 41% 350 42%

350 42% 300 43% 300 43% 43.0% 250 44.6% 44% 250 44% 45.0% 45.2% 200 45.3% 45% 200 45% 46.2% 46.1% 150 46.3% 46% 150 46% 100 47% 100 47%

50 48% 50 48%

SG&A expenses-related

(JPYmn) Directly operated comp. stores Customer count Customer spend FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 20% 14

15% 13 12 10% 11 5% 10 0% 9 -5% 8

-10% 7

-15% 6 Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Jul Oct Jan FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Source: Shared Research based on company data

45/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Average monthly revenue

(J PYmn) FY03/14 FY03/15 FY03/16 (J PYmn) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 14 FY03/17 FY03/18 FY03/19 14 13 13 12 12

11 11

10 10

9 9

8 8

7 7

6 6 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Source: Shared Research based on company data

46/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

News and topics February 2018 On February 23, 2018, the company announced a capital and business alliance with restaurant operator BYO Co., Ltd.

Reasons for the capital and business alliance Since its foundation in 1991, BYO, which positions itself as a “creative company that passes on Japanese culture through gastronomy,” has created unique restaurants under brand names such as washoku sake EN, Obon de Gohan, and Dashichazuke EN. It currently operates 117 restaurants (as of end March 2018), of which 111 are in Japan and six overseas. KFC Holdings and BYO share the same business philosophy that focuses on hand-made products using selected ingredients, and provision of food that is enriching. The two companies decided to enter into a capital and business alliance thinking that the partnership will allow them to create new business opportunities and generate synergies that would increase the corporate value of both companies in the medium to long-term. As stated in the new medium-term plan “Building the Future 2017” (announced in 2015), KFC Holdings considers M&A and business alliances as one of its growth strategies and intends to achieve further growth through such initiatives.

The company believes the impact of this event on its FY03/18 consolidated earnings will be marginal and it plans to promptly disclose any information on matters requiring public announcement.

June 2017 On June 12, 2017, the company sold and transferred all shares of its consolidated subsidiaries, Pizza Hut Japan Ltd. and Phoenix Foods Inc., to an investment fund Endeavour United Partners Six, Co., Ltd. The company aims to enhance its medium- and long-term enterprise value based on the strategy for its new business portfolio following the stock transfer.

May 2017 On May 10, 2017, the company announced a stock sale and transfer of its subsidiaries, Pizza Hut Japan Ltd. and Phoenix Foods Inc.

At a Board of Directors meeting on May 10, the company resolved to sell the shares of Pizza Hut Japan Ltd., which operates the Pizza Hut business, and Phoenix Foods, Inc. to Endeavour United Partners Six, Co., Ltd., an investment fund. The company decided to sell the shares in light of intensifying competition in the pizza market.

47/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Other information

History

Date Event

Mar 1970 KFC International opens test restaurant at Japan Expo, with daily sales of up to JPY2.8mn

Jul 1970 KFC Japan established in Shibuya, Tokyo with equal investments from Kentucky Fried Chicken Corporation and Mitsubishi Corporation and capital of JPY72mn

Nov 1970 First Kentucky Fried Chicken (KFC) restaurant in Japan opens in Nishi, Nagoya

Sep 1971 First KFC franchise opens in Enoshima

Jul 1972 Heublein Inc. buys Kentucky Fried Chicken Corporation

Oct 1982 R.J. Reynolds Industries Inc. buys Heublein Inc.

Oct 1986 PepsiCo Inc. buys Kentucky Fried Chicken Corporation from RJR Nabisco Inc.

Aug 1990 Lists on Tokyo Stock Exchange Second Section and increases capital to JPY7.3bn

Mar 1991 Establishes consolidated subsidiary K Ad

May 1991 Launches Pizza Hut business

Oct 1997 Food services business spun out from PepsiCo to establish Tricon Global Restaurants Inc. (currently Yum! Brands Inc.)

Dec 2007 Mitsubishi becomes parent company after Yum! Brands Inc. sells shares indirectly held in KFC Japan to Mitsubishi via public tender offer

Sep 2008 Consolidated subsidiary K Foods established

Apr 2013 Consolidated subsidiary Phoenix Foods established

May 2013 Consolidated subsidiaries K Dining Ltd. (new company name: Kentucky Fried Chicken Japan Ltd.), Phoenix Ltd. and Natural Dining Ltd. established

Apr 2014 Name changed to KFC Holdings Japan Ltd. Restaurant operating company spun off and takes over 100% subsidiaries Kentucky Fried Chicken Japan Ltd., Phoenix Ltd. and Natural Dining Ltd.

Nov 2015 Mitsubishi sells ordinary shares in the company and changes from parent company to other affiliated company

Aug 2016 Establishes investment holding company Fast Restaurant International Pte. Ltd. (FRI) as a consolidated subsidiary in Singapore. Invests in Bamboo (Thailand) Holding Pte. Ltd., which operates KFC restaurants in Thailand, through FRI.

June 2017 Sells and transfers all share of consolidated subsidiaries, Pizza Hut Japan Ltd. and Phoenix Foods Inc, to Endeavor United Partners Six, Co., Ltd.

Feb 2018 Entered capital and business alliance with BYO Co., Ltd. Source: Shared Research based on company data

Relationship with Mitsubishi Corporation In the 1960s, a manager in Mitsubishi Corporation’s food business noticed that Kentucky Fried Chicken Corporation had a successful franchise business in the US and visited Colonel Harland Sanders on multiple occasions. Following four years of negotiations, he won the approval of Colonel Sanders in 1969 and a test restaurant was opened at the Osaka Expo in March 1970.

Following the success at the Osaka Expo, in July 1970 KFC Japan was established with equal investments from Mitsubishi and Kentucky Fried Chicken. Mitsubishi built a value chain from chicken feed through animal breeding and restaurant operations. Upstream is Mitsubishi’s US subsidiary Agrex Inc., a wholesaler of grains used in chicken feed, and on the downstream end is KFC Japan, which is responsible for restaurant operations.

In November 2015, Mitsubishi sold 627,000 of KFC Japan’s ordinary shares. The aim was to improve the company’s corporate value as increased liquidity of the shares led to an expanded investor base. Mitsubishi held a 65.86% stake of KFC Holdings Japan before the sale, and changed from being the parent company to a major shareholder (stake: 35.12% as of March 31, 2018).

48/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

However, Mitsubishi said it would continue to use its network of grain, chicken feed, and made-in-Japan chicken raised at designated KFC-accredited farms to support KFC Japan.

Corporate governance and top management

Corporate governance system (as of June 2018)

Capital structure

Controlling shareholders None

Foreign investor shareholding Under 10%

Organization and directors

Organizational type Company with audit and supervisory committee

Number of directors under Articles of Association Upper limit on number of directors not specified

Number of directors 8

Directors' terms under Articles of Association 1 year

Chair of the Board of Directors President

Number of external directors 4

Number of external directors designated as independent directors 2

Voluntary committee equivalent to Nomination Committee or Compensation In place Committee

Number of auditors under Articles of Association 5

Number of members on Audit Committee 3

Number of external members on Audit Committee 3

Number of external Audit Committee members designated as independent 2 Audit Committee members

Other

Measures to provide incentives to directors Performance linked compensation system in place

Stock-option grantees None

Disclosure of directors’ compensation No individual compensation disclosure

Policy on determining amount of compensation and calculation methodology In place

Corporate takeover defenses None Source: Shared Research based on company data

CEO Masaki Kondo (born in 1955) joined the food business of Mitsubishi Corporation in April 1978 after graduating with a degree in economics from Waseda University in March that year. He was assigned to Mitsubishi Colombia in May 1985 and in April 2001 became Coffee Unit Manager in the Food Division. He was appointed President of Mitsubishi Brazil in April 2008 and in April 2013 became Assistant to the Group CEO (GM, Human Resources) in Mitsubishi’s Living Essentials Group. In April 2014 he was appointed executive officer and president of KFC Holdings Japan, and in June 2014 was appointed to his current position of representative director and executive president.

49/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Dividend policy

The company has a policy of paying out excess funds as dividends twice a year, as interim and year-end dividends. Since FY03/12, it has maintained a stable annual dividend of JPY50 per share.

9.5% 300% Payout ratio Total shareholder return ratio DOE (right axis) 10% 254.4% 9% 250% 8% 7% 200% 5.1% 5.3% 5.3% 193.9% 6% 4.9% 4.8% 4.8% 4.9% 150% 153.6% 5.4% 5% 4% 100% 120.0% 101.8% 3% 93.3% 82.1% 2% 50% 62.0% 1% 0% 0% FY03/10 FY03/15 Source: Shared Research based on company data

Major shareholders (As of March 31, 2018)

Shareholding Top shareholders Shares held ('000) rat io Mit subishi Corporat ion 7,875 35.12% Japan KFC Holdings Franchise Owners Stockholding Association 221 0.98% JP MORGAN CHASE BANK 385151 172 0.76% (Standing proxy: Mizuho Bank, Ltd.) Meiji Yasuda Life Insurance Company (Standing proxy: Trust & Custody Services Bank, Ltd.) 110 0.49% BBH FOR VANGUARD DEVELOPED MARKETS INDEX FUND 79 0.35% (Standing proxy: Mizuho Bank, Ltd.) DFAINVESTMENTTRUSTCOMPANY-JAPANESE SMALL COMPANY SERIES 79 0.35% (Standing proxy: Citibank N.A. Tokyo Branch) STATE STREET BANK AND TRUST COMPANY 505223 74 0.33% (Standing proxy: Mizuho Bank, Ltd.) The Master Trust Bank of Japan, Ltd. 73 0.32% Tanabe Corporation 73 0.32% Kewpie Corporation 67 0.29% Total 8,824 39.35% Source: Shared Research based on company data

Principal group companies (as of March 2018)

Company Location Stake Business description

Kentucky Fried Chicken Japan, Ltd. Shibuya, Tokyo 100% Operation of Kentucky Fried Chicken restaurants

K Ad, Ltd. Shibuya, Tokyo 100% Chicken advertising

K Foods, Ltd. Fukushima, Osaka 100% Operation of Kentucky Fried Chicken restaurants

Fast Restaurant International Pte. Ltd. Singapore 100% Investment holding company Source: Shared Research based on company data

50/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Employees

No. of employees (consolidated) FY11/08 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 KFC 706 691 686 663 661 633 674 666 708 723 Pizza Hut 395 338 307 270 268 247 266 248 244 - Other - 22 22 17 17 17 14 134 111 104 Company-wide (common) 88 87 112 136 137 148 117 - - - Total 1,189 1,138 1,127 1,086 1,083 1,045 1,071 1,048 1,063 827 No. of temporary workers (consolidated) FY11/08 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 KFC 2,671 2,501 2,281 2,501 2,325 2,394 2,371 2,349 2,435 2,369 Pizza Hut 1,511 1,259 1,190 1,187 1,228 1,218 1,325 1,071 922 - Other - 59 45 51 57 59 97 24 16 12 Company-wide (common) 15 17 11 9 5 6 8 - - - Total 4,197 3,836 3,527 3,748 3,615 3,677 3,801 3,444 3,373 2,381 Source: Shared Research based on company data Note: Balance date changed to March from FY03/10

By the way The story of Colonel Sanders In 1930, Harland Sanders (Sanders was commissioned with the honorary title of Kentucky Colonel in 1935 by the state governor, and was henceforth known as Colonel Harland Sanders) opened a gas station in Corbin, Kentucky. At one side of the station, he started a restaurant with one table and six chairs. In 1939 Sanders perfected his “original chicken” recipe using 11 secret herbs and spices for fried chicken cooked with pure vegetable oil in a pressure cooker.

In 1952, he launched the franchise system that became the basis for the current KFC chain. He granted permission to use the Kentucky Fried Chicken brand to restaurant owners and in return received five cents in royalty for every chicken sold.

In 1964, he sold the franchise rights, which were bringing in USD300,000 annually, to future governor of Kentucky John Y. Brown, Jr. and Jack C. Massey. In his subsequent worldwide travels, he visited Japan three times and apparently confided to Roy Weston, then the chairman of KFC Japan that “Japanese fried chicken is my favorite.”

51/53 KFC Holdings Japan / 9873

RCoverage LAST UPDATE: 2018.12.07 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

Profile Company Head office Yokohama i-MARK PLACE, KFC Holdings Japan, Ltd. 4-4-5 Minatomirai, Nishi-ku, Yokohama-shi, Kanagawa

Phone Listed on +81- Tokyo Stock Exchange 2nd section 45-307-0700 Established Exchange listing July 4, 1970 August 21, 1990 Website Fiscal year-end - March

52/53 About Shared Research Inc.

RCoverage Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

We offer corporate clients comprehensive report coverage, a service that allows them to better inform investors and other stakeholders by presenting a continuously updated third-party view of business fundamentals, independent of investment biases. Shared Research can be found on the web at http://www.sharedresearch.jp.

Current Client Coverage of Shared Research Inc.

Accordia Golf Trust FRONTEO, Inc. ONWARD HOLDINGS CO.,LTD. Adastria Co., Ltd. Fujita Kanko Inc. PARIS MIKI HOLDINGS Inc. ADJUVANT COSME JAPAN CO., LTD. FURYU CORPORATION PIGEON CORPORATION Aeon Delight Co., Ltd. Gamecard-Joyco Holdings, Inc. RACCOON HOLDINGS, Inc. Aeon Fantasy Co., Ltd. GCA Corporation RESORTTRUST, INC. Ai Holdings Corporation Grandy House Corporation ROUND ONE Corporation AnGes Inc. Hakuto Co., Ltd. RVH Inc. Anicom Holdings, Inc. Happinet Corporation RYOHIN KEIKAKU CO., LTD. Anritsu Corporation Harmonic Drive Systems Inc. SanBio Company Limited Apaman Co., Ltd. HOUSEDO Co., Ltd. SANIX INCORPORATED Arealink Co.,Ltd. IDOM Inc. Sanrio Company, Ltd. Artspark Holdings Inc. IGNIS LTD. SATO HOLDINGS CORPORATION AS ONE CORPORATION Inabata & Co., Ltd. SBS Holdings, Inc. Ateam Inc. Infocom Corporation Seikagaku Corporation Aucfan Co., Ltd. Infomart Corporation Seria Co.,Ltd. AVANT CORPORATION Intelligent Wave, Inc. SHIP HEALTHCARE HOLDINGS, INC. Axell Corporation istyle Inc. SIGMAXYZ Inc. Azbil Corporation Itochu Enex Co., Ltd. SMS Co., Ltd. AZIA CO., LTD. JSB Co., Ltd. Snow Peak, Inc. BEENOS Inc. JTEC Corporation Solasia Pharma K.K. Bell-Park Co., Ltd. J Trust Co., Ltd SOURCENEXT Corporation Benefit One Inc. Japan Best Rescue System Co., Ltd. Star Mica Co., Ltd. B-lot Co.,Ltd. JINS Inc. Strike Co., Ltd. Canon Marketing Japan Inc. JP-HOLDINGS, INC. SymBio Pharmaceuticals Limited Carna Biosciences, Inc. KAMEDA SEIKA CO., LTD. Synchro Food Co., Ltd. CERES INC. Kenedix, Inc. TAIYO HOLDINGS CO., LTD. Chiyoda Co., Ltd. KFC Holdings Japan, Ltd. Takashimaya Company, Limited Chugoku Marine Paints, Ltd. KI-Star Real Estate Co., Ltd. Take and Give Needs Co., Ltd. cocokara fine Inc. Kumiai Chemical Industry Co., Ltd. Takihyo Co., Ltd. COMSYS Holdings Corporation Lasertec Corporation TAMAGAWA HOLDINGS CO., LTD. CRE, Inc. LUCKLAND CO., LTD. TEAR Corporation CREEK & RIVER Co., Ltd. MATSUI SECURITIES CO., LTD. Tenpo Innovation Inc. Daiseki Co., Ltd. Medical System Network Co., Ltd. 3-D Matrix, Ltd. DIC Corporation MEDINET Co., Ltd. TKC Corporation Digital Arts Inc. Milbon Co., Ltd. TOKAI Holdings Corporation Digital Garage Inc. MIRAIT Holdings Corporation Tri-Stage Inc. DIGITAL HEARTS HOLDINGS Co., Ltd Monex Goup Inc. VISION INC. Don Quijote Holdings Co., Ltd. NAGASE & CO., LTD VISIONARY HOLDINGS CO., LTD. Dream Incubator Inc. NAIGAI TRANS LINE LTD. VOYAGE GROUP, INC. EARTH CHEMICAL CO., LTD. NanoCarrier Co., Ltd. WirelessGate, Inc. Elecom Co., Ltd. Net One Systems Co.,Ltd. YELLOW HAT LTD. Emergency Assistance Japan Co., Ltd. Nichi-Iko Pharmaceutical Co., Ltd. YOSHINOYA HOLDINGS CO., LTD. en-Japan Inc. Nihon Denkei Co., Ltd. YUMESHIN HOLDINGS CO., LTD. euglena Co., Ltd. NIPPON PARKING DEVELOPMENT Co., Ltd. Yume no Machi Souzou Iinkai Co., Ltd. Evolable Asia Corp. Nisshinbo Holdings Inc. Yushiro Chemical Industry Co., Ltd. Ferrotec Holdings Corporation NS TOOL CO., LTD. ZAPPALLAS, INC. FIELDS CORPORATION NTT URBAN DEVELOPMENT CORPORATION Financial Products Group Co., Ltd. Oki Electric Industry Co., Ltd FreeBit Co., Ltd. ONO SOKKI Co., Ltd.

Attention: If you would like to see companies you invest in on this list, ask them to become our client, or sponsor a report yourself.

Disclaimer: This document is provided for informational purposes only. No investment opinion or advice is provided, intended, or solicited. Shared Research Inc. offers no warranty, either expressed or implied, regarding the veracity of data or interpretations of data included in this report. We shall not be held responsible for any damage caused by the use of this report. The copyright of this report and the rights regarding the creation and exploitation of the derivative work of this and other Shared Research Reports belong to Shared Research. This report may be reproduced or modified for personal use; distribution, transfer, or other uses of this report are strictly prohibited and a violation of the copyright of this report. Our officers and employees may currently, or in the future, have a position in securities of the companies mentioned in this report, which may affect this report’s objectivity.

Japanese Financial Instruments and Exchange Law (FIEL) Disclaimer: The report has been prepared by Shared Research under a contract with the company described in this report (“the company”). Opinions and views presented are ours where so stated. Such opinions and views attributed to the company are interpretations made by Shared Research. We represent that if this report is deemed to include an opinion by us that could influence investment decisions in the company, such opinion may be in exchange for consideration or promise of consideration from the company to Shared Research.

Contact Details Shared Research Inc. 3-31-12 Sendagi Bunkyo-ku Tokyo, Japan URL: https://sharedresearch.jp Phone: +81 (0)3 5834-8787 Email: [email protected]

53/53