Mos Food Services : Group Integrated Report 2023

MOS Group Integrated Report 2023

MOS Group Integrated Report 2023

MOS FOOD SERVICES, INC.

https://www.mos.co.jp/global/

LilMos,

the corporate mascot

LilMos © 2022 MFS, INC.

The MOS Group Value Creation Story

The MOS Group's Starting Point

(Philosophy and Conduct System)

The MOS Group has established a Philosophy System called "MOS Spirit" made up of four parts: "Contribution to Humanity, Contribution to Society," our Management Philosophy, our Founding Spirit, our Basic Policy, and our Management Vision. Moreover, the Group values its social responsibility and displays a willingness to promote management that aims to increase corporate value sustainably through both the "MOS Group Code of Conduct," its guiding principles in performing business activities, and the "Sustainability Policy and Declaration," which intends to facilitate the clear inclusion of the ESG perspective in management. These define the starting point that we must always remember.

MOS Spirit

CONTENTS

The MOS Group Value Creation Story

01 The MOS Group's Starting Point (Philosophy and Conduct System)

1. The MOS Group of Today
2. Topics of 2022
3. Message from the President

1. The MOS Group's Financial Policies and Strategies

1. The MOS Group's Value Creation Model

The MOS Group's Business Strategies

1. Promotion of Growth Strategies

1. Initiatives in Each Business

The MOS Group's Stakeholders

33 The MOS Group's Stakeholders

Our Customers / Our Members / Our Franchisees / Communities and Local Authorities / Our Business Partners / Our Shareholders / The Environment

37 Enhancement of Human Capital and Value Creation

The MOS Group's Corporate Governance

39 Corporate Governance to Support Sound Growth of the MOS Group

43 Symposium: Chairman of the Board of Directors

and Outside Directors

•Management Philosophy

(The Reason We Exist)

Contribution to Humanity Contribution to Society

•Founding Spirit

(Our Aspirations and Feelings)

Do work that is appreciated

•The MOS Group Code of Conduct*

(our guiding principles

in performing business activities)

•Sustainability Policy and Declaration

· The MOS Group Human Rights Policy · The MOS Group Environmental Policy

• The MOS Group CSR Procurement Policy
• MOS FOOD SERVICES, INC.'s Health Declaration

Management

Philosophy

Founding Spirit

Basic Policy

Management Vision

The MOS Group Code of Conduct

Sustainability Policy and Declaration

•Basic Policy

(Our Ideal Form)

We want our stores to be friendly, bright and clean, with all the workers being cheerful, alert and energetic and attending to customers in a kind and gentle manner. We want all our customers to feel at ease and sense the genial warmth that fills our store.

•Management Vision

(The Goals We Aspire To)

Making people happy through food

21 Domestic MOS BURGER Business

Marketing and Product Development Strategy

1. Domestic MOS BURGER Business Store Development Strategy
2. Overseas Strategy

The MOS Group's Material Issues

25 The MOS Group's Sustainability Management and Initiatives to Address the SDGs

1. The MOS Group's Material Issues (Priority Matters)
2. Material Issues 1. Food and Health
3. Material Issues 2. Stores and Local Communities
4. Material Issues 3. Human Resource Cultivation and Support
5. Material Issues 4. The Environment
6. Response to Climate Change (Response to the TCFD)

Editorial Policy

The MOS REPORT (MOS Group Integrated Report 2023) is positioned as the integrated report of the MOS Group.

It integrates the MOS Group's non-financial information,

With "MOS Spirit" as Our Cornerstone, We Will

Keep Growing as a Strong Sustainable Food

Service Company

MOS BURGER Chain and MOS BURGER Kyoei-kai

47 Toward the Creation of Beloved Stores and the Provision of High-Quality Services

49 The Future of MOS BURGER Kyoei-kai toward the Growth of Franchisees in Conjunction with the Head Office

Management Information/

Financial and Non-Financial Data

51 A Management Team which Supports the Sustainable Growth of MOS FOOD SERVICES, INC.

53 History of the MOS Group as a Constant Provider of Value

55 11-Year Summary of Financial Highlights (Consolidated)

1. Overview of Financial Results

1. Non-FinancialHighlights

1. Company and Shareholder Information

Scope of This Report

The report is on MOS FOOD SERVICES, INC. and the MOS BURGER Chain (head office, directly managed stores, and franchisees). However, it also covers businesses other than MOS BURGER and certain Group companies.

* For more details, please visit: https://www.mos.co.jp/company/csr/management/standard/

Origin of the company name "MOS"

MOS stands for the first letters of the words mountain, ocean, and sun. MOS means being majestic and noble as a mountain, having a heart that is as broad and deep as the ocean, and passion like the sun that never burns out. Our founder Sakurada Satoshi named MOS to encapsulate his never-ending love for human beings and nature as well as his wish for the Company to be a body of people as ideal as nature.

The goal of the MOS BURGER Chain is to become a store that delivers deliciousness, health, and happiness to our customers and communities and a place to recharge for tomorrow.

including management strategies, business highlights, activities that consider environmental preservation and

society, and the governance structure with financial information in an easy-to understand manner. In the making

of this report, we have referenced the International

Integrated Reporting Framework put forth by the Value Reporting Foundation (VRF), as well as the Guidance for Collaborative Value Creation issued by the Japanese Ministry of Economy, Trade and Industry. We hope that stakeholders, who comprise the Group's business base, will use it to enhance their understanding of the Group. Additional comprehensive and detailed information can be viewed on our corporate website. Please refer to the website in conjunction with this report.

https://www.mos.co.jp/company/ (Japanese only)

Scan the QR code to visit our corporate website. (Japanese only)

Note: Positions stated in this report are accurate at the time of writing.

Reporting Period

This report primarily covers fiscal 2022 (April 1, 2022 to March 31, 2023). However, it also reports on ongoing activities and future targets for fiscal 2023 and beyond.

Caution Regarding Forward-Looking Statements

This integrated report contains forward-looking statements regarding the MOS Group's future strategies and business performance, including forecasts, plans, and judgments based on information available at the time of writing. Forecasts, plans, and judgments involve potential risks, uncertainties, and assumptions. Changes in these factors may cause actual results and business performance to differ significantly from those anticipated by the Group.

Issued

August 2023

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The MOS Group Value Creation Story

The MOS Group of Today

"The MOS Group of Today" presents important data and information on the MOS Group's business.

Topics of 2022

Based on our Management Philosophy of "Contribution to Humanity, Contribution to Society,"

we engage in a variety of initiatives in each business and theme. In this section, we showcase our achievements in fiscal 2022.

Business Model/Domestic MOS BURGER Business

Domestic MOS BURGER Business

New Product in the "MOS PLANT-BASED" Series a Fish-like Burger Named "Soy Sea Burger -Fried

Merchandising Business

Launch of

"MOS Online Shop -Life with MOS-,"

The MOS Group develops restaurants

Fish Style Soy Patty-"

MOS BURGER's E-commerce Site

mainly through the franchise system and

Domestic MOS BURGER Business

The Group launched "Soy Sea

the main ingredient.

The Group launched the direct-

loving original products can now

is composed of four businesses: the Domestic MOS BURGER Business, the Overseas Business, Other Restaurant Businesses, and Other Businesses. Franchisees represent approximately 80% of MOS BURGER stores in Japan and the Group receives operating revenue in the form of royalties, in addition to earnings

Franchise contracts

Franchisees

Wholesaling

Royalties

Directly

managed stores

Store sales

Burger -Fried Fish Style Soy Patty-," a burger that uses a fish alternative with soy protein as

The product is a plant-based recreation of the fish burger, one of the chain's popular products. It does not contain ingredients of animal origin, from the green buns to the fish-like portion and the tartar sauce. As with this plant-based product, going forward, the Group will continue to offer food options to customers.

sales website "MOS Online shop -Life with MOS-" in cooperation with YAMATO TRANSPORT CO., LTD. MOS BURGER's nature-

be delivered to homes by making full use of YAMATO TRANSPORT's network. More than ever, the Group will strive

to expand the development of a wide range of products and distribution channels.

from the wholesaling of foodstuffs to franchisees.

Head office (MOS FOOD SERVICES, INC.)

Overseas Business

Other Restaurant Businesses

Store Locations/Number of Stores

ESG Initiatives in Thailand and Singapore

Sale of Black Tea-Based Drinks in MINISTOP Stores

Number of MOS BURGER	•	Number of Overseas Stores
•Stores in Japan
47prefectures	455 stores
1,292 stores	in 9countries
and regions
•Other Restaurant Businesses 23stores				P62

In an effort to elevate the MOS BURGER brand, the Group carries out local contributions that raise corporate value in each region and actively participates in award-giving contests. In Thailand, the Group partnered with the nursery school Universal Kids Bangkok, which focuses on dietary education-related activities, to open food trucks and implement initiatives related to dietary education, while in Singapore it entered a contest

aiming to encourage the improvement of customer service in retail stores, and 5 staff members received the Silver Award.

"Mother Leaf" is a store chain that offers drinks containing genuine black tea selected from designated plantations in Sri Lanka.

These drinks are now sold in MINISTOP stores in Japan under the names "Curated by Mother Leaf, Lemonade Tea (with

grapefruit flesh)" and "Curated by Mother Leaf, Milk Tea (with caramel sauce)" in order to simplify the enjoyment of these black-tea specialties only available in "Mother Leaf" stores.

	Business Scale	•Net Sales (Consolidated)
	•Net Sales for All Domestic Stores
	¥120,738million	¥ 85,059million
	•Number of Shareholders	•Number of MOS BURGER Customers in Japan
45,025	97.1million groups*
		* Number of payments in POS transaction count

Sustainability

Introduction of the Alter-Ego Robot OriHime in the MOS BURGER Store Located in Harajuku Omote Sando

The Group has started testing the alter-ego robot OriHime* in its flagship sustainability store "MOS BURGER Harajuku Omote Sando," located in the Tokyo Metropolis. OriHime was used in pilot experiments with customers who have trouble leaving their home due to a social handicap and with challenge mates of the special purpose subsidiary MOS SHINE, INC. to perform customer service tasks.

* An alter-ego robot developed by Ory Lab Inc.

Human resources

"Eruboshi" Certification Obtained with 3 Stars

MOS Group head office obtained the "Eruboshi" certification established by the Minister of Health, Labour and Welfare on March 2, 2023, as an outstanding company for promoting women's active participation in the workplace. It was awarded 3 stars, the third level of the certification. The Group aims to create working environments where all the personnel can adopt flexible workstyles regardless of gender or age, and promotes the cultivation of workplaces where each person can shine and experience job satisfaction.

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The MOS Group Value Creation Story

Message from the President

Deeply Instilling Entrepreneurship and Transforming into the MOS Group That Will Grow for the Next 50 Years

As trustees of the thoughts our founder left us in the form of the "MOS Spirit," we constantly question ourselves on what the necessary components are for continuous growth in the next 50 years.

I humbly ask the stakeholders who have supported the MOS Group up to now that they warmly follow our development in the future.

NAKAMURA Eisuke

President & Representative Director,

MOS FOOD SERVICES, INC.

For Sustainable Management to

Create a 100-Year Company

During fiscal 2022, MOS FOOD SERVICES, INC. had to celebrate the 50th anniversary of its founding.

Since its establishment in 1972, the MOS Group has used the "MOS Spirit," its Philosophy System, as a guiding principle, and has aimed to grow by sharing value with all the stakeholders who surround us. To all of those who have put their trust in our Company and supported us, I express my sincere gratitude for the opportunity to be the MOS Group's Representative.

During the 50 years since our founding, the environment surrounding the MOS Group has changed greatly. When the group was founded, Japan was right in the midst of period of rapid growth, enjoying the prosperity that followed the 1964 Tokyo Olympics, the 1970 Expo '70 in Osaka and the development of various industries. It is said that the expression "food service industry" was also born during that time. Many food service chains were formed in that period, and MOS BURGER was one of them.

Afterwards, Japan went through an economic bubble burst and a period of economic stagnation known as the lost 30 years. Along with the decreasing birthrate and the demographic ageing, the population continues to decrease after reaching a peak in 2008. However, if we shift our attention to the world, the global population has doubled during these 50 years and now surpasses 8 billion people.

The MOS Group has developed its businesses from Japan, but I believe that there are still opportunities to bring the high-quality and delicious food we have pursued so far to unexplored markets such as Europe and North America, in addition to the Asian markets we are currently developing. My dream is for the Company to grow into a chain beloved by people throughout the world.

On the other hand, the world is struggling with various problems associated with population growth and economic development. Measures to deal with climate change, which is becoming more severe are now an urgent matter, and all companies and countries are asked to implement measures toward carbon neutrality via the reduction of CO2 emissions generated by economic activities.

Then, the COVID-19 pandemic which has engulfed the world from 2020 onward has had a strong impact on the restaurant industry. Furthermore, the sharp rise in ingredient prices caused by cross-national conflicts and exchange factors is becoming an extremely serious issue.

Our responsibility as business operators who handle food is to continue to provide safe and delicious meals while keeping the health of customers in mind. In addition, for us to remain a chain supported by customers, I believe we need to grapple head on with the sustainability issues related to our business, such the reduction of food waste, general waste matter,

plastic waste, and recycling.

In order to tackle these issues in a company-wide fashion, we established the Sustainability Committee with the members of the Management Meeting as its members during fiscal 2022. The Group defined the material issues (priority matters) in its businesses in fiscal 2019, but we regard the Committee as an important organization to monitor these issues, and deliberate and review company-wide policies related to sustainability. With respect to the material issues defined 3 years ago, we have recently implemented inspections and reestablished concrete goals (KPIs) through the Sustainability Committee.

The current four material issues are: "Food and Health," "Stores and Local Communities," "Human Resource Cultivation and Support," and "The Environment." We regard "Governance" as the foundation to advance their resolution. Going forward, the Sustainability Committee will monitor the progress of the KPIs related to material issues with an eye to 2030, as well as implement periodic inspections taking into account the impact on our businesses and environmental changes, under the supervision of the Board of Directors.

I will cite an example of our initiatives regarding "The Environment." We recognize that climate change- related measures are an important management issue. In order to promote initiatives aiming to realize carbon neutrality by 2050, the Group has endorsed the Task Force on Climate-related Financial Disclosures (TCFD) and discloses information regarding corporate governance, strategy, risk management, and indicators and targets in line with its recommendations.

Modeled on the vision of the future for 2030 in the SDGs, while achieving the 17 goals, we have set spreading to people across the world the values of "making customers feel at ease" and "genial warmth" as the ideals of the MOS Group we will aim to realize.

We aim to further increase corporate value by seriously tackling these issues and implementing sustainability management. Contributing to the creation of a better society is the mission of the MOS Group, which sees "Contribution to Humanity and Contribution to Society" as its management philosophy, and it is also my wish.

For the MOS Group to remain beloved by customers in the next 50 years and last 100 years as a company, we plan to continue to grow while tackling the resolution of the social issues surrounding our businesses.

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The MOS Group Value Creation Story

"MOS Spirit" and

"Entrepreneurship"

initials stand for MOUNTAIN, OCEAN and SUN

( P1). As the person put in charge of management after a 50-year long history, I believe that maintaining the tradition of loving people and loving nature, inherited from our founder, is an important

What we must do now about entrepreneurship

a critical factor in corporations' growth

A favorite phrase of our founder Sakurada Satoshi was, "If I'm going to work, I want to do work that is appreciated. "This very statement, which we still share from generation to generation as our "Founding Spirit," is the idea behind our Company and the source of the MOS Group's activities.

Since I was appointed Representative Director in 2016, I have placed great importance on the "MOS Spirit," and entrepreneurship. The MOS Group has established a Philosophy System called "MOS Spirit," composed of "Contribution to Humanity, Contribution to Society," our Management Philosophy, the Founding Spirit, the MOS BURGER Basic Policy, and the Management Vision. These four parts make up what we advocate as a company and the guiding principles that our members who work at the MOS Group cherish.

The Management Philosophy, which is at the top of "MOS Spirit," can be seen as the purpose of the MOS Group. It includes the following guideline: "Let's contribute to society by providing services with devotion and deeply connecting with customers and local communities. " This means that people and societies cannot be separated from each other, and furthermore, that contributions should reach all stakeholders beyond our closest partners. This concept is also embodied by the MOS name whose

responsibility.

Another concept I cherish is entrepreneurship. The word "entrepreneurship" is often used to refer to "an enterprising spirit" and misunderstood as the characteristic disposition of business founders.

It actually expresses the stance of starting new ventures, and taking risks and is a necessary attribute not only in business founders but in all workers. I interpret this concept as the process of engaging in hard thinking, making decisions by oneself, carrying the risks and making a step forward.

For example, during meetings, I encourage the attending members to firmly raise their hand and state their opinions. Rather than abdicating one's responsibility, it is important to raise one's hands oneself, expressing one's opinions, and clearly one's thoughts to the other attending members. Likewise, in order to create an environment where all workers can contribute jointly and evenly regardless of their position, I have consciously adopted an approach where all members share their favorite plan simultaneously, in a process I call the "rock-paper- scissors method." As a result, the exchange of ideas turns lively and good suggestions can be adopted.

In an effort to continue growing going forward, it is essential for our Group to nurture human resources

who can display this kind of entrepreneurship in great numbers. I want us to steadily train human resources who can think by themselves and take risks though the accumulation of such behaviors, although they might appear trivial.

Looking Back on Fiscal 2022

I will now provide a review of fiscal 2022, which was the first year of the Medium-Term Management Plan. In the Domestic MOS BURGER Business, consolidated net sales were ¥85,000 million, the highest on record. We are progressing favorably toward the medium-term management target of ¥100,000 million for fiscal 2024.

Regarding the progress by business, first, the Domestic MOS BURGER Business's net sales from all stores were ¥118,900 million (105.2% of the previous fiscal year's results), and net sales from existing stores, number of customers and average amount per customer all grew favorably year on year. More specifically, despite a slump in fiscal 2020 during the COVID-19 crisis, the number of customers immediately

stores. In order to improve the franchise package, we committed to raising the operational efficiency of stores by making full use of IT and DX (digital transformation). Our goal is to create a virtuous circle where the rise of earning power in individual stores encourages franchisee owners to open more stores, which should lead to a further improvement in our ability to open stores.

On the other hand, in fiscal 2022, operating income was ¥40 million and profit attributable to owners of parent ended in the red at a negative ¥300 million, due in part to the impairment impact from some overseas region. There are three main reasons behind the significant decrease in operating income. First, the substantial rise in purchasing costs in the Domestic MOS BURGER Business was impactful. Then, there was the effect of the rise in the SG&A ratio in the same business. Finally, the recovery from the impact of COVID-19 on the Overseas Business was delayed. These factors pushed the operating income downward by ¥3,900 million. As store sales remained strong, consolidated net sales reached a record high. However, the significant rise in purchasing costs after the price revisions enforced in July 2022, which surpassed our assumptions, and the impairment in the Overseas Business had severe consequences.

Net Sales (Consolidated)			(Unit: ¥ million)
90,000			78,447	85,059
		71,972
66,264	68,985
60,000
30,000
0
2018	2019	2020	2021	2022
				(FY)

Profit (Loss) Attributable to Owners of Parent (Consolidated)

(Unit: ¥ million)

4,000			3,419
3,000
2,000
1,000		997
365
(907)
0
-1,000				(317)
2018	2019	2020	2021	2022
				(FY)

Operating Income (Consolidated)		(Unit: ¥ million)
4,000				3,473
3,000
2,000			1,422
		1,060
1,000	517
0					41
2018	2019	2020	2021	2022
					(FY)

Number of Stores (All MOS Group stores)		(Unit: stores)
2,000			■ ■ Domestic	■ ■ Overseas
1,500	371	394	421	450	455
1,000
500	1,355	1,324	1,287	1,277	1,315
0	2018	2019	2020	2021	2022
					(FY)

recovered the following year and is now superior to the pre-COVID-19 level. We believe the number of customers will further grow this fiscal year due to the rise of in-store consumption.

In addition, the number of stores grew by 41 to reach 1,292 due to aggressive store openings. Over several years, we have so far put emphasis on efficient store operations, prioritized the recovery of existing stores, and aimed to improve management efficiency by closing unprofitable stores for example. For this reason, the number of stores in the domestic MOS Group had been on a slightly declining trend. However, for the first time in 9 fiscal years, we have achieved a net increase in the number of stores. Since an increase in the number of stores is directly linked to an increase in net sales, we aim to continue on that trajectory and open 50 stores during fiscal year 2023.

During fiscal 2022, we prioritized the opening of stores in regions where MOS BURGER was present in the past but had to close for various reasons. When opening stores in these regions, we are constantly told by customers that they are glad a MOS BURGER store reopened. They also tell us they are happy to be able to eat MOS burgers again. This comments from customers are a great source of encouragement for our members involved in store openings.

In parallel with our aggressive store opening policy, we also engaged in the strengthening of existing

Among the measures we are taking this fiscal year to improve our performance, I can first cite the securing of gross income through the optimization of selling prices and wholesale prices. In Japan, MOS BURGER implemented price revisions on March 24. Secondly, we are striving to generate income through the curtailment of SG&A expenses. We aim to improve the profit ratio by reviewing the use of expenses in the entire Company and improve the cost-effectiveness of promotional activities, in addition to promoting DX. Furthermore, in the Overseas Business, we plan to identify unprofitable stores and focus our management on growth markets.

Resolution of Management Issues and Strengths of the MOS Group

The decreasing birthrate and ageing population in Japan is a challenge for all industries. When it comes to the restaurant industry in particular, the decrease in the number of customers and the shortage in labor, that is to say the stronger competition to acquire talent, form a big and double-sided issue. As individual and social views on workstyles evolve, simply raising wages is no longer a sure way to gather personnel.

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