Skylark : Integrated Report 2021

Skylark Group

Integrated Report

2021Fiscal Year 2022

Our Purpose

To contribute to enriching people's lives and to the advancement of

society as a whole by creating the future of dining

In line with our Corporate Philosophy of "Creating Richness with Value to Society",

Skylark Group has established Our Purpose, Corporate Mission,

Long-term Strategic Vision for 2030, Strategic Vision for 2025 and Corporate Value as follows, towards our goal of contributing to society and enriching people's lives through food service.

Corporate Philosophy

Creating Richness with Value to Society

Our Purpose

To contribute to enriching people's lives and to

the advancement of society as a whole by creating the future of dining

Corporate Mission

To offer great-tasting food at affordable prices with

good service in our comfortable restaurants to as many people as possible

Long-term Strategic Vision for 2030

Help all people lead enriched lives / Contribute to realizing an enriched society /

Environmental conservation

Strategic Vision for 2025

Establish a solid business foundation, be the best restaurant in each community

through a continuous challenge of all employees and achieve sustainable business growth

- All for the Smiles of Our Customers -

Corporate Values

❶ Customers First ❷ Hands-On Approach ❸ Positive Work Environment/Employee Engagement

• Knowledge & Skill Improvement ❺ Commitment to Achieving Goals

Our Purpose and Materiality

We have identified our material issues (materiality) towards the realization of our purpose, "To contribute to enriching people's lives and to the advancement of society as a whole by creating the future of dining". In considering the various medium- and long-term social issues, we have specified priority issues which need be addressed that are important to society and our various stakeholders. By establishing a system to address our materiality and managing progress through KPIs, we will continue to manage our business in a solid way to realize our purpose.

• See P.11 for details on our materiality and risks/opportunities.

Contents

3 CEO message

How to Grow in the Post-COVID-19 Era

7 Value Creation of Skylark Group

9 Skylark Group's Value Creation Platform

1. Skylark Group's Materiality: Risks & Opportunities

1. Stakeholder Engagement

1. Special Topic
   Our Measures Against COVID-19
2. Skylark's Strengths

1. Vertically Integrated Supply Chain

1. Ensuring Food Safety and Security

19 Medium- and Long-Term Growth Story

21 Promotion of Digital Transformation (DX)

1. Customer-OrientedStore Operation Strategies

1. Developing Menus to Meet Customer Needs

1. HR Strategies that Enable Diverse Talents to Play an Active Role

1. Store Development Strategy Optimal for Each Market

31 Financial Strategies and Shareholder Return Policy

33 Business Performance

33 Financial/Non-Financial Highlights

35 ESG Management

1. Sustainability Management
2. Skylark Group's Materiality
3. Corporate Governance

1. Dialogues with Shareholders and Investors
2. Risk Management
3. Compliance System
4. Directors & Officers

45 Helping All People Lead Enriched Lives

1. Contributing to Realizing an Enriched Society
2. Environmental Conservation

52 General Information

Skylark Group

Integrated Report

2021 Fiscal Year

2022

Editorial Policy

This report is published to provide shareholders, investors, and stakeholders with financial and non-financial information, as well as information on our efforts to enhance corporate value over the medium- and long-term, and to encourage further dialogue. Since the Company follows International Financial Reporting Standards (IFRS), the contents of this report are based on IFRS unless otherwise stated. Based on our management philosophy of "Creating Richness with Value to Society," we will strive to create value for our business through dialogue with our stakeholders by enhancing and proactively utilizing the Integrated Report.

Period Covered

FY2021

January 1, 2021 to December 31, 2021

Note: Some FY2022 business activities are covered as well.

Scope of Coverage

SKYLARK HOLDINGS CO., LTD. and its consolidated subsidiaries

Guidelines

• Ministry of the Environment "Environmental Reporting Guidelines 2018"
• GRI Global Reporting Initiative
  "GRI Sustainability Reporting Standards"
• International Integrated Reporting Council (IIRC) "International Framework"
• Ministry of Economy, Trade and Industry "Guidance for Collaborative Value Creation"

Cautionary Statement Regarding Forward-looking Statements

Forward-looking statements contained in this report are based on information available at the time of writing and may differ from actual results due to changes in the business environment and other factors.

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Business Conditions

	Cost Pressures		Stagnant		Low Birthrate and
	▶ Energy cost↑		Household Income		Aging Population
		Levels		▶ Baby-boom
	▶ Raw material
		▶ Sluggish state of
	costs↑			generation will be
	▶ Labor cost↑		Japanese economy		75 years old or older
			▶ Decline in consumer		▶ Decline in working
			sentiment		population

CEO message

Future of the Restaurant Market

	Increase in double-				▶ Externalization of
	income households				food preparation	Increase
	Increase in total
			people who eat
	household income				▶ Percentage of
				out

Stable growth of the restaurant market

CEO message

We will increase guest count by gaining

customer support and turning them into loyal customers

				Improve core menus and expand the variety of affordably priced menu items
	Core	1
			Thoroughly improve restaurant QSC
		2
	Strategies
			Aggressively promote DX to combat rising costs
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How to Grow in the Post-COVID-19 Era

Makoto Tani

Chairman, President & Chief Executive Officer

SKYLARK HOLDINGS CO., LTD.

restaurant business, with customer perspectives. Diversification of food options has progressed with the

COVID-19 pandemic. Consumers are becoming more selective about where they eat out, demanding more meaning and value from eating out than ever before.

Therefore, we will implement three core strategies that form the foundation of our restaurant business, looking ahead to the post-COVID-19 era.

The first is to improve the taste of our products and enhance our product variety in the affordable price range. The second strategy is to thoroughly improve restaurant QSC (providing a better environment both inside and outside the restaurant). The third is to aggressively promote digital transformation (DX) and prepare for coming cost increases.

Different Occasions for Eating Out and Skylark Group's Applicable Brands

1 Brands that meet basic needs for daily use

Applicable brands: Gusto, Bamiyan, Yumean

Position: Casual daily use by seniors, families and solo diners.

Menu strategies: Enhance variety of affordably priced menus and menus that allow customers to share, develop menu and pricing strategies that meet the needs of solo diners, and develop menu variety which are healthy and environmentally- friendly.

2 Brands for special occasions that offer unique experience

Applicable brands: Musashinomori Coffee, La Ohana

message CEO

As the impact of the COVID-19 pandemic prolonged, in FY2021, we made efforts to thoroughly reduce costs and improve productivity.

People's lifestyles and values have changed dramatically through the COVID-19 pandemic. In addition to worsening costs, including rising energy, ingredient and labor costs, inflation risks are further increasing amid the tense situation in the world. Furthermore, the per capita income level in Japan has not risen with the decline of Japan's economic strength, which is a manifestation of a structural problem that Japan faces. In 2025, baby-boom generation will be at least 75 years old, and the working population will continue to decline as the birthrate declines and the population ages. Therefore, it is no exaggeration to say that the business conditions of the restaurant industry are drastically changing.

Although we are aware that the external environment will remain challenging, we are continuously preparing for future growth, looking ahead to the post-COVID-19 era.

Responding to changes in the food service market after COVID-19.

Although Japan's population will continue to decline, the number of double-income households will increase, and household incomes will rise as more women enter the workforce. As a result, the restaurant market is expected to grow stably in the future, due to the expected increase in both the externalization of food preparation and the percentage of people who eat out.

In order to increase our market share in such a market environment, the most important thing is to gain the support of more customers, have them increase the frequency of visits to our restaurants, and turn them into loyal customers. For a restaurant business to survive and grow, it is important to gain the trust and satisfaction of customers through menu development and improvement of quality, service and cleanliness (QSC) in our restaurants, which are both central to the

As a financial strategy to promote these core strategies, we raised approximately 43.0 billion yen through a public offering of new shares last year. Although the restaurant industry is facing extremely difficult business conditions due to the COVID-19 pandemic, we are very grateful for the understanding and expectations that many investors have shown regarding our strengths and future growth potential. We will do our utmost to achieve business growth and well- balanced shareholder returns by allocating funds for future growth while strengthening our financial standing.

Developing menu strategies that meet diversified needs.

We have more than 20 brands that cover a wide variety of cuisines, catering to a wide range of occasions for eating out. In the post-COVID-19 world, we believe that customer motivations to visit restaurants will be more clearly split between brands that meet basic needs for daily use and brands for special occasions that offer unique experience.

(Hawaiian dining), Syabu-Yo, Jonathan's

Position: Offers the joy in dining out; used by couples, families and groups of close friends.

Menu strategies: Enhance variety of specialty store quality menus and value-added menus.

We will continue to offer a wide variety of menu items at value-for-money prices by leveraging the purchasing power of a restaurant chain with more than 3,000 locations, which is the foundation of this company. In addition, we are expanding our alcohol menu variety across our brands as a new line of strategy. By also implementing menus that go well with alcoholic beverages, we will attract new customers through suggesting new ways of dining, such as enjoying alcoholic beverages at family restaurants.

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Menu Strategies

Eating Out

Occasions

For Everyday Use

For Special Occasions

<> Brands>

Brands

Position

For seniors, families, and solo diners

For families, couples and groups of close friends

Used for everyday casual dining

Provide the joy of eating out

Strategies

▶ Enhance variety of affordably-priced menus

▶ Menus that are unique to specialty stores

▶ Improve the quality of our core menus

▶ Value-added menus that use special ingredients

▶ Develop menu items that cater to the needs of solo diners

or ingredients from special sources

Menu

▶ Enhance variety of menus that are shareable

▶ Develop menus that are healthy and

environmentally friendly

LineNewof Strategy

Creation of new

Enhance alcohol beverage and side dish variety across brands

occasions for use

Ready to Eat

• Develop more menus catered to off-premise consumption

Cooking at Home

• Enhance number of items on offer
• Begin product sales through the Skylark App

We will further accelerate the execution of our DX strategy for greater convenience for customers and higher productivity throughout the company.

By incorporating DX into all areas of our operations, we aim to dramatically improve productivity throughout the company and transform ourselves into a highly profitable organization that can overcome cost pressures.

The introduction of approximately 3,000 floor service robots in our restaurants, the renewal of POS systems in all restaurants, the introduction of cashless self- serve cash registers, and the switch to more advanced digital menu books will all be completed by the end of 2022. We are enhancing the functionality of the Skylark app and have built a function that enables ordering and payment of e-commerce orders of home-cooking products in addition to pre-payment of take-out orders of ready-to-eat menus. In addition, we are working to

CEO message

We are aggressively promoting ESG through the active involvement of senior management.

Since its founding, Skylark Group has upheld the corporate philosophy of "Creating Richness with Value to Society" and aims to contribute to society through food service in order to enrich people's lives.

In 2021, we established our Group Purpose as "To contribute to enriching people's lives and to the advancement of society as a whole by creating the future of dining" and our Long-Term Vision as "Help all people lead enriched lives, contribute to realizing an enriched society, and environmental conservation" and renewed our determination to contribute to the realization of a sustainable society through our business activities.

I personally became the chairman of the Group Sustainability Committee, which was established in 2020. All executive officers participate as committee members, and because of this organizational structure where the committee is directly integrated with business

Offer value-for-money prices by leveraging the purchasing power of

a restaurant chain and our management foundations

improve customer convenience by evolving the app into a one-stop app that allows customers to enjoy a full range of services within the app, including a special

management, we have been able to make great progress with ESG initiatives. Amid a growing sense of crisis over climate change on a global scale, we have set a

CEO message

We will implement customer- oriented store operation strategies.

To survive and achieve sustainable growth in these difficult times, undoubtedly, the biggest challenge for us is to gain the trust of our customers and gain more support. It is essential to always work from the customer's perspective. I personally try to convey the importance of having customer perspective in the various opportunities to communicate with or deliver messages to our employees.

As a way of materialization of our understanding of customer perspectives, it is extremely important to dramatically raise QSC levels in all of our restaurants, a place that is visited by our customers on a daily basis. We aim to create restaurants which offer pleasant, friendly, and hospitable service, with operations that serve delicious foods and drinks promptly, in a clean and well-kept store environment that make customers think "What a great restaurant" and "Let's come back again." We will aggressively improve QSC with an unprecedented approach. I am convinced that as each store implements QSC improvements from customer perspectives, we will win the support of our customers, and accumulation of such customer support will lead to our corporate growth. As such, we will work on QSC improvement with determination.

• For details, see "Customer-oriented Store Operation Strategies" (P. 23).

We will actively pursue strategic store development and implement promotional strategies designed to gain loyal customers.

Although we held back on new store openings during the two years of the COVID-19 pandemic, this year, we will resume property development towards new store openings in FY2023. We will carefully select and develop prime locations such as station-fronts in major cities, where high demand is expected to continue. We will continue to increase the market size of the restaurant business in each region by converting to brands that best meet local market needs, such as Musashinomori Coffee, Gusto, Bamiyan, and La Ohana. In addition, our store remodeling efforts that resumed last year had

1. greater-than-expectedeffect on guest count, and approximately 360 stores are planned to be remodeled this fiscal year.
   In order to attract new customers and encourage them to return to our restaurants, we will also implement effective promotions by optimizing our media mix, including use of post-in flyers, TV commercials, and social media, in order to increase customer visit frequency and encourage people to become loyal customers.

discount passport for senior customers.

• For details, see "Promoting Digital Transformation" (P. 21).

New businesses and overseas development will expand our business scale step by step, resulting in the accumulation of add-on sales.

For new business, we are focusing on home-cooking product sales of popular menu items in our brands. As for e-commerce, in addition to sales through Rakuten and Amazon, we started selling products through our own app in March 2022. As for retail sales, we are expanding wholesale sales channels and transaction volumes mainly through supermarkets and retail mass merchandisers. We are also steadily expanding our overseas business, with currently 68 stores in Taiwan, two stores in Malaysia, and one store in the United States. We are working to win the support of customers by responding to local customers' needs in a meticulous manner and solidify our foundation for future business expansion.

target to reduce CO2 emissions to net zero by 2050 and raised our mid- to long-term 2030 target from 25% less to 50% less compared to our 2018 levels. In addition to becoming a supporter of the Task Force on Climate- related Financial Disclosures (TCFD), we were the first restaurant company to join the TCFD Consortium. Furthermore, we are promoting initiatives to reduce food loss and plastic use, which are major issues in the food service industry. We are also working to further enhance corporate governance initiatives to ensure sound, efficient, and transparent management as well as promotion of health management and increase in ratio of female managers.

We will continue to promote ESG initiatives to enhance corporate value and contribute to the realization of a sustainable society.

• For details, see "ESG Management" (P. 35).

Fulfilling our mission as a restaurant company.

People's essential desire to satisfy their hunger easily and to spend a pleasant time over a meal with family and close friends has always existed and always will. Skylark Group, which operates approximately 3,000 restaurants throughout Japan, is committed to gaining support for each of its restaurants from its local customers and fulfilling its mission as a restaurant company by contributing to the enrichment of the lives of local residents through providing various food services.

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Value Creation of

Skylark Group

Skylark Group is Japan's largest directly managed table service restaurant chain with over 3,000 restaurants nationwide.

We aim to become a company that provides services covering every part of customer lifestyles, including eating out, home meal replacements, and home-cooked meals, by leveraging our management resources, such as a brand portfolio that meets diverse needs and a unique supply chain that leverages economies of scale.

Skylark Group's Business Model

Business Overview of Skylark Group

	Number of Stores			Guest Count		Number of Employees
	3,094			Approx.	Approx.
All prefectures and overseas	300million annually	90,000
	(as of March 31, 2022)		(as of March 31, 2022)	(as of March 31, 2022)

Value Creation of Skylark Group

The three pillars of the Skylark Group's management foundations are our business scale as the largest table service restaurant chain in Japan, our brand portfolio that meets diverse needs, and our Vertically Integrated Supply Chain (see P.15-16) in which we manage everything from raw ingredient procurement to production, distribution, cooking, customer service, and delivery. We will leverage these management foundations to achieve growth while responding to changes in the business environment.

Enhancing Our

Business Model

Responding to customer needs by

expanding brands that offer deliveries

Brands that offer our own delivery service

March 2019		As of March 2022
Six brands		Nine brands,
1,025 locations		approx. 1,400 locations

Approx. 3,000 vehiclesdelivery

Approx. 4,300 delivery vehicles

Our Brand Portfolio

High-priced

General

Specialty

Low-priced

Group Skylark of Creation Value

1 Optimization of Existing Store Sales

We are implementing menu and pricing strategies that adapt to consumer trends in order to increase our market share in the family restaurant business.

In addition, by leveraging our wide portfolio of brands, we are able to quickly convert brands with declining profitability into brands that are desired by consumers in order to maintain and improve profitability. We are also remodeling existing stores in order to improve their value.

2 Development of New Business Models

In addition to our delivery and take-out businesses for which there is high demand, we are moving forward with the development of our online and retail sales businesses. We are also developing new brands in line with market trends, flexibly responding to diversifying consumer needs. We will create new occasions for use and maximize market potential.

3 International Business Expansion

Our Taiwan business is doing well. In addition to our plans to expand business in Southeast Asia, including Malaysia, we opened our first U.S. location in Chicago, Illinois in August 2021.

4 Digital Transformation (DX)

We are accelerating IT digital investments to improve customer convenience as well as to strengthen existing businesses and expand new businesses.

We are also working to enhance profitability by improving productivity.

5 Strengthening Our Human Resources

We are actively investing in developing excellent human resources whom we can rely on to be responsible for providing restaurant services. We are working to strengthen our human resource capacities by enhancing our personnel system, providing better working environments, and offering training programs that will enable diverse talents to play an active role in regions throughout Japan.

Western					Specialty Stores
		Chinese		Steak		Pork Cutlet & Chicken Karaage	Shabu-Shabu

Japanese			Italian			Sushi

Cafe & Japanese Dining	Hawaiian		Yakiniku	Cake & Side Dishes

All-You-Can-Eat Buffet

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