Message from the President

YOSHINOYA surpasses forecasts and Hanamaru returns to profitability
Performance targets of the medium-term management plan achieved one year ahead of schedule

Looking back at the business landscape in FY2023, the impact of the COVID-19 pandemic that devastated the restaurant industry for three years has largely faded, both domestically and internationally. However, a strong wave of inflation has hit the shores, requiring agile responses to evolving economic conditions throughout the year.
Notably, in the U.S. market, the rapid escalation of inflation in recent years has led to a noticeable increase in overall prices, accompanied by significant increases in minimum wages. Meanwhile, in the Chinese market, the economic slowdown triggered by the real estate downturn has dampened consumer confidence. On the recruitment side, the rise in youth unemployment provides an opportunity to attract talented people, but on the sales side, as in other regions, rising raw material and utility costs are putting pressure on profits.
Prices in the Japanese market have not risen as much as in the U.S., but the deflationary trend of the past 30 years has turned into inflation, which is expected to have a positive impact on economic growth. However, calling this "benign inflation" does not accurately reflect the current business environment of our restaurant industry, given the sluggish growth in consumer disposable income. On the cost side, utility and logistics costs are rising, and the depreciation of the yen is exacerbating the situation. In addition, the price of U.S. beef, a key raw material for the Group, is expected to continue to increase due to supply constraints in the local market.
Against this backdrop, our primary business YOSHINOYA achieved higher-than-budgeted revenue and profit in FY2023 thanks to net sales growth in existing stores and solid performance in the external sales business, while the Hanamaru business also achieved sales growth and a return to profitability. The impact of lowering the break-even point between FY2020 and FY2021 to manage the challenging COVID-19 environment was evident, enabling us to secure profitability by offsetting the increase in variable costs and the rising expenses associated with the expansion of the top line. Overseas, our U.S. operations continued to perform well, and the China and ASEAN regions also posted higher sales and improved profits over the previous fiscal year.
As a consequence, with net sales of 187.4 billion yen (up 11.5% from the previous year) and operating income of 7.9 billion yen (up 132.5%), we successfully achieved results that exceeded the forecast made at the beginning of the fiscal year, thus reaching the performance targets of the medium-term management plan (FY2022-FY2024) of "180 billion yen in net sales" and "7 billion yen in operating income" a year ahead of schedule.

A year that achieved increased sales and improved profits in each business segment
YOSHINOYA launches the expansion of takeout specialty stores

YOSHINOYA business in FY2023 focused on the themes of "prioritizing customer counts" and "intensifying growth investment.” To attract new customers and increase the frequency of visits by existing customers, we continued the conversion to C&C (Cooking & Comfort) restaurants and “jigsaw counter” restaurants through new store openings and renovations. In terms of product offering, we reviewed the recipe and operations for “karaage” chicken, a staple item on our year-round menu after Gyudon beef bowls, to ensure quick service and promote sales expansion.
Regarding our focus on “prioritizing customer counts,” we successfully captured the recovery of the human traffic by enhancing the quality of our products and services and making concerted efforts to raise awareness among store managers and area managers of key performance indicators (KPIs) such as the number of unique users and the repeat rate. In October 2023, we were compelled to revise the prices of our key products including "Gyudon Namimori" (regular-size beef bowl) due to escalating costs, but we were able to maintain positive growth without a decline in customer numbers.
As part of the "intensifying growth investment" initiative, we expanded the number of C&C stores to 412 by the end of FY2023, raising their share of the total store base to 34%. In addition to accelerating the speed of conversion by introducing low-investment models, we are holding quarterly "upgrade meetings" on store remodeling to incorporate suggestions from the field into the next remodeling orders. The conversion to C&C stores, which are designed to be more appealing to female customers, helped increase the percentage of female customers to 28%, approaching YOSHINOYA's target of 30%. In addition, C&C restaurants offer convenient access to takeout in addition to dine-in options, which also contributed to the rise in the number of female customers. In response to the growing demand for takeout, we are expanding the introduction of "takeout/delivery specialty stores" from FY2023.
The external sales business remained solid in FY2023, achieving net sales of approximately 11 billion yen, continuing the growth in sales of frozen and retort pouch beef bowl ingredients that began during the COVID pandemic. Our future challenge in the next stages of growth will be to attract customers and promote the development of products offered by Group companies other than YOSHINOYA.
Our paramount objective for the Hanamaru business has been to achieve operating profitability for the first time in four years. To expand the top line by capturing the flow of returning customers, we initiated company-wide efforts focused on "developing human capital," "refining product quality," and "enriching the store environment.” As a result, Hanamaru’s operating income returned to profitability in FY2023, supporting the Group's overall profits. However, it may not be entirely accurate to characterize the recovery as robust, as a significant portion of it can be attributed to favorable market conditions. We need to clarify the strategic direction of the Hanamaru business for medium- and long-term growth, while accelerating efforts to improve profitability and implementing a rebranding initiative.
In the overseas business, performance in China and ASEAN improved significantly as markets recovered from the effects of the COVID-19 pandemic. However, in China, as noted above, consumer confidence deteriorated amid the real estate downturn, with the impact becoming evident in the second half of the period. In this context, our Group has adopted new measures, such as expanding store openings in the outskirts of Shanghai and consolidating local operating units, which are proving successful. Our U.S. business maintained its robust performance throughout FY2023, driven by menu diversification, store remodels and the introduction of kitchens that improve operational efficiency. However, we experienced delays in key initiatives, including the planned year-end opening of a commissary center (food processing plant) and the expansion of store openings into other states beyond California. This underscores the need for rapid execution of growth strategies in FY2024.
Our ramen noodle business, which we have been cultivating, also showed improved business performance thanks to an influx of returning customers. In particular, our Setagaya outlets, which are located at busy airports or railway station hubs, recovered from sluggish sales in the previous year and posted sales growth. With Link, which operates ramen noodle shops in suburban areas, also performed well. As a pioneering step, we plan to open our first outlet in Scotland, England, this fiscal year. This will be the Group's first venture into the European market and is expected to pave the way for future business prospects.

Significant increase in growth investments in the final year of medium-term management plan
Aggressive store opening for the first time in 20 years to accelerate YOSHINOYA’s “evolution”

As mentioned above, in FY2023, we exceeded the sales and operating income targets for consolidated performance set in our medium-term management plan one year ahead of schedule, thanks to the robust performance of each business segment. The operating profit of 7.9 billion yen is the highest profit level in 20 years since FY2004, when our performance was significantly impacted by the BSE issue. However, as corporate management, we recognize that we cannot afford to be complacent. The performance targets of "180 billion yen in net sales" and "7 billion yen in operating income" set forth in the medium-term management plan are the minimum levels required to return the funds entrusted to us by our shareholders through stable dividends, and we believe that the achievement itself is nothing to be proud of.
The COVID pandemic forced us to suspend and postpone our long-term ten-year vision, NEW BEGINNINGS 2025 (NB2025), which began in FY2016 just as it was about to enter its expansion phase. As a result, the current medium-term management plan was formulated as our promise to shareholders to "achieve at least this much in the three years to FY2024.” Under this plan, we are pursuing “revitalization” to restore the performance of the Hanamaru and ramen businesses to pre-pandemic levels, while promoting the "evolution" of the Group through the expansion of overseas operations and the strengthening of the YOSHINOYA business, including the conversion of store formats to C&C. Our “revitalization” efforts were behind schedule in FY2022, the first year of the plan, but we were almost back on track by the end of FY2023.
In FY2024, the final year of the plan, we will significantly increase our growth investments to further accelerate our "evolution" and take our business to new heights. Central to this strategy will be bold initiatives to open new stores within the YOSHINOYA business segment. We aim to raise the number of YOSHINOYA stores in Japan from 1,229 at the end of FY2023 to 1,323 by the end of FY2024. With the largest net increase in 20 years, the total number of YOSHINOYA stores in Japan will exceed 1,300 for the first time. This expansion campaign is a milestone in that it is the first time during my tenure as President that I have personally overseen an aggressive initiative of this magnitude.
These new store openings include an increase in the number of takeout/delivery specialty stores, which began in FY2023 and have demonstrated steady performance. In addition to actively capitalizing on the surge in takeout demand, a consumer behavior pattern that spread during the COVID-19 pandemic, we see significant potential in takeout-focused store formats given the challenges of securing prime real estate and staffing new store openings. We plan to increase the number of such stores to 116 in FY2024 (an increase of 80 stores from the previous year).
Ready to embark on a new endeavor, the YOSHINOYA business has set the themes for FY2024 as "Reignition - Challenge for All.” "Reignition" symbolizes the act of reigniting momentum and moving forward by departing from the conventional trajectory of stability. The expansion of our store network requires the development of the people who will manage them, which means training new store managers, area managers and sales managers. To ensure the success of this strategy, every employee is challenged to develop their skills and abilities to achieve growth beyond today. While accepting "challenges" does not guarantee success, it does guarantee growth. In this spirit, we have demonstrated our company-wide commitment to growth, as embodied in the phrase "Challenge for All.
It is fair to say that the success of our efforts in this one year will determine the trajectory of YOSHINOYA's business toward a significant return to growth in the coming years. In addition, looking beyond YOSHINOYA, FY2024 is critical to the growth and development of all of our business segments, to improve profitability and rebranding efforts within the Hanamaru business, to strengthen our overseas operations, and more. We are committed to fostering a shared awareness of this challenge for everyone in the Group.
The medium-term management plan calls for 40 billion yen in growth investments over the next three years, with 10 billion yen earmarked for mergers and acquisitions (M&A), but we have not yet conducted any M&A transactions. As our primary focus for M&A is, in principle, to promote the expansion of our ramen business, we have been actively evaluating M&A opportunities as they arise. Since FY2023, our Group has begun activities to proactively explore such opportunities, and we hope to have concrete details by the end of FY2024.
For FY2024, we expect to continue to reach the final year targets of our medium-term management plan with increased revenue and decreased profits, net sales of 203.0 billion yen (up 8.3% from FY2023), operating income of 7.0 billion yen (down 13.4%), ordinary income of 7.4 billion yen (down 14.2%), and net income attributable to parent company shareholders of 4.0 billion yen (down 25.6%). The main factor contributing to the decline in profits is the temporary increase in expenses associated with the expansion of YOSHINOYA restaurants, as mentioned above. However, the deteriorating cost environment, including the escalating price of U.S. beef, is also expected to put pressure on profits. However, regardless of the assumptions outlined in our budget, our firm stance as management is to pursue growth with higher profitability. We remain steadfast in our determination to increase profits and will continue to work diligently toward this goal.

Creating a new long-term vision toward 2040
Embodying the future direction of our “For the People” management philosophy

Over the past two years, we have been working to create a new long-term vision to succeed "NB2025" by launching the "Forum 2040," which consists of members who were recruited and selected from Group companies in Japan and overseas. As a first step, in FY2022, the 56 members were organized into eight teams, with each team working on a specific topic to create scenarios for the year 2040, using the method of future forecasting, to envision the environment and society in which our Group will be located in the future. And then in FY2023, based on the new vision, they explored what we want to be in the future and compiled the recommendations for the Forum. The new vision will challenge our own intentions, asking us to answer what we want to achieve and how we will go about achieving it.
The reason we began to formulate a new long-term vision in the midst of the prolonged COVID-19 pandemic was that as "NB2025" came to a standstill and it became very difficult to see what lay ahead, we felt the need to look beyond the immediate needs to the future and move forward together. As a result, the "Forum 2040" activities provided an opportunity for the participating members to share their constructive thoughts through lively discussions. This has had the effect of spreading expectations and hope throughout the company.
The responsibility for developing a new long-term vision has been entrusted to me, the top management, by the Forum 2040. Based on the recommendations compiled by Forum members, we are currently exploring the issue in greater depth toward concrete decision-making. I plan to outline the direction and issue more specific guidelines by the end of FY2024.
However, we find the process of formulating this year's plan much more challenging than when we developed "NB2025" in 2015. In developing the previous plan, which required us to “redefine the restaurant industry” as a prerequisite for the Group's sustainable growth and development, we used keywords such as "from competition to co-creation" and "people, health, and technology." We felt it was almost certain that society would move in the direction indicated by these keywords. This time, it is critical to consider how to embody the "For the People" management philosophy in a way that goes beyond the mere continuation of past practices, in the face of projections of a declining global population.

Setting materiality KPIs that enable monitoring to drive company-wide sustainability initiatives

In January 2023, we established the “Sustainability Promotion Committee ” to strengthen our efforts to realize a sustainable society and defined KPIs that represent the targets of our initiatives for the five materialities (critical issues) identified in the previous year. Each KPI was assigned a numerical target to be achieved by FY2030, with a keen awareness of our contribution to the Sustainable Development Goals (SDGs) to be realized by 2030.
Each of the “five materialities” represents an important topic that underpins the Group's relevance in society, but the focus on "people" is particularly important to us as a company guided by the "For the People" management philosophy, and we recognize that we must take this issue more seriously than any other party. In terms of KPIs, we have set KPIs to improve employee engagement along with the percentage of female employees and managers, and the percentage of employees taking paid leave. In addition to implementing life-work balance initiatives and fostering an organizational culture that encourages positive change, I personally believe it is critical that employees actually feel that the company is growing.
In addition, as a “food company,” we believe it is our social responsibility to expand “store community contribution activities" through community kitchens for children and other forms. The employees who have participated in these activities say that we should do more and that they want to do it, demonstrating a level of attention that is much higher than mine. “Eradicating poverty” is listed at the top of the Sustainable Development Goals (SDGs), and I am personally committed to addressing this issue. In terms of materiality KPIs, our goal for FY2030 is to establish a network of initiatives across all prefectures. At the same time, we plan to increase the number of meals served throughout the Group and expand the total number of employees participating in these initiatives.
As part of our efforts to address environmental issues and climate change, we have set targets and KPIs for recycling waste from our domestic factories, reducing the use of certain plastics, and sustaining the Eco Mark certification of our restaurants. However, addressing environmental issues and reducing our environmental footprint is a highly complex undertaking due to the interrelated nature of various factors within our operations and supply chain. In addition, environmental initiatives evolve over time, as responses that were effective a decade ago may not be effective today, and vice versa. What we need here is to examine whether the environmental initiative contributes to cost reduction and quality improvement. In other words, our basic position is that using economic value as the measure of our efforts should make our environmental activities sustainable.
In the future, we will drive sustainability initiatives across the company that lead to the enhancement of our corporate and social value by setting materiality KPIs that enable monitoring. Our business operations have reached a point where profitability, a long-standing concern for the Group, is showing signs of improvement and stabilization. FY2024, in terms of our concerted efforts to become a growth-oriented company, will be a pivotal year for our Group.
We look forward to the expectations of our stakeholders for the future leap forward our Group will realize, and we sincerely appreciate their continued long-term support.

April 2024, Yasutaka Kawamura
President, YOSHINOYA HOLDINGS CO., LTD.