Management Analysis Of Financial Position, Operating Results, And Cash Flows

Food & Beverages domain

While building a strong brand system by concentrating on its mainstay brands, Kirin Holdings also worked to expand products and services that offer new value propositions. In response to soaring raw materials and fuel prices, each Group company worked to improve profitability through productivity improvements and product price revisions.

Pharmaceuticals domain

As a Japan-based Global Specialty Pharmaceutical company, Kirin Holdings worked to strengthen the foundation in Japan as well as overseas. In addition to steadily growing global strategic products, Kirin Holdings promoted the development of next-generation strategic products.

Health Science domain

Kirin Holdings accelerated the development of Lactococcus lactis strain Plasma (LC-Plasma) to expand its business domain. In addition to the development of its own group products such as beverages and supplements, Kirin Holdings promoted sales of raw material to external partner companies and expanded the number of functional food products. As a result, the sales amount of LC-Plasma-related business increased 40% from the previous year. In addition, Kirin Holdings continued its efforts to raise awareness of “immune care” and contributed to solving consumers' health issues.

Japan Beer and Spirits Business

The domestic alcoholic beverages market was affected by soaring raw material and fuel prices as well as the prolonged COVID-19, but overall the market was on a recovery trend. Kirin Brewery focused on its mainstay brand KIRIN ICHIBAN and KIRIN ICHIBAN Zero Sugar, to capture health-conscious consumers. As a result, overall sales volume of the KIRIN ICHIBAN brand increased 3% year-on-year. In the craft beer category, Kirin Brewery focused on efforts to broaden the appeal of a variety of beers. From the SPRING VALLEY brand, in addition to SPRING VALLEY Hojun 496, SPRING VALLEY Silk Ale [White] was newly launched. Kirin Home Tap, a beer server for home use that allows consumers to enjoy authentic draft and craft beer at home, delivered the taste of freshly brewed beer to consumers nationwide. The Tap Marché beer server for restaurants, which can serve four kinds of craft beer from various regions of Japan, brought the enjoyment of a wide range of craft beer to consumers with 14 participating breweries. In addition, Kirin Brewery has been rolling out TAPPY, a next-generation beer server that maintains the freshness of beer and helps reduce food loss, and the number of restaurants that have installed TAPPY has surpassed 10,000. In the RTD category, the mainstay Kirin Hyoketsu brand sold well. In particular, the Hyoketsu Sugar Free series received strong support, with sales exceeding 14 million cases, approximately 1.2 times the target set at the beginning of the year. In the non-alcoholic beer-taste beverage category, Kirin Brewery revamped Kirin GREENS FREE, which helped revitalize the market.
As a result, revenue increased by 0.3% to ¥663.5 billion due to a recovery in sales of the on-premise channels, coupled with the impact of price revisions. Normalized operating profit increased by 5.8% to ¥74.7 billion due to the control of selling expenses.

Japan Non-alcoholic Beverages Business

The domestic beverage market is on a recovery trend due to increased opportunities to go out, but the external environment surrounding the market became more intense due to soaring raw material and fuel prices, etc. At Kirin Beverage, sales of mainstay brands were strong, with sales of both Kirin Gogo-no-Kocha and Kirin Nama-cha exceeding those of the previous year. In particular, sales of Kirin Gogo-no-Kocha Oishii Muto (sugar free) were up 17% from the previous year. In the Health Science area, where Kirin Beverage is focusing its efforts, Kirin iMUSE Morning Immune Care, a small-volume PET-bottled beverage, was launched nationwide to strengthen efforts to make “immune care” a habit in consumers. In addition, Kirin Beverage renewed and strengthened sales of Kirin iMUSE Lemon and Kirin iMUSE Yogurt Taste, resulting in a 23% year-on-year growth in sales volume of beverages containing LC-Plasma. On top of that, KIRIN naturals, a service for corporate consumers to promote health management, was renewed as a service to improve employees' lifestyle habits and raise their health awareness.
However, revenue decreased by 0.5% to ¥243.3 billion. Normalized operating profit decreased 11.0% to ¥18.8 billion due to soaring raw material costs and other factors, despite efforts to reduce sales promotion and advertising expenses.

Oceania Adult Beverages Business

In the Australian alcoholic beverage market, while the on-premise market was recovering from the impact of COVID-19, the off-premise market remained soft. Lion strengthened marketing activities centered on its mainstay XXXX (“four-ex”) and worked to revitalize the brand. In the craft beer business, which is positioned and focused as a growth area, Lion acquired Fermentum Pty Ltd. in Australia in 2021 and expanded its premium portfolio. In 2022, Lion acquired Bell's Brewery, Inc. in the United States, and together with New Belgium Brewing Company, proceeded to build a craft platform in North America.
As a result, yen-based revenue increased by 18.3% to ¥255.9 billion. Yen-based normalized operating profit increased by 18.8% to ¥31.5 billion due to supply chain optimization and other cost reduction efforts.

Pharmaceuticals Business

In 2022, the second year of the company's 2021-2025 Medium Term Business Plan, Kyowa Kirin continued its efforts to grow as a Japan-based Global Specialty Pharmaceutical company. While the global therapeutic environment is changing due to COVID-19, global strategic products Crysvita and Poteligeo continued to show steady growth. As for next-generation strategic products, development of KHK4083 (generic name: Rocatinlimab) and KHK7791 (generic name: Tenapanor Hydrochloride) made steady progress. On the other hand, the development of KW-6356 was discontinued, and the decision was made to discontinue the development of ME-401 outside Japan. In Kyowa Kirin’s “patient advocacy” activities, which aim to resolve business and social issues by listening to the voices of people facing illnesses, Kyowa Kirin actively promoted support for rare and intractable diseases in Japan and overseas, including participation in the community of ASrid, a Japanese non-profit organization.
As a result, revenue increased by 13.1% to ¥397.9 billion due to an increase in overseas pharmaceutical sales, particularly of global strategic products. Normalized operating profit increased by 34.7% to ¥82.5 billion due to an increase in gross profit resulting from higher revenue, despite an increase in selling, general and administrative expenses and research and development expenses related to sales of global strategic products.

Other Business

Kyowa Hakko Bio Co., Ltd. (Kyowa Hakko Bio)

Kyowa Hakko Bio was forced to suspend manufacturing at its Shanghai plant in China (SHANGHAI KYOWA AMINO ACID CO., LTD.), one of its production bases, following the spread of a new COVID-19 strain, and sales were also constrained. In addition, sales of Citicoline, a key ingredient, were weak due to factors such as the impact of inflation in the United States, the largest dietary supplement market. Profitability was worsened due to soaring raw material and fuel prices. On the other hand, despite the severe business environment, Kyowa Hakko Bio completed a production facility for HMOs (human milk oligosaccharides)—for which demand is expected to grow worldwide—in its own factory in Thailand (THAI KYOWA BIOTECHNOLOGIES CO., LTD.). As a result, revenue decreased by 3.7% to ¥51.1 billion, and business loss amounted to ¥3.9 billion.

Mercian Corporation (Mercian)

At Mercian, while its mainstay wine business was greatly affected by the sharp depreciation of the yen, it worked to nurture its own highly profitable brands. Mercian began developing a new brand, Mercian Wines, co-created with winemakers around the world, and responded to ethical consumption which has been on the rise in recent years. In Japanese wines, Mercian has strengthened its efforts with the Château Mercian flagship brand. Mercian also launched a consulting business to raise the standard of the Japanese wine industry as a whole. Mercian aims to grow Château Mercian while contributing to local economies. However, revenue increased by 4.5% to ¥60.5 billion, and business loss amounted to ¥0.6 billion.

Coca-Cola Beverages Northeast, Inc. (Coke Northeast)

In the United States, the beverage market grew significantly, as strong consumer demand continued despite rising inflation. Coke Northeast also worked to increase demand while revising product prices, and as a result, sales remained strong. The company also improved profitability by working on a more profitable product mix. As a result, revenue increased by 39.6% to ¥216.2 billion, and normalized operating profit increased 59.3% to ¥26.3 billion.

Myanmar Beverages Business

The Company reached an agreement with Myanma Economic Holdings Public Company Limited (MEHPCL), a joint venture partner of the Company’s consolidated subsidiaries Myanmar Brewery Limited (MBL) and Mandalay Brewery Limited (MDL), and transferred all the shares (51% of the total number of shares issued) of MBL and MDL held by Kirin Holdings Singapore Pte, Ltd., a consolidated subsidiary of the Company, to MBL and MDL (share repurchase by MBL and MDL) on January 23, 2023.

Cash flows from operating activities

Net cash provided by operating activities decreased by ¥83.7 billion year on year to ¥135.6 billion. Although profit before tax increased by ¥91.8 billion, a ¥12.6 billion increase in outflow of working capital, a ¥13.2 billion reversal of impairment loss, which is a non-cash item, and a ¥48.1 billion gain on sale of equity-accounted investees resulted in a decrease of ¥48.0 billion in the sub-total. Below the sub-total line, cash flows from operating activities decreased year on year due to a ¥39.2 billion increase in income taxes paid.

Cash flows from investing activities

Net cash used in investing activities decreased by ¥46.0 billion year on year to ¥10.4 billion. The decrease was mainly because proceeds from sale of equity-accounted investees increased by ¥117.1 billion year on year to ¥122.2 billion as a result of the sale of China Resources Kirin Beverages (Greater China) Company, Limited in this fiscal year. Meanwhile, acquisition of shares of subsidiaries, net of cash acquired increased by ¥0.7 billion year on year to ¥46.2 billion as a result of making Bell’s Brewery a subsidiary in this fiscal year, while making Fermentum a subsidiary in the same period of the previous fiscal year. Outflow for acquisition of property, plant and equipment and intangible assets increased by ¥12.1 billion year on year to ¥98.5 billion. There was inflow of ¥7.9 billion for sale of investments through our continuous efforts to reduce cross-shareholdings

Cash flows from financing activities

Net cash used in financing activities decreased by ¥12.6 billion year on year to ¥167.8 billion. The Company continued to provide dividends based on a consolidated dividend payout ratio on normalized EPS of at least 40%. As a result, dividends paid, including to non-controlling interests, amounted to ¥65.5 billion. The Company also acquired ¥50.0 billion of treasury shares to increase shareholder returns. In addition, interest-bearing liabilities decreased by ¥36.9 billion in this fiscal year. The reduction was attributable to the fact that the amount procured was kept below the repayment amount mainly resulting from increased capital efficiency in line with the implementation of a global cash management system.