[first sentense]

October 26, 2009

Kirin Group's new medium-term business plan, KV2015 Stage II
Three-year plan aims for qualitative expansion through leap in earnings with continued strong growth

Tokyo, October 26, 2009—Kirin Holdings Company, Limited ("Kirin") today announced its medium-term business plan for the three years 2010 through 2012, as the second stage of realizing the goals of Kirin Group's long-term business framework, Kirin Group vision 2015 ("KV2015").

Outline of 2010-2012 Medium-term Business Plan

The goals of the previous medium-term business plan, which ran from 2007 as the first stage of realizing KV2015, were to put the Group on a new trajectory of growth, create renewed growth in the domestic alcohol beverage business and develop the integrated beverages group strategy domestically and internationally, while dynamically allocating resources to investments on a large scale and creating a broader business foundation for growth.

The 2010 medium-term business plan represents the next stage in realizing KV2015, and is aimed at continuing to expand Group synergies and reform Kirin's business structure to enable a substantial increase in overall group earnings. Kirin will continue to develop products with new value that contribute to the enjoyment of food and health, and through all its activities will contribute to the maintenance and development of a safe and amenable society.

Kirin will continue to manage the business with a strong shareholder focus, and will follow a financial strategy designed to maintain a sound financial position while achieving strong profitability and efficiency. Quantitative targets in the plan for the year ending December 31, 2012 are for consolidated sales excluding liquor tax of ¥2,130 billion, consolidated operating income of ¥188.0 billion, and an operating income ratio (excluding liquor tax) of 8.8%. The ROE target for 2012 is for 10% plus (prior to amortization of goodwill).

  • Through all the Group's activities promote KIRIN as a brand that symbolizes trust and vitality
  • Market products and services that increase customers' enjoyment of food and health
  • Contribute to the maintenance and development of a safe and amenable society, and earn the trust of communities as a sound corporate citizen
    Basic policy
  1. Increase Group enterprise value by realizing growth and synergies at operating companies
    • (1) Pursue a comprehensive beverages group strategy
    • (2) Generate Group synergies
    • (3) Realize lean management
    • (4) Strengthen technical capabilities and customer relationships
  2. Pursue a financial strategy to increase Group enterprise value
  3. Engage in CSR activities that enhance Kirin Group's coexistence with society
Quantitative targets
  2012 target 2009 estimate Difference between
2009 and 2012
KV2015 target
Consolidated sales (incl. liquor tax) ¥2.49 trillion ¥2.30 trillion ¥190 billion ¥3.00 trillion
Consolidated sales (excl. liquor tax) ¥2.13 trillion ¥1.93 trillion ¥200 billion ¥2.50 trillion
Operating income ¥188.0 billion ¥125.0 billion ¥63 billion ¥250.0 billion
Operating income ratio (excl. liquor tax) 8.8% 6.5% 2.3% 10% plus
ROE* 10% plus 9.3% - -

*ROE is prior to amortization of goodwill, etc.

Strategic initiatives

1. Increase Group enterprise value by realizing growth at operating companies and creating synergies

(1) Pursue an integrated beverages group strategy

Kirin's aim under KV2015 is to establish a unique business model by pursuing an integrated beverages group strategy, as a means of increasing enterprise value in a highly competitive global market. As part of this, we are working to further develop our core domestic alcohol beverages business along with our soft drinks business as robust business pillars , while pursuing a broader range of Group synergies. We are also pursuing an integrated beverages group strategy outside of Japan, expanding our presence in the markets of Asia and Oceania.

In the domestic alcohol beverages business, key market influences include an aging population profile, diversification of consumer tastes, and a defensive consumer mindset amid a weak economy and uncertain outlook. Our efforts will continue to be directed at strengthening the value of the Kirin brand, and using technical leadership and research-based marketing skills to develop appealing consumer products. At Kirin Brewery, we will continue to build consumer support, focusing particularly on fostering No. 1 brands in core categories such as beer/ happo-shu/ new genre and RTDs, where Kirin has long-term leadership positions, while also creating new categories. We will continue measures to revise our cost structure in development, procurement, manufacturing, distribution and sales, while promoting intra-Group collaboration and amalgamation to stimulate growth. At Mercian Corporation, we will focus marketing investment on core brands and pursue a low-cost management approach to create a more robust earnings structure.

In domestic soft drinks, the market in Japan is becoming highly mature, and competition is expected to intensify even further. Our strategy at Kirin Beverage will be to improve competitiveness and build a solid revenue base. Through selection and concentration we will focus resources on core brands while taking a value sales approach, aiming to create brands with strong customer loyalty. At the same time, based on a review of our sales channel strategy, we will reallocate resources on a large scale as necessary, rigorously reviewing our cost structure and developing a robust business organization that can be profitable even in a harsh operating environment. Kirin Beverage will also contribute to the creation of Group synergies by cooperating more closely with other Group companies, particularly Kirin Brewery, along each value chain.

In overseas markets, we aim to realize synergies between Lion Nathan and National Foods under the direction of Lion Nathan National Foods Pty Ltd, our new holding company in Australia, while promoting our integrated beverages group strategy in Oceania.

(2) Generate Group synergies

During the term of the previous medium-term business plan, initiatives were focused on expanding the scope and scale of Kirin's operations to achieve a quantum leap in growth. The new plan focuses on achieving a quantum leap in profitability, and to support this we will take steps to accelerate Group synergies. Under the direction of cross-company teams that have been established by business function horizontally across the Group, we will undertake measures such as optimizing the location of manufacturing, distribution and research bases, and improving the efficiency and quality of operations through integrating operational processes. By continuously working to streamline our asset infrastructure and optimize our business portfolio we will endeavor to create a 'Group premium'. We intend to revise and concentrate our technology-based R&D centers, improve collaboration within the Group, and accelerate the pace of research and development activities. At Kyowa Hakko Kirin and Kirin Kyowa Foods, we aim to make further steady progress in realizing the benefits of integration in pharmaceutical and foods operations. We will also pursue specific Group synergies through a new collaboration between Kyowa Hakko Bio and Mercian Corporation in raw alcohol business, and at Mercian Corporation and Kirin Kyowa foods, where processing alcohol and fermented seasoning operations will be integrated. In the health foods and functional foods area we will increase collaboration between each operating company and the health food and functional food product project team established in 2008, putting in place a business model to maximize Group synergies while aiming to bring new products to the market during 2010.

(3) Realize lean management

We will pursue a lean management approach throughout the Group, aiming to create value for customers in the most efficient and cost-effective manner possible so that we can generate growth even in a harsh economy and business environment. We intend to improve profitability through measures such as integrating indirect functions at different Group companies, comprehensively improving Group businesses and processes, optimizing the allocation of resources across the Group, and reducing assets. At Kirin Brewery, the core Group operating company in Japan, we intend to rationalize our manufacturing locations and optimize capacity utilization by closing our the Tochigi Plant and the Hokuriku Plant , aiming to transfer their production to other existing plants after the end of the peak sales period of 2010. In addition, in seeking to create a more productive, highly localized sales structure we will undertake a comprehensive review of the sales systems at Kirin Brewery and Kirin Merchandizing, including consideration of creating a separate company to handle all sales functions. Overseas, a key focus will be ensuring efficient management of the newly established Lion Nathan National Foods Pty Ltd in Australia.

(4) Strengthen technical capabilities and customer relationships

Building on the Group's strengths in technology and customer relationships is a key management focus in pursuing the goals of KV2015. During the period of the 2010-2012 medium-term business plan our initiatives in this respect will include investing in 'Centers of Excellence' and concentrating the allocation of investment resources in functions and businesses of greatest strategic importance. We will also develop a business model to facilitate the rapid realization of post-integration synergies, and use our cross company teams and other methods to pursue a proprietary Group management model. We intend to promote innovation and improve our ability to respond dynamically to changes in the business environment, drawing on the diversity of our business sectors and locations. We view our people as the most important drivers of Group growth, and will pursue a system of fostering and deploying personnel that promotes diversity, internationalization and managerial ability.

2. Pursue a financial strategy to increase Group enterprise value

We will pursue a financial strategy that emphasizes both returns to shareholders and the maintenance of a sound financial position. We intend to realize a significant increase in profitability and efficiency through initiatives such as producing synergies, adopting lean management and reducing assets, and will utilize resulting cash flow to support returns to shareholders and repay interest-bearing debt. We will continue to target a consolidated dividend payout ratio of at least 30%, with the aim of increasing dividend payments in accordance with actual gains in earnings. We intend to secure a sound financial position by reducing interest-bearing debt, while retaining the flexibility to make strategic investments for growth. We will also take steps to improve asset efficiency, such as by reducing assets in each business, controlling capital expenditure with a focus on investment efficiency, and liquidizing further assets. Business investment to support qualitative expansion will continue to be undertaken through a concentrated allocation of resources.

3. Engage in CSR activities that enhance Kirin Group's coexistence with society

CSR is a core element of Kirin's management approach, and is coordinated through all activities in a manner that reflects our corporate philosophy of contributing to food and health as part of a sustainable society. We will continue to promote that development of a society that lives in harmony with nature, and will take further steps to become a 'low carbon corporate group'. By 2050 we aim to reduce our CO2 emissions over the entire value chain to 50% of 1990 levels, and we have set an interim target for 2015 of reducing emissions from manufacturing, distribution and offices by 35% compared to 1990. We are incorporating our environmental aims into operations at each business, using the themes of saving resources, saving energy and environmentally friendly products. We will continue to engage actively and constructively with society, ensuring close communication with stakeholders and striving to resolve important social issues through product development and other initiatives—for example through our launch of Kirin FREE as one solution to the problem of driving under the influence.

Restructuring of Kirin Brewery under the 2010—2012 Medium-term Business Plan

Kirin Brewery Company, Limited ("Kirin Brewery"), in line with Kirin Group's core policy of pursuing lean management to create value for customers with maximum efficiency and effectiveness as outlined in the Group's 2010-2012 medium-term business plan (KV2015 Stage II), plans to reform its business structure to achieve qualitative expansion.

As part of this, the Production Division of Kirin Brewery is working to achieve a sustained improvement in its long-term competitiveness and productivity, and by reorganizing two of its plants—the Tochigi Plant and the Hokuriku Plant—aims to optimize production capacity. Kirin Brewery plans to cease production at these plants after the peak period of 2010, and is investigating transferring the Tochigi plant's RTD production and other necessary functions to other plants.

The Sales Division of Kirin Brewery is working to develop a highly productive sales organization that is closely aligned with regional markets throughout Japan, in line with Kirin's goal of become Japan's strongest comprehensive alcohol beverage manufacturer. Accordingly, Kirin Brewery is undertaking a thorough review of its sales structure, including the operations of both Kirin Brewery and Kirin Merchandising. Separation of the entire sales function into a separate sales company will be considered as one of the options under this review

Kirin Brewery is striving to generate further corporate growth by fostering long-term No. 1 brands in the core product categories of beer/happo-shu/new genre and RTDs, while endeavoring to develop new product categories and energizing the market as a company that contributes to the happiness and well-being of its customers. At the same time, in each division of the company—development, procurement, production, distribution and sales—Kirin Brewery is working to maximize group synergies and reform cost structures to create a strong revenue platform to support the growth of Kirin Group.

Outline of the Plants

Tochigi Plant
1. Location Shioya-gun, Tochigi Prefecture
2. Start of operations April 1979
3. Plant manager Akihiko Okada
4. Employees 200 (As of October 1, 2009)
5. Production capacity 110,000 KL
6. Main products Kirin Lager, Kirin Ichiban Shibori, Kirin Tanrei, Kirin W, etc.
7. Distribution Mainly to prefectures of Tochigi, Gunma, Saitama (some regions) and Niigata (some regions), with some products distributed nationwide
Hokuriku Plant
1. Location Hakusan-shi, Ishikawa Prefecture
2. Start of operations May 1993
3. Plant manager Hideaki Asano
4. Employees 130 (As of October 1, 2009)
5. Production capacity 70,000 KL
6. Main products Kirin Lager, Kirin Ichiban Shibori, Kirin Tanrei, Kirin Tanrei Green Label, Kirin Nodogoshi, etc.
7. Distribution Prefectures of Ishikawa, Toyama, Fukui and Niigata (some regions)