Message from Top Management
Accelerating growth by intensifying CSV management within the difficult COVID-19 environment
President & CEO
Change brings opportunities to further reforms that fit the “new normal”
First, allow me to express my sincere condolences to those who have lost loved ones to COVID-19, and my heartfelt sympathy to all who have suffered. I would also like to pay tribute to the authorities fighting contagion, and to the medical professionals working night and day to save lives.
COVID-19 has impacted the economy, society, politics, and other areas, upending people’s lives worldwide. Outof-home drinking has plummeted due to stay-home directives, movement restrictions, and shortened business hours in the hospitality industry. Beverage sales in Japan have declined at both business-district convenience stores and in-office vending machines. Kirin Group has been affected by all of these changes.
Spanning business domains from food & beverages to pharmaceuticals, the Group prioritizes the health and safety of its employees and their families as essential to fulfilling our ongoing responsibility to supply products and services. We have taken measures to mitigate the risk of contagion in our manufacturing and logistics functions.
In addition, to minimize face-to-face meetings and travel, the sales and administrative departments have promoted remote work, using technology and shared offices, for example. We are also seeing this tremendous change as the opportunities of growth and revitalization and incorporating motivation boosting elements into our company-wide work-style reform (“Job Satisfaction Reform”) to adapt to the new normal.
Impact of COVID-19
Review of 2020 and Plan of 2021
Expediting reforms of business and profitability structures with a view toward the next MTBP
The COVID-19 pandemic adversely affected performance for fiscal 2020, particularly in the food & beverage domain. Consolidated revenue and normalized operating profit decreased, although profit attributable to owners of the company increased YoY due to the previous term’s impairment losses at Lion Dairy and Drinks. Meanwhile, each of our companies persevered in cost control and improving productivity, thereby minimizing cash flow impact.
In fiscal 2021, the final year of the current MTBP, we will implement reforms in business and profit structures, leading into the next MTBP, which is the second stage of our Long-Term Management Vision “Kirin Group Vision 2027” (KV2027). To execute reforms that capitalize on the changing business environment, I have instructed all Group companies to review their practices and workstyles, unconstrained by current procedures. For each item, they are to decide whether to accelerate progress, transform the way it is done, cease doing it, or reduce it.
Kirin Brewery’s restructured approach to growing its Kirin Home Tap business is an example. Building on relatively firm demand in the off-premise channel in Japan, the company will promote Kirin Home Tap as a more sophisticated way to enjoy beer at home. In the on-premise channel, where volume recovery will take time, we will intensify promotion of Tap Marché, which offers customers a choice of small-capacity high-value-added craft beers.
As for Kirin Beverage, we need to transform in response to the changing environment. Widespread adoption of remote work calls for a review of the scale and structure of the vending machine business, as well as location strategy. We are also repositioning Kirin Beverage into a beverage company that will lead our health science strategy, leveraging consumers’ health awareness heightened by COVID-19. Similarly, Lion in Oceania will redouble its marketing efforts and restructure its supply chain in response to the shift to off-premise sales corresponding to the decline in on-premise demand.
Realizing the growth in the three business domains
Developing the health science domain into a future growth pillar, building on existing business invigoration
Our existing domains of food & beverages and pharmaceuticals are the Group’s foundation. While aiming for steady growth, we continuously respond and adapt to changes in the business environment. In alcoholic beverages, a large trend is tighter regulations across markets worldwide. In a shorter time frame, the COVID-19 pandemic has caused a demand shift from the on-premise to the off-premise channel. We also see growing demand for low-sugar, low-purine, and other “functional” products. Another market segment is attracted by lifestyle-enhancing transformational benefits. An example is Kirin Home Tap, which brings the taste of freshly brewed beer into the home. We will continue to be ahead of the times in providing such valuable new products and services. Meanwhile, in the pharmaceuticals domain, we continue to grow as a “global specialty pharmaceutical company” by strengthening our cross-border infrastructure and focusing on the development and launch of next-generation global products. Within Japan, we are addressing the Japanese government’s policy of controlling medical expenses.
Health science is a domain with vast growth potential. The Group began with the beer business 110 years ago. This gave us expertise in fermentation and biotechnology which we leveraged to enter the pharmaceuticals business 40 years ago. Most recently, our three-and-a-half decades of immunology research has led us to discover LC-Plasma that directly activates the immune system. In August 2020, five Kirin Group products using our proprietary LC-Plasma became Japan’s first Foods with Function Claims (FFCs) registered for their immune system benefits with Japan’s Consumer Affairs Agency (CAA).
Consumer interest in health has been strongly stimulated by the COVID-19 pandemic. Prevention in particular is gaining urgency in the public’s mind under the looming specter of an overburdened medical system. This awareness meshes with our innovation in fermentation and biotechnology where we address unmet health needs, a key to becoming a global leader in CSV. By leveraging our extensive research in the domains of food & beverages and pharmaceuticals, as well as our sales channels, we are aiming for sales revenue of 200 billion yen and normalized operating profit margin of approximately 15% in the health science domain* by 2027.
Now, more than ever, I believe that to survive in a turbulent business environment a company must be depended on by people and society to address social issues. Development of our new health science domain means addressing global health issues by harnessing the technologies and assets we have garnered in the domains of food & beverages and pharmaceuticals. I will personally lead the way in making the health science business a pillar of the future, just as we have grown the pharmaceutical business into a mainstay of our portfolio.
- Excludes equity in earnings of FANCL (but includes synergies)
2019 MTBP Basic Policy
Reinforcing the organizational capabilities
Innovation through digital transformation and HR diversity and inclusion
Innovation is ultimately indispensable to sustainable growth. To meet the evolving needs of society and consumers, we must offer new products and services that resonate with our customers. Besides strengthening R&D, we also need to pursue marketing that provides insight into latent consumer needs and wants, while advancing digital transformation (DX). One of the benefits of DX is to reduce costs and generate cash by streamlining operations in existing businesses. For new businesses, DX also helps us create markets. DX is particularly important in the health science domain, where we seek to address individual health concerns.
We will also recruit and develop talent of the highest caliber to manage these businesses. Diversity and inclusion are key to actualizing the full potential of human resources in an organization. This is why we are increasingly recruiting mid-career professionals who have the skill sets and track records we need to take on the challenges of our future growth domains. I believe it will be wise to have mid-career hires make up one third to half of our staff, depending on the department. When people with diverse abilities and experiences interact, their fresh perspectives and insights engender cross-fertilization of ideas that trigger breakthroughs and ignite innovation of unprecedented value. To this end, we will continue to cultivate a corporate culture where diverse human resources can develop their maximum abilities, and configure a workplace environment conducive to job satisfaction.
Initiatives for ESG
Contributing to resolution of health and environmental issues worldwide
The Group’s CSV efforts address key issues in the priority areas of health and well-being, community engagement, and the environment, beginning with our duty as a responsible alcohol producer to promote proper drinking. Among these, health became the prime object of our attention last year due to the COVID-19 pandemic. In 2020, sales of iMUSE beverages containing LC-Plasma grew to 2.4 times the previous year's figure. Meanwhile, a non-beverage supplement using LCPlasma was launched by FANCL, with whom we have a capital and business alliance. We next plan on entering overseas markets to bring these health-supporting products to people around the world.
The “Kirin Group Environmental Vision 2050,” issued in February 2020, shifts our aim towards creating positive impact, marking a significant expansion of scope beyond curbing negative impact, which was the focus of Kirin’s previous statement on the environment. Here, we are pursuing effective initiatives in the four priority areas of climate change, water resources, biological resources, and containers and packaging. Regarding climate change, in November 2020 we joined RE100, a global initiative bringing together businesses committed to sourcing 100% renewable electricity. In December, moreover, the Group’s medium-term GHG reduction target commitment was accepted by SBTi*, as a “Business ambition for 1.5°C.”
* The Science Based Targets initiative (SBTi) drives ambitious climate action in the private sector by enabling companies to set science-based emissions reduction targets. Source: SBTi website
We have also advanced corporate governance. The majority of board members are now from outside the company, including women and foreign nationals. This enhanced diversity has stimulated vigorous, high-quality discussions. Drawing from a wide spectrum of careers and expertise, the board membership has enhanced governance across such key areas as innovation, investment discipline, and risk management. The majority of Nomination and Compensation Advisory Committee members are independent non-executive directors, the chairperson included. This stakeholder-centric management has earned plaudits for Kirin Holdings, including selection as the grand prize company for “Corporate Governance of the Year® 2020*,” sponsored by the Japan Association of Corporate Directors (JACD).
* Corporate Governance of the Year® is a registered trademark of the Japan Association of Corporate Directors.
Gaining sustainable growth toward becoming a global leader in CSV
When the COVID-19 pandemic will end is difficult to predict. Despite the current harsh environment, the Group is firm in its commitment to answering stakeholder needs through CSV management. Sustainable growth is key to attaining our goal of becoming a global leader in CSV. I am grateful for your continued support in these endeavors.