Business Risk Factors

Risk Management

Kirin Group defines risk as uncertainty with the potential to seriously impede the accomplishment of business targets or impact business continuity. The Group’s fundamental risk management policy is to maintain a robust risk management structure and to fortify and fully implement risk control and compliance to mitigate risk, prevent risk from being actualized, and to keep risk within a manageable level. Management considers risk management as essential to continue earning the trust of customers, employees, shareholders, and society over the long term.

Risk management structure and process for determining and monitoring serious risk

The Board of Directors deliberates and reports on serious risks. The Group additionally maintains a Group Risk and Compliance Committee consisting of Kirin Holdings internal directors and executive officers and chaired by the Executive Officer in Charge of Risk. The committee oversees the Group’s risk management activities, including collecting risk information, controlling risk, setting risk policy for the medium-term management plans and for each fiscal year, preparing important items for compliance, introducing risk reduction measures, communicating information and implementing countermeasures when risk arises, and providing necessary instructions and support to Group companies.
Kirin Holdings aggregates the risks faced by specific businesses on the Group level, investigates common risks across the Group, and identifies serious risks to the Group. Kirin Holdings assesses the potential quantitative and qualitative impacts of important risks from the perspective of overall Group management and classifies the risk in terms of priority. The Board of Directors deliberates the assessments and determines the serious risks for the Group.
Kirin Holdings and the Group companies frame and implement measures to address the serious risks and monitor risk status on a quarterly basis. The Kirin Holdings Board of Directors deliberates the status and reviews of serious risks and provides instruction as necessary to support appropriate risk management and control in the execution of countermeasure strategies and to prevent to the extent possible a risk from developing into a crisis situation. When a crisis situation occurs, the risk management system is intended to minimize any potential negative impact on Group companies.

Risk Management

  • Risk Management

Process for designation of serious risk

  • Process for designation of serious risk

Risk Management PDCA Cycle

  • Risk Management PDCA Cycle

Kirin Group Serious Risk

Key matters presenting risk to Kirin Group strategies, businesses, and other activities, which could significantly impact investor assessment of the Group.
Matters determined to present potential risk in the future based on the judgment of the Company as of December 31, 2020.
Risks associated with the political developments in Myanmar in February 2021 are based on information as of March 15, 2021. Updated information related the Company will be presented in a timely manner on the corporate website.

1. Serious risk in each business domain

FieldsMain riskRisk content and main potential impacts
Food & Beverages Risks arising from the Company’s responses to business environment changes, such as in demographics, markets, competition, preferences, and revisions to laws and regulations
  • Potential for a shortfall to sales targets due to changes in the market environment, fluctuations in product prices, or actions of competitor companies
  • Potential for business development to not advance as anticipated
Main countermeasures and risk situational awareness
The food & Beverages domain, as Kirin Group’s main business domain, has the potential for receiving serious impact in case of risk arise. We are reducing the actualization of risks by taking appropriate measures, as enhancing to reform business model of Foods & Beverages domain by expanding the sales of highly profitable products and our capability to face the risk based on findings to business environment changes. However, the outlook for the impact of the COVID-19 is uncertain, and we believe that it will continue to be affected by the impact in on-premise channels and vending machines.
FieldsMain riskRisk content and main potential impacts
Business in Myanmar Risk that major economical and societal changes caused by the political situation in Myanmar will impact the Group’s businesses
  • Potential impact on Group business while the joint venture with a local company is under review
  • Potential that the customers and society cannot understand Kirin’s initiatives properly.
  • Potential for a business suspension, business reduction, or other disruption to normal business activities due to the political, economic, and social situation in Myanmar
Main countermeasures and risk situational awareness
Due to the drastic changes in the political situation in Myanmar, we believe that the impact on our business will remain highly uncertain for the time being. We will act in accordance with our business norms and the Kirin Group human rights policy in our business in Myanmar. Based on our policies, we will continue to work on risk management so that we can continue to contribute to the people and economy of Myanmar through our business.
FieldsMain riskRisk content and main potential impacts
Pharmaceuticals Risk associated with maximizing the value of global strategic products

Risk related to product quality and stable supply

Risk related to government measures to reduce medical costs
  • Potential for products to not become fully established in a new market because price differential between the planned and actual prices in a country may cause sales to fall significantly below expectations, because expansion of the business domain may be slowed by delays in launch preparation or other factors, or due to difficulty connecting with potential patients
  • Potential for product recalls due to safety or quality concerns, or for difficulty maintaining stable supply due to a sharp increase in demand or a tight supply and demand balance
  • Potential for product prices to be reduced due to pressure to lower medical costs in Japan and overseas and to an ongoing shift to generic drugs
Main countermeasures and risk situational awareness
To maximize the value of global strategic products, Kyowa Kirin is implementing initiatives to spur market uptake and expanding its business reach, centered on the US and Europe, under its global management structure. In order to expand our business globally, we believe it is important to strengthen our foundations such as product quality assurance system and stable production and supply system. In terms of product quality, we enhance to monitor by the Global Quality Assurance Committee and stablish an independent, specialist audit unit to reinforce product quality audits within the Group and at contractors. Also, we are expanding its network of contractors, investing in Group plants, rolling out digital technology to enhance manufacturing operational efficiency, and increasing headcount and upgrading training systems in the Production Division. Japan and other countries are tightening control of medical care costs. The Kyowa Kirin Group monitors healthcare policy trends in each country while also forecasting post-launch pricing for development compounds and their anticipated impact on revenue. We also works to prepare strategic drug approval packages that highlight the practicality and novelty of the drug.
FieldsMain riskRisk content and main potential impacts
Health Science Risk of not being able to provide differentiated products and services related to social issues

Risk of inability to increase added value due to insufficient organizational capability in new fields

Risk of issues related to product quality assurance, safety, or missing products
  • Potential that the sales plan will not be achieved due to inability to formulate an effective business model for expanding business in the priority area, or due to strategies not compatible with the consumer mindset
  • Potential inability to construct a high-profit business model for creating new value due to delays establishing an organizational structure for the Health Science business, delays developing, acquiring, and training human resources for business management, or inability to establish cooperation and synergies within the Group
  • Potential of product shortages if production does not proceed according to the production plan
  • Potential that foods with function claims have adverse health effects or quality issues, lack sufficient evidence, or cause adverse reactions
Main countermeasures and risk situational awareness
The health science domain is a domain that includes many new businesses, and because that the domain is strategically taking risks to promote its businesses, there are uncertainties such as the search for and the realization of next-generation growth opportunities. In response to this, we will promote the business by strengthening business governance and organizational capacity while dealing with risks such as operating the stage gate system and utilizing CVC. We are also accelerating collaboration within the Group and working to generate additional values. Given these initiatives, we have implemented a certain level of risk management, and even if risks become apparent, we believe that the impact on short-term business results will be insignificant.

2. Common risks in each business domain

FieldsMain riskRisk content and main potential impacts
COVID-19 Risk the COVID-19 pandemic will constrain business activity
Risk of employees contracting the virus and the virus spreading among employees
  • Potential that business activities could be restrained by a rising number of infections and governments enforcing stronger regulations, such as state of emergency conditions
  • Potential that, despite adequate prevention measures, infections among employees increase, preventing employees from coming to work and creating an insufficient workforce to carry out business activities
Main countermeasures and risk situational awareness
Kirin Group created the task force for COVID-19 in January 2020 that collects information, judges the situation, considers and decides on countermeasures, shares information, and gives instructions to group companies. Although the situation differs depending on the country / region, we recognize that there is a high degree of uncertainty regarding the development and dissemination of vaccines. We believe that it will take a couple of years for the currently declining demand to recover, and we are creating a business plan on the assumption that the business environment will not return to the pre-COVID business environment even after the infection has converged. The changes to the business environment caused by the COVID-19 pandemic presented greater risk than management anticipated; however, the Group has vastly revised its business model and profitability structure for the “new normal” conditions and is stepping up initiatives to achieve the KV2027 long-term management vision.
FieldsMain riskRisk content and main potential impacts
Securing and training of human resources Risk of inability to adequately secure and train human resources to advance Group management and with the expertise necessary for business activities
  • Potential of diminished competitiveness due to inability to increase organizational capability
Main countermeasures and risk situational awareness
Kirin Group is working on reforming the organizational culture and creating a human resources management system to secure and develop top talent to promote group management, based on the policy that human resources are necessary to execute business and realize innovations. In addition, we aim to improve organizational capabilities to accept diversity and realize value creation by gathering human resources with diverse values and expertise.
FieldsMain riskRisk content and main potential impacts
Information technology Risk of an adverse impact on management from delays introducing standardized information systems (ERP) or from inability to fully reap the expected benefits of digital transformation
  • Potential hindrances to reforming and upgrading the management base or to improving operational efficiency to raise productivity
Main countermeasures and risk situational awareness
Regarding the introduction of ERP, the Board of Directors regularly monitors the progress, manages the progress, and shares issues during development. To promote digital transformation (DX), we established the DX Strategy Office in April 2020 that aims to provide products and services that embody the insights gained from deeper customer understanding and to improve business process issues and business quality. We also invest in management resources to prevent delays.
FieldsMain riskRisk content and main potential impacts
Product safety Risk of unexpected quality issues beyond the scope of quality assurance measures
  • Potential high costs or constricted business activity due to product discontinuation, recall, or compensation claims
Main countermeasures and risk situational awareness
Based on our quality policy, Kirin Group has declared that providing safe and reliable products and services to our consumers is our top priority. We have established the Global Quality Management Principle, which embodies our Quality Policy of being "Consumer-first approach" "Steady focus on quality". We will also provide safe and reliable products and services to consumers throughout every step of our business to earn and retain their trust in us.
FieldsMain riskRisk content and main potential impacts
Human rights Risk of human rights issues associated with the Group, its partners, or its procurement operations
Risk of human rights issues in Myanmar
Potential substantial impact on business activities in the country or globally
Potential misunderstanding the Group's business activities with local joint ventures
Main countermeasures and risk situational awareness
Measures to ensure human rights based on the Kirin Group Human Rights Policy
- Identify, prevent, and mitigate human rights violations related to the Group’s business activities
- Request suppliers to comply with the Kirin Group Human Rights Policy
Kirin Group is strongly aware of its responsibility as a company conducting business activities in Myanmar, and has endeavored to ensure that its business activities are carried out to the highest standards.  We will continue to have dialogues with NGOs, human rights experts, etc.
FieldsMain riskRisk content and main potential impacts
Environmental issues Risk of environmental problems caused by PET bottles and other plastic containers, and risk of climate change caused by greenhouse gas emissions
  • Potential for increased costs from responding to environmental issues and from inability to secure the necessary renewable energy
  • Potential impact on corporate brand value from failure to respond to social concerns and rising expectations of companies
Main countermeasures and risk situational awareness
Based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), Kirin Group evaluated the impacts and opportunities of climate change on society and companies, discussed them at the Group CSV Committee and the Board of Directors, and then we formulated a long-term strategy 'the Kirin Group Environmental Vision 2050' last year.
You can see further information on this page:
The Enviroment
FieldsMain riskRisk content and main potential impacts
Alcohol consumption-related issues Risk of future restrictions worldwide on alcohol sales
  • Potential decline in alcohol consumption, potential decrease in corporate brand value
Main countermeasures and risk situational awareness
Regarding the alcohol consumption-related issues, we understand that WHO is discussing future regulations on the sale of alcohol on a global scale. We promote self-regulate advertising and promotional activities and measures to eliminate harmful consumption of alcohol.
You can see further information on this page:
A Responsible Alcohol Producer
FieldsMain riskRisk content and main potential impacts
Disasters, accidents, and supply chain events Risk of large-scale natural disasters and accidents, such as earthquakes, unseasonable weather, cold summers, droughts, typhoons, torrential rains, forest fires, and infectious diseases
Risk of supply chain disruptions
  • Potential need to close business sites or reduce or suspend business activities
    Potential distribution delays or shortages due to procurement, production, and logistics capabilities unable to meet demand during a sharp rise in sales volume during peak sales periods
  • Potential suspension or delay of deliveries due to damaged transportation networks caused by a natural disaster
Main countermeasures and risk situational awareness
Kirin Group is undertaking a review of its business continuity plans that can handle all events, not just earthquakes and infectious diseases. In preparation for the Tokyo Olympics and Paralympics, we will take measures to prevent disruption of the supply chain and operations during the period.
In the supply chain, in addition to the effects of disasters and accidents, there has been a shortage of truck drivers in Japan, making it difficult to secure human resources throughout the supply chain, which may lead to the division of the supply chain. In each business, we are working to reduce risk by improving the accuracy of supply and demand forecasts and strengthening logistics capacity.
FieldsMain riskRisk content and main potential impacts
Information security Risk of a cyber attack, information security incident, or information leak
  • Potential to lose customer trust and incur claims for damage compensation due to a leak of personal information or important trade secrets
  • Potential suspension of business or extended recovery time required after a cyber-attack
Main countermeasures and risk situational awareness
Kirin Group has established the "KIRIN-CSIRT (Computer Security Incident Response Team)" to respond to the threat of cyber-attacks that are becoming more serious and is working on information security measures, which is one of the important risks in the Group. We are working to strengthen countermeasures against cyber-attack threats such as virus infection and unauthorized access from the outside by establishing a security response system within the group and implementing human, physical, and technical measures.
You can see further information on this page:
Information Security Report
FieldsMain riskRisk content and main potential impacts
Compliance Risk of behavior by employees, such as alcohol-related issues or bribery, that is illegal or counter to social mores
  • Potential of legal punishment, litigation, social sanctions, and loss of customer trust
Main countermeasures and risk situational awareness
Kirin Group strives to reduce the possibility of employee violations of laws and regulations and acts that violate social norms by promoting compliance through risk management cycles and employee awareness training. We also set up internal whistleblower systems and conduct employee compliance awareness surveys to identify potential risks and reduce risk in the early stages.
FieldsMain riskRisk content and main potential impacts
Finances and taxes Fund procurement risk, foreign exchange risk, tax risk
  • Potential increase in funding costs, fluctuation in yen conversion value due to exchange rates, and additional tax burden
Main countermeasures and risk situational awareness
Kirin Group conducts appropriate cash management and mitigates financial risks in accordance with the Kirin Group Treasury Policy. We also comply with the tax laws of each country and apply appropriate tax accounting in accordance with the Kirin Group Tax Policy to ensure tax transparency with a variety of stakeholders. Although the effects of market environment and exchange rate fluctuations and tax risks cannot be eliminated, these measures reduce the possibility of having a significant impact on business performance and financial conditions.

In addition to the above, there are various risks such as risks related to the reputation of the Kirin Group and products / services, and risks related to retirement benefit obligations. Recognizing the existence of these risks, we will endeavor to prevent them from occurring and take prompt action.

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