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KIRIN GROUP VISION 2015 Kirin Group’s Long-Term Business Framework
KIRIN GROUP VISION 2015 Kirin Group’s Long-Term Business Framework
Toward a quantum leap in growth
A new Group management approach under a holding company structure Maximizing corporate value by creating a ‘Group premium’
May 2006May 2006
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ContentsContents
◆ Kirin Group Vision 2015 (KV2015)・ 10 years of progress for the Kirin Group・ KV2015: Background・ KV2015: Overview・ KV2015: Vision and planned Group structure・ KV2015: Targets
◆ Strengthening Kirin’s business foundation and pursuing long-term growth・ Strengthening business foundations to achieve a quantum leap in growth・ Three strategies to achieve a quantum leap in growth
◆ Key focuses for achieving our planned structure・ Building on our technical expertise and customer intimacy ・ Enhancing the KIRIN brand value
◆ Establishing a management structure to achieve growth・ Introducing a holding company structure・ Making Kirin Beverage Corporation a wholly owned subsidiary
◆ Financial Strategy◆ Reference Material
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Kirin Group Vision 2015(KV2015)
Kirin Group Vision 2015Kirin Group Vision 2015(KV2015)(KV2015)
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10 10 years of progress for the Kirin Groupyears of progress for the Kirin Group
Steady transformation into a comprehensive alcohol beverages companyIntroduced happo-shu in 1998, chu-hi in 2001, and new genre product in 2005⇒ We have quickly taken and then maintained the top position in each of these
categories⇒ From being a company centered around traditional brands, we have developed
into a comprehensive alcohol beverages company that creates new marketsthrough added-value marketing and the pursuit of customer satisfaction
Growth in the soft drinks businessWe have launched a range of major hit products through our sophisticated product development and marketing capabilities
Now one of the industry’s Top 3 companies
Broader overseas business focusing on Asia and Oceania⇒ Overseas business has grown to more than 20% of consolidated operating income
Alcohol beverages: Developed the beer business through investments into Lion Nathan (Australia), San Miguel (Philippines), Zhuhai Kirin Brewery (Zhuhai) (China) and DalianDaxue (China), contributing to consolidated results
Soft drinks: Established the Kirin brand in China through Shanghai Jin Jiang Kirin Beverage & Food as well as other JV companies, and in 2006 we will launch sales and production of soft drinks in Thailand
Pharmaceuticals: We will launch products in 6 ASEAN countries from 2006, as well continuing operations in China, South Korea, Taiwan and Hong Kong
Diversified developmentWe have grown pharmaceuticals sales and profits, moved to wholly in-house sales and progressed R&D in human antibody medicines and other areas
We are developing new businesses in functional foods
Cost structure reformTotal cost structure reforms across the company, including restructuring of four plants
(¥ billion)
0
20
40
60
80
100
120
140
1997 1999 2001 2003 20051,000
1,200
1,400
1,600
Sales Operating incomeOrdinary income Net income
Sales
income
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Kirin Group still lacks sufficient scale in the global foods sector
0 5,000 10,000 15,000 20,000
Altria Group
Nestle
Pepsico Inc
Unilev er PLC
Coca Cola Company
Kraft Foods Inc
British American Tobacco PLC
Diageo PLC
Inbev SA
Anheuser-Busch Companies Inc
Sabmiller PLC
Groupe Danone
General Mills Inc
Heineken NVCompanhia De Bebidas
DAS Americas SACadbury Schw eppes PLC
Imperial Tobacco Group PLCArcher-Daniels-Midland
CompanyFomento Economico Mex icano SA
Japan Tobacco Inc
Kellogg Company
Sara Lee Corp.
Conagra Foods Inc
Rey nolds American Inc
Altadis SA
Pepsi Bottling Group
Kirin Brew ery Company Limited
Heinz HJ Company
Campbell Soup Company
0 50,000 100,000 150,000
Altria Group
Nestle
Coca Cola Company
Pepsico Inc
Unilev er PLC
Unilev er NV
British American Tobacco PLC
Kraft Foods Inc
Diageo PLC
Japan Tobacco Inc
Anheuser-Busch Companies Inc
Sabmiller PLCCompanhia De Bebidas
DAS Americas SAGroupe Danone
Inbev SAArcher-Daniels-Midland
CompanyImperial Tobacco Group PLC
Cadbury Schw eppes PLC
Heineken NV
Pernod-Ricard
Kellogg Company
General Mills Inc
ITC Limited
Rey nolds American Inc
Kirin Brew ery Company Limited
Sara Lee Corp.
Heinz HJ Company
Campbell Soup Company
Altadis SA
Associated British Foods PLC
KV2015: BackgroundKV2015: Background
Top 30 by recent market valueTop 30 by net sales
(FY 2005 results)Top 30 by EBITDA(FY 2005 results)
Leading global food sector companiesLeading global food sector companies Listed company onlyData: Datastream, Worldscope ($ million)
As of April 23, 20060 25,000 50,000 75,000
Nestle
Altria Group
Unilev er PLC
Japan Tobacco IncArcher-Daniels-Midland
CompanyKraft Foods Inc
Pepsico Inc
Ty son Foods Inc
Bunge Limited
Coca Cola Company
Sara Lee Corp.
British American Tobacco PLC
Groupe Danone
Anheuser-Busch Companies Inc
Conagra Foods Inc
Inbev SA
Altadis SA
Heineken NV
Pepsi Bottling Group
Cadbury Schw eppes PLC
General Mills Inc
Sabmiller PLC
Dean Foods Corp. New
Kirin Brew ery Company Limited
Kellogg Company
Ajinomoto Company Inc
Associated British Foods PLC
Fomento Economico Mex icano SA
Smithfield Foods Inc
Diageo PLC
h
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Trends in the industry
KV2015: BackgroundKV2015: Background
We have established strategies for over the next 10 years
The operating environment is changing at a speed greater than predicted
Declining birth rate and aging population
Increased competition amongst playersDiversification of consumer
needs
internationalization
Structural changes to the marketand distribution
Growth along the current pattern of Growth along the current pattern of business will be limitedbusiness will be limited
Shrinking domestic beer market
Restructuring and integration of major overseas beer manufacturers
Increased competition in domestic soft drinks market
Blurring of boundaries between alcohol beverages and soft drinks markets as well as diversification of consumer needs
Changes in the Kirin Group operating environment
We have to change the environment ourselvesWe have to change the environment ourselvesA more A more aggressive aggressive stance is necessarystance is necessary
Generate future growth in the core domestic alcohol business
Develop our portfolio through growth in areas such as soft drinks and pharmaceuticals
a quantum leap in growth
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KV2015: OverviewKV2015: Overview
Quantum growth
Enhance KIRIN brand value
A trusted corporate group
Standard Group attitude 3C
The Kirin Group in 2015Implement 3 strategies to achieve
growth
Implement strategies to become an integrated beverages Group
Internationalize the Group
Build the health and functional food business as a new business pillar
Consolidated targets
Sales¥3.0 trillion (inc. alcohol tax) ¥2.5 trillion (excl. alcohol tax)
Operating income ratio:Over 10% (against sales excl. alcohol tax)Overseas sales ratio:Approx. 30% (sales excl. alcohol tax, operating income)
Increased cost competitiveness
Reorganization into low cost business model
Continuous improvement:: Kaizen
Establish Group management structure
Change of corporate structure
Strengthen and adjust Group head office functions
Strengthen foundations
Further growth in the domestic alcohol business A corporate Group based on its strengths
Technical expertise
Customer intimacy
Group management structure
Improve organizational climate
People-focused management
Strengthen management
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KV2015: Vision and planned Group structureKV2015: Vision and planned Group structure
We will create various bonds close to customers and give them the sense of well being that comes from food and health.
We will closely link our Fermentation and Bio, Manufacturing, and Research and Marketing technical expertise and pursue distinctive value, and the highest product quality
We aim to be the leading company in Asia and Oceania focusing on three businesses—Alcohol Beverages, Soft Drinks and Pharmaceuticals
Group Vision
Quantum growth
Enhance KIRIN brand value
A trusted corporate group
Standard group attitude 3C
The Kirin Group in 2015
We will further develop the trust that we have so far built up, proactively fulfill our social responsibilities, starting with environmental conservation, and contribute to the sustained development of a peaceful and hospitable society
3 strategies to achieve growthStrengthen collaborative alliances between the alcohol business and the soft drinks business and establish strong revenue platformsSecure growth bases in Asian marketsEstablish a new core business in the food and health field
Taking the 3Cs of Challenge, Commitment and Collaboration as a basic policy, we will use each individual’s talent as the source of our competitive edge
We will strive to enhance Kirin’s brand value as a trusted and progressive brand
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KV2015: TargetsKV2015: TargetsTargets 2006 (forecasts) 2015
Including alcohol tax 1.6 3Sales
2.5
Operating income ratio
Sales excl. alcohol tax 19% Approx. 30%Overseas ratio
Over 10%
Approx. 30%
Excluding alcohol tax 1.2
Cf. sales excl. alcohol tax 9%
Operating income 27%
(¥ trillion)
*Net sales by segment will be confirmed in the next medium-term plan
0
500
1,000
1,500
2,000
2,500
3,000
1997 1999 2001 2003 2005 20150
50
100
150
200
250
300
Net sales (left axis)
Operating income (right axis)
(¥ billion)
Line of quantum growthLine of quantum growth
Current growth line
Kirin Vision 2015 (KV2015)
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Strengthening Kirin’s business foundation and pursuing long-term growth
Strengthening KirinStrengthening Kirin’’s business foundation s business foundation and pursuing longand pursuing long--term growthterm growth
・Strengthen business foundations to achieve a quantum leap in growthGenerate further growth in the domestic alcohol business
・Three strategies to achieve a quantum leap in growthPromote strategies as an integrated beverage groupPromote internationalizationEstablish the health food and functional food business
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Strengthening business foundations for quantum growthStrengthening business foundations for quantum growth
Accelerate positive trends to stimulate growthAccelerate Kirin’s positive trend regarding growth in volumes of beer + happo-shu + new genreContinue open pricing, collaborative strategies in production, distribution and sales, other measures to enhance group structure
Develop a progressive, comprehensive alcohol beverages strategyLeverage Kirin’s technical expertise and customer relationship excellence to develop appealing products and sales strategiesDevelop new categories that create new demand in a changing market
Add new value in ways that make customers happyUtilize the newly created SCM1 division of the domestic alcohol business internal company to pursue added value in every link of the value chain2
and reform cost structureFocus on Kirin’s development and proposal-based business
Continue to lead the alcohol industryOptimize the trading environment and drive efforts to revitalize the industry
Creating renewed growth in Kirin’s core domestic alcohol business
1. Become an integrated beverage group
2. Pursue further internationalization
3. Establish health food and functional food business
Strengthen foundations by achieving growth in Kirin’s core domestic
alcohol business
Three growth strategies
1: SCM: Supply chain management:integrated control of entire product process, from raw materials procurement through to distribution and sale. 2: Value chain: The process by which value is added to a product from conception through to production and sales
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Strategies for quantum growth: 1Strategies for quantum growth: 1
Expansion of joint procurement
Optimize Group synergies under the KIRIN brand by pursuing a comprehensive, integrated Group strategy for the entire alcohol and soft drink beverages market
Strengthen collaboration throughout the business value chain—including management, personnel and R&D—to create value and appeal to customers
Pursue further integration as a comprehensive beverage group* Integration in this context refers to comprehensive interlinking on a sophisticated level rather than simply combining separate units.
Optimize Group synergies
New product & category development; technical and other synergies through collaborative R&D approach
Brand management alliances; joint international operations; joint new business development; outside alliances
Overall management
R&D
ServicesProcurement Sales &MarketingDistribution
Expansion of joint distribution
Integration of Group marketing research, joint channel development
Collaboration at customer contact points, shared communication strategies
Production
Integration of joint production
Strengthen collaboration throughout the business value chain
Human resource linksPersonnel
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Strategies for quantum growth: 2Strategies for quantum growth: 2
Become a leading company in Asia and Oceania
Base further economic expansion on the East Asian Economic Group, including China and ASEAN countries
Pursue further synergies through alliances with Group partners, while also forming outside alliances to create a unique business model and secure a superior competitive position
Further localize businesses, recognize regional differences in cultures and customer needs to develop attractive products and services, and contribute to customers’ lifestyles in the area of food and health
Further internationalization
Target Derive approx. 30% of net sales and operating profit from markets outside Japan by 2015
Expanded target area
East Asian Economic Group
2015
Sale breakdown (excluding liquor tax)2006
Domestic
Overseas
Overseas
Domestic
19%
Approx. 30%
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Strategies for quantum growth: 3Strategies for quantum growth: 3
Grow health foods and functional food business as the next core business to form a link to the alcohol and soft drinks business and pharmaceuticals business
Strive for business growth with Kirin Well-foods positioned as a core business
Leverage our advanced fermentation and bio technologies to develop distinctive food materials
Utilize the strengths of both Yakult and Kirin for joint business development
Develop health food and functional food as an additional core business area
Research and marketing expertise
High quality manufacturing
technology
Advanced fermentation and bio technology
Concept and design
Raw materialsProduction
and engineering
Distinctive strengthsDistinctive strengths
Health food and functionalfood business
Soft drinks business
Alcohol beverages business
Pharmaceuticals businessR&DR&D
Good-tasting, health raw materialsSeasoning raw materials
Functional raw materials Raw materials that aid in prevention of diseases and promote health
Raw materialsRaw materials
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Key focuses for achieving our planned structure
Key focuses for achieving our Key focuses for achieving our planned structureplanned structure・ Building on our technical expertise and customer
intimacy・ Enhancing the KIRIN brand value
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Build on our technical expertise and customer intimacyBuild on our technical expertise and customer intimacy
Kirin’s technical expertise… Cutting-edge capabilities in fermentation and biotechnology, expertise in manufacturing
and the pursuit of quality, and the research and marketing ability to accurately reflect customer needs in products and services Kirin’s customer intimacy…
The ability to incorporate two-way communication with customers in all Kirin’s businesses, researching customer sentiment and building relationships where customers feel constant trust for Kirin
As we continue to pursue a customer-oriented, quality-driven approach, we will position technical expertise and customer intimacy as our twin strengths, and work to consolidate them both while increasing the interplay between them
Kirin Group Strengths
Customer intimacy
Technical expertiseCreate customer value Create value that only
Kirin Group can create
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Enhancing the KIRIN brand valueEnhancing the KIRIN brand value
As well as receiving endorsement of the “KIRIN” brand as a brand of trust, a brand at the forefront of innovation,Kirin intends to further enhance the value of the brand as the unifying force within the Group
We will promote management that clarifies the role of each Group business in enhancing corporate value, and that enhances KIRIN brand value as well as contributing financially
As the 2007 centenary approaches, we will clarify our brand identity, and rewrite our management principles, Group slogan and other aspects of our corporate policy
Promote Group management from the viewpoint of contributing to the KIRIN brand value
Portfolio management by profits and brand contribution Portfolio management by profits and brand contribution
Brand axisProfitablilty
(fianancial) axis
HighLow
High
Low
Contribution to profits
Contribution to KIRIN brand value
Alcohol
Soft drinks
Pharma
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Establishing a management structure to achieve growth
Establishing a management structure Establishing a management structure to achieve growthto achieve growth
・Introduction of a holding company structure・Making Kirin Beverage Corporation a wholly owned subsidiary
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Establishing a Group management structureEstablishing a Group management structureKey management structure elements required to strengthen our business foundation and achieve a quantum leap in growth:
1). Flexible and strategic allocation of resources 2). Constant pursuit of internal synergies
3). Independent and dynamic business approach
Holding company initiatives
Three input patterns for growthGrowth through
maximizing internal synergies
Collaboration between holding company and operating companies
Operating company initiatives
Autonomous growth through independent and
dynamic operation
Growth though flexible and strategic
allocation of resources
We must adopt a management style that clearly defines the roles We must adopt a management style that clearly defines the roles and and responsibilities of the holding company and the Group operating responsibilities of the holding company and the Group operating companiescompanies
Holding company
Makes decisions on the most appropriate allocation of resources for the Group, discovers and fosters new business, promotes opportunities for synergies between businesses
Operating companies
Clarify authorities and responsibilities, pursue rapid decision-making and independent growth through proximity to markets, and seek growth through flexible allocation of resources and investments
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Introducing a holding company structureIntroducing a holding company structure
Making Kirin Beverage Corporation a wholly-owned subsidiary Introduce a holding company structure (July 2007)
The domestic alcohol beverages and pharmaceuticals business and a shared Group back offices services company will be separated as subsidiary companiesBusinesses such as the domestic alcohol beverages, soft drinks and pharmaceuticals business will be established as parallel
subsidiary companies
Kirin B
everage
Current status
Kirin B
everage
Kirin Brewery
Parallel positioning
Domestic alcohol C
Group headquarters
Company Company separationseparationConversion
to wholly-owned
subsidiary
International alcohol C Pharma C
Following conversion to wholly-owned subsidiary
Kirin Brewery
Domestic alcohol C
Group headquarters
International alcohol C Pharma C
July 2007Kirin Holdings (provisional name)
Transfer of Operational
control
Group headquarters
Separation of sharedGroup
back office operations
Kirin Pharm
a(provisional nam
e)
Kirin B
usiness Experts(provisional nam
e)
Other operatingcom
panies
Other com
panies
Kirin B
rewery
(provisional name)
Kirin B
everage
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Value of converting Kirin Beverage into a whollyValue of converting Kirin Beverage into a wholly--owned subsidiaryowned subsidiary
Raise corporate value
グループシナジーの拡大
資本効率の向上
KBC
Increase Group synergy measuresPromote integrated beverage group strategiesin Japan and overseas
Making Kirin Beverage a wholly-owned subsidiary will provide critical strategic options for raising corporate growth
Towards a quantum leap in growth...
Increase Group synergies
Raise capital efficiency through efficientinvestment operationsRaise ROE
Raise capital efficiency
Retain returns from growth businesses in the GroupRaise consolidated profit levels and EPS
Raise Group profitabilityFull allocation of assets into softdrinks business
Accelerate growth of Kirin Beverage
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Financial StrategyFinancial StrategyFinancial Strategy
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Financial strategy Financial strategy –– improving capital efficiency and increasing returns to shareholimproving capital efficiency and increasing returns to shareholdersders
Business investment
No.1priority in cash flow application
Concentrate the allocation of resources into the domestic and overseas soft drinks, overseas alcohol and pharmaceuticals businesses, which are key elements of our plan for a quantum leap in growth
Funding
Free up capital through liquidation of securities, real estate, etc.
Borrow as necessary to fund investments that exceed internal reserves, while maintaining sound finances
Consider consolidated dividend payout ratio
Dividend policy
Providing shareholders with a stable return on investments is our second priority after business investments
We are aiming to steadily increase dividends by raising profit levels
Share buyback
Option for shareholder returns, second to
dividendsFurther acquisition of shares will be considered in relation to the share
price and market situation
Flexible funding
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Reference MaterialReference MaterialReference Material
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2007 Medium-term management plan and 2015 (KV2015) orientation
2004 medium-term plan
2004-2006
KG21Action plan2001-2003
NK211998-2000
KG21(1999)Management strategy leading into new century (towards 2005)
2010Medium-term plan2010-2012
2013Medium-term plan2013-2015
KV2015: LongKV2015: Long--Term Business FrameworkTerm Business Framework
20072007MediumMedium--term planterm plan
20072007--20092009
Entered the happo-shu category
Invested in Lion Nathan
Reorganized domestic plants
Active share buybacks
The first action plan looking towards 2015Targeting early achievement of business structure to support KV2015
NK21 (1998-2000) KG21 action plan (2001-2003)
Integrated alcohol business promotion
Invested in San Miguel
Acquired Takeda Foods’ seasonings division
Reformed cost structure
2004-2006 Medium-term management plan
Extending lead in domestic growth categories
Investing in Dalian Daxue and converting of Zhuhai into wholly-owned subsidiary, additional capital injection to San MiguelCommencing full in-house sales of pharmaceuticals and independent diversification of other businesses
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Outline of Kirin Holdings group businessesOutline of Kirin Holdings group businessesShifting to a new Group holding company structure, with the conversion of Kirin Beverage into a wholly owned subsidiary and separation of the domestic alcohol and pharmaceuticals businesses along with a shared Group services company
New holding company structure planned for July 2007
Kirin Holdings(provisional name)
Operating com
panies
Domestic Alcohol
Note: Only includes main consolidated companiesNew company name is still undecided as of May 2006
Soft Drinks
Overseas Alcohol
Pharma-ceuticals
Health foods and Functional
foodsAgribio
Foods, services,
etc.
Shared group
services
Kirin B
usiness Experts
(provisional name)
Spin-off
Other business com
panies
Kirin Green and Flow
er Co., Ltd.
Kirin B
rewery
(provisional name)
Spin-off
Kirin Beverage
Wholly owned
subsidiary
Kirin P
harma
(provisional name)
Spin-off
Kirin W
ell-foods Co., Ltd.
Lion Nathan Ltd.
Kirin (C
hina) Investment C
o. Ltd.
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Process for introducing the holding company structureProcess for introducing the holding company structure
1) Planned date for corporate divesture:
February 2007 Approval by the Board of Director of the Business Divesture Agreement
March 2007 General meeting of Kirin Brewery shareholders (approval of the Business Divesture Agreement) July 1, 2007 Effective date of the divesture
2) Target businesses and methodology for divesture Kirin Brewery will, as the divesting company, implement the divesture of
business to three domestic wholly owned subsidiaries, which will succeed to the domestic alcohol business, pharmaceuticals business, and shared group services. Following the divesture, Kirin Brewery will become a holding company and change its name to Kirin Holdings (provisional name)
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Strategy to convert Kirin Beverage into a wholly owned subsidiarStrategy to convert Kirin Beverage into a wholly owned subsidiaryy
■ Process for conversion into a wholly owned subsidiary1) Acquire Kirin Beverage shares through a tender offer2) Apply for the approval of a business restructuring plan under the Law on Special Measures for
Industrial Revitalization
3) Following approval of the plan, according to legal requirements*, effect an exchange of shares for cash consideration
*Article 12-9 of the Law on Special Measures for Industrial Revitalization prior to the revision under Article 449 of the same Law, which remains effective by virtue of the provisions of Article 450, Paragraph 7 of the Law Concerning Developments of Related Laws in Enforcement of the Company Law .
■The Law on Special Measures for Industrial RevitalizationEstablish a business revitalization plan for a period of under three years for a corporation accredited by the relevant authorities that fulfills the following four requirements of laws supporting policies on special items such as the corporations law and tax structure
1. Raising of productivity; 2. Financial revitalization; 3. Business reorganization; 4. Employment considerations
■ Benefits of accreditation1) Flexible merger compensation ⇒ Possible to exchange shares for cash consideration
2) Special treatment regarding informal structural reforms
⇒ Permission from the shareholders’ meeting of Kirin Beverage is not necessary if Kirin Brewery retains 2/3 of equity (9/10 under the corporate law) of Kirin Beverage
3) Reduce registration and license tax at time of corporate divesture
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Overview of the Tender offerOverview of the Tender offer
1) Period of tender offer 35 days from May 12, 2006 to June 15, 2006
2) Purchase price ¥3,350 per share
3) Basis of calculation of share price The evaluation of the value of Kirin Beverage shares was carried out
by a third-party appraiser, Nomura Securities, who took into consideration a wide range of elements relating to Kirin Beverage shares, such as current market price, status of finances and assets, and potential future earnings.
The purchase price represents an approximately 17.2% premium to the average share closing price of Kirin Beverage on the First Section of the Tokyo Stock Exchange during the three months up to and including May 10, 2006.
4) Number of shares scheduled for purchase 22,344,488 shares (40.62% of all shares in issuance)
Kirin will purchase all shares offered for sale by shareholders
5) Change in number of shares held due to the Tender Offer Number of shares prior to the Tender Offer: 32,657,480 shares (59.37% shareholding) Number of shares subsequent to the Tender Offer*: 55,001,968 shares (100% shareholding) * Number of shares dependent on successful purchase of planned amount Number of outstanding shares of Kirin Beverage : 55,002,370 shares (including 402 treasury
shares held by Kirin Beverage)
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This material is intended for informational purposes only and is not a solicitation or offer to buy or sell securities or related financial instruments.