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August 4, 2008

Kirin Group revises 2007-2009 Medium-term Business Plan
"Year Zero" in lead-up to next three-year plan, as Kirin aims to create Group premium and realize goals of KV2015

Tokyo, August 4, 2008—Kirin Holding Company, Limited ("Kirin"), on reaching the mid-point of its current 2007-2009 medium-term business plan, today announced upward revisions to some of the quantitative targets contained in the plan, while also revising elements of the management policy aimed at achieving Kirin's medium-term goals.

Outline of 2007-2009 Medium-term Business Plan

Kirin has been maintaining an aggressive, forward-looking and fast-moving management approach in order to shift the Company to a new trajectory of growth, undertaking a range of initiatives based on three core policies, namely: facilitating independent growth at operating companies, generating growth through Group synergies, and allocating resources on a large scale.

Basic management strategies of the 2007-2009 business plan

  1. Strengthen Kirin's business foundations and realize a quantum leap in growth
    1. (1) Create renewed growth in the domestic alcohol beverage business
    2. (2) Move further toward becoming a comprehensive beverages group
    3. (3) Internationalize Kirin's business
    4. (4) Develop the health food and functional food business
    5. (5) Accelerate growth in pharmaceuticals and leverage proprietary strengths to develop the agribio business
  2. Pursue a financial strategy that maximizes corporate value
  3. Adopt a new group management structure
  4. Raise KIRIN brand value and implement Kirin Group CSR

Revisions to the 2007-2009 Medium-term business plan

During the first half of the current three-year business plan period, major investments in Kyowa Hakko and National Foods mean that during 2008 Kirin is likely to achieve the consolidated sales and operating income targets outlined in the plan for 2009.

In the remaining half of the business plan period, Kirin intends to make qualitative improvements in its management to enable the achievement of the ROE and operating profit margin targets set in the plan. At the same time, Kirin is positioning the period from July 2008 through to the end of 2009 as an important preparatory period leading up to the start of the next three-year plan (2010-2012) and by moving rapidly to identify and address key issues is aiming to enable earlier achievement of the long-term goals of KV2015. The high priority issues for Kirin are to create a robust foundation for the independent growth of its operating companies, while developing a group organization that facilitates the realization of Group synergies. Meanwhile, a new stage of growth will be pursued through continued consideration of investment targets that can provide high synergy effects.

Key points being emphasized in revisions to business plan:

  • Facilitate independent growth at operating companies: allocate significant management resources to soft drinks
  • Generate growth through Group synergies: improve group organizational structure to enhance functional capabilities
  • Allocate resources on a large scale as necessary to generate growth: provide for total investment in the range of ¥300 billion by the end of 2012

Revised quantitative targets

  2009 initial
targets
2009 revised
targets
Change 2015 targets
Consolidated sales including liquor tax ¥2.15 trillion ¥2.50 trillion ¥350 billion ¥3.0 trillion
Consolidated sales excluding liquor tax ¥1.7 trillion ¥2.1 trillion ¥400 billion ¥2.5 trillion
Operating income ¥150 billion plus ¥175 billion ¥25 billion ¥250 billion
Operating profit margin including liquor tax 7% plus 7% plus -- 8% plus
Operating profit margin excluding liquor tax 9% 8.3% plus -- 10% plus
ROE 7% plus 7% plus -- 10%
Overseas sales ratio Approx. 22% Approx. 26% -- Approx. 30%

Notes:

  1. Revised targets for 2009 do not include any potential impact from future strategic investment. The contributions from Mercian and Kyowa Hakko Kirin are based on their previously disclosed medium-term business plans. Because Lion Nathan does not release earnings forecasts, contributions are based on the amounts consolidated in Kirin's accounts for 2007, adjusted for exchange rates.
  2. ROE is after amortization of goodwill.

Specific initiatives

1. Facilitate independent growth at operating companies: Reform operating structure in further pursuit of development as a comprehensive beverages group

Under KV2015, Kirin has adopted a strategy to increase corporate value that, in a competitive global environment, targets the pursuit of a unique business model as a comprehensive beverages group. In the remaining half of the business plan period, Kirin intends to reform the business structure and improve the profitability of its domestic alcohol business, which is the foundation for the group's growth, while also allocating resources to the soft drinks business, which has the potential to become an additional business pillar.

Kirin has positioned the soft drinks business as an important potential driver of the quantum leap of growth targeted in KV2015, and in order to realize this potential during the next medium-term business plan, Kirin will begin allocating the necessary management resources during 2008. Kirin Beverage is the Group's core soft drinks company, and Kirin aims to secure stable sales and earnings in an extremely competitive domestic soft drinks market. At the same time, Kirin will pursue its comprehensive beverages strategy by establishing wide-ranging personnel exchanges between Kirin Beverage and Kirin Brewery. By creating interaction between personnel from different business cultures and with different talents, Kirin will develop employees with understanding of both the soft drinks and the alcohol beverages markets, helping creating organic links in the value chains of both operations in everything from product development through to sales. Resources will also be allocated to the development of new product categories necessary to drive growth, along with training of human resources.

In the soft drink markets of Asia and Oceania, which have high latent growth potential, Kirin aims to leverage its skills in product development and technical manufacturing to accelerate the growth of its overseas soft drinks operations, while continuing to seek new investment opportunities. Kirin will also pursue its comprehensive beverages strategy in markets outside Japan, focusing initially on developing collaboration between its alcohol and soft drinks operations in China.

In the domestic alcohol business, which serves as the primary business support for growth of the group and also as a source of skilled personnel, product development capabilities and multiple other resources, Kirin operates in a business environment influenced by an aging population and a diversification of consumer tastes. In this environment, rather than pursuing an absolute increase in scale, Kirin aims to develop its strategy of being No. 1 in each category to become the leader in the combined market for beer, happo-shu and new genre. At the same time, management will maintain a clear focus on maximizing profitability by fundamentally reforming the operating structure and eliminating un-necessary costs, enabling this business to underpin the growth of the group overall.

Because Kirin Brewery is the foundation business of the group and the heart of the KIRIN brand, all Kirin's business initiatives will be carried out with a keen awareness of building the value of the Company with a brand that consumers associate strongly with trust and vitality.

In pharmaceuticals, where a new start is being made with the launch of Kyowa Hakko Kirin Co., Ltd. in October 2008, Kirin aims to become a global specialist pharma company, focusing on cutting-edge antibody technology in line with the medium-term business plan for the new pharmaceuticals company.

In the health foods and functional foods category, the business arena is expanding as consumers develop health consciousness across a broad range of categories rather than in only specific functional food items. Kirin aims to develop its health food and functional food activities to incorporate development across all its operations—including alcohol beverages, soft drinks, and foods—using technology contained within the Group to develop new product proposals.

2. Generate growth through Group synergies: improve group organizational structure to enhance functional capabilities

During the first half of the current medium-term business plan, business initiatives have been focused on expanding the scope of Kirin's operations to create a quantum leap in growth. In the second half of the business plan period, Kirin will work to develop the Sales synergies made possible by the inclusion of these new resources in the group, while also rationalizing business functions to maximize Cost synergies.

Kirin has already realized Sales synergies, such as through the joint activities of Kirin Brewery and Mercian, and Cost line synergies through group procurement. Now, having undertaken large-scale investments, Kirin seeks to thoroughly reform its business portfolio and make qualitative improvements in Group management.

The role of Kirin Holdings will be focused as closely as possible on allocating group resources, managing the business portfolio, and taking other measures to create a Kirin Group premium. Other functions will in principle be transferred to individual operating businesses or to shared group service businesses. At each group operating business, meanwhile, R&D and other such divisions will be incorporated into the business divisions with which they are most closely connected, helping develop technical capabilities and consumer relevance. Moreover, to improve the Group's competitiveness in a tough global environment, Kirin will introduce the Center of Excellence concept, under which certain specialist functions will be concentrated in a single company to enable a structured development of competence applicable for the entire group.

In production, distribution and R&D divisions, Kirin will take steps to optimize operational bases, while integrating functions to reduce costs, optimizing manufacturing operations, continuously reviewing the business portfolio, and improving business management in order to boost operating profit margins and other elements of profitability.

In order to realize these Sales and Cost synergies, specific synergy-related items will be included in Kirin's strategy from 2009. Quantitative synergy targets will also be established for each group operating company, and process management will be thoroughly enforced.

3. Allocate resources on a large scale as necessary to generate growth: provide for total investment in the range of ¥300 billion by the end of 2012

In the remaining period of the current three-year business plan, the primary focus will be on promoting independent growth at operating companies and realizing new synergies in order to achieve the plan's targets, as outlined above. At the same time, however, Kirin will pursue a financial strategy to maintain a sound financial base while enabling a further step-up in growth. This growth is being supported with planned total investment in the range of ¥300 billion between now and the next business plan period. Consideration will mainly be given to soft drink and alcohol beverage businesses in Asia and Oceania that show strong synergy potential with existing core businesses in terms of either products or geographical region. Funding for this investment will be sourced from liquidizing available assets and interest-bearing debt.

Kirin's ultimate aim in pursuing the revised medium-term business plan is to achieve its quantitative targets and enable the early realization of the goals contained in KV2015, and in working towards this aim, Kirin will continue to engage in specific measures to enhance the value of the Kirin brand.

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© 2007 Kirin Holdings Company, Limited.

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