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Business Risk Factors

Outlined below are the major risks faced by the Kirin Group in its business and other activities that have been considered as potentially having a significant impact on the decisions of investors. Information is also provided with regard to matters that would not necessarily have a significant impact, with the aim of promoting active disclosure of information to investors. The future risk items outlined below are those identified by Kirin as of December 31, 2017.

A. Risks related to business environment

(1) Laws, Regulations, and Tax Systems

The Kirin Group’s business operations are subject to a number of laws and regulations in Japan, including those relating to liquor taxes, food sanitation, pharmaceutical and medical devices, anti-monopoly issues, and the environment. The Group is also subject to local legal restrictions of the country concerned. For example, alcoholic and non-alcoholic beverage consumption may decline if revisions to liquor tax and consumption tax laws result in higher consumer prices. In addition, changes to the Pharmaceutical and Medical Device Act or related law and regulations may have an impact on the pharmaceutical business, such as causing a delay in the development of new products, while drug price revisions through the public pharmaceutical price system may adversely affect the performance and financial position of the pharmaceutical business. Other unforeseen amendments to laws or regulations may result in the restriction of the Group’s business activities, adversely impacting business performance and the financial position of the Group.

Meanwhile, the Kirin Group conducts advertising and publicity in accordance with strict voluntary industry standards in order to meet its social responsibilities as a corporate group manufacturing and selling alcohol products. On the other hand, international standards with respect to the sale of alcohol products are under consideration by the World Health Organization. If regulations were implemented that were significantly stricter than anticipated, consumption of alcoholic beverages may decline and the Group’s business performance and financial position may be adversely affected.

(2) Fluctuations in Foreign Currency Exchange Rates and Interest Rates

The Kirin Group procures some of its raw materials and products from overseas, and also undertakes business in overseas countries. Sudden and unforeseen fluctuations in foreign currency exchange rates, along with fluctuations in interest rates relating to domestic and overseas financing, etc., may adversely impact the Group’s business performance and financial position.

(3) Increase in Raw Material/Energy Prices and Freight Expenses

The principal raw materials used by the Kirin Group, such as PET bottles, cardboard, malt, corn, and fruit juice, , as well as crude oil, electricity, and other energy sources, are subject to fluctuations in price depending on market conditions. the business conditions surrounding logistics are getting increasingly tough due to a shortage of truck drivers, etc. This may lead to higher procurement, manufacturing, and transportation costs, etc., that will adversely impacting the Group’s business performance and financial position.

(4) Weather, Climate Change, Natural Disasters, and Infectious Diseases

The Kirin Group’s business operations may be affected by abnormal meteorological conditions such as unstable weather, unusually cold summers, drought and typhoons, as well as global warming and other such factors. Furthermore, earthquakes and other natural disasters, outbreaks of infectious diseases such as new strains of influenza, and accidents on a large scale may limit or hinder the Group’s business activities should they occur, adversely affecting the Group’s business performance and financial position.

(5) Financing

The Kirin Group procures funds for its business operations mainly through borrowing from financial institutions and the issuance of commercial paper and corporate bonds, etc. For this reason, in the event of, for example, destabilization of the financial markets/increase in interest rates, or downgrading of the Group’s credit ratings by rating companies, etc., the Group could face limitations on its financing and thus the cost of financing may increase, or financing may not be possible at all. Such a situation may have an adverse impact on the Group’s business performance and financial position.

(6) Changes in the Value of Asset Holdings

The value of marketable securities and other such assets held by the Group falls due to rapid changes in stock market prices, and a sharp decrease in market values may have an adverse impact on the Group’s business performance and financial position.

(7) Changes in the Trends of Economic and Market Environments and Population movements

The Kirin Group’s business operations may be significantly influenced by economic conditions and related trends in personal consumption and/or population movements. In the event of a decline in consumption and/or demand, etc. due to a simultaneous worldwide economic downturn or an overall market decline due to Japan’s declining birth rate and aging population, etc., the Group’s business performance and financial position could be adversely affected.

(8) Overseas Operations

The Kirin Group recognizes that its business activities may be restricted and that its performance and financial position may be adversely affected, should any of the following situations occur, particularly overseas, and their effects exceed what has been predicted:

  • a. Political, economic, or social turmoil resulting from the outbreak of war, terrorist activities, or other causes
  • b. Conflict due to differences in cultures customs

B. Risks related to business operation

(9) Business and Capital Alliances

In line with the Kirin Group’s medium- and long-term business plans, the Group promotes the development of business and capital alliances with other companies in Japan and overseas, as part of its measures to improve the Group’s competitive position and to achieve growth. In taking this approach, however, the Group may not be able to exercise sufficient control over the management, operations, or assets of business alliance partners, and could be affected by circumstances in the allied companies. The Group’s business performance and financial position could also be adversely affected if the performance of business alliance partners was below expectations or other factors should force the Group to recognize impairment losses of goodwill, etc. associated with the Group’s capital investments.

(10) Human Resources

The Kirin Group conducts business activities in Japan and overseas, and the background of Kirin Group employees varies in terms of race, nationality and culture. The Group respects the diversity of its employees and aims to increase its organizational capability to realize value creation . The Group, however, runs the risk of being unable to sufficiently secure and/or develop the highly specialized human resources necessary for its business activities. In terms of industrial safety and health, the Group not only complies with relevant laws and regulations but also ensures to the greatest degree possible that no industrial/occupational accident occurs. Should such an incident take place, however, significant damage would be incurred that may have an adverse impact on the Group’s business performance and financial position.

(11) Product Safety

The Kirin Group makes the maximum effort regarding quality assurance to offer customers ‘safety in food,’ by conducting groupwide quality audits, etc. through an enhanced product quality assurance and management system that encompasses goods manufactured at the Group’s own factories as well as those imported or manufactured at other companies . However, if an unexpected problem in quality management, etc., were to arise beyond the scope of the Group’s capacity to ensure quality assurance, the Group’s business activities may be restricted and its business performance and financial position may be adversely affected.

Meanwhile, in the Kirin Group’s pharmaceuticals business, strenuous efforts are made to ensure as far as possible that pharmaceuticals manufactured at the Group’s own facilities or procured from other companies meet stringent quality control standards in addition to all regulatory standards. However, it is possible that unforeseen problems related to product defects, etc. might emerge which would go beyond the scope of quality assurance initiatives and lead to large-scale product recalls or product liability compensation. This could have a serious impact on the Group’s social credibility and result in its business performance and financial position being adversely affected. In addition, pharmaceutical products undergo strict safety audits at the development stage and following checks by the relevant national authorities are approved, however following launch, on occasion previously uncommon side effects based on the accumulated results of users may become apparent. The discovery of unexpected side effects discovered following launch may have negative consequences for the Group’s business performance and financial position.

(12) Information Leakage and Information System

In addition to important information relating to the Group’s management, the Kirin Group retains confidential information about a number of companies and individuals. The Group manages such information by establishing and following internal regulations, etc., and emphasizes the importance of correct information management through employee education/training programs and other such measures, as well as having systems-related security policies and structures in place. Meanwhile, the group has information systems for sharing information and improving business efficiency, and takes measures to maintain stable operation of the systems. However, there is a possibility that computer viruses, unauthorized access, natural disasters, or other occurrences could cause loss, leakage, or alteration of information, or that systems could stop or become temporarily unserviceable. Any such problems may have an adverse impact on the Group’s business performance and financial position.

(13) Occurrence of Litigation and Fines

The Kirin Group has introduced a range of measures to reduce the likelihood of employees acting in contravention of laws and regulations. These measures include engaging in a risk management cycle and promoting compliance to employee training seminars. However, in the course of the Group’s operations in Japan and overseas, there is a possibility that litigation may be brought against, or fines imposed on, the Group companies or its employees for real or supposed infringements of product liability, intellectual property, taxation or other laws. In such cases, either the fact of being involved in a lawsuit itself or the result of litigation may lead to loss of customer trust in the Group, which may have an adverse impact on the Group’s business performance and financial position.

Other risks not mentioned in the above but that could affect the Group’s business performance and financial position includes capital investment, system investment, and investment in research and development as well as market competition.

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© 2007 Kirin Holdings Company, Limited.

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