February 10, 2010
Kirin Group Business Approach for 2010
Accelerating Group synergies in first year of medium-term business plan
targeting implementation and qualitative expansion
2010 is the first year of Kirin Group's 2010-2012 three-year medium-term business plan, and also marks the second stage in realizing the aims of Kirin Group Vision 2015 ("KV2015"), Kirin's long-term management vision for the period through to 2015.
In 2009, which we positioned as 'year zero' in the lead-up to the new medium-term business plan, the business environment was severe. Our focus during the year was to continue building the Group's business foundation for a leap in growth while at the same time commencing a clear shift from quantitative expansion to qualitative expansion.
In 2010, management will pursue further qualitative expansion by focusing on generating Group synergies and realizing lean management, with the aim of improving profitability and asset efficiency. At the same time we will build further momentum for the KIRIN brand by continuing to develop products that inspire customers with new value propositions, and pursuing CSR initiatives that build public trust in Kirin Group as a corporate entity.
Outline of 2010 Business Plan
Basic management strategies
Increase Group enterprise value by realizing growth and synergies at operating companies
- 1. Pursue an integrated beverages group strategy
- 2. Accelerate growth in pharmaceuticals business
- 3. Develop the health food and functional food business
- 4. Generate growth through Group synergies
- 5. Realize lean management by eliminating strain, waste and irregularity
Pursue financial strategy that supports higher enterprise value
Engage in CSR activities that enhance Kirin's coexistence with society
Quantitative targets for 2010
|2009 results||2010 targets||Change|
|Consolidated sales including liquor tax||¥2,278.4 billion||¥2,220.0 billion||¥(58.4) billion|
|Consolidated sales excluding liquor tax||¥1,918.7 billion||¥1,860.0 billion||¥(58.7) billion|
|Operating income||¥128.4 billion||¥133.0 billion||¥4.6 billion|
|Operating income ratio excluding liquor tax||6.7%||7.2%||0.5 percentage pts.|
|ROE||8.3%||9.5%||1.2 percentage pts.|
Note: ROE is prior to amortization of goodwill.
Initiatives during 2010
1.Increase Group enterprise value by realizing growth and synergies at operating companies
(1) Pursue an integrated beverages group strategy
Under KV2015, Kirin Group is developing a unique integrated beverages group business model in both domestic and international markets, with the aim of increasing Kirin's enterprise value in a competitive global environment.
In Japan, where our domestic alcohol business is the core of the Group's operations, we aim to further develop our soft drinks business as an additional business pillar, strengthening Group collaboration at every stage of the value chain—including product development, procurement, distribution and sales—to create a wider scope of Group synergies.
At Kirin Brewery, activities will be centered on creating qualitative growth by building product categories with strong customer appeal, boosting sales opportunities through a comprehensive alcohol product range, and pursuing further business structure reform. We will continue to pursue a marketing strategy based on the three core policies of strengthening core brands, improving our response to consumer health consciousness, and increasing overall demand, while using evidence-based marketing to address diversifying customer needs and increase consumer support.
At Mercian Corporation, initiatives will be directed at selecting and concentrating wine brands and pursuing a customer-oriented value-sales approach, with the aims of strengthening Mercian brands, creating a low-cost management base and increasing profitability.
At Kirin Beverage, management focus will be on three core strategies:
- 1. Boosting product competitiveness in core and new brand categories
- 2. Improving sales outcomes through a proposal-based sales approach
- 3. Reforming the revenue structure by reviewing channel strategies, reassessing operations with low profitability, and other measures.
Underlying support for these three strategies will be provided by fostering capable personnel and building strong brands. Collectively, these efforts are aimed at making Kirin Beverage more competitive and establishing a sound earnings base to put the business on a renewed growth track.
Overseas, we remain focused on pursuing an integrated beverages group strategy, centered on Asia and Oceania.
In Asia, we are developing our alliance with San Miguel Brewery, with the aim of building our alcohol business base in the high-potential region of South-East Asia while realizing new business synergies. In China, we will strengthen collaboration between our alcohol and soft drinks businesses under the management of Kirin (China) Investment Co., Ltd., developing our activities particularly in the Yangtze Delta area and working to improve overall earnings in our Chinese operations.
In Oceania, we have established a strong business foundation with the Lion Nathan National Foods holding company, and by building on the management strengths of Lion Nathan and National Foods Limited we aim to offer new value to customers and realize meaningful synergies. These companies will be working to strengthen existing brands and develop new categories while pursuing management efficiency by optimizing the overall value chain.
(2) Accelerate growth in pharmaceuticals business
In the pharmaceuticals business of Kyowa Hakko Kirin, we aim to accelerate the realization of integration benefits and develop as a global specialty pharmaceutical company. In domestic markets we will work to strengthen sales of core products in kidney disease and other areas while boosting the marketing of new products, supported by a more efficient and effective sales structure. In overseas markets, we will focus on expanding business in Asia while also developing sales structures in the U.S. and Europe that reflect progress in product development. Research and development will be focused on the fields of cancer, kidney diseases and infectious diseases, and we will pursue exploratory research on new pharmaceuticals while making effective use of overseas bases to accelerate product development.
(3) Develop the health food and functional food business
In the health and functional food business, a business promotion project team is running an initiative that involves collaboration between each operating company to develop a new business model. Using a new Groupwide brand, KIRIN Plus-i, the first products under this initiative will be launched in April by Kirin Brewery, Kirin Beverage, Koiwai Dairy Products and Kirin Kyowa Foods. Looking ahead, by making joint use of the functional ingredients that underlie the concepts and values of health food and functional food products, we intend to realize Group synergies and offer customers appealing products that provide new value in the area of food and health.
(4) Generate growth through Group synergies
The realization of Group synergies is one of the most important themes of the new medium-term business plan. Under the direction of Cross Company Teams (CCTs), we are developing specific measures to promote synergies that can increase profitability and efficiency. For example, Kirin Brewery, in collaboration with Mercian and Kirin Beverages, is working to unify aspects of sales and marketing, promote skill transfer and integrate sales locations of the three companies. We are establishing a Group procurement system for Kirin Brewery, Kirin Beverage and other companies, and are taking steps to optimize the Group R&D structure. We will continue to review our business portfolio. In July 2010, business integrations will bring together the raw alcohol operations of Mercian and Kyowa Hakko Bio, and also the processing alcohol and fermented seasonings operations of Kirin Kyowa Foods and Mercian. Through these measures we aim to create a more stable business foundation while improving our competitiveness in the market.
(5) Realize lean management by eliminating strain, waste and irregularity
To realize growth in a tough business environment we will pursue lean management across the entire Group, creating customer value with maximum efficiency and effectiveness. Through business structure reform, TCR* programs covering manufacturing, SCM and sales, and other measures, each Group company will take steps to eliminate strain (operations that drag on the companies' resources or capacities), waste (operations that waste resources) and irregularity (inconsistencies in operations that reduce efficiency). Accounting, human resources and general affairs operations will be standardized across the Group, and back office functions merged as appropriate. Resource allocation will be optimized across the Group and assets reduced to improve profitability and efficiency.
*TCR (Total Cost Reform) is a process in which factors causing higher costs in manufacturing, SCM and sales are addressed collaboratively and horizontally across the business divisions of each Group company in order to reduce costs.
2.Pursue a financial strategy that supports higher enterprise value
Our financial strategy in the current medium-term management plan is based on ensuring appropriate returns to shareholders while maintaining a sound financial position in order to maximize enterprise value. By realizing synergies, adopting lean management and reducing assets, we aim to generate cash flow that can be used for returns to shareholders and to repay interest-bearing debt. In assessing dividends we will continue to target a consolidated payout ratio of over 30%. We aim to control capital expenditure with a rigorous focus on investment efficiency, and increase asset efficiency through additional asset liquidization and other measures. We will continue to allocate resources for business investment in order to achieve qualitative growth.
3. Engage in CSR activities that enhance Kirin's coexistence with society
CSR is an important management issue within Kirin Group. We are striving to incorporate the development of a sustainable society into our business operations—CSR through business—while also pursuing CSR as a corporate citizen.
In CSR through Business, we are undertaking further initiatives to become a low-carbon corporate group. We are reducing our use of water and other resources, reducing energy consumption at factories by converting machinery to alternative fuels, and targeting a 35% reduction in CO2 emissions from manufacturing, distribution and office activities by 2015 compared to 1990. We are also developing products that have a lower environmental burden, and across the procurement-to-consumption value chain of the entire Group, both in Japan and in our international operations, we aim to halve total CO2 emissions by 2050 compared to 1990 levels.
As a Group, we are actively involved in initiatives to resolve social issues. For example, with the launch of Kirin FREE, a 0.00% alcohol beer-taste beverage, we are helping address drink driving, while other measures include CSR-based procurement and initiatives for diversity in human resources. We have advanced risk management and compliance systems in place within the Group, and we are implementing a range of measures to strengthen systems for group-wide quality control and environmental management.
With regard to CSR as a Corporate Citizen, we have supported Japan's national soccer team continuously for more than 30 years, with the focus this year on the World Cup in June. We support a number of initiatives to allow children to experience the joy of sport, including our nationwide Kirin Soccer Field training program. We also contribute to society through forestry and watershed management and employee volunteer activities.
Kirin Group structure (as of February, 2010)
- * Kirin Brewery of America; Kirin Europe GmbH; Four Roses Distillery; Industria Agricola Tozan Ltda (Brazil), Taiwan Kirin Co., Ltd.
- ** Equity method affiliate