Celebrating the joys of life. Kirin Holdings Company, Limited 2008 Annual Report

Transcription

1 Celebrating the joys of life Kirin Holdings Company, Limited 2008 Annual Report Year ended December 31, 2008

2 Celebrating the joys of life Established in 1907, the Kirin Group has grown to be one of the leading food and beverage manufacturers in Asia and Oceania. Employing over 36,000 people worldwide, the Kirin Group pursues growth in an extensive range of businesses from alcohol beverages and soft drinks to dairy foods, health foods and pharmaceuticals. The Kirin Group will constantly seek to nurture close bonds with its customers and bring happiness through food and health based on its marketing slogan oishisa wo egao ni Good taste makes you smile. The Kirin Group positioned 2009 as the final year of the Kirin Group mid-term business plan, and as Year Zero in the run-up to its next medium-term business plan. The Group has expanded core business interests through alliances with Mercian Corp., Japan s premier wine merchant, the integration of Kirin Pharma Co., Ltd. with the Kyowa Hakko Group, and the acquisition of leading Australian dairy products producers National Foods Ltd. and Dairy Farmers Limited. Furthermore, in Australia in April 2009, Kirin reached an agreement with Lion Nathan, a 46.13% owned and affiliated company of Kirin, to acquire all remaining shares and make it a wholly-owned subsidiary of Kirin Holdings. Also in the Philippines, Kirin and San Miguel Corporation (SMC) have entered into a Share Purchase Agreement in which Kirin purchases shares in San Miguel Brewery Inc (SMB), the domestic beer business subsidiary of SMC through a private transaction and tender offer. As a result, Kirin will become the holder of % of SMB, with all related transactions currently scheduled to be completed by the end of May By maintaining an aggressive, forward-looking and fast-moving management approach, the Group aims to achieve a quantum leap in growth. FORWARD-LOOKING STATEMENTS Statements in this report that are not historical fact are forward-looking statements based on the current beliefs, estimates, and expectations of management. Various risks and uncertainties could cause results to differ materially from these projections. These risks and uncertainties include exchange rates, changes in domestic or overseas economic conditions, changes in consumer behavior or competitor activity, and changes in laws, regulations or policies in any of the countries where Kirin conducts operations. Kirin adopts measures to control these and other types of risks, but does not guarantee that such measures will be effective. Please refer to the following URL for the financial statements and notes, including the auditor s report, as well as for the data book.

3 Contents 02 Celebrating the Joys of Life 02 Good times 04 Good feeling 06 Good health 08 Message to Our Shareholders from Kazuyasu Kato, President and CEO 10 Kirin Group Medium-Term Business Plan KV2015 Stage I 12 Interview with the President & CEO 17 Review & Strategic Perspectives 18 Alcohol Beverages 24 Soft Drinks and Foods 28 Pharmaceuticals 30 Other Businesses 31 R&D and Intellectual Property 32 Corporate Social Responsibility 34 The Environment 35 Corporate Governance 36 Consolidated Eleven-Year Summary of Selected Financial Data 38 Management s Discussion and Analysis 42 Kirin Group Companies 44 Directors and Auditors 45 Investor Information Financial Highlights Kirin Holdings Company, Limited and Consolidated Subsidiaries Years ended December 31, 2008 and 2007 For the year: Sales Less liquor taxes Net sales Alcohol beverages Soft drinks and foods Pharmaceuticals Other businesses Operating income Net income At year end: Total assets Shareholders equity Net income per share: Primary Value indicators: Operating income/sales (%) Operating income/net sales (%) Return on assets (%) Return on equity (%) Price/earnings ratio (times) Price/book value ratio (times) Dividends per share ( ) Millions of yen ,303, ,691 1,922, , , , , ,977 80,182 2,619, ,812 Yen ,801, ,555 1,400, , ,560 69,909 67, ,608 66,713 2,469,667 1,054, Percentage change 2008/ % (5.0) (12.0) 20.3 Thousands of U.S. dollars 2008 $ 25,305,602 4,182,038 21,123,552 8,807,283 7,873,096 1,884,181 2,558,969 1,603, ,830 $ 28,777,578 10,192,376 U.S. dollars $ 0.92 Notes 1: The U.S. dollar amounts in this report are included for the convenience of readers, converted at the rate of 91.03= US$1. 2: Yen and U.S. dollar amounts are truncated. 3: The presentation of the former Soft drinks section was changed to Soft drinks and foods in The businesses of foods, health foods and functional foods, etc., which were previously included in the Others segment, were reclassified into the Soft drinks and foods segment in Information for 2007 has been restated to conform to the new classification; prior years have not been restated.

4 Alcohol Beverages Good times A relaxed beer with colleagues to mark the end of the working day. Or an official reception to recognize some significant milestone. Or perhaps a simple family gathering or meal for two. Whatever the occasion, people appreciate and value celebrating with others by raising a glass as one of the joys of life. Kirin Brewery Co., Ltd. is one of Japan s longest established beer producers. Marking its centenary anniversary in 2007, the KIRIN brand has been the first choice of millions of people in Japan to mark everyday occasions and special events. During the past 10 years, the Kirin Group has also pioneered the development of novel market segments for low-malt and no-malt beers. Today, KIRIN ranks among Japan s most trusted consumer brands. Besides beer, happo-shu and new genre products, the Kirin Group also boasts leading shares of many other sectors of Japan s alcohol beverages market, including shochu, chu-hi and other ready-to-drink (RTD) products, whisky, spirits and liqueurs. Consolidated subsidiary Mercian Corp. is Japan s top-ranked wine producer and trader. Abroad, the Kirin Group owns extensive interests in breweries and distilleries in various countries including Australia, China and the United States. Particularly, based in Australia, Group member Lion Nathan Ltd. has a major share of the alcohol beverages market in Oceania. In addition, the Group has built a strong and stable partnership with San Miguel Group in the Philippines. Blending innovation with a traditional insistence on the highest standards of quality, the Kirin Group is committed to supplying a comprehensive range of alcohol beverages to help people continue celebrating the joys of life. 02

5 Throughout Japan, the izakaya is a wellloved part of the social urban landscape where people go to celebrate with others, to cheer up friends, or simply to enjoy good food and drink after a hard working day. Here you will commonly find Kirin brands as the beer of choice. Kirin Holdings Company, Limited Annual Report

6 Soft Drinks and Foods Good feeling Water, milk, juice and other soft drinks have come to play an integral part of the lives of young and old alike in today s fast-paced society whether as refreshment, recreation or reward. Many consumers look to trusted brands such as KIRIN to supply a variety of beverages to help them stay refreshed throughout the day. The marketing slogan for the KIRIN brand Good taste makes you smile captures the pleasure of enjoying good food and drink, one that transcends cultural boundaries. The Kirin Group is committed to the long-term development of high-quality food and beverage brands that deliver on this promise consistently. In doing so, the Group seeks to establish a depth of trust with consumers that will translate over the years into higher corporate value and earnings growth. In Japan, the Kirin Group supplies a broad range of soft drinks through wholly owned subsidiary Kirin Beverage Co., Ltd. With subsidiaries and joint ventures in fast-growing markets in China, Thailand and Vietnam, the Kirin Group has been seeking to establish presence in soft drinks markets in the Asia and Oceania region. The Group s main food businesses are in the dairy, health food and functional food sectors. In Japan, Group member firms include Koiwai Dairy Products Co., Ltd. (premium dairy products), while National Foods Ltd. and Dairy Farmers, both Australia s leading dairy products suppliers, made their first full-year contributions to consolidated performance in Also, Kirin Kyowa Foods Company, Limited was launched in April 2009 by integrating the Group s subsidiary for seasonings production, Kirin Food- Tech Co., Ltd., with the food operations of Kyowa Hakko Foods Co., Ltd. of the Kyowa Hakko Group. 04

7 No one doubts the immense popularity of futsal a variant of soccer in Japan. With the sport sweeping the nation, many enthusiasts look to a refreshing blast from Kirin s soft drink line-ups after a game to replenish lost energy and celebrate the good times. Kirin Holdings Company, Limited Annual Report

8 Pharmaceuticals Good health Good health is another of the joys of life that truly deserves celebration. Pharmaceuticals play an important and valuable role in enhancing the quality of life, both by curing disease and through the alleviation of pain, suffering and discomfort. Drug treatments supplied by the Kirin Group help patients to overcome a range of medical conditions including renal anemia, secondary hyperparathyroidism associated with maintenance dialysis, hypertension and allergies. The Kirin Group s pharmaceutical business evolved from the development of biotechnology capabilities that were originally cultivated within fermentation processes while producing core beer products. Over a period of 25 years, Group firm Kirin Pharma Co., Ltd. has developed and introduced a series of innovative drugs, focusing in particular on specialized areas such as cancer, kidney, and immunity/infection diseases. Human antibody technology is another therapeutic segment where the Kirin Group has developed an advanced degree of specialized expertise. In October 2008, Kyowa Hakko Kirin Co., Ltd. was established through the merger of Kirin Pharma and Kyowa Hakko Group. Having originally perfected fermentation technology and with particular technical strengths in the area of human antibodies, Kyowa Hakko is an excellent strategic fit. The integration of the two companies strengths in robust foundation of biotechnologies, advanced therapeutic antibody technologies and R&D skills promises to boost significantly the operational presence of the Kirin Group in the pharmaceutical sector. Kyowa Hakko Kirin aims to become a Japan-based global pharmaceutical specialist with a worldwide development and sales network that can contribute to the health and prosperity of people around the world by being a smart focus player in niche but promising markets. 06

9 Kirin plays an important role in ensuring that people the world over including many in Japan s aging society continue celebrating life in a healthy and comfortable way, through its ongoing work in the pharmaceutical sector, cutting-edge technologies and innovative new pharmaceutical products. Kirin Holdings Company, Limited Annual Report

10 Message to Our Shareholders from Kazuyasu Kato, President and CEO Consolidating a healthy position The Kirin Group made further progress in fiscal 2008 toward realizing a quantum leap in growth, taking the Group into a new scale of sales and profitability in Japan and overseas. Going forward, the focus remains on optimizing operations, postmerger integration, brand development and investment in organic and acquisitive growth to continue delivering solid returns for shareholders. In 2008, the US subprime loan problem erupted into a fullfledged global financial crisis, dragging the world economy into a major downturn. The Japanese economy recorded steady growth in the first half of the year, but slowed sharply in the fourth quarter as the impact of weaker US demand coupled with sudden appreciation of the yen led to a collapse in exports. Plunging industrial output dented consumer confidence and caused GDP growth to turn negative in the latter part of Business performance overview Despite the progressive deterioration in global economic conditions, the Kirin Group generated strong growth in sales and profits thanks to the consolidation of a series of recent strategic acquisitions. In addition, excellent performance by our consolidated subsidiary Lion Nathan, one of the leading alcohol beverage producers in Australia, contributed significantly to higher consolidated sales and operating income for fiscal Also, our core business and strong cash generator Kirin Brewery successfully undertook initiatives focused on profitability, on top of launching attractive new alcohol products. Those initiatives included the introduction of price hikes on beer, happo-shu and new genre products for the first time in 18 years, and reduction of A&P and production costs, for instance. These efforts to reduce costs and start extracting greater synergies from the closer integration of Group operations helped to counteract raw material cost inflation. Consolidated net sales increased 27.9% on a year-on-year basis to 2,303.5 billion. Operating income rose 21.0% to billion. Extraordinary gains arising from the exchange of shares on April 1, 2008 involving Kyowa Hakko Kogyo Co., Ltd. ( Kyowa Hakko ) and Kirin Pharma Co., Ltd. more than offset currency translation losses due to the yen s sharp appreciation against the Australian dollar. Consolidated net income rose 20.2% to 80.1 billion. 08

11 Please refer to the section Review & Strategic Perspectives for a detailed discussion of the performance of each of Kirin Group s business segments. Robust growth driven by operational integration Fiscal 2008 was a year of consolidation and further acquisition for the Kirin Group. We consolidated Kyowa Hakko into the Kirin Group s accounts in April 2008, significantly expanding the scale of our pharmaceutical operations in the process. Kyowa Hakko merged with Kirin Pharma on October 1, 2008 to form Kyowa Hakko Kirin Co., Ltd. Our integration of the Kyowa Hakko Group and National Foods of Australia into consolidated operations drove topline revenue growth and supported further solid gains in operating income. Later in the year, National Foods successfully negotiated a full takeover of Dairy Farmers, one of Australia s major suppliers of fresh dairy products. This move has positioned the Kirin Group as one of the top dairy food and beverage manufacturers in the regional Oceania market as part of our broader goal to become the leading company in food and health business domains in Asia and Oceania. Within our internal planning framework, fiscal 2008 marked the second year of our three-year medium-term business plan for the Kirin Group covering the period This plan is Stage I of our long-term strategic vision Kirin Group Vision 2015 ( KV2015 ) to become an integrated beverage group, with international operations generating 30% of overall sales, excluding liquor tax. Three business pillars each generating strong cash flow While our domestic alcohol beverages business remains the core generator of cash, with the acquisitions of recent years the Kirin Group has developed into a diversified enterprise with a major presence in the food and health sectors. Besides alcohol beverages, we now boast substantial operations in soft drinks, foods as well as a broad range of dairy products, and pharmaceuticals. To reflect the new structure of the Group s operations, from fiscal 2008 we shifted foods, health foods, functional foods and related products from other businesses into the soft drinks business segment. We renamed the latter soft drinks and foods. Following this rearrangement, the Kirin Group is composed of three core businesses: alcohol beverages, soft drinks and foods, and pharmaceuticals. Each of these is strongly cash-generative. Together they provide three pillars to support the sustained future growth of the business. Further dividend growth We raised dividends per share by 2.00 to 23.00, representing a consolidated payout ratio of 27.4%. We have paid a dividend to shareholders every year since the company was first established in Under KV2015, our aim is to pay a stable dividend while having set a guideline consolidated payout ratio of 30%. Outlook for fiscal 2009 There is no doubt that 2009 will be a tough year due to the global economic recession. In these times, we believe that our portfolio of valued and trusted brands will be the first choice of many consumers. We expect the synergistic benefits derived from the ongoing integration of Group operations to help in offsetting the impact of any softening in demand. Overall, we are forecasting flat revenues and profits at the level of EBITDA in fiscal 2009, largely due to the accounting method change and Japanese yen appreciation. However, we aim to realize organic growth in each Group member as well as Group synergies, while also striving to keep total shareholder dividends at current levels. I believe that the Kirin Group has a bright future. I hope that we can count on your continued support and understanding. Kazuyasu Kato President & CEO Kirin Holdings Company, Limited Annual Report

12 Kirin Group Medium-Term Business Plan KV2015 Stage I The Kirin Group has adopted a long-term strategic framework called Kirin Group Vision 2015, under which it is aiming to strengthen its core domestic alcohol beverages business and achieve a quantum leap in growth through the execution of a Group-wide integrated beverage strategy and advancement of globalization. Its highest priority is to enhance the corporate value of the Kirin Group by achieving greater profitability through actions implemented under this plan. At Kirin Group, 2008 marked the second year of the Medium-term Business Plan, which itself is Stage I of the Kirin Group Vision 2015 (KV2015), with Stage II running from and Stage III from During 2008, Kirin pursued a wide range of business development initiatives to become a leading food and health company in Asia and Oceania, and in Japan, the scale of Kirin s business expanded significantly. As a result, the Kirin Group came close to achieving all targets for 2009 the final year of the current plan a year ahead of schedule in Results for consolidated sales and ROE in 2008 actually exceeded the 2009 objectives of 2.0 trillion and 7.0%, respectively, which have been set as milestones on the path to the 2015 targets of 3.0 trillion and 10%. The strong performance in 2008 has set a solid platform for future growth in the final year of KV2015 Stage I and into Stage II. With 2009 as both the last year of Stage I and Year Zero in the run-up to the start of Stage II, the Kirin Group will continue efforts to improve corporate value and the value of the KIRIN brand, while developing as Asia and Oceania s leading company in the domains of food and health. The Group will continue to pursue the below three core growth strategies for qualitative expansion in 2009 and beyond. Facilitate organic growth at operating companies: Pursue an integrated beverages group strategy and accelerate independent growth at operating companies. Create Group synergies: Establish and monitor synergy targets, optimize group management structure and enhance operational capabilities. Allocate resources dynamically: Invest in product and area synergies with the greatest potential and optimize business portfolio. KV2015: Overview Implement three strategies to achieve growth The Kirin Group in 2015 Consolidated targets Implement strategies to become an integrated beverage Group Internationalize the Group Build the health and functional food business as a new business pillar F Strengthen foundation Further growth in the domestic alcohol business E Increased cost competitiveness Quantum growth A trusted corporate group F A corporate Group based on its strengths Technical expertise Customer intimacy F Enhance KIRIN brand value Standard Group attitude 3C Group management structure DE Sales: 3.0 trillion (inc. liquor tax) 2.5 trillion (excl. liquor tax) Operating income ratio: Over 10% (against sales excl. liquor tax) Overseas sales ratio: Approx. 30% (sales excl. liquor tax, operating income) Establish Group management structure Reorganization into low cost business model Continuous improvement: Kaizen Improve organizational climate People-focused management Strengthen management Change of corporate structure Strengthen and adjust Group head office functions 10

13 Qualitative targets and core strategy in 2009 In 2009, we will continue to pursue three core growth strategies under the revised medium-term business plan: facilitate independent growth at operating companies; generate growth through Group synergies; and allocate resources on a large scale. Basic management strategies Based on three core growth strategies, strengthen Kirin s business foundations and realize a quantum leap in growth 1. Create renewed growth in the domestic alcohol beverage business 2. Pursue a domestic integrated beverages group strategy 3. Internationalize Kirin s business under an international integrated beverages group strategy 4. Develop the health food and functional food business 5. Accelerate growth in pharmaceuticals business 6. Further develop existing businesses 7. Improve cost competitiveness Realize Group synergies in the context of global competition Adopt an optimum group management structure and enhance operational capabilities with the aim of maximizing corporate value Pursue Kirin Group CSR Focus on three core growth strategies to achieve qualitative expansion Facilitate organic growth at operating companies Pursue an integrated beverages group strategy; accelerate independent growth at operating companies Create Group synergies Establish and monitor synergy targets; optimize group management structure and enhance operational capabilities Allocate resources dynamically Invest in product and area synergies with greatest potential; optimize business portfolio Qualitative expansion : Quantitative targets and guidelines Looking ahead to KV2015 goals after early achievement of targets (Billions of yen) Consolidated sales Operating income OPM Quantitative targets Incl. liquor tax Excl. liquor tax Incl. liquor tax Excl. liquor tax ROE EBITDA EPS (prior to goodwill amortization for investments since 2007) EPS (subsequent to goodwill amortization for investments) 2007 results 1, , % 8.6% 6.5% results 2, , % 7.6% 8.1% forecast 2, , % 6.3% 6.0% target original 2,150 1, % plus 9.0% plus 7.0% plus 2009 target revised 2,500 2, % plus 8.3% plus 7.0% plus target 3,000 2, % plus 10.0% plus 10.0% Sales by segment Total sales Total sales Overseas ratio Quantitative targets Alcohol (Incl. liquor tax) Soft drinks and foods Pharma Other Incl. liquor tax Excl. liquor tax Sales excl. liquor tax 2007 results 1, , , % 2008 results 1, , , % 2009 forecast 1, , , % 2009 target original 1, ,150 1,700 approx. 22% 2009 target revised 1, ,500 2, approx. 26% * 2009 target under the medium-term business plan is revised in August Forecast for 2009 is disclosed in February * Forecasts for Lion Nathan and San Miguel Corporation in Kirin s consolidated results for 2009 are calculated by simply reflecting forecasted exchanged rates on 2008 results. * Consolidation timing of Lion Nathan and San Miguel at Kirin for FY 2008 and 2009 are from October 2007 to September 2008, and from October 2008 to September Kirin Holdings Company, Limited Annual Report

14 Interview with the President & CEO Building on the expansion of recent years to focus on reforms that boost quality Having expanded in recent years via a number of major strategic acquisitions, the Kirin Group is now focusing on consolidating and integrating these gains to boost the return on assets. In this interview, President & CEO Kazuyasu Kato discusses some of the strategic challenges that the Kirin Group is currently faced with. Kazuyasu Kato President and CEO 12

15 Q. How do you see Kirin s current business environment? A. The US subprime loan crisis has precipitated a global economic recession. In Japan, quite a few corporations are facing multiple challenges due to the sharp appreciation of the yen, plunging share prices and a collapse in manufacturing exports. The real economy has been severely affected and we are now seeing Japanese consumers trim spending. Retail sales trends are deteriorating. But it is no use moaning about the situation. On the contrary, this economic slowdown is a major opportunity for firms that adopt a proactive stance. Failure to do so merely delays and dilutes recovery. Our challenge now is to build up corporate value to support growth into the medium and long term while at the same time investing in our human resources. We must also hone our technical skills to reinforce the operational base. In practical terms, this means expanding corporate value and technological expertise in the domestic market while seizing opportunities in overseas markets with growth potential. In my view, the fact that we are facing a crisis makes it all the more important that we concentrate on moving forward quickly along our defined path. Q. Where is the Kirin Group headed? What is your long-term goal? A. In 2006 we laid out our vision and goals for the Kirin Group in a long-term strategic framework called KV2015. This is comprised of three stages, each with its own three-year mid-term business plan. In this vision, we saw the Kirin Group developing three key qualities as a corporate enterprise: consistent growth, consumer trust, and a highly valued and respected corporate brand. We are confident that the collective efforts of managers and employees can create these three elements of corporate value. We call these the three C s of challenge, commitment and collaboration. Q. How would you describe the values embodied in the KIRIN brand? A. The slogan for the KIRIN brand is Good taste makes you smile. Apart from being a mark of delicious products, we also want the KIRIN brand to embody the trust that customers have for us as a company. We want it to symbolize respect that we gain from the community for who we are and for what we do. In addition, we want the brand to have a dynamic and innovative image. For this reason, trust and innovation are the key aspects of ongoing brand development activities. In addition, a program of corporate social responsibility (CSR) activities underpins our efforts to build and maintain respect and trust within the community. Q. The consolidated performance targets set under KV2015 are sales of 3 trillion, an operating margin of 10% and an overseas sales ratio of 30%. How do you plan to achieve these goals? A. The three major business pillars of the Kirin Group are presently alcohol beverages, soft drinks and pharmaceuticals. In Japan, our aim is to create an integrated beverage group centered on our core alcohol and soft drinks operations so that we can gain customer loyalty in Kirin brands and eventually forge a KV2015: Three patterns for growth and specific initiatives (Following announcement of revised medium-term business plan) Specific action following announcement of revised plan (August 2008) Acquired all shares in Dairy Famers (NFL) Concluded MOU regarding investment in SMB (SMC) Reinforced Kirin Brewery as core business Positioned Kirin Beverage as pillar of integrated beverages business Exchanged personnel between Kirin Brewery and Kirin Beverage Started marketing health foods and functional foods in addition to beverages NFL: National Foods Limited, SMC: San Miguel Corporation, SMB: San Miguel Brewery Merged Kyowa Hakko and Kirin Pharma Merged Kyowa Hakko Food Specialties and Kirin Food-Tech (April 2009) Quantified objectives of synergy from 2009 Kirin Holdings Company, Limited Annual Report

16 Interview with the President & CEO commanding market position. At the same time, we have advanced the same business strategy in Asia and Oceania, which are geographically close and offer a good technical and cultural fit. This region is also the one expected to drive the world s future economic and population growth, making it a compelling business target. Alongside beverages and pharmaceuticals, we aim to develop health and functional foods as an additional pillar of earnings. Our long-term goal is to become the leading company in Asia and Oceania within the domains of food and health. If we focus on this objective, I am confident that we will be able to grow consolidated revenues to 3 trillion in Q. In the context of the ambitious KV2015 targets, how do you evaluate your FY2008 results and FY2009 estimates? A. Sales and profits in FY2008 were both higher than we had originally forecast for the second year of the Stage I plan. However, while we are well ahead in quantity terms, I believe that there is still considerable room for improvement in terms of quality. This will be the fundamental focus of the Stage II plan covering the years FY As the final year of the Stage I plan, FY2009 will primarily be a period of preparing for Stage II. So we are currently making a dynamic shift from a focus on quantity to a focus on quality. Q. How do you plan to improve quality and profitability? A. Over the past two years, we have developed the business of the Kirin Group based on three distinct patterns of growth: facilitation of organic growth, dynamic allocation of resources and creation of group synergies. Going forward, we aim to integrate these approaches into a more cohesive whole by pursuing inter-pattern business development initiatives. This will involve generating more synergy and reducing costs. Maximizing synergies may also involve making our organization leaner and more efficient in parts. Together, we expect these various moves to boost our consolidated operating margin significantly. Qualitative growth will place huge demands on the Kirin Group in terms of systems, logistics and other success factors. Merely improving operations in small increments will not be enough so we will need to implement some major reforms to optimize production and facilities. We are well aware that meeting future targets in the current environment will be tough. Pervasive and rapid change means that we must be flexible in the execution of strategy. The key is to act purposefully. Once we have taken action, we can make improvements quickly. Agile and responsive management of the business is critical to success. Overseas locations of the Kirin Group companies Dalian Daxue Brewery Co., Ltd. KIRIN HOLDINGS Kirin (China) Investment Co., Ltd. Hangzhou Qiandaohu Brewery Co., Ltd. Taiwan Kirin Co., Ltd. Kirin Brewery (Zhuhai) Co., Ltd. San Miguel Corporation Shanghai Jin Jiang Kirin Beverage & Food Co. Siam Kirin Beverage Vina Kirin Acecook Beverage Co., Ltd. (Vietnam) National Foods Limited Lion Nathan Limited Kirin alcohol Kirin soft drinks and foods Kirin pharmaceuticals San Miguel Lion Nathan National Foods 14

17 Q. M&A has made a major contribution to growth over the past two years. What level of return are you generating on these investments? A. It is a little difficult to say at this early stage, but the business integration of Kyowa Hakko and Kirin Pharma did happen extremely smoothly. So far we have been able to integrate processes, optimize R&D organizations and restructure the sales division with minimal fuss. We have found that the whole is greater than the sum of the parts. I expect it to be a similar story with the acquisition of National Foods, Dairy Farmers, our strengthened alliance with San Miguel Group by investment in San Miguel Brewery, and of course, as announced very recently in April 2009, the agreement with Lion Nathan to acquire all remaining shares. We expect to generate more synergies from asset integration as we move forward. This will boost profitability and increase our return on investment. Q. How will Kirin counter the long-term declining volume trends within the Japanese alcohol beverage and soft drinks markets? A. While these markets are not expanding in volume terms overall, there do remain major opportunities for Kirin to expand as there is good growth potential in the Asia and Oceania market. By developing and commercializing new products for these segments ahead of our rivals an area where we have an excellent track record we can remain highly competitive and profitable. For example, From quantity to quality Verification of growth stage Achieve sales targets ahead of schedule through large-scale investment E Enhance profitability going forward Exploit competitive advantages in group infrastructure and resources Synergies, efficiency and personnel exchange Execute strategic investment aimed at driving growth (shift focus from creating infrastructure to creating profit) Kirin Group Business Expansion Concept Profitability medium-term plan (2nd half) Shift focus to qualitative expansion Effectively use increased cash flow for further expansion medium-term plan (1st half) Growth in scale Business scale Three patterns for growth in 2009 Toward further growth through organic links Enter a stage of further growth through inter-pattern initiatives Continue investment in soft drink and alcohol beverage businesses mainly in Asia and Oceania that show strong synergy potential in terms of product and geographical region, and optimize business portfolio. Promote integrated beverages group strategy by creating organic links in value chains of alcohol beverage business and soft drink business Quantify and manage objectives for synergies, and optimize the Group s operational bases Kirin Holdings Company, Limited Annual Report

18 Interview with the President & CEO We are making steady progress toward achieving the long-term goals of KV2015. health consciousness is one trend that we expect to become well established, and as such, we launched Kirin Zero at the best possible timing. Kirin Zero s performance has far exceeded our expectations, and we revised upwards our annual sales volume target twice in We will also continue trying to seed new concepts within the consumer s mind. The crucial thing is to raise profitability while trying to expand our operations. At the same time, it is critical that the value that we offer through our brands and products matches the value that customers want. We must always stay in tune with the trends of consumer tastes and preferences. Q. Where do you think that Kirin s strengths lie? A. I think that our technical expertise gives us a competitive advantage, not only in product development and commercialization but also in areas such as packaging, merchandizing and marketing. Particularly in terms of merchandizing, the Kirin Group promotes comprehensive Group-wide initiatives for alcohol products, including wine and soft drinks. Also, our technical expertise and R&D capabilities are actually based on fermentation-related procedures and technique, which have been cultivated while producing alcohol beverages for over a century. Another major strength is our close relationships with customers. These help us to grasp quickly how consumer preferences are evolving based on interactive communication. In turn, this gives Kirin an advantage when it comes to persuading people to try brand extensions. Q. What do you expect from Kirin Group employees? A. We should never be satisfied and continually aim higher. In the midst of rapidly changing business conditions, it is vital that employees be versatile in their thinking and ready to take the initiative. Other themes that will be important as we work to realize the KV2015 vision are diversity and the international angle. As we expand our operations outside of Japan, we will need to deepen our understanding and respect local ways while also seeking the most appropriate integration of businesses and operations as required. Q. Do you have any final point that you would like to emphasize? A. We are making steady progress toward achieving the long-term goals of KV2015. Due to the current economic downturn, foreign currency trends, and the changes in accounting method, our numerical performance and forecasts are down. However, we are on the right track on a local basis and in terms of organic growth. I ask our shareholders, employees and other stakeholders to be patient, because it will take a little more time for us to see the returns on the major investments that we have made in the past few years. I believe that we must continue to change and that the prime emphasis for the Kirin Group is on reforms to boost quality. The benefits are within our grasp. 16

19 Review & Strategic Perspectives Breakdown by business segment 51% Alcohol beverages Soft drinks and foods Sales (Incl. liquor tax) 31% Pharmaceuticals Other businesses 8% 10% 68% 4% Operating income 11% 17% Kirin Holdings Company, Limited Annual Report

20 Review & Strategic Perspectives l Alcohol Beverages Extracting greater value from trusted brands The main focus in 2008 was on the development of Kirin Group operations as a comprehensive alcohol beverages business spanning all categories. A mixture of cost reductions, price hikes and operational synergies helped to boost profits despite a slight overall dip in sales. 18

21 Kirin Lager Beer Kirin Ichiban Shibori Kirin Nodogoshi Nama 2008 in Review The alcohol beverages segment recorded consolidated net sales of 1,181.5 billion, a fall of 0.7% relative to the previous year. Operating income increased 13.9% in yearon-year terms to billion. Domestic operations The overall Japanese market for beer-type beverages contracted by around 3% in volume terms in This reflected the ongoing population decline and shifting consumer preferences. Consumer sentiment deteriorated sharply toward the end of the year as the economy plunged into recession. Price increases introduced from February 2008 also had an impact on the market. Both beer and happo-shu recorded single-digit declines in volume terms, while new genre products surged to overtake the happo-shu category for the first time. The main growth segments included low-carbohydrate products (both happo-shu and RTD (ready-todrink)) and liquor-based RTDs with higher alcohol content. Kirin Brewery s sales of million cases* in the combined beer/happo-shu/new genre segment represented a year-on-year decline of 3.3%, in line with the broader market. * One case is equivalent to 20 large bottles (12.66L) for beer/happo-shu/new genre and 24x250ml cans (6L) for RTD. Kirin Brewery focused in 2008 on three core themes: strengthening of core brands to reinforce leading positions across each category; strengthening of low-carbohydrate products to drive growth within this segment; and various initiatives to stimulate overall demand. Strong growth in the new genre category boosted sales of Kirin Nodogoshi Nama, which remained the dominant market leader as consumers displayed a tendency to gravitate toward core brands. The successful launches of Kirin Strong Seven (higher alcohol content) and Kirin Sparkling Hop with a fruitier hops aroma further strengthened Kirin s hold on the new genre segment. In the happo-shu category, the core brand Kirin Tanrei Nama performed well and sales targets for Kirin ZERO (a zero-carbohydrate and low-calorie happo-shu) were revised upward twice. In beer, the primary focus was on reinforcing the Kirin Ichiban Shibori product lineup. In the RTD segment, Kirin launched new ZERO (zero-calorie) and STRONG (with higher alcohol content and a fuller taste) line extensions to the Kirin Chu-hi Hyoketsu range to appeal to diverse tastes and emerging consumer preferences for a greater range of health-conscious choices. The alternative value propositions offered by these products helped both gain a positive reception from customers. Kirin also extended the range of Two Dogs premixed cocktails as part of its strategy to reinforce leadership within the growing RTD market segment. On the sales side, Kirin Brewery adopted a new market-based organizational structure in September 2008 as part of the evolution toward a value-based sales approach. Through this new structure, Kirin aims to be able to respond more flexibly and rapidly to ongoing changes in the market place as customer needs continue to diversify. By studying specific characteristics of each market segment, Kirin aims to develop a more detailed understanding of evolving consumer preferences and forge closer customer relationships. Kirin also sought to expand its product portfolio within the imported premium beer and RTD segments further through licensing agreements. In November 2008, Kirin announced a deal to import and market products starting in June 2009 from UKbased Diageo plc. The imported range will include major brands such as Guinness and Smirnoff Ice. Kirin Brewery posted higher earnings despite a dip in net sales in 2008 amid a sharply Kirin Holdings Company, Limited Annual Report

22 Review & Strategic Perspectives l Alcohol Beverages Kirin Tanrei Nama Kirin ZERO Kirin Strong Seven Kirin Sparkling Hop Kirin Hyoketsu Strong Kirin Hyoketsu ZERO deteriorating operating environment. In February 2008, Kirin led the industry in raising prices for beer, happo-shu and new genre products for the first time in 18 years to pass on a portion of the increase in input costs due to sharply higher raw material prices. The strong performance of happo-shu and new genre lines combined with significant savings in sales and marketing expenses to support profits. Wine sales by Kirin Group member company Mercian were 5% higher than in fiscal 2007, against flat sales of wine across the industry. Preservative-free domestic wines and imported labels such as Frontera and Sunrise sold well, but sales of mid-range wines suffered in the headwind created by the severe economic downturn in the final quarter of Mercian revamped its pricing approach and deepened collaboration with Kirin Merchandizing in sales of everyday wines. Overall, Mercian posted higher profits on lower sales. Overseas operations Sales at Australia-based Lion Nathan were 4.6% up in volume terms and 6.5% ahead of the previous year in local currency terms. Lion Nathan was able to absorb higher input prices by promoting a shift within the Australian market toward premium beer brands. The consolidation of premium brewer J. Boag & Son Pty Ltd. in January 2008 contributed toward a solid performance in terms of sales and operating income. Currency fluctuations had only a minor impact on sales translation despite the sharp appreciation of the yen against the Australian dollar from October 2008 (Lion Nathan s financial year-end is in September). The average exchange rate was yen/a$ for the year to September 2008, compared with yen/a$ in the previous year. In China, Kirin s overall sales volumes declined amid harsh competition and a sharp slowing of the local economy in the second half. Higher raw material costs were a major factor in a year-on-year fall in operating income. In local currency terms, Philippines-based equity-method affiliate San Miguel Brewery Inc. posted 23% growth in operating income on a year-on-year gain in sales of 10%. Other operations also turned in a strong performance. Fiscal 2009 outlook: overview Business conditions are expected to remain particularly challenging in 2009, both in Japan and overseas markets, due to the global economic downturn. Kirin Brewery is focusing mainly on the beer/happo-shu/new genre segment to bolster its market position through the reinforcement of core brands and the development of high-growth areas such as low-carbohydrate products and RTDs. In overall volume terms, Kirin is targeting a decline of less than 1% in year-on-year terms by achieving double-digit growth in new genre lines to offset the projected decline in beer sales volumes. Kirin also expects to record a nearly double-digit increase in sales volumes of RTDs. In overseas markets, the comprehensive beverage strategy articulated for the Kirin Group will remain focused primarily on Asia and Oceania. Development of the business in China is progressing through Kirin (China) Investment Co., Ltd. In Australia in April 2009, Kirin reached an agreement with Lion Nathan, a 46.13% owned and affiliated company of Kirin, to acquire all remaining shares and make it a wholly-owned subsidiary of Kirin Holdings. Lion Nathan plans to build further on the enhanced business foundations developed over the past three years through a mixture of brand development and capital investment. In the Philippines, Kirin and San Miguel Corporation (SMC) have entered into a Share Purchase Agreement by which Kirin purchases shares in San Miguel Brewery Inc (SMB), the domestic beer business subsidiary of SMC through a 20

23 Kirin Hakusui Four Roses Bourbon Whiskey Chateau Mercian Mercian Bon Rouge Mercian Franzia Wine private transaction and tender offer. As a result, Kirin will become the holder of % of SMB, with all related transactions currently scheduled to be completed by the end of May Strategic Perspectives The Kirin Group s overarching strategic objective is to develop an integrated beverages business with comprehensive cross-category brand coverage and a leading presence in Japan and across regional markets in Asia and Oceania. Within its domestic alcohol business, Kirin Brewery is focusing on three key strategic themes: strengthening core brands, responding to greater consumer health consciousness, and increasing overall demand. Strengthening core brands In its 20th anniversary year, Kirin plans to renew the mainstay Kirin Ichiban Shibori product range to broaden its appeal to customers and invigorate the entire beer category. Research suggests that Japan s beer drinkers increasingly tend to prefer a lighter and softer taste. The new beer will offer a clearer taste by increasing malt content to %. In the growth segments of happo-shu and new genre products, Kirin plans to reinforce its category-leading brands Kirin Tanrei Nama and Kirin Nodogoshi Nama based on new marketing and advertising campaigns. To strengthen its dominant position in the happo-shu segment with Kirin Tanrei Nama and Kirin Tanrei Green Label (a lowcarbohydrate happo-shu), Kirin is strongly promoting its value of authentic taste with refreshing crispness. Meanwhile, in the new genre market, Kirin plans to develop the popular television advertising campaign for Kirin Nodogoshi Nama to bolster its appeal as a product backed by technical excellence. Responding to greater consumer health consciousness Health consciousness is an emerging longterm trend among consumers in the Japanese market. Kirin has developed a number of products to reinforce its grip on the established happo-shu market as line extensions for the popular Kirin Tanrei brand. Introduced in 2002, Kirin Tanrei Green Label was the first low-carbohydrate happo-shu, featuring 70% less carbohydrates than Kirin s standard happo-shu. In 2008, Kirin launched Kirin ZERO (a zero-carbohydrate and lowcalorie happo-shu), which became a major hit. In February 2009, Kirin introduced Tanrei W as another line extension to diversify the lineup to cater for a broader range of tastes as the happo-shu market segment matures. Tanrei W features a 99% reduction in purines (compared with Kirin s standard happo-shu) combined with wine polyphenols to deliver an outstanding taste. Increasing overall demand Consumption of alcohol in Japan has been in long-term decline as a result of low birth rates and an aging population. However, the Kirin Group views the alcohol and soft drinks markets as a single entity and fuses strengths in each business to increase overall demand. Kirin s overall strategy to generate strong cash flow within this environment is twopronged. First, Kirin is focused on leveraging its leading position as a comprehensive beverages producer to develop products for each segment of the market. With this approach, investments in crossover products and drinks designed to cultivate entirely new segments will deliver higher returns due to the core strength of KIRIN and other mainstay brands. Second, Kirin is working to stimulate overall demand to counteract the effects of a dwindling and aging consumer population. The successful launches of Kirin Strong Seven and Kirin Sparkling Hop in 2008 are good Kirin Holdings Company, Limited Annual Report

24 Review & Strategic Perspectives l Alcohol Beverages Lion Nathan brands San Miguel brands Products in China examples of how Kirin can offer new value propositions to new genre markets. In April 2009, Kirin will launch Kirin FREE, a new beer-tasting beverage that is aimed at developing an entirely novel market segment. Extensive consumer research undertaken by Kirin has revealed that many adults in Japan would welcome a drink that tastes like beer but is completely nonalcohol. This is partly linked to tighter regulations on drunk-driving. A zero-alcohol beer-tasting beverage also appeals to many people for drinking in a variety of situations where imbibing alcohol is undesirable: a night out as the designated driver, a workday lunch, or a trip to the gym. Kirin has developed a new processing method using the world s first innovative patent-pending technologies to enable the production of a beer-tasting beverage with 0.00% alcohol. Adoption of evidence-based marketing approaches Kirin is placing a greater emphasis on evidence-based marketing approaches in the development of new products. This involves providing consumers with easy-to-grasp evidence so that they have a clear rationale for discovering the value embodied in a clearly defined product. In a world of highly segmented consumer tastes, evidence-based marketing is a valuable way of persuading customers to differentiate one brand over another and try a new product. The marketing of Tanrei W and Kirin FREE provide examples of this approach in action. Kirin is promoting these new products aimed at meeting customers expectations regarding health. Improved profitability through operational integration and greater synergy Kirin s goal is to generate greater synergy within the Kirin Group s alcohol beverage business through initiatives covering the entire value chain from product development and production to supply chain management (SCM), marketing and sales. An important aspect of this is deepening the alliance between Kirin Brewery and Mercian. Besides cross-promotional and marketing opportunities for everyday wines, this alliance is also the source of a joint product development program. A good example of such initiatives is Kirin Chu-hi Hyoketsu Aperitif, a new RTD that targets consumers in their 20s and 30s. Combining Kirin s market-leading technology for making RTDs that have a refreshing lemony taste with Mercian s knowledge of how grapederived tastes combine well with different foods, Kirin Chu-hi Hyoketsu Aperitif is designed for drinking both before and during a meal. This type of value positioning is part of a strategy to extend the consumption of RTDs to meal-related settings. Elsewhere, in the distribution sector, Kirin Brewery is pursuing an integrated logistics strategy with Kirin Logistics Co., Ltd. in a bid to maximize value within the overall supply chain. 22

25 New Products Novel alternative choices for health-conscious consumers Kirin FREE Kirin FREE has been created with the aim of pioneering the development of an entirely new category: the non-alcohol beer-tasting beverage. This type of drink satisfies the demands of those who would like to have a beer but for various reasons have to avoid alcohol. In doing so, in the light of heightened concerns about the dangers posed by drunk-driving, this new product promises to fulfill an emerging but important social need. Kirin has developed new processing technology to manufacture this product. The key breakthrough allows yeast to be eliminated from the fermentation process, thus delivering a product containing no alcohol. Kirin FREE has even been consumer-tested using driving simulators to check that drinking the product does not lead to any impairment in driving performance. Tanrei W Launched in February 2009, Tanrei W is a new low-carbohydrate happo-shu that contains 99% less purines than Kirin s standard happo-shu. It also contains wine polyphenols to ensure an outstandingly fresh, crisp taste. Developed jointly in collaboration with Mercian, it will be promoted as a healthier option for happo-shu drinkers. Kirin Chu-hi Hyoketsu Aperitif Developed in collaboration with Mercian, this new range of RTDs offers consumers a refreshing and unique alcohol alternative to wine or beer, either before or with a meal. Mixing grapes used for wine with lemon juice and vodka creates a fascinating combination that helps to promote digestion of fatty foods while complementing many types of meat and fish. From a marketing viewpoint, this approach helps to extend the potential number of hours in a day when consumers would consider choosing an RTD, which in Japan is often viewed as something to drink after a meal. Kirin Shochu Tanrei Straight Introduced in March 2009 in selected parts of Japan, Kirin Shochu Tanrei Straight is a shochu that should be enjoyed straight and chilled. While many people still prefer to mix shochu with ice and water, Kirin Shochu Tanrei Straight taps into a new drinking style while also catering to an evolving preference for lighter and crisper tasting beverages. As the most widely consumed form of alcohol in Japan, the market for shochu is one where the rewards for creating new categories are potentially greatest. The product is also yet another result of greater synergy within the Kirin Group, since it is partly based on Mercian s technological superiority in processing liquors. Kirin Holdings Company, Limited Annual Report

26 Review & Strategic Perspectives l Soft Drinks and Foods Potential for enhanced earnings from operational integration and long-term brand development The soft drinks market in Japan is facing unprecedented environmental change due to the economic slowdown and higher material costs. Kirin Beverage is striving to cope with the challenge by placing the highest priority on strengthening core brands. The newly consolidated companies National Foods and Dairy Farmers have started contributing to Kirin Group and are becoming key bridges to growing markets in Asia and Oceania. Kirin Nama-cha 24

27 Kirin Ururu-cha Kirin Gogo-no-kocha Kirin LEMON Kirin FIRE 2008 in Review The soft drinks and foods segment recorded consolidated net sales of billion, an increase of 51.0% over the previous year. This result reflected consolidation of National Foods, Dairy Farmers, and the food business of Kyowa Hakko Group. Operating income fell 59.9% in year-on-year terms to 6.4 billion. This decline was largely due to a combination of factors, including significantly higher input costs and a drop-off in consumer spending in key markets in Japan caused by the economic downturn. In addition, goodwill and brand amortization costs arising from the acquisition of National Foods in Australia were booked at the consolidated level. Kirin Beverage Until recently, the segment mineral water and green tea was a growth area in the Japanese soft drinks market. However, in 2008, the market shrank by an estimated 2% in volume terms. This reflected a sharp deterioration in consumer sentiment associated with the economic downturn. Kirin Beverage posted total domestic sales of 196 million cases on a parent company basis. This performance, which was on a par with fiscal 2007, was better than the broader market. During the year Kirin Beverage focused on strengthening core brands Kirin Nama-cha (green tea), Kirin Gogo-no-kocha (black tea) and Kirin FIRE (canned coffee). The longselling Kirin LEMON carbonated soft drink underwent a major renewal to mark the 80th anniversary of its market introduction, with sales volumes rising approximately 72%. Major new product launches included Kirin Ururu-cha (a barley-based blended tea that is being promoted as a way of replacing key daily nutrients such as potassium, vitamin C and collagen) and the Sekai-no-Kitchen-Kara series. The latter are value-added series of beverages inspired by various recipes from around the world. As part of the ongoing implementation of the Kirin Group s integrated beverages business strategy, Kirin Brewery and Kirin Beverage initiated exchanges of personnel within domestic operations to promote the enhanced sharing of operational expertise and experience. Synergy-oriented efforts also focused on developing Kirin Beverage s sales in the key vending machine channel through the active promotion of machine installation within each regional market in Japan. In addition, the two firms cooperated by making joint proposals to restaurants, hotels, other on-premise outlets and volume retailers with the aim of establishing and building customer relationships. In its overseas operations, Kirin Beverage recorded a 13% increase in sales volumes compared with the previous year. Sales of Kirin Gogo-no-kocha Milk Tea in China in the 500ml PET bottle format were significantly higher than in 2007, particularly in the Shanghai market. This contributed strongly to the robust overseas performance. Overall, Kirin Beverage posted lower earnings on slightly higher sales in fiscal The gains in operating income from higher sales volumes, an improved container mix and various gains in production efficiency were offset primarily by higher raw material costs, the impact of brand investment and a weaker channel mix (which pushed up sales and promotional expenses), as well as higher depreciation expenses. National Foods Australia-based National Foods recorded 2% year-on-year growth in sales volumes. Sales in local currency terms were 6% ahead of the previous year. In the core milk segment, National Foods made a series of price revisions during the year to pass on higher input costs. Consumers responded by shifting to lowerpriced milk products, especially as the economic downturn began to bite later in Sales of juices declined slightly amid price competition and a similar shift toward a lower-priced product mix. The dairy segment, Kirin Holdings Company, Limited Annual Report

28 Review & Strategic Perspectives l Soft Drinks and Foods Kirin Sekai-no-Kitchen-Kara Series Koiwai Junsui-Mikan Volvic Kirin Alkali-Ion-no-Mizu including yoghurts, dairy snacks and diet products, generated the best growth, in part due to higher prices as well. Elsewhere, sales from cheese and international operations (in Southeast Asia and New Zealand) were broadly flat compared with fiscal Raw milk costs surged significantly as the result of higher global demand for milk-based ingredients and continuing drought-related effects. This applied downward pressure to profit margins in milk although this was offset to some extent by steady price increases, and profits generally stabilized during the second half of the year. Higher oil prices pushed up distribution costs, with a significant impact on earnings. Overall, National Foods recorded lower operating income in local currency terms than in the previous year. In November 2008, National Foods successfully completed the acquisition of Dairy Farmers, Australia s second-largest supplier of fresh dairy produce. Dairy Farmers, which developed into a cooperative of around 2,000 farmer members, owns some of Australia s best-loved dairy brands, including Dairy Farmers (milk), COON (cheese), Ski and Thick & Creamy (yoghurt). The Dairy Farmers business was consolidated into the National Foods accounts from December 2008 and will make its first full-year contribution to Kirin Group results in fiscal Others Kirin Food-Tech Co., Ltd., a Group member firm primarily engaged in the manufacture of food seasonings and additives, entered into an agreement in October 2008 to merge its operations with Kyowa Hakko Food Specialties Co., Ltd. Following the integration of the two businesses in April 2009, the merged operation was renamed Kirin Kyowa Foods Co., Ltd. Higher input costs and weaker overall demand for processed foods dented profits at these businesses during fiscal In China, Kirin Food-Tech Shanghai Co., Ltd. was established in April 2008 as a wholly owned subsidiary of Kirin Food-Tech. Local operations started in July The Chinese market is expected to offer the potential for substantial growth going forward. Fiscal 2009 outlook: overview Soft consumption trends due to the continued economic downturn, both in Japan and the Asia & Oceania region, are likely to weigh heavily on business performance throughout this segment during fiscal Kirin Beverage is targeting a 3% increase in overall sales volume in Japan and overseas in such countries as Vietnam, where operations are scheduled to get underway in the second half of the year. In Australia, the consolidation of Dairy Farmers will give a substantial boost to the sales of National Foods in local currency terms. Overall, Kirin expects consolidated net sales to grow 3.3% in year-on-year terms to billion. Operating income is expected to recover in year-on-year terms, based on a combination of increased sales volumes and improvements in manufacturing efficiency. In Japan, Kirin Beverage plans to focus on fully reforming cost management structures while pursuing further synergy through expanded initiatives in collaboration with Kirin Brewery. In Australia, National Foods is seeking to reduce costs through the integration of purchasing and production functions with Dairy Farmers. Although the company expects to book a related restructuring charge in 2009, the establishment of a uniquely strong brand portfolio across all dairy product categories promises to generate higher margins over the long term. Overall, Kirin is forecasting consolidated operating income of 12.0 billion for the segment, a projected increase of 86.6% in year-on-year terms. Strategic Perspectives Soft drinks In soft drinks, the primary strategic objective is to build a comprehensive beverage business 26

29 National Foods major brands: from left, PURA, Big M, Berri, Tasmanian Heritage through greater integration with Kirin Brewery s alcohol operations. Reflecting the mature nature of the core domestic market, Kirin Beverage is switching its main focus from quantitative to qualitative growth with the aim of reinforcing profitability over the medium and long term. This strategic shift involves creating highvalue-added products to satisfy diversifying consumer preferences while at the same time leveraging internal alliances to enhance customer relationships, upgrade product R&D programs and boost earnings based on intra- Group synergy. The Kirin Group is also focused on ongoing dynamic expansion into overseas markets such as China, Thailand and Vietnam to develop the revenue base and support longterm earnings growth. Product strategy based on fundamental consumer trends Based on market research, Kirin Beverage has identified three key themes driving value perceptions among consumers in Japan. First, consumer tastes are polarizing toward quality and price. Second, consumers are seeking the assurance that products are both safe and good for long-term health as core qualities to underpin their trust in the brand. Third, greater environmental awareness among consumers is driving demand for products that satisfy related needs. In line with these fundamental trends, Kirin Beverage has defined its product development concept as making great-tasting products that are good for the body, mind and environment. Based on this concept, Kirin aims to continue building its core brands while developing new products that offer consumers original lifestyle-related value. Development of new high-value-added product offerings Kirin Beverage plans to introduce a number of new products in 2009 that offer consumers enhanced value based on the body/mind/eco concept. In March 2009, the company launched a renewed version of core green tea brand Kirin Nama-cha. With a refreshing yet accessible taste derived from the use of highquality leaves, this product is positioned as a truly modern drink offering consumers original value. Based on the health-oriented theme of For your body in the afternoon, Kirin Beverage plans to launch a new low-sugar variant of Kirin Gogo-no-kocha during 2009 to reinforce the market position of Japan s topselling black tea*. *Resource: Food Marketing Institute Building on its successful launch in 2008, plans also call for the development of the blended tea Kirin Ururu-cha as an everyday drink to complement health. The redesigned packaging and marketing campaign will reinforce the healthy image of the brand while emphasizing related benefits such as a doubling of the collagen content and its caffeine-free characteristics. Foods In Australia, following the acquisition of Dairy Farmers, the major focus of National Foods in 2009 will be on specific integration measures to realize cost reductions and other synergies through efforts to rationalize production facilities and leverage increased economies of scale in procurement. In Japan, following the establishment of Kirin Kyowa Foods in April 2009, efforts will focus on optimizing organizational structures and achieving other benefits from integration as quickly as possible. The merger offers the Kirin Group the opportunity to boost its presence within the food materials sector. Kirin Holdings Company, Limited Annual Report

30 Review & Strategic Perspectives l Pharmaceuticals Building a new pillar of future earnings growth The ongoing development of integrated pharmaceutical operations under Kyowa Hakko Kirin promises to make a substantial contribution to the future earnings of the Kirin Group. ESPO NESP REGPARA 2008 in Review The pharmaceuticals segment posted consolidated net sales of billion, an increase of 145.3% over the previous year. Operating income increased 116.9% in yearon-year terms to 28.2 billion. These results mainly reflected the consolidation of the Kyowa Hakko Group from April Kirin Pharma Co., Ltd. merged with Kyowa Hakko Kogyo Co., Ltd. in October 2008 to form Kyowa Hakko Kirin Co., Ltd. ( KHK ). This segment comprises the operations of KHK and Kirin-Amgen, Inc., a US-based biotechnology joint venture that is a Kirin Group equity-method affiliate. Fiscal 2008 performance: overview Sales of several core products increased steadily, including anemia treatments NESP and ESPO and the anti-allergic medicines Allelock and Patanol. In particular, NESP, the next-generation drug to ESPO, is gradually penetrating the market. Major new product introductions included REGPARA in January 2008 and Coversyl, an ACE inhibitor for the treatment of hypertension, in April REGPARA, which has been launched in tablet form, is a new class of agent for the treatment of secondary hyperparathyroidism, a complication of maintenance dialysis. It works by suppressing the secretion of parathyroid hormone through a direct interaction with parathyroid calcium receptors, while simultaneously lowering serum calcium and phosphorus levels. KHK is now working to achieve rapid market penetration with REGPARA. In overseas operations, KHK s local Asian subsidiaries recorded substantial growth in sales in local currency terms, but unfavorable exchange rate movements weakened the resulting boost to sales at the consolidated level. Clinical development and licensing activities During fiscal 2008, regulatory applications were filed in Japan for NESP relating to additional clinical indications in maintenance dialysis and after chemotherapy for cancer. A number of drug approval applications were also filed in overseas markets for NESP and other drugs. In China, regulatory approval was granted for the additional indication of angina pectoris for Coniel, a long-acting calcium antagonist that is mainly used to treat hypertension. A large up-front payment was booked in fiscal 2008 relating to the out-licensing to US-based Amgen of an anti-ccr4 humanized monoclonal antibody using our POTELLIGENT antibody technology. There were a number of notable in-licensing achievements during the year that helped to develop KHK s product pipeline and enhance R&D capabilities. In June 2008, Kyowa Hakko announced an exclusive alliance with US-based Alnylam Pharmaceuticals, Inc. aimed at development and commercialization in Japan and other major Asian markets of ALN-RSV01, one of an entirely new class of medicines known as RNAi therapeutics. These can potentially target the causes of disease by preventing the intracellular production of diseasecausing proteins by harnessing the natural phenomenon of RNA interference. ALN- RSV01 is currently in Phase II clinical development by Alnylam for the treatment of respiratory syncytial virus (RSV) infection in the United States. In June, Kyowa Hakko also concluded a joint domestic sales agreement for a transdermal absorption-type continuous-action drug to treat cancer pain that is under development by Japan-based Hisamitsu Pharmaceutical Co., Inc. An NDA for this drug was filed in Japan during

31 Coniel Patanol Allelock In July, Kyowa Hakko announced that it had entered into a strategic research collaboration agreement with the Lonza Group of Switzerland. This will allow KHK to utilize Lonza s GS (glutamine synthetase) Gene Expression System TM technology to realize efficient production of therapeutic recombinant proteins and monoclonal antibodies. Pipeline status overview In Japan, Phase II clinical trials are currently progressing with a number of compounds, including treatments for neutropenia (KRN125), Parkinson s disease (KW-6002, KW-6500) and irritable bowel syndrome (KW-7158). Drugs in Phase I studies in Japan include a therapeutic antibody for hematological cancers (KW-0761), a recombinant antithrombin used to inhibit coagulation of blood (KW-3357), and an oral anticancer agent (ARQ197). In the United States, Phase I studies are underway for an injectable human monoclonal antibody for treating cancer (KRN330) and an oral anticancer (KW-2449). Another anticancer agent (KW-2478) is involved in Phase I studies in Europe. NESP is in Phase II trials in China for the treatment of anemia during maintenance kidney dialysis. In July 2008, joint Phase I studies with US-based Nuvelo, Inc. were initiated in Australia for an inflammatory bowel disease treatment (NU-206). Fiscal 2009 outlook: overview In a difficult operating environment, KHK plans to forge ahead with realizing integration synergies from efficiency gains across sales, marketing and R&D. Promotional efforts are being focused primarily on antianemia drugs NESP and ESPO, the antiallergics Allelock and Patanol, and REGPARA tablets for the treatment of secondary hyperparathyroidism. Elsewhere, plans call for construction work to continue on a new production plant to supply antibody medicines for clinical trials. Overall, this segment is expected to record flat earnings at the operating level in fiscal 2009 on a double-digit increase in sales. KHK plans to move its accounting year-end from March 31 to December 31 from fiscal 2009, subject to shareholder approval in June This move is aimed at enhancing administrative efficiency within the Kirin Group. Strategic Perspectives The merger of Kirin Pharma and Kyowa Hakko has combined two of Japan s major biopharmaceutical companies to create in KHK a world-class R&D-based life sciences enterprise. KHK s main therapeutic areas of strategic focus are oncology, nephrology and immunology. Core technical strengths in antibody technologies KHK has inherited an extensive base of expertise in biotechnology from both Kirin Pharma and Kyowa Hakko. The knowledge derived from gene-recombination technology can be applied to the precise modification of sugar chains in biological molecules such as antibodies. This in turn enables the biological activity of such antibodies to be enhanced, with potential therapeutic applications in many areas. One example is KHK s original POTELLIGENT antibody technology. This can be applied to reduce fucose, a sugar chain naturally present in antibodies. This makes it possible to enhance ADCC activity. Animal studies have demonstrated that the cytotoxic qualities of specific antibodies in promoting the killing of tumor cells can be magnified by a factor of a hundred using POTELLIGENT antibody technology. KHK has already out-licensed one of the first therapeutic antibodies (KW-0761) developed using this technology to biotechnology giant Amgen and received upfront payment of US$m, which was recorded as extraordinary income in Kirin Holdings Company, Limited Annual Report

32 Review & Strategic Perspectives l Other Businesses Establishment of agri-biochem business base The transfer of food-related operations and consolidation of Kyowa Hakko substantially transformed the nature of this segment during fiscal Segment overview The remodeled segment principally comprises three businesses. The bio-chemicals business involves applying advanced fermentation and synthesis technologies to manufacture amino acids, nucleic acids and related compounds for pharmaceuticals, pharmaceutical intermediates, foods and dietary supplements, and cosmetics. The core Kirin Group firm in this business is Kyowa Hakko Bio Co., Ltd. The chemicals business supplies a range of petrochemical products including solvents used in paints and inks, raw materials for plasticizers used as additives in PVC products, specialty chemicals for environment-friendly products and products for advanced technologies. The core enterprise is Kyowa Hakko Chemical Co., Ltd. The agribio business spans over 30 Kirin Group affiliates worldwide engaged in production of agricultural and horticultural products, including potatoes, and seeds and cuttings for ornamental flowers. Advanced breeding techniques have enabled the Kirin Agribio Group to develop an extensive range of superior floral and potato varieties and capture about 35% of the global nursery market for carnations. This segment also includes a number of entities that contribute to the revitalization of local communities, including the redevelopment of former brewery sites. Other business activities include the operation of commercial facilities inside Yokohama s Red Brick Warehouse (Yokohama Akarenga Co., Ltd.) and the Yokohama Arena event hall (Yokohama Arena Co., Ltd.). Fiscal 2008 review Revenues increased from bio-chemical operations due to firm demand for amino acids in pharmaceutical and industrial-use raw materials. Rapid yen appreciation in the second half of the year limited sales growth, however. In the chemicals business, the first half saw steady growth in sales, supported by price increases implemented for mainstay products to recover higher raw material and energy costs. The global economic slowdown had a negative impact on operations in the second half of the year, particularly due to the collapse in the prices of oil, naphtha and other petroleum derivatives. Overall performance was on a par with fiscal The agribio business generated higher earnings despite a dip in sales revenue. A steady performance at overseas subsidiaries offset the impact of a harsh domestic business environment, notably in the seedlings business. The other businesses segment posted consolidated net sales of billion, an increase of 247.9% compared with the previous year. This result reflected the consolidation of the Kyowa Hakko Group from April Operating income more than doubled, rising 188.8% in year-on-year terms to 18.2 billion (prior to eliminations). Fiscal 2009 outlook: strategic overview Results from bio-chemicals and chemicals businesses originally from Kyowa Hakko Kirin will be reflected on a full-year basis in However, continued harsh economic conditions are expected to impact forecasts to a certain extent. The prime strategic focus in this segment is on business development in growth areas where the Kirin Group enjoys technical superiority. These include amino acids (KYOWA HAKKO BIO), specialty chemicals (KYOWA HAKKO CHEMICAL) and seedling production (Kirin Agribio Group). At the same time, these businesses are investing in the development of new, high-value-added products to supplement earnings from existing core product portfolios. 30

33 R&D and Intellectual Property The Kirin Group invests substantially in research and development (R&D) activities to support its ongoing progress. Securing, protecting and utilizing related intellectual property is another prime aim to ensure a competitive edge. Overview of R&D in 2008 Kirin Group R&D spending in fiscal 2008 was 54 billion, including 5.5 billion in the alcohol beverages business, 2.5 billion in the soft drinks and foods business, 38.3 billion in the pharmaceuticals business, and 4.6 billion in Kirin s other businesses, including health and functional foods businesses, and agribio business. A further 2.8 billion was recorded for Group-wide fundamental research expenses at the Central Laboratories for Frontier Technology. Around 2,300 employees in the Kirin Group were directly involved in R&D as of December 31, Having shifted to a holding company structure in July 2007, Kirin is continuing to pursue greater synergies between Group companies, bringing R&D functions into closer proximity and increasing information sharing and R&D collaboration between different entities throughout the organization. Kirin Holdings R&D Research at Kirin Holdings Co., Ltd. is focused on advanced fermentation and biotechnology. Activities include R&D into the effects of various food ingredients on the body and efforts to realize greater competitive advantages and improved corporate value. It is also working to develop safety evaluation technologies that ensure the utmost safety relating to the food products of Kirin Group companies. One key achievement of the Central Laboratories for Frontier Technology has been success in elucidating the characters of spore-forming bacteria not killed in regular heat sterilization. The Kirin Group Intellectual Property Creation Cycle Create Obtain patents Apply patented technology Respect for other companies patent rights (Patent infringement prevention and avoidance systems) Kirin Group Companies R&D All R&D carried out at Kirin Group companies is focused on two key areas of strength technical expertise and customer intimacy. In alcohol beverages, Kirin Brewery Co., Ltd. is engaged in the analysis of customer tastes, and R&D of packaging, production equipment and quality control. The division has realized attractive alcohol products that satisfy diverse market demands, including the market s first zero-carbohydrate drinks such as Kirin Zero. In soft drinks, Kirin Beverage Co., Ltd. is dedicated to developing new products, raising quality control and anticipating future tastes for the greater satisfaction of future customers. One success has been KIRIN Ururucha, which exemplifies dedication to improving existing products and adding new value. In foods, Kirin Food-Tech Co., Ltd. produces healthy, tasty and highly functional food ingredients and seasonings through advanced fermentation and yeast-related technologies. In pharmaceuticals, Kyowa Hakko Kirin Co., Ltd. focuses on R&D into the creation of new medical value in targeting the strategic sectors of cancer, kidney, and immunity/infection diseases. Cooperation and collaboration By partnering with other companies and external organizations, the Kirin Group is continually introducing new technologies and building an ever-stronger research network. As an example, Kirin has formed 1. Create Increase patent applications for technology that makes a strong contribution to the business by setting a target number of patent applications. 2. Obtain patents Confirm direction of procedures for the awarding of patents with the Operations Division. Select and focus on obtaining patents necessary to the business. 3. Apply patented technology Execute patent portfolio management. Use of patents for our own exclusive use/licensing activities. Center for Food Safety Science, Central Laboratories for Frontier Technology (Gunma Prefecture) partnerships and alliances with U.S. companies Amgen Inc. and Medarex, Inc. to speed up development processes and gain access to technologies in pharmaceuticals. Intellectual property: The catalyst for further success The Kirin Group treats intellectual property as an important business resource. Systematic efforts are made to employ intellectual property effectively in improving the competitive position of the Kirin Group, to protect intellectual property rights from infringement, and to avoid infringing the intellectual property rights of other parties. The Kirin Group continually strives to file patent applications, obtain patents, and use them in line with its core technologies and business objectives. The Intellectual Property Department at Kirin Holdings is in charge of planning and promoting the intellectual property strategies of the Kirin Group, as well as handling patent rights, utility model rights, design rights and plant breeders rights (through species registration). Certain Group companies have their own autonomous intellectual property organizations to plan and promote patent strategies in line with their respective business strategies. In July 2006 Kirin issued its first Kirin Group Intellectual Property Report to collate information regarding Kirin s management structure and systems for R&D and intellectual property in a format that meets the needs and expectations of Kirin s stakeholders. The latest edition of this report is available online at: Kirin Holdings Company, Limited Annual Report

34 Corporate Social Responsibility Kirin views corporate social responsibility (CSR) as a built-in, self-regulating mechanism whereby business monitors and ensures adherence to law, ethical standards and international norms. Each business takes responsibility for the impact of its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere, while encouraging community growth and development, and voluntarily eliminating practices that harm the public sphere. Kirin deliberately incorporates public interest into corporate decision-making and strives to honor the Triple Bottom Line. Kirin Group CSR explained The Kirin Group actively addresses the need for CSR in all of its corporate activities from two perspectives: CSR through Business and CSR as a Corporate Citizen in its aim to coexist harmoniously with nature and society. CSR through Business This means that the Kirin Group will always maintain an awareness of CSR throughout its day-to-day operations, aiming to bring CSR to a higher level. Efforts will be made to observe all obligations as a corporation, ensuring stricter enforcement of compliance, advancing thorough risk management, reinforcing quality assurance systems to ensure comprehensive food safety and reliability, promoting respect for diversity, implementing environmental management, maintaining strong IT security, and promoting responsible drinking, while transmitting information and presenting valuable proposals that encourage people to maintain diets supportive of personal wellbeing. In addition, from 2009, to better enable contribution to society that befits a group whose business philosophy revolves around food and health, the Kirin Group has set a medium- to long-term Group-wide goal of becoming a Low Carbon Corporate Group, and will initiate actions based on this. Throughout all the value chains of its business activities, the Kirin Group will aim not only to minimize carbon emissions but also to work to realize a society based on a simple yet prosperous way of living and a harmonious coexistence with nature. CSR as a Corporate Citizen This involves going beyond the scope of regular business activities to pursue additional CSR activities such as environmental initiatives and sports sponsorship. In addition to continuing forest conservation activities aimed at protecting water quality, this year the Kirin Group will again be the official sponsors of Japan s national soccer team and will hold Kirin Soccer Field, an initiative aimed at cultivating the next generation. Through the United Nations University-Kirin Fellowship Program, which is now entering its 17th year, the Kirin Group provides study opportunities for researchers from developing countries in Asia who specialize in food science and technology, and in doing so continue to make a contribution toward resolving foodsupply issues in those countries. Follow-up fellowships are also provided to help cover research and development expenses for two years after the researchers return home to ensure the knowledge and technologies acquired are properly utilized and disseminated. Reporting on CSR Kirin provides a comprehensive description of Group-wide CSR activities in the annual Kirin Group CSR Report, which was first published in 2005 and incorporates coverage of key CSR activities and policies, commentary from third-party advisors, and all the information that previously was published in the annual Environmental Report. The Kirin Group CSR Report is available in English online at: Some of the topics covered by the report are as follows: Risk management and compliance Compliance-based risk management and internal control are the foundations for sustainable and responsible business practice. Kirin is expanding its risk management system to encompass all Group companies, and a Group-wide risk management system was completed at the end of A bottom-up, three-tier approach is taken to the actual implementation of risk management, under which all divisions and business locations have the first responsibility for risk management, followed by the Group Risk Management Committee and the Internal Audit Department. Initiatives implemented by Kirin to strengthen compliance include: formulating and distributing a compliance handbook to Group employees; setting up a compliance hotline; and conducting awareness-raising seminars for Group employees. Compliance guidelines were formulated in 2003, and training is provided to all Group personnel to instill the fundamentals of compliance. This ensures swift and accurate disclosure, fair and honest behavior, and sensitivity to changes in society. Responsibilities as a manufacturer of alcohol beverages As a leading producer of alcohol beverages, Kirin is highly aware of its responsibilities and is strongly committed to the prevention of alcohol-related problems such as under-age drinking, driving under the influence of alcohol, and binge drinking. Kirin carried out a range of initiatives during 2008 to promote appropriate drinking habits, which included the distribution of cautionary posters and stickers to bars and restaurants, the cessation of in-store sampling campaigns, the use of warning messages in advertisements, and educational activities to spread correct knowledge about the characteristics of alcohol and its effects on the body. Commitment to product quality Kirin strongly believes that quality control is the foundation of its business. In July 2007, 32

35 the Quality Assurance Department was established under the holding company system to enhance comprehensive Group management of product quality assurance. In each Group business a General Director ensures quality assurance at every stage of the value chain, from product development to sales. To enhance quality throughout the Group, Kirin operates under defined Group Quality Standards and Guidelines, through which efforts are made to improve quality management outcomes. May 24, 2008 KIRIN CUP SOCCER 2008 ALL FOR 2010! vs Republic of Cote d lvoire J.LEAGUE PHOTOS Together with society As a corporate citizen in coexistence with the community and a global company with an increasing sphere of influence, the Kirin Group seeks to build strong partnerships with the many different communities it serves, and advance numerous activities focusing on social contribution. The Kirin Group is also dedicated to social welfare and corporate philanthropy, and makes cultural contributions such as support for sports, the arts and food culture. Kirin Welfare Foundation, founded in 1981, provides support in areas that public welfare organizations do not easily reach, with a focus on exchange activities for family caregivers, improving self-reliance in the disabled, sound upbringing in youth and aid for community and welfare activities. Kirin Collaboration Club supports volunteer activities by Kirin Brewery employees, such as local nature conservation and clean-ups. The United Nations University-Kirin Fellowship Program Kirin Holdings Company, Limited Annual Report

36 The Environment Working towards a sustainable future for people and the planet Kirin Group Environmental Policy Kirin Group, which operates in the food and health domain, adopts measures to minimize its own impact on the environment and resolve environmental issues, such as making all businesses low carbon. A further aim is to realize a prosperous society that lives in harmonious coexistence with nature by proposing ways to create environmental value for customers. The environment is viewed as one of the most critical issues of corporate social responsibility. Environmental activities are conducted throughout the entire value chain and in all business areas, with assurances given via assessments and audits. Since top management and all personnel participate, environmental policies have become an intrinsic part of management, and lofty objectives set. Behavioral charter Legal compliance We shall comply with all environmental laws and agreements and set voluntary standards based on high moral standards. Environmental management We shall create an environmental management system closely linked to management strategy and make ongoing improvements. Environmental performance We shall promote resource and energy conservation, reduction of greenhouse gas emissions, pollution prevention, and the 3Rs (Reduce, Reuse and Recycle). Technological development We shall develop technologies that help protect the environment and enable us to live in harmony with nature. Human resource development We shall continually foster personnel that can make a meaningful contribution to environmental preservation. Communication We shall conduct eco-based activities that benefit the local community and suitably disclose environmental information to ensure transparency and increase trust from society. Joint deliveries to cut CO2 emissions and help curb global warming Kirin Brewery Co., Ltd. and Sapporo Breweries Ltd. have begun joint deliveries in some parts of the distribution channels in Hokkaido to reduce their environmental burdens. Sapporo Breweries has been jointly delivering its products in Hokkaido with two other alcohol manufacturers on all of its routes, and now Kirin Brewery has joined in a part of the routes. Through this combined effort, they can cut about 24.4 tons, or 20%, of their total annual CO2 emissions. Both companies aim to further reduce their environmental loads in light of the results of this initiative, and have started investigating the possibility of expanding joint deliveries to other regions in Hokkaido as well as other parts of Japan. While engaged in fair competition in the market, both companies are trying to contribute further to the development of a sustainable society by striving to cooperate beyond existing frameworks to tackle environmental issues of growing concern worldwide. Kirin Brewery declares commitment to Eco First Kirin Brewery aims to be an environmentally advanced company, with a focus on four initiatives outlined in the Eco First Commitment: practice the 3Rs in packaging and containers, recycle materials, prevent global warming, and conserve water sources around factory premises throughout Japan. Eco First was established by the Ministry of the Environment to promote environmental conservation activities among leading industry participants. Kirin Brewery was the first manufacturing company to declare its commitment in June 2008, and achieved its first annual target of a 39% reduction in CO2 compared with 1990 levels (unit basis) in Future targets include a 50% reduction (overall emissions) and 45% reduction (unit basis) by Protecting water quality Much of Kirin s business depends on having a high quality water supply. Kirin therefore Forest conservation program to protect water quality in Kochi Prefecture continuously works to improve its waterrecycling processes, and regularly conducts local forestation projects across Japan, which not only protect water quality, but also help sustain biodiversity and preserve the ecosystem. Drive on biofuels output Kirin Group consistently seeks to reduce energy and switch to more environmentally friendly forms of supply. As one example, Kirin Brewery has been involved in a government-backed project to construct a bioethanol plant in Tokachi, Hokkaido in conjunction with Mitsubishi Corporation. Kirin Brewery provides fermenting, biotechnology and factory construction expertise to the plant, which became operational in March Environmental efforts at Kirin Beverage Kirin Beverage acquired ISO14001 certification at its head office at the end of During 2009 it will advance measures to further incorporate environmental considerations into management approach and shift to low carbon emission operations. In the vending machine business it will continue environmental initiatives that include adoption of non-fluorocarbon refrigeration equipment, which release almost zero greenhouse gases, and increase use of heat pump-equipped vending machines, which substantially reduce energy consumption compared with conventional machines. Environmental and safety activities at Kyowa Hakko Kirin Based on basic principles concerning the environment, safety and product safety, Kyowa Hakko Kirin formulates an annual environmental safety policy, objectives, targets and a plan for their achievement, and is promoting activities under both an environmental management system that integrates ISO14001 management and an occupational safety and health management system (OSHMS). Also, a Group-wide environmental safety program aimed at preventing global warming and achieving zero emissions called Kyowa Eco-project seeks to conserve energy and fuel at its plants. Other activities include reducing electricity consumption and paper use. 34

37 Corporate Governance Aiming for transparent, fair and efficient management Kirin is committed to strong corporate governance to ensure fair, efficient management and increase trust both internally and externally. In addition to complying with the requirements of laws and regulations, Kirin has made its governance system even more sound and transparent. This includes a revision of corporate governance structure as well as of organizational structure to a parallel array of operating companies (grouped in segments such as alcohol beverages, soft drinks and foods, and pharmaceuticals) and functional companies under the holding company system adopted on July 1, To achieve a quantum leap in growth under the Kirin Group Vision 2015, the roles and responsibilities of each entity have been clearly defined. This acts to boost decisionmaking speed and quality, enhance autonomy and ensure sounder, more transparent management in each company, which in turn helps to amplify corporate value across-the-board. The Board of Directors of Kirin Holdings makes key management decisions for the Kirin Group, ensures optimum allocation of resources, and seeks to maximize Group synergies and develop the most effective Group strategy. The Group Executive Committee within Kirin Holdings provides support for investment decisions and strategic issues that may impact operations. At the operating level, each company functions independently, with the boards of each making key operating decisions on issues affecting their businesses, such as reviewing contribution of operating companies, and deciding on possible business alliances, investments and other matters. Each operating company has an Executive Committee, which supports the decisionmaking processes of each CEO and facilitates effective communication and information sharing between entities. Kirin has implemented a definitive system for internal controls in line with laws and regulations, in particular to ensure efficient conduct of business by directors and employees. Additionally, various committees have been formed at the holding company level to contribute to robust, transparent management. These include a Group CSR Committee, a Group Risk Management Committee, and a Group Information Disclosure Committee. The Appointment Advisory Committee and Compensation Advisory Committee nominate board members and auditors at Kirin Holdings, appoint presidents at major Group companies, and deliberate on executive compensation from the perspectives of objectivity and fairness. Holding company governance structure Shareholders Accounting Auditor Board of Auditors Auditing Auditing Board of Directors President Compensation Advisory Committee Appointment Advisory Committee Group Executive Committee Internal Audit Department Internal Auditing Group Head Office Divisions Group CSR Committee Group Risk Management Committee Group Information Disclosure Committee Internal Auditing Group companies Operating companies Service companies Kirin Holdings Company, Limited Annual Report

38 Consolidated Eleven-Year Summary of Selected Financial Data Kirin Holdings Company, Limited and Consolidated Subsidiaries Years ended December 31, For the Year: Sales Less liquor taxes Net sales Alcohol beverages 1 Soft drinks and foods 2 Pharmaceuticals 3 Other businesses Cost of sales Gross profit Selling, general and administrative expenses Operating Income Income before income taxes and minority interests Net Income EBITDA ,303, ,691 1,922, , , , ,943 1,012, , , , ,735 80, , ,801, ,555 1,400, , ,560 69,909 67, , , , , ,413 66, , ,665, ,321 1,263, , ,729 67, , , , , , ,560 53, ,161 Millions of yen ,632, ,527 1,234, , ,177 67, , , , , , ,001 51, ,459 At year end: Total assets Bonds Long-term debt Shareholders equity 5 2,619, , , ,812 2,469,667 92, ,244 1,054,811 1,963,586 98, , ,989 1,937, ,241 54, ,601 Net income per share: Primary Diluted Yen Net assets per share applicable to the year Value indicators: Liquidity ratios: Debt/equity ratio (times) 6 Interest coverage ratio (times) 7 Investment indicators: Price/earnings ratio (times) 8 Price/book value ratio (times) 9 Dividends and payout ratio: Dividends per share ( ) Payout ratio (%) Return indicators: Return on assets (%) 10 Return on equity (%) 11 Turnover ratios: Asset turnover (times) 12 Inventory turnover (times) , , , Notes 1: The presentation of the former Beer section was changed to Alcohol beverages in The businesses of engineering, logistics, etc., which were previously included in the Others segment, were reclassified into the Alcohol beverages segment in Information for 2006 has been restated to conform to the new classification; prior years have not been restated. 2: The presentation of the former Soft drinks section was changed to Soft drinks and foods in The businesses of foods, health foods and functional foods, etc., which were previously included in the Others segment, were reclassified into the Soft drinks and foods segment in Information for 2007 has been restated to conform to the new classification; prior years have not been restated. 3: Kirin s business segments were reorganized from 2003 into four segments: Alcohol beverages, soft drinks, pharmaceuticals and other businesses. Business segment information for 2002 has been restated to conform to the new classification; prior years have not been restated. 4: In 2008: EBITDA = Operating income + equity in earnings of affiliates + Depreciation and amortization + Amortization of goodwill (excluding non-recurring depreciation) + special income and expenses (excluding gain on change in equity) Before 2007: EBITDA = Income before income taxes and minority interests - Interest income - Dividend income + Interest expense + Depreciation and amortization + Amortization of goodwill 36

39 Please refer to the following URL for the financial statements and notes, including the auditor s report, as well as for the data book. Millions of yen ,654, ,957 1,223, , ,392 62, , , , , , ,018 49, ,507 1,597, ,749 1,165, , ,622 57, , , , , ,555 78,147 32, ,412 1,583, ,935 1,137, , ,946 49, , , , ,259 89,789 74,517 32, ,742 1,561, ,265 1,, , , , , , ,907 75,065 57,134 23, ,233 1,580, ,617 1,073, , , , , , ,425 93,397 71,245 32,924 1,451, , , , , , , , ,649 77,241 69,349 33,245 1,477, , , , ,534 87, , , ,735 69,768 60,415 27,058 1,823, ,564 67, ,615 1,787, ,428 93, ,882 1,744, , , ,227 1,661,652 87,400 74, ,902 1,627,400 27,612 92, ,486 1,430,021 26, ,942 1,443,179 22, ,196 Yen : Shareholders equity = Total net assets - Minority interests - Subscription rights to shares (as recorded on the balance sheet) 6: Debt = Short-term loans and current maturities of long-term debt + Bonds + Long-term debt 7: In 2008: Interest coverage ratio = Net cash provided by operating activities/interest paid Before 2007: Interest coverage ratio = (Operating income + Interest and dividend income)/interest expense 8: PER = Year-end share price/net income per share 9: PBR = Year-end share price/net assets per share 10: ROA = Net income/average total assets 11: ROE = Net income/average shareholders equity 12: Asset turnover = Sales/Average total assets 13: Inventory turnover = Sales/Average inventories Kirin Holdings Company, Limited Annual Report

40 Management s Discussion and Analysis Net sales, cost of sales and gross profit margin Percent Billions of yen , , , , , , Net sales Gross profit margin Cost of sales Note: Unless otherwise stated, all comparisons are with the previous fiscal year (FY07). Under the pure holding company structure adopted in July 2007, consolidated financial disclosures by Kirin Holdings Company, Limited ( the Company ) relate to the worldwide operations of the group of companies operating under this umbrella ( the Kirin Group, or the Group ) and are in accordance with Japanese GAAP. Operating performance Business environment overview Financial instability spread as the problems in the US subprime loan market precipitated a crisis. The global economy decelerated sharply from September Although governments worldwide took emergency measures to try to stabilize financial markets, by the end of the year the global economy had slowed to a virtual standstill due to a combination of falling asset prices, reduced demand, inventory de-stocking and lower consumer confidence. In Japan, although growth held up in the first half of the year, the impact of weaker US demand coupled with a sudden appreciation of the yen led to a collapse in exports. Plunging industrial output dented consumer confidence and caused GDP growth to turn sharply negative in the final quarter of Raw material prices remained elevated for most of the year, putting further downward pressure on corporate earnings. Selling, general and administrative expenses and percentage of net sales Percent Elsewhere in Asia, demand for consumer goods held up fairly well despite the knock-on effects of lower US demand on the region s manufacturing exports. Supported by a resilient banking system, the Australian economy continued to outperform its OECD peers in relative terms. Analysis of consolidated sales and earnings Consolidated net sales (including liquor taxes) rose 27.9% to 2,303.5 billion, marking another year of record sales for the Kirin Group. Consolidation of National Foods and the Kyowa Hakko Group were key drivers of top-line revenue growth. Excluding the effect of liquor taxes, consolidated net sales grew 37.3% to 1,922.8 billion. The cost of sales rose 49.3% to 1,012.2 billion and gross profit increased 26.0% to billion. Reflecting sharply higher raw material costs, among other factors, the gross margin (excluding liquor taxes) declined by 4.2 percentage points from 51.6% to 47.4%. Billions of yen Selling, general and adminstrative expenses Percentage of net sales Operating income and expenses Selling, general and administrative (SG&A) expenses rose 27.0% to billion, primarily due to the consolidation of the Kyowa Hakko Group and National Foods. Reflecting successful cost-reduction efforts, the ratio of SG&A expenses to net sales (excluding liquor taxes) fell by 3.2 percentage points, from 43.0% to 39.8%. Consolidated R&D expenses increased from 28.5 billion to 54.0 billion due to the significant expansion of operations within the Pharmaceuticals segment following the consolidation of the Kyowa Hakko Group. R&D spending in fiscal 2008 represented 2.8% of consolidated net sales (excluding liquor taxes). Net income and Net income per share Consolidated operating income increased 21.0% to billion, reaching a new high for the sixth consecutive year. Higher raw material costs and other expenses, along with goodwill and brand amortization expenses arising from the acquisition of National Foods, offset the boost to earnings due to higher sales and the consolidation of the Kyowa Hakko Group. Excluding the effect of liquor taxes, the operating margin decreased by 1.0 percentage point, from 8.6% to 7.6%. Percent Billions of yen Net income Net income per share Non-operating income and expenses Interest and dividend income increased 23.4% to 8.9 billion, while interest expense surged 101.2% to 25.3 billion. This resulted in a net financial loss of 11.1 billion in year-on-year terms, from 5.3 billion to 16.4 billion. The Group also recorded foreign currency translation losses of 37.2 billion, primarily due to sharp appreciation of the yen against the Australian dollar in the latter part of Net non-operating income and expenses equaled a loss of 42.9 billion, compared with a profit of 2.7 billion in the previous year. This was the principal factor responsible for the 16.5% decline in consolidated ordinary income to billion. Exceptional items Special income included a gain on change in equity of 72.6 billion arising from the exchange of shares on April 1, 2008 involving Kyowa Hakko Kogyo Co., Ltd. and Kirin Pharma Co., Ltd. Special expenses included items arising from the disposal of fixed assets ( 5.3 billion), asset impairment ( 3.5 billion), devaluation of investment securities 38

41 Please refer to the following URL for the financial statements and notes, including the auditor s report, as well as for the data book. ( 5.8 billion), liquidation of business ( 2.7 billion) and amortization of goodwill ( 1.5 billion). The Group also booked charges totaling 8.0 billion relating to business restructuring and integration. Overall, exceptional items generated a net gain of 62.6 billion, compared with a net gain of 5.0 billion in the previous year. Pretax and net income Consolidated income before income taxes and minority interests rose 29.1% to billion. Income taxes increased 35.8% to 68.3 billion. This yielded an effective tax rate of 41.3% for fiscal 2008, a year-on-year increase of 2.1 points. Minority interests increased 51.1% to 17.1 billion. Consolidated net income rose 20.2% to 80.1 billion. The net return on sales (excluding liquor taxes) declined by 0.6 percentage points, from 4.8% to 4.2%. Performance by business segment The Company moved the food, health food and functional food businesses from the other businesses segment to the soft drinks segment and renamed it the soft drinks and foods segment. Alcohol beverages The segment posted a 0.7% decline in consolidated net sales to 1,181.5 billion (excluding inter-segment transactions). Operating income increased 13.9% to billion. Declines in sales of beer in line with the domestic market were offset by higher sales in growth segments such as new genre products and RTDs. Double-digit growth in earnings despite the slight dip in sales reflected a mixture of cost reductions and price hikes, which have contributed to offset increases in raw material costs and so on. Soft drinks and foods The segment recorded a 51.0% increase in consolidated net sales to billion. This reflected the consolidation of National foods and food business of the Kyowa Hakko Group. Operating income fell 59.9% to 6.4 billion, largely due to significantly higher input costs, and lower consumer spending in key markets due to the economic downturn. In addition, goodwill and brand amortization costs arose from the acquisition of National Foods and Diary Farmers. Net sales by business segment Billions of yen Alcohol beverages Soft drinks and foods , , , , Pharmaceuticals Other businesses *Engineering, distribution and other such companies that were previously included in the other business segment have been transferred into the alcohol beverages business segment. Figures for 2007 and 2006 have been restated to reflect the new business segment allocations. Net sales by geographic segment ,408.7 Pharmaceuticals Consolidated net sales surged 145.3% to billion and operating income rose 116.9% to 28.2 billion, mainly reflecting the consolidation of the Kyowa Hakko Group. Sales of core products such as NESP, ESPO and Coniel continued to expand in Japan and other major markets. The Group made significant progress in developing its clinical development pipeline and also concluded agreements that enabled it to gain access to valuable pharmaceuticals development and production technology. Also, the Group has announced that Amgen would receive an exclusive license to develop and commercialize Kyowa Hakko s humanized monoclonal antibody KW-0761 worldwide, except in Japan, Korea, China and Taiwan. And under the terms of the deal, the Company received an upfront payment from Amgen of $ million. Billions of yen Asia/Oceania Others Japan Other Businesses This segment mainly comprises bio-chemicals, chemicals and the Group s agribio business, which includes various agricultural products and floriculture. Consolidated net sales increased 247.9% to billion, mostly due to the consolidation of the Kyowa Hakko Group. Operating income increased 188.8% to 18.2 billion. Performance by geographic segment Sales in Japan (excluding inter-segment transactions) increased 16.9% to 1,787.8 billion and accounted for 77.6% of consolidated net sales. Operating income rose 32.4% to billion, despite increasing raw material costs. This reflected the effects of price hikes implemented by Kirin Brewery to recover higher input costs, together with active cost-reduction efforts. Consolidation of Kyowa Hakko also made a contribution to growth in Group earnings. Sales of beer, happoshu and new genre products declined in volume terms due to demographic factors and the impact of the emerging global recession. Sales of soft drinks by Kirin Beverage were flat in volume terms, as efforts to stimulate demand through brand renewal helped to offset falling consumer sentiment. In the Pharmaceuticals segment, Kyowa Hakko Kirin made a significant contribution to growth in consolidated sales and earnings. Similar benefits were seen in the Other Businesses segment due to the consolidation of the bio-chemical and chemical operations of the Kyowa Hakko Group. Sales in Asia & Oceania (mainly East Asia outside Japan, Southeast Asia and Oceania) increased 108.0% to billion, largely due to the consolidation of Australia-based National Foods. The region contributed 19.0% of consolidated net sales. Operating income declined 0.3% to 35.7 billion. Kirin Holdings Company, Limited Annual Report

42 Management s Discussion and Analysis Free cash flows* and capital expenditure Sales in other regions (primarily the United States and Europe) rose 25.8% to 77.5 billion, accounting for 3.4% of consolidated net sales. Operating income grew by 32.4% to 7.9 billion Overseas sales expanded from billion to billion, an increase of 102.3%. The overseas sales ratio for the Kirin Group was 29.7% for the fiscal year ended December 2008, a year-on-year increase of 9.5 percentage points. Billions of yen Free cash flows Capital expenditure *Free cash flows = Net cash provided by operating activities Net cash used in investing activities Working capital and current ratio Percent Billions of yen Working capital Current ratio Total capital Billions of yen , , , , , , Long-term debt and bonds Short-term loans/long-term debt with current maturities and bonds due within one year Shareholders equity Financial position Assets Total assets at December 31, 2008 amounted to 2,619.6 billion, increasing by billion, or 6.1%, compared with the previous fiscal year-end. Current assets grew by billion, or 30.2%, to billion. This mainly reflected the increase in the scope of consolidation. The major components of growth were increases of 85.5 billion in trade notes and accounts receivable, of 70.6 billion in inventories, and of 17.6 billion in cash. Net property, plant, and equipment grew by billion to billion, while intangible assets grew by 62.5 billion to billion due to goodwill and other factors. These increases were chiefly attributable to the acquisition of shares in Kyowa Hakko Kirin Co., Ltd. Investments and other assets fell by billion, mainly due to a decrease in shares of investments in affiliated companies as well as the Group s portfolio of investment securities after a slump in share prices. Total fixed assets decreased by 41.6 billion, or 2.3%, compared with the previous year-end, to 1,793.4 billion. Liabilities Total liabilities at December 31, 2008 amounted to 1,469.6 billion, increasing by 99.5 billion, or 7.3%, compared with the previous fiscal year-end. Current liabilities decreased by billion, or 19.3%, compared with the previous year-end, to billion. Long-term debt grew by billion and bonds (including those with maturities of less than a year) increased by billion, while short-term loans payable (including the current portion of long-term debt) decreased by billion. This was due to the Group refinancing the short-term loans used to fund the acquisitions of National Foods and shares in Kyowa Hakko Kirin by issuing bonds and securing debt with longer maturities. Total long-term liabilities amounting to billion were 56.8% higher than at the previous fiscal year-end. Besides an overall year-on-year increase in bonds and long-term debt totaling billion, as mentioned above, this figure reflected a 22.5 billion increase in employees pension and retirement benefits and a decrease in deferred tax liabilities of 32.5 billion. Net assets Total net assets at December 31, 2008 amounted to 1,149.9 billion, increasing by 50.4 billion, or 4.6%, compared with the prior fiscal year-end. Net assets per share declined by to Total shareholders equity at December 31, 2008 of billion was 57.0 billion, or 6.2%, higher than at the previous year-end. This change primarily reflected growth in retained earnings of 57.7 billion due to net income of 80.1 billion, less dividend payments totaling 22.4 billion. Total valuation and translation adjustments decreased by billion in year-on-year terms, moving from a net gain of billion to a net loss of 55.9 billion. Net unrealized holding gains on securities fell by 87.3 billion, while the negative offset due to foreign currency translation adjustments was 88.7 billion at the fiscal 2008 year-end, compared with a positive contribution of 7.6 billion a year earlier. Minority interests expanded substantially during the year, increasing from 44.7 billion to billion. This was primarily due to the consolidation of Kyowa Hakko Kirin. Cash flows The balance of consolidated cash and cash equivalents grew by 16.1 billion during fiscal 2008, amounting to 68.4 billion at the year-end. Consolidation effects contributed to a net increase in cash of 43.7 billion. 40

43 Please refer to the following URL for the financial statements and notes, including the auditor s report, as well as for the data book. Net cash provided by operating activities increased by 16.6 billion to billion. Major contributing factors included growth in income before income taxes and minority interests of 37.3 billion; an increase in depreciation and amortization of 24.0 billion; an increase of 14.9 billion in amortization of goodwill; a net year-on-year decline in trade notes and accounts receivable of 20.3 billion; and a cash-positive impact due to foreign currency translation losses totaling 35.9 billion. These factors offset the large cash-negative impact of the gain on changes in equity ( 72.6 billion); income taxes paid increased by 18.7 billion, and interest paid increased by 11.6 billion. Net cash used in investing activities totaled billion, declining by.2 billion compared with the previous year. The major cash-absorbing items of expenditure were payments for purchases of property, plant and equipment and intangible assets, which increased by 59.1 billion to billion, and 73.4 billion for the acquisition of shares in newly consolidated subsidiaries (compared with an equivalent prior-year figure of 70.5 billion). These factors were offset by a net drop in cash outflows due to purchases of securities of billion in year-on-year terms. Proceeds from sales of property, plant and equipment and intangible assets also generated an overall cash inflow of 26.5 billion. Net cash provided by financing activities totaled 26.6 billion, declining by 94.8 billion relative to fiscal Bond issuance created a net inflow of cash of billion. Net cash outflow due to borrowings was billion, compared with net cash inflow of billion in fiscal Cash dividend payments yielded an overall outflow of 41.5 billion, an increase of 11.7 billion in year-on-year terms. Key consolidated financial indicators Earnings per share (EPS) increased from 70 to 84. Ignoring the gain on change in equity ( 72.6 billion) due to the exchange of shares with Kyowa Hakko Kogyo, and excluding non-recurring depreciation, EBITDA grew by 24.2% from billion to billion. Return on equity (ROE: defined as net income divided by net assets adjusted for minority interests) increased from 6.5% to 8.1%. Return on assets (ROA: defined as net income divided by total assets) increased from 3.0% to 3.2%. The equity ratio (defined as net assets, adjusted for minority interests, as a proportion of total assets) at the end of fiscal 2008 was 35.4%, a decrease of 7.3 percentage points compared with the previous year-end. Reflecting growth in long-term liabilities, the consolidated D/E ratio (defined as the sum of short-term loans, long-term debt and bonds, divided by net assets adjusted for minority interests) was 0.72 at the end of December 2008, compared with 0.58 a year earlier. Debt service coverage (defined as total interest-bearing liabilities divided by operating cash flow) was 552.1% at the end of December 2008, compared with 588.1% a year earlier. The interest coverage ratio (defined as operating cash flow divided by interest expense) was 5.6 times for fiscal 2008, compared with 9.9 times in the previous year. Dividend policy and dividends Comprising interim and final dividends of 11.5 per share, annual dividends for fiscal 2008 totaled 23.0 per share. This represented an increase of 2.0 per share in year-on-year terms and a consolidated payout ratio of 27.4%. Kirin attaches great importance to returning an appropriate level of profits to shareholders through stable dividend payments. A dividend has been paid to shareholders every year since the firm was first established in Under the three-year medium-term business plan for the Kirin Group covering the period FY (the first stage of the KV2015 strategic business vision), the company aims to boost the consolidated payout ratio to 30%. Projections for fiscal 2009 In light of the severe extent of the global economic downturn, management expects business conditions to remain harsh in fiscal The core objective will be to reinforce the earnings base by generating intra-group synergies and by reducing marketing and other SG&A expenses where possible. R&D expenses and percentage of net sales Percent Billions of yen Billions of yen Percent R&D expenses Percentage of net sales EBITDA ROE Management is projecting double-digit declines in consolidated operating and net income on broadly flat net sales. This forecast reflects anticipated currency translation losses (mainly related to Australia-based Lion Nathan) along with changes in accounting policies that will boost depreciation and amortization expenses relating to Kirin Brewery facilities. Increases in raw material costs will be offset to some extent by lower sales and advertising expenses Kirin Holdings Company, Limited Annual Report

44 Kirin Group Companies (As of December 31, 2008) Kirin Group includes 371 consolidated subsidiaries, one unconsolidated subsidiary and 26 affiliates accounted for by the equity method. Key Group companies in Japan and overseas include the following: Company name Alcohol beverages 1 Kirin Brewery Company, Limited Kirin Engineering Co., Ltd. Kirin Techno-System Corporation Kirin Merchandising Co., Ltd. Kirin Logistics Co., Ltd. Ei Sho Gen Co., Ltd. Kirin Distillery Co., Ltd. Kirin City Co., Ltd. Kirin & Communications Co., Ltd. Mercian Corporation 2 Lion Nathan Limited Kirin Australia Pty. Ltd. Taiwan Kirin Co., Ltd. 3 Kirin (China) Investment Co., Ltd. 4 Kirin Brewery (Zhuhai) Co., Ltd. 5 Raymond Vineyard & Cellar, Inc. 6 Kirin Brewery of America, LLC 7 Four Roses Distillery LLC 8 Kirin Europe GmbH 9 San Miguel Corporation 0 Dalian Daxue Brewery Co., Ltd. Heineken Japan Co. Ltd. A Hangzhou Qiandaohu Brewery Company, Ltd. Soft drinks and foods Kirin Beverage Co., Ltd. Hokkaido Kirin Beverage Co., Ltd. Tokyo Kirin Beverage Service Co., Ltd. Kansai Kirin Beverage Service Co., Ltd. Vivax Co., Ltd. Kirin MC Danone Waters Co., Ltd. 1 Shanghai Jin Jiang Kirin Beverage & Food Co., Ltd. 2 Kirin Beverage (Shanghai) Ltd. Siam Kirin Beverage Co., Ltd. 3 Coca-Cola Bottling Company of Northern New England, Inc. Nagano Tomato Co., Ltd. Koiwai Dairy Products Co., Ltd. 4 Kirin Holdings (Australia) Pty. Ltd. 5 National Foods Limited Berri Ltd. Dairy Farmers Limited Kirin Food-Tech Company, Limited 6 Indústria Agrícola Tozan Ltda. Kirin Tropicana, Inc. Cosmo Foods Co., Ltd. 7 PT Kirin-Miwon Foods Location Kanagawa, Japan Kanagawa, Japan Shizuoka, Japan Sydney, Australia Western Australia, Australia Taipei, Taiwan Shanghai, China Zhuhai, China California, U.S.A. California, U.S.A. Kentucky, U.S.A. Dusseldorf, Germany Metro Manila, Philippines Dalian, China Hangzhou, China Hokkaido, Japan Osaka, Japan Hiroshima, Japan Shanghai, China Shanghai, China Bangkok, Thailand New Hampshire, U.S.A. Nagano, Japan Melbourne, Australia Melbourne, Australia Victoria, Australia New South Wales, Australia Sao Paulo, Brazil Jakarta, Indonesia Main business Manufacture and sale of beer and other alcohol beverages Plant engineering for alcohol beverage, soft drink, food and pharmaceutical industries Development, manufacturing and sale of systems to improve efficiency in bottling, pharmaceutical, automobile and other industries Merchandising of Kirin products at volume outlets; on-premise quality control and merchandising Distribution of Kirin products and general goods Production and sale of Chinese liqueurs Production of alcohol beverages Management of nationwide chain of beer pubs PR activities, centered on management of customer facilities at factories, theme parks Manufacture and sale of wine and other alcohol beverages, chemicals, pharmaceuticals and feedstuffs Production and sale of alcohol beverages in Australia and New Zealand Production of high-quality malt Import and sale of Kirin brand beer, sake Management of alcohol beverages business in China; sale of Kirin brand beer in Yantze River Delta Production and sale of beer in Pearl River Delta; production base Kirin Group in Asia Production and sale of wine Management of Kirin brand beer business in the United States Production and sale of Four Roses bourbon Kirin brand beer business in Europe Production and sale of beer and food products mainly in the Philippines Production and sale of beer in Northeast China Licensed production and domestic marketing of Heineken beer Production and sale of beer at Zhejiang Provice in China Development, production and marketing of soft drinks Sale of soft drinks Sale of soft drinks Sale of soft drinks Sale of soft drinks Marketing and sale of soft drinks Sale of soft drinks and alcohol beverages Sale of soft drinks Sale of soft drinks Manufacture and sale of Coca-Cola products and other soft drinks in six states of the New England region Manufacture and sale of ketchup, tomato juice, etc.; manufacture of Kirin Beverage brand soft drinks Manufacture and sale of soft drinks and dairy foods Holding company of National Foods Group Manufacture and sale of soft drinks and dairy foods Sale of soft drinks Manufacture and sale of dairy foods Manufacture and sale of seasonings and food additives Production and sale of sake and food products in Brazil Sale of soft drinks Manufacture and sale of natural seasonings, and health food ingredients Manufacture and sale of seasonings and food additives Paid-in capital ( million unless stated) 30,000 1,000 1, ,972 AU$436M AU$12M TW$60M US$150M US$74M US$21.7M US$13 US$60M EUR 76K PHP 16,112M RMB 150.3M 200 RMB 265M 8, ,500 US$24.8M UD$17.5M TB 85M US$0.93M 711 1,689 AU$2,023M AU$552M AU$186.5M AU$81.9M 5,000 BRR 1,000M US$20K Percentage of holding Established July 2007 Mar Jan Sept Jan July 1948 Aug May 1983 Feb Dec June 1976 May 1988 Dec Dec May 1971 July 1996 Feb Oct Aug June 1983 July 1998 Apr Dec Jan Jan Apr Nov Mar Apr May 2005 May 1977 Apr Jun.1976 Oct July 1985 Jan Apr Nov Jan Nov Apr

45 Company name Location Main business Paid-in capital ( million unless stated) Percentage of holding Established Pharmaceuticals Kyowa Hakko Kirin Co., Ltd. 1 BioWa, Inc. 2 Kyowa Hakko Kirin Pharma, Inc. 3 Kyowa Hakko Kirin California, Inc. 4 Jeil-Kirin Pharm. Inc. 5 Kyowa Hakko Kirin (Hong Kong) Co., Ltd. 6 Kirin Kunpeng (China) Bio-Pharmaceutical Co., Ltd. 7 Kirin-Amgen, Inc. Princeton, U.S.A. Princeton, U.S.A. California, U.S.A. Seoul, Korea Hong Kong Shanghai, China California, U.S.A. R&D, Manufacture and Sales of pharmaceutical products Licensing Business Activities Development of pharmaceutical products Research of pharmaceutical products Sale of G-CSF, Aranesp, Busulfex, and Renagel Sale of Aranesp, Busulfex, and Renagel Manufacture and sale of G-CSF and EPO in China; sale of Busulfex in China R&D and licensing of pharmaceutical products 26,745 US$10M US$0.1M US$0.1M KRW 2.2B HK$6M US$29.8M US$ Oct Feb Oct Sep May 1991 Aug June 1997 May 1984 Other businesses Kyowa Hakko Bio Co., Ltd. Kyowa Hakko Chemical Co., Ltd. Kirin Agribio Co., Ltd. Japan Potato, Corp. 1 Kirin Agribio EC B.V. 2 Kirin Agribio Shanghai Co., Ltd. Kirin Real Estate Co., Ltd. Yokohama Arena Co., Ltd. Kirin International Trading Inc. Kirin Hotel Development Co., Ltd. Kamakura Kaihin Hotel Co., Ltd. Tsurumi Warehouse Co., Ltd. Kirin Echo Co., Ltd. Yokohama Akarenga Inc. Kirin Business System Co., Ltd. Kirin Business Expert Co., Ltd. Tokita Seed Co., Ltd. Verde Co., Ltd. 3 Qingdao International Seeds Co., Ltd. De Lier, Netherlands Shanghai, China Kanagawa, Japan Hyogo, Japan Kanagawa, Japan Kanagawa, Japan Kanagawa, Japan Saitama, Japan Aichi, Japan Qingdao, China R&D, Manufacture and Sales of Bio-Chemical products R&D, Manufacture and Sales of Chemical products Oversees group management and domestic sale of proprietary carnations, chrysanthemums, roses, petunias, and related products Sale of potato varieties, seeds and vegetables Holding company in Europe Production of seedlings and management of royalties in China Management and real estate brokerage of leased offices, company housing and welfare facilities Management of large event hall in Yokohama Food and beverage export and import; importing of malt from Australia Hotel operations Management of membership tennis club Warehouse operations specializing in hazardous materials and frozen goods Processing and sales of by-products feed and insurances sales agent Management of commercial premises in landmark brick building Development and management of IT systems Provision of shared Group administrative services Development of tomato, onion, komatsuna varieties and sale of seedlings Production and sale of cells tissue-cultured Breeding of vegetable seeds and production and sale of seeds and seedlings 10,000 5, EUR 18K RMB 5M 10 10, , Oct Apr Nov Mar Apr Apr Aug Nov June 1979 Sep Mar Dec Oct July 2000 May 1988 Nov Jan May 1990 Kirin Holdings Company, Limited Annual Report

46 Directors and Auditors (As of March 26, 2009) From left: Etsuji Tawada, Kazuhiro Sato, Yoshiharu Furumoto, Kazuyasu Kato, Yuji Owada, Senji Miyake, Yuzuru Matsuda President & CEO Kazuyasu Kato Executive Vice Presidents Kazuhiro Sato Senji Miyake Managing Directors Etsuji Tawada Yoshiharu Furumoto (CFO) Yuji Owada Directors Yuzuru Matsuda Satoru Kishi Akira Genma Standing Auditors Hitoshi Oshima Tetsuo Iwasa Auditors Toyoshi Nakano Teruo Ozaki Kazuo Tezuka 44

47 Investor Information (As of December 31, 2008) Kirin Holdings Company, Limited Head Office 10-1 Shinkawa 2-chome, Chuo-ku Tokyo , Japan Tel: Fax: Further Information Kirin Holdings Company, Limited Corporate Communications Dept. IR Section Tel: Fax: URL: Date of Incorporation February 23, 1907 Note: On July 1, 2007, accompanying the shift to a pure holding company structure, Kirin Holdings Company, Limited changed its name from Kirin Brewery Company, Limited. Paid-in Capital 102,045 million Authorized Shares 1,732,026,000 Outstanding Shares 984,508,387 Number of Shareholders 133,636 Number of Employees 36,554 (consolidated) 263 (non-consolidated) General Meeting of Shareholders March 26, 2009 Stock Listings Tokyo, Osaka, Nagoya, Fukuoka, Sapporo Ticker Symbol Numbers ODR: 2503 ADR: KNBWY Transfer Agent Mitsubishi UFJ Trust and Banking Corporation Corporate Agency Division Higashi Suna, Koto-ku Tokyo Tel: Major Shareholders Japan Trustee Service Bank of Japan Ltd. (Trust account) Meiji Yasuda Life Insurance Company Japan Trustee Service Bank of Japan Ltd. (Trust account 4G) The Master Trust Bank of Japan, Ltd. (Trust account) The Bank of Tokyo-Mitsubishi UFJ, Ltd. Isono Shokai, Limited Japan Trustee Service Bank of Japan Ltd. (Trust account 4) The Moxley and Company Melon Bank Treaty Clients Omnibus State Street Bank and Trust Company Percentage of total shares outstanding 5.17% Monthly share price range & trade volume Tokyo Stock Exchange 2,000 20,000 1,800 18,000 1,600 16,000 1,400 14,000 1,200 12,000 1,000 10, , Share price (left scale) Nikkei 225 average (right scale) ,000 Millions of shares Millions of shares Trading volume * Simple average of monthly highs and lows Kirin Holdings Company, Limited Annual Report

48 Please refer to the following URL for the financial statements and notes, including the auditor s report, as well as for the data book. Printed in Japan with soy ink on recycled paper.