To Our StakeholdersIssues and Future Initiatives

Accelerating Structural Reforms and Achieving Profitable Growth

The Group’s profitability increased substantially in comparison with fiscal 2015, but we still have considerable room for further reforms. I believe that we must continue to accelerate the pace of structural reforms with an aggressive approach.
At Kirin Beverage, targeting the realization of profitable growth, we will further advance initiatives with a focus on the two key factors of brand strengthening and profit structure reform. In fiscal 2016, we achieved an operating profit margin of 4.9%, above the planned level, and moving forward we aim to build an even stronger profit foundation. Targeting a robust brand system, we will follow up Kirin Gogo-no-Kocha and Kirin Nama-cha with a focus on Kirin FIRE in the coffee category, and we will strive to nurture these products into long-selling brands. However, in aiming for a double-digit operating profit margin comparable to global peers, there are limits to what we can accomplish through our own initiatives. Targeting reforms of the cost structure in such areas as distribution and manufacturing, we will continue to consider alliances, such as with other companies in the industry.

Continuing to Invest, Strengthen, and Grow Profit Base in Beer Businesses

To improve the Group’s profitability, our highest priority challenge is to strengthen the profit base for Kirin Brewery. In fiscal 2016, sales volume in the happo-shu/new genre category declined substantially. In particular, restoring Kirin Nodogoshi Nama, the No. 1 brand in the new genre market, to a path of growth is an urgent challenge, and we must reverse the current trend as quickly as possible. Another challenge is changing the market structure. To revitalize the beer market, we will continue to taking steps to leverage our unique strengths to enhance the appeal of beer, such as with the 47 Todofuken no Ichiban Shibori. At the same time, we will accelerate business development initiatives in the field of craft beer. Under the revision of the Liquor Tax Act in 2018, the definition of “beer” is expected to be substantially expanded. This will make it possible to propose products with diverse added value, and accordingly it will represent a major opportunity for Kirin Brewery. Through such initiatives as “Tap Marché,” a new service for restaurants, we will provide increased opportunities for consumers to experience craft beer. Moreover, to break away from excessive competition, we will take the lead in controlling sales promotion expenditures.
At Lion, we face the challenge of how to overcome the effect of the decline in sales resulting from the termination of the license agreement for the sale of Corona and other imported beers. However, over the medium to long term, I believe this transition will work as a positive factor since it enables us to focus on nurturing in-house brands. Also, to focus resources on the core beer business, we transferred the low-profit wine business in Australia. Moving forward, we will further increase the value of core brands, such as XXXX Gold, and accelerate initiatives to fully leverage our fields of strength, such as craft beer, which is enjoying growing popularity.

Strengthening the Business Base for Beer in Asia and Oceania

First, we will strengthen the business base for beer in Southeast Asia, which has high growth potential, with our highest priority being the realization of sustained growth at Myanmar Brewery. To acquire a manufacturing and shipping base in northern Myanmar, we decided to invest in Mandalay Brewery. As a result, we will be able to accurately capture market growth and further reinforce our dominant position of leadership in the market. Furthermore, by leveraging Group synergies throughout the Asia/Oceania region, we will work to achieve growth in Kirin brands and craft beer brands. In addition, as one more effective strategic option, we will also consider investments in and alliances with local companies.

Creating New Businesses from a Long-Term Perspective

We will leverage our fundamental strengths in such areas as R&D to implement our distinctive value creation process. I believe that these initiatives will not only bolster our competitiveness in existing businesses but also lead to the creation of new businesses in fields that transcend past business frameworks.
Examples include our initiatives utilizing “Lactococcus lactis strain Plasma” and plant biotechnology. We have already commercialized “Lactococcus lactis strain Plasma” in beverages, yogurt, and supplements, and we are now investigating the potential for proposing new value by leveraging the distinctive characteristics of “Lactococcus lactis strain Plasma” in enhancing the fundamentals of immunity. We are also moving forward with technologies related to plant biotechnology. These plant-related technologies can be utilized in the production of materials related to pharmaceuticals and other materials, and we are advancing development while collaborating with universities and other companies. In operations conducted with assistance/consignment from NEDO,^* Kirin’s original largescale plant propagation technologies are being used for the high-efficiency, low-cost production of activated vitamin D3.
While enhancing the growth potential of existing businesses, we will also aggressively search for opportunities to expand the scope of our business activities and resolutely take on the challenge of promising business opportunities. In addition, we will also take a flexible approach to investment in basic research and open innovation, which are necessary for those purposes.

• ※New Energy and Industrial Technology Development Organization