1 Kirin's road ahead : Kirin's road ahead : a a chieving a quantum leap in growth chieving a quantum leap in growth Bank of America Merrill Lynch Bank of America Merrill Lynch Japan Conference 2009 Japan Conference 2009 Kirin Holdings Company, Limited Kirin Holdings Company, Limited Kazuyasu Kazuyasu Kato, President and CEO Kato, President and CEO September 16, September 16, 2009 2009
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Kirin's road ahead : achieving a quantum leap in growth
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Kirin's road ahead :Kirin's road ahead :aachieving a quantum leap in growthchieving a quantum leap in growth
Bank of America Merrill LynchBank of America Merrill LynchJapan Conference 2009Japan Conference 2009
Kirin Holdings Company, LimitedKirin Holdings Company, LimitedKazuyasuKazuyasu Kato, President and CEOKato, President and CEO
September 16, September 16, 20092009
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ContentContent
• KV2015: Kirin’s long-term operating framework
•• KVKV20152015: Progress report: Progress report
•• Our approach to Our approach to M&AM&A
•• KirinKirin’’s next mediums next medium--term business planterm business plan
•• CCTCCT ((Cross Company TeamsCross Company Teams))
•• Management integration with SuntoryManagement integration with Suntory
• Pharma (’82)• Agribio(80’s)• Yeast business (’87)• Kirin Engineering (’88)• Kirin Taiwan (’88)
• Lion Nathan (‘98)• San Miguel (’02)• Eishogen (’02)• Takeda Kirin (’02)
KV2015
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Kirin Group Vision 2015 (KV2015)Kirin Group Vision 2015 (KV2015)
・ Nurture close links with customers through products that provide the enjoyment of food and health・ Integrate our expertise in fermentation and biotechnology, manufacturing, and research and marketing to create value and
offer distinctive products of the highest quality・ Be a leading company in Asia and Oceania, with alcohol beverages, soft drinks and pharmaceuticals as our core business
KV2015
① Become an integrated beverage group
② Pursue further internationalization③ Establish health food and functional food business following on from
alcohol beverages, soft drinks and pharmaceutical businesses
Strengthen foundations by achieving growth in Kirin’s
core domestic alcohol business
■ Kirin Group 2007—2009 business plan represented Stage One in reaching growth targets of KV2015
■ 2009 is final year of Stage One and also year zero for the 2010 Stage Two business plan, and we are engaging in longer term issues on a broadening front
Approx. 30%18%Sales excl. liquor
taxOverseas composition
OP margin
Sales (yen)
Approx. 30%
10% plus
2.5 trillion
3 trillion
2015
27%Operating income
9%Excl. liquor tax
1.27 trillionExcl. liquor tax
1.68 trillionIncl. Liquor tax
2006KV2015 targetsUnit: billion yen
Quantum growth trajectory
Current trajectory
0
500
1,000
1,500
2,000
2,500
3,000
1997 98 99 00 01 02 03 04 05 06 Est. 20150
50
100
150
200
250
300Sales (left axis)
Operating income (right axis)New growth trajectory
Historic growthline
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Fusing the alcohol and soft drink value chains to create value
As consumer preferences diversify and the market distinction between alcohol and soft drinks blurs, Kirin is integrating the alcohol and soft drink value chains
Pursuing technology-based group synergies for top-line growth andcost saving synergies for bottom-
line growth=
Greater potential for leap in growth
Beer business model comparison
Beer Soft drinks
LocalG
lobal
Beer Soft drinks
LocalG
lobal
Major global peers Kirin
Business model Multiple beer brands in many markets
Differentiating Kirin from global beer companies by pursuing a unique business model that Integrates alcohol and soft drink operations
Expanding in East Asia economic sphere and Oceania
Increasing synergies with partners; constructing a unique business development model
Further localizing our businesses and developing products and servicesclosely aligned with regional and cultural needs
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Highlights 1: Building a strong presence in OceaniaHighlights 1: Building a strong presence in Oceania Also pursuing integrated beverage group strategy in Australia
LN and NF will be aligned under a holding company from October 21 and a new management structure will be put in place
Kirin is becoming the biggest food and beverage groups in Australia
Kirin Group Total in OceaniaSales: A$5,603mm EBIT: A$ 636mm
Major dairy product and soft drink
company
FY20081
Sales: A$3,509mEBIT: A$129m
National FoodsDairy Farmers
No. 2 alcohol company in Oceania
FY20082
Sales: A$2,094mEBIT: A$507m
Lion Nathan
Lion Nathan National Foods*(LNNF)
(planned)
*100% subsidiary of Kirin, currently Kirin Holdings Australia (KHAU)
1 National Foods financials sourced from Kirin FY08 Results presentation dated 10 February 2009. Dairy Farmers financials sourced from investor presentation dated 25 August 2008 relating to Dairy Farmers acquisition
2 LN FY08 Annual Report
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Return to core brands→
1. Strengthening flagship products
・ Successful renewal of Ichiban Shibori; stable and strong performance from core brands Tanrei, Nodogoshi, etc.
Changes to alcohol market→
3. Expanding overall demand・ Strengthening RTD category・ Developing business interface opportunities・Developing brands in new and innovative category brands
Increasing consumer health consciousness→2. Boosting response to health trends・Strong performance of products developed to reflect consumer health awareness
Targeting 3 specific areas to develop business and succeed with evidence-based marketing
Highlights 2: Gaining traction in revitalizing Kirin BreweryHighlights 2: Gaining traction in revitalizing Kirin Brewery
■ Kirin was the market No. 1 for the first half of 2009
■ Working to hit profit targets through efficiency measures;
increasing cash flow stability
■ Pursuing further structural reforms
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Benefits from structural integration already emerging in production and marketing
Highlights 3: Integration of Kyowa Hakko and Kirin Highlights 3: Integration of Kyowa Hakko and Kirin PharmaPharma
R&D
Production
Sales
POTELLIGENT ®
COMPLEGENT TM
Approx. 950 Medical Reps
KM Mouse ®
EXPOC™ technology
Approx. 450 MRs
¥25.8 bnAllelock
¥22.4 bnConiel
¥16.6 bnGRAN/ Neu-up
¥44.4 bnNESP/ESPO
Manufacturing technology for bio-pharmaceutical products
Established Kyowa Hakko Kirin in October 2008 through merger of Kyowa Hakko and Kirin Pharma
Developing innovative pharmaceuticals using cutting-edge antibody technology with a focus on cancer, kidney disease and immunology; aiming to develop business internationally to become Japan’s first specialty pharma company contributing to human health in the global arena
*Medical Rep numbers are as of end December 2008. Product sales based on forecasts for 2009
Kirin PharmaKyowa Hakko
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Sales composition by business segmentSales composition by business segment
48%
Pharmaceuticals
Soft drinks and foodsAlcohol beverages
Other
■ Main companies• Kirin Brewery• Mercian Corporation• Lion Nathan (Australia)
• Kirin (China) Investment Co., Ltd.
33%
9%10%
■ Main companies• Kirin Beverage• National Foods (Australia)
■ Main companies• Kyowa Hakko Kirin
■ Main companies• Kyowa Hakko Bio• Kyowa Hakko Chemical• Kirin Agribio
Diversification and internationalization is creating a more balanced portfolio
Stable cash flow generation High potential in overseas markets
Includes agribio, biochemical businesses, etc.
High earnings and growth potential
2002009 forecast9 forecastsalessales
¥¥22,,300300 bnbn
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KV2015: Progress and key issuesKV2015: Progress and key issues
• Pursue concrete strategy to maximize synergies
• Renew growth in domestic alcohol
• Allocate resources to soft drinks
• Improve profitability
• Return on investment• Management control of each group company• Group integration
Issues
・Manage synergy projects with quantitative targets・Begin CCT initiatives
・Pursuing integrated beverage group strategy that fuses alcohol and soft drink value chains
• Undertaking structural reform of marketing spend in soft drinks
• Continuing to invest in soft drinks and alcohol in Asia Oceania region where high synergy effects can be created, and optimizing business portfolio
Current initiatives
Making some progress but not yet sufficient
Group synergy
3 growth patterns Progress
Resource allocation
Ahead of plan
Organic growth Domestic alcohol business on an upswing but issues remain particularly in soft drinks
Major investments have met sales targets ahead of plan ⇒ profitability is now key focus Moving to further stage of development with horizontal application of 3 growth patterns
《Cooperation between HC and operating companies》
《Led by operating companies》
《Led by holding company》
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3. Our approach to 3. Our approach to M&AM&A
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KirinKirin’’s M&A Policys M&A Policy
1. Able to contribute to customers in arena of food & health2. Able to create win—win scenario where 1+1 =more than 23. Undertaken on a friendly basis
*Assess projects from the ground up: see it for yourself, on site*Target companies with solid markets, stability and top lines that can grow profitably*Emphasize personnel exchanges in post-transaction management.
Exchange and integrate personnel so that the strengths of each company can be leveraged to contribute to further growth (e.g. Kirin’s strategic planning, manufacturing technology and R&D, etc.)
1.Adopt the 3Cs: challenge, commitment, collaboration2.Pursue actively from the top (ensure speed and trust)3.Respect the intentions of the counterparty4.Constantly help staff improve, using people-focused
management and fostering of human resources
Our key values in M&A
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M&AM&A OutcomesOutcomes
10/2006 Kirin Beverage 100% ¥75.0 bn
12/2006 Mercian Corp. business & capital alliance ¥25.0 bn
11/2007 Acecook joint beverage business in Vietnam ¥3.5 bn
12/2007 Kyowa Hakko business & capital alliance ¥170.0 bn
National Foods 100% ¥290.0 bn
1/2008 J Boag & Son Pty ¥32.0 bn
11/2008 Dairy Farmers ¥56.0 bn
5/2009 San Miguel Brewery (48%) ¥130.0 bn
10/2009 (planned) Lion Nathan 100% ¥230.0 bn
10/2006 Kirin Beverage 100% ¥75.0 bn
12/2006 Mercian Corp. business & capital alliance ¥25.0 bn
11/2007 Acecook joint beverage business in Vietnam ¥3.5 bn
12/2007 Kyowa Hakko business & capital alliance ¥170.0 bn
National Foods 100% ¥290.0 bn
1/2008 J Boag & Son Pty ¥32.0 bn
11/2008 Dairy Farmers ¥56.0 bn
5/2009 San Miguel Brewery (48%) ¥130.0 bn
10/2009 (planned) Lion Nathan 100% ¥230.0 bn
*1 Amount for Kyowa Hakko includes only the TOB portion*2 National Foods calculated on an EV base (including debt)*3 Amount for Dairy Farmers includes only equity portion*4 The 48% for SMB includes the TOB 5%. Proceeds of approx.¥75.3 from sale of SMC shares applied to purchase.*5 Lion Nathan proceeding under a Scheme of Arrangement so approval process at shareholders’ meeting required
Source investment funding for growth primarily externally
Rigorously review balance sheet to increase asset efficiency (make effective use of borrowing, liquidize assets)
Maximize cash flow
Financial strategy to support growthFinancial strategy to support growth
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4. Next medium4. Next medium--term business planterm business plan
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・ Nurture close links with customers through products that provide the enjoyment of food and health・ Integrate our expertise in fermentation and biotechnology, manufacturing, and research and marketing to create
value and offer distinctive products of the highest quality・ Be a leading company in Asia and Oceania, with alcohol beverages, soft drinks and pharmaceuticals as our core
business
2015 Group Vision2015 Group Vision
2010 MTP2010 MTP(2010(2010--2012)2012)
““Three years to improve performance and profitsThree years to improve performance and profits””based on strategy of quantum leap in growthbased on strategy of quantum leap in growth
Three stages to realizing the long-term goals of KV2015
2007 MTP(2007-2009)
The 2010 mediumThe 2010 medium--term business plan is the second stage in realizing KV2015, and term business plan is the second stage in realizing KV2015, and is an action plan for completing is an action plan for completing the shift from quantitative growth (sales expansion) to qualitatthe shift from quantitative growth (sales expansion) to qualitative growth (profit improvement). It focuses on ive growth (profit improvement). It focuses on Proactive management Proactive management –– Decide and Implement.Decide and Implement.
2013 MTP(2013-2015)
““Three years to kickThree years to kick--start start growthgrowth””
Priorities and direction of 2010 mediumPriorities and direction of 2010 medium--term business planterm business plan
The plan will emphasize three growth strategies outlined in KV2015 but in which sufficient progress has not yet been made, namely 1. Tireless improvement; 2. Creation of Group synergies; and 3. Fully leveraging the Group’s technical strengths and strong customer relationships. A fourth point will be to pursue the integrated beverage group strategy. Addressing and thoroughly executing these four elements will improve profitability and asset efficiency.
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5. 5. CCTCCT((Cross Company TeamCross Company Team))
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●Monitor synergy creation through continuation of Cross Company Teams (CCT) initiative, in which KH directors act as project leaders
●CCTs address issues that would be difficult for operating companies to resolve in isolation (e.g. optimization of business locations, business integration, etc.)
●A key priority of CCTs is to achieve quantifiable benefits in the form of cost synergies
Cross Company Team (CCT)Cross Company Team (CCT)
Major cost synergies and asset efficiency enhancement in next medium-term business plan
Cost synergy initiatives by CCTs
Optimization, sharing of production and distribution operations and skills transfer between KB, KBC, and Mercian
Production & distribution
Optimization of Group R&D locationsR&DJoint purchasing, integration of operations, standardization of IT systems
Procurement
Reduction of assets, review of budget control for investments
Asset reduction & CF management
Integration of overlapping Group operationsBusiness integration
Integration of operational application systems within Group; reduction of IT assets from service level down
IT
-HR infrastructure
Sharing of operations, skills transfer between KB and Mercian, and between KB and KBC
Sales & marketing
Horizontal strategy
Operational support strategyCompany A
Company B
Company C
Company D
Company A
Company B
Company C
Portfolio strategy
R&
D
Procurement
Production
Distribution
Sales/marketing
Company D
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6. Business integration with Suntory6. Business integration with Suntory
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■ BackgroundBackground:
Fits integrated beverages group strategy and other aims of KV2015Brings growth beyond KV2015 into reach
Business integration with SuntoryBusiness integration with Suntory
Constructive discussions continuing
■■ Approach in 2010 mediumApproach in 2010 medium--term business planterm business plan::
Still in negotiation with Suntory; timing and conditions of Fair Trade Commission approval undetermined.Recognizing that 2010 medium-term business plan is nonetheless necessary, management has devised a standalone plan for Kirin.
2010 medium-term business plan applies the key issues and scenarios presented in KV2015—without postponement of these initiatives in deference to business integration with Suntory
This material is intended for informational purposes only and is not a solicitation or offer to buy or sell securities or related financial instruments.