Celebrating the joys of life

Celebratingthe joys of lifeKirin Holdings Company, Limited2008 Annual ReportYear ended December 31, 2008

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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 2007–2009 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 48.299% of SMB, with all related transactions currently scheduled to be completed by the end of May

2009. By maintaining an aggressive, forward-looking and fast-moving management approach, the Group aims to achieve a

quantum leap in growth.

FORWARD-LOOKING STATEMENTSStatements 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 indomestic or overseas economic conditions, changes in consumer behavior or competitor activity, and changes in laws, regulations or policies in any of the countrieswhere Kirin conducts operations. Kirin adopts measures to control these and other types of risks, but does not guarantee that such measures will be effective.

Celebratingthe joys of life

Please refer to the following URL for the financial statements and notes, including the auditor’s report, as well as for the data book.

http://www.kirinholdings.co.jp/english/ir/library/index.html

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Contents

02 Celebrating the Joys of Life

02 Good times04 Good feeling06 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 & CEO17 Review & Strategic Perspectives

18 Alcohol Beverages24 Soft Drinks and Foods28 Pharmaceuticals30 Other Businesses

31 R&D and Intellectual Property32 Corporate Social Responsibility34 The Environment35 Corporate Governance36 Consolidated Eleven-Year Summary

of Selected Financial Data38 Management’s Discussion and Analysis42 Kirin Group Companies44 Directors and Auditors45 Investor Information

For the year:SalesLess liquor taxesNet salesAlcohol beveragesSoft drinks and foodsPharmaceuticalsOther businesses

Operating income Net income

At year end:Total assetsShareholders’ 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 (¥)

2008/2007

27.9%(5.0)

37.31.6

51.0145.3246.6

21.020.2

6.1(12.0)

20.3

2008

$ 25,305,6024,182,038

21,123,5528,807,2837,873,0961,884,1812,558,9691,603,614

880,830

$ 28,777,57810,192,376

$ 0.92

2007

¥ 1,801,164400,555

1,400,608788,922474,560

69,90967,216

120,60866,713

¥ 2,469,6671,054,811

¥ 69.86

6.78.63.06.5

23.51.5

21.00

2008

¥ 2,303,569380,691

1,922,877801,727716,688171,517232,943145,977

80,182

¥ 2,619,623927,812

¥ 84.01

6.37.63.28.1

14.01.2

23.00

PercentagechangeMillions of yen

Thousands ofU.S. dollars

Yen U.S. dollars

Financial HighlightsKirin Holdings Company, Limited and Consolidated Subsidiaries

Years ended December 31, 2008 and 2007

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 2008. 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 2008. Information for 2007 has been restated toconform to the new classification; prior years have not been restated.

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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.

Good times

Alcohol Beverages

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Kirin Holdings Company, Limited Annual Report 2008 03

Throughout Japan, the izakaya is a well-loved part of the social urban landscapewhere people go to celebrate with others,to cheer up friends, or simply to enjoy goodfood and drink after a hard working day.Here you will commonly find Kirin brands asthe beer of choice.

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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 2008. 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.

Good feeling

Soft Drinks and Foods

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No one doubts the immense popularity of futsal—a variant of soccer—in Japan. With the sportsweeping the nation, many enthusiasts look to arefreshing blast from Kirin’s soft drink line-upsafter a game to replenish lost energy and celebratethe good times.

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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.

Good health

Pharmaceuticals

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Kirin plays an important role in ensuringthat people the world over—includingmany in Japan’s aging society—continuecelebrating life in a healthy andcomfortable way, through its ongoingwork in the pharmaceutical sector,cutting-edge technologies and innovativenew pharmaceutical products.

Kirin plays an important role in ensuringthat people the world over—includingmany in Japan’s aging society—continuecelebrating life in a healthy andcomfortable way, through its ongoingwork in the pharmaceutical sector,cutting-edge technologies and innovativenew pharmaceutical products.

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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 quantumleap in growth, taking the Group into a new scale of sales and profitability in Japanand overseas. Going forward, the focus remains on optimizing operations, post-merger integration, brand development and investment in organic and acquisitivegrowth to continue delivering solid returns for shareholders.

In 2008, the US subprime loan problem erupted into a full-

fledged 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 2008.

Business performance overviewDespite 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 2008. 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

¥145.9 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.

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Please refer to the section Review &Strategic Perspectives for a detaileddiscussion of the performance of eachof Kirin Group’s business segments.

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 growthWe 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 1907. Under KV2015, our

aim is to pay a stable dividend while having set a guideline

consolidated payout ratio of 30%.

Outlook for fiscal 2009There 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

Robust growth driven by operational integrationFiscal 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 top-

line 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 2007–2009.

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 flowWhile 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

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Kirin Group Medium-Term Business Plan KV2015 Stage I

The Kirin Group has adopted a long-term strategic framework called “Kirin GroupVision 2015,” under which it is aiming to strengthen its core domestic alcoholbeverages business and achieve a quantum leap in growth through the execution ofa Group-wide integrated beverage strategy and advancement of globalization. Itshighest priority is to enhance the corporate value of the Kirin Group by achievinggreater profitability through actions implemented under this plan.

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.

At Kirin Group, 2008 marked the second year of the

2007–2009 Medium-term Business Plan, which itself is Stage

I of the Kirin Group Vision 2015 (KV2015), with Stage II

running from 2010–2012 and Stage III from 2013–2015.

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 2008.

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.

KV2015: Overview

•Implement strategies tobecome an integratedbeverage Group

•Internationalize the Group

•Build the health and functionalfood business as a newbusiness pillar

Implement three strategiesto achieve growth

•Further growth in the domesticalcohol business

Strengthen foundation

•Reorganization into low costbusiness model

•Continuous improvement: Kaizen

Increased cost competitiveness

•Technical expertise

•Customer intimacy

A corporate Group based onits strengths

•Improve organizational climate

•People-focused management

•Strengthen management

Group management structure

•Change of corporate structure

•Strengthen and adjust Grouphead office functions

Establish Groupmanagement structure

The Kirin Group in 2015

•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. liquortax, operating income)

Consolidated targets

Enhance KIRINbrand value

Quantumgrowth

Standard Groupattitude 3C

A trustedcorporate group

F

FF

E DE

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Qualitative targets and core strategy in 2009

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 business2. Pursue a domestic integrated beverages group strategy3. Internationalize Kirin’s business under an international integrated beverages group strategy4. Develop the health food and functional food business5. Accelerate growth in pharmaceuticals business6. Further develop existing businesses7. 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

In 2009, we will continue to pursue three core growth strategies under the revised medium-term business plan: facilitateindependent growth at operating companies; generate growth through Group synergies; and allocate resources on a large scale.

Qualitative expansion

2007–2009: Quantitative targets and guidelines

Quantitative targets 2007results

2008results

Consolidated sales

Operating incomeOPM

ROEEBITDAEPS (prior to goodwill amortization for investments since 2007)

EPS (subsequent to goodwill amortization for investments)

Incl. liquor taxExcl. liquor tax

Incl. liquor taxExcl. liquor tax

¥ 1,801.1¥ 1,400.6¥ 120.6

6.7%8.6%6.5%

¥ 213.1¥ 70¥ 70

¥ 2,303.5¥ 1,922.8¥ 145.9

6.3%7.6%8.1%

¥ 264.6¥ 25¥ 84

¥ 2,300.0¥ 1,930.0¥ 121.0

5.3%6.3%6.0%

¥ 269.1¥ 76¥ 60

¥ 2,150¥ 1,700¥ 1507.0% plus9.0% plus7.0% plus

———

2009 targetrevised

2009 targetoriginal

2009forecast

¥ 2,500¥ 2,100¥ 1757.0% plus8.3% plus7.0% plus

¥ 330¥ 105¥ 85

2015 target

¥ 3,000¥ 2,500¥ 250

8.0% plus10.0% plus

10.0%———

Looking ahead to KV2015 goals after early achievement of 2007–2009 targets

Quantitative targets 2007results

2008results

Sales by segment

Total salesTotal salesOverseas ratio

Alcohol (Incl. liquor tax)Soft drinks and foodsPharmaOtherIncl. liquor taxExcl. liquor taxSales excl. liquor tax

¥ 1,189.4¥ 474.5¥ 69.9¥ 67.2¥ 1,801.1¥ 1,400.6

19%

¥ 1,181.5¥ 716.6¥ 171.5¥ 233.8¥ 2,303.5¥ 1,922.8

27%

¥ 1,095.0¥ 740.0¥ 200.0¥ 265.0¥ 2,300.0¥ 1,930.0

24%

¥ 1,340¥ 590¥ 900¥ 130¥ 2,150¥ 1,700approx. 22%

2009 targetrevised

2009 targetoriginal

2009forecast

¥ 1,210¥ 780¥ 210¥ 300¥ 2,500¥ 2,100approx. 26%

* 2009 target under the medium-term business plan is revised in August 2008. Forecast for 2009 is disclosed in February 2009.* 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 2009.

(Billions of yen)

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Interview with the President & CEO

Building on the expansion of recent yearsto focus on reforms that boost quality

Having expanded in recent years via a number of major strategic acquisitions, theKirin Group is now focusing on consolidating and integrating these gains to boostthe return on assets. In this interview, President & CEO Kazuyasu Kato discussessome of the strategic challenges that the Kirin Group is currently faced with.

Kazuyasu Kato

President and CEO

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Q. How do you see Kirin’s current businessenvironment?

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 isyour 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 valuesembodied 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 setunder KV2015 are sales of ¥3 trillion, anoperating margin of 10% and an overseassales ratio of 30%. How do you plan toachieve 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)

•Merged Kyowa Hakko and Kirin Pharma•Merged Kyowa Hakko Food Specialties and

Kirin Food-Tech (April 2009)•Quantified objectives of synergy from 2009

•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

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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 2015.

Q. In the context of the ambitious KV2015targets, how do you evaluate your FY2008results 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 FY2010–2012. 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 andprofitability?

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.

Kirin alcoholKirin soft drinks and foodsKirin pharmaceuticalsSan MiguelLion NathanNational Foods

Shanghai Jin Jiang Kirin Beverage & Food Co.

Siam Kirin Beverage

Vina Kirin Acecook Beverage Co., Ltd. (Vietnam)

Lion Nathan Limited

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

National Foods Limited

Overseas locations of the Kirin Group companies


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Q. M&A has made a major contribution togrowth over the past two years. What levelof return are you generating on theseinvestments?

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-termdeclining volume trends within the Japanesealcohol 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

Business scale

Prof

itabi

lity

07–09 medium-term plan (1st half)Growth in scale

07–09 medium-term plan (2nd half)Shift focus to qualitative expansion

Effectively use increased cash flowfor further expansion

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 andalcohol beverage businesses mainly inAsia and Oceania that show strongsynergy potential in terms of productand geographical region, and optimizebusiness portfolio.

•Quantify and manage objectives forsynergies, and optimize the Group’soperational bases

•Promote integrated beverages groupstrategy by creating organic links in valuechains of alcohol beverage business andsoft drink business

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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 2008.

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 Groupemployees?

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 wouldlike 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.

“We are making steady

progress toward achieving the

long-term goals of KV2015.”

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Alcohol beverages

Soft drinks and foods

Pharmaceuticals

Other businesses

10%8%

31%

51%

17%

4%

68%

11%

Operatingincome

Breakdown by business segment

Review & Strategic Perspectives


Sales(Incl. liquor tax)

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Review & Strategic Perspectives l Alcohol Beverages

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.

Extracting greater valuefrom trusted brands

Global Reports LLC


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 year-

on-year terms to ¥109.9 billion.

Domestic operations

The overall Japanese market for beer-type

beverages contracted by around 3% in

volume terms in 2008. 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-to-

drink)) and liquor-based RTDs with higher

alcohol content. Kirin Brewery’s sales of

180.2 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.

a positive reception from customers. Kirin

also extended the range of Two Dogs pre-

mixed 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 UK-

based 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 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 Shiboriproduct 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 * One case is equivalent to 20 large bottles (12.66L)

for beer/happo-shu/new genre and 24x250ml cans(6L) for RTD.

Kirin Nodogoshi NamaKirin Lager Beer Kirin Ichiban Shibori

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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 Sunrisesold well, but sales of mid-range wines

suffered in the headwind created by the

severe economic downturn in the final

quarter of 2008. 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

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

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 97.38 yen/A$ for

the year to September 2008, compared with

96.72 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


Kirin Strong Seven Kirin Hyoketsu ZEROKirin Hyoketsu StrongKirin Sparkling HopKirin Tanrei Nama Kirin ZERO

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private transaction and tender offer. As a

result, Kirin will become the holder of

48.299% of SMB, with all related transactions

currently scheduled to be completed by the

end of May 2009.

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 Shiboriproduct 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 100%.

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 two-

pronged. 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 Sevenand Kirin Sparkling Hop in 2008 are good

In the growth segments of happo-shu and

new genre products, Kirin plans to reinforce

its category-leading brands Kirin Tanrei Namaand Kirin Nodogoshi Nama based on new

marketing and advertising campaigns. To

strengthen its dominant position in the

happo-shu segment with Kirin Tanrei Namaand Kirin Tanrei Green Label (a low-

carbohydrate 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 long-

term 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 Labelwas 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 low-

calorie happo-shu), which became a major

hit. In February 2009, Kirin introduced TanreiW as another line extension to diversify the

Four Roses Bourbon Whiskey Mercian Franzia WineMercian Bon RougeChateau MercianKirin Hakusui

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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 non-

alcohol. 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

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.

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 FREEprovide 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-hiHyoketsu 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 grape-

derived tastes combine well with different


San Miguel brands Products in ChinaLion Nathan brands

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New ProductsNovel 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.

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Review & Strategic Perspectives l Soft Drinks and Foods

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.

Potential for enhancedearnings from operationalintegration and long-termbrand development

Kirin Nama-cha

Global Reports LLC


2008 in Review

The soft drinks and foods segment recorded

consolidated net sales of ¥716.6 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.

In its overseas operations, Kirin Beverage

recorded a 13% increase in sales volumes

compared with the previous year. Sales of KirinGogo-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 2008. 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 lower-

priced milk products, especially as the

economic downturn began to bite later in

2008. Sales of juices declined slightly amid

price competition and a similar shift toward a

lower-priced product mix. The dairy segment,

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 long-

selling 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 KirinUruru-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-Karaseries. 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.

Kirin Gogo-no-kocha Kirin FIREKirin LEMONKirin Ururu-cha

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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 2007.

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 2009.

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 ¥740.0 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.


Soft drinks

In soft drinks, the primary strategic objective is

to build a comprehensive beverage business

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 2008.

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 2008. The Chinese

market is expected to offer the potential for

substantial growth going forward.


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 2009. 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

Review & Strategic Perspectives l Soft Drinks and Foods

Koiwai Junsui-Mikan Kirin Alkali-Ion-no-MizuVolvicKirin Sekai-no-Kitchen-Kara Series

Global Reports LLC


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 high-

value-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 long-

term 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,

reinforce the market position of Japan’s top-

selling 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.

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 high-

quality 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

National Foods’ major brands: from left, PURA, Big M, Berri, Tasmanian Heritage

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Review & Strategic Perspectives l Pharmaceuticals

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.

Building a new pillar offuture earnings growth

2008 in Review

The pharmaceuticals segment posted

consolidated net sales of ¥171.5 billion, an

increase of 145.3% over the previous year.

Operating income increased 116.9% in year-

on-year terms to ¥28.2 billion. These results

mainly reflected the consolidation of the

Kyowa Hakko Group from April 2008.

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 2008. REGPARA®, which

has been launched in tablet form, is a new

class of agent for the treatment of secondary

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 disease-

causing 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 2008.

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

ESPO®

NESP®

REGPARA®

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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 SystemTM 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).

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 up-

front payment of US$100m, which was

recorded as extraordinary income in 2008.


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 anti-

anemia drugs NESP® and ESPO®, the anti-

allergics 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

2009. This move is aimed at enhancing

administrative efficiency within the Kirin Group.


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

Coniel® Patanol® Allelock®

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Review & Strategic Perspectives l Other Businesses

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.

offset the impact of a harsh domestic

business environment, notably in the

seedlings business.

The other businesses segment posted

consolidated net sales of ¥233.8 billion,

an increase of 247.9% compared with the

previous year. This result reflected the

consolidation of the Kyowa Hakko Group

from April 2008. 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 2009.

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.

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 2007.

The agribio business generated higher

earnings despite a dip in sales revenue. A

steady performance at overseas subsidiaries

The transfer of food-related operations and

consolidation of Kyowa Hakko substantially

transformed the nature of this segment during

fiscal 2008.

Establishment of “agri-bio-chem” business base

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R&D and Intellectual Property

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, 2008.

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&DResearch 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.

Kirin Group Companies’ R&DAll 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 Ururu-cha, 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 collaborationBy 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

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:

The Kirin Group invests substantially in research and development (R&D) activities tosupport its ongoing progress. Securing, protecting and utilizing related intellectualproperty is another prime aim to ensure a competitive edge.

http://www.kirinholdings.co.jp/english/ir/ip/index.html

Center for Food Safety Science, Central Laboratories forFrontier Technology (Gunma Prefecture)

1. CreateIncrease patent applications for technology thatmakes a strong contribution to the business bysetting a target number of patent applications.

2. Obtain patentsConfirm direction of procedures for the awarding ofpatents with the Operations Division. Select and focuson obtaining patents necessary to the business.

3. Apply patented technologyExecute patent portfolio management. Use ofpatents for our own exclusive use/licensing activities.

The Kirin Group Intellectual Property Creation Cycle

Respect for other companies’ patent rights(Patent infringement prevention and avoidance systems)

Create

Obtain patents

Apply patentedtechnology

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Corporate Social Responsibility

Kirin Group CSR explainedThe 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 food-

supply 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:

www.kirinholdings.co.jp/english/csr

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 2008. 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,

Kirin views corporate social responsibility (CSR) as a built-in, self-regulating mechanismwhereby business monitors and ensures adherence to law, ethical standards andinternational norms. Each business takes responsibility for the impact of its activities on theenvironment, consumers, employees, communities, stakeholders and all other members ofthe public sphere, while encouraging community growth and development, and voluntarilyeliminating practices that harm the public sphere. Kirin deliberately incorporates publicinterest into corporate decision-making and strives to honor the Triple Bottom Line.

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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.

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.

May 24, 2008 KIRIN CUP SOCCER 2008 – ALL FOR 2010! – vs Republic of Cote d’lvoire ©J.LEAGUE PHOTOS

The United Nations University-Kirin Fellowship Program

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The Environment

Kirin Group Environmental PolicyKirin 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

Joint deliveries to cut CO2 emissionsand help curb global warmingKirin 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 toEco FirstKirin 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

2008. Future targets include a 50% reduction

(overall emissions) and 45% reduction (unit

basis) by 2012.

Protecting water qualityMuch of Kirin’s business depends on having a

high quality water supply. Kirin therefore

continuously works to improve its water-

recycling 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 outputKirin 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 2009.

Environmental efforts at Kirin Beverage Kirin Beverage acquired ISO14001

certification at its head office at the end of

2008. 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 atKyowa Hakko KirinBased 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.

Working towards a sustainable future for people and the planet

Legal complianceWe shall comply with all environmental laws andagreements and set voluntary standards based on highmoral standards.

Environmental managementWe shall create an environmental management systemclosely linked to management strategy and makeongoing improvements.

Environmental performanceWe shall promote resource and energy conservation,reduction of greenhouse gas emissions, pollutionprevention, and the 3Rs (Reduce, Reuse and Recycle).

Technological developmentWe shall develop technologies that help protect theenvironment and enable us to live in harmony with nature.

Human resource developmentWe shall continually foster personnel that can make ameaningful contribution to environmental preservation.

CommunicationWe shall conduct eco-based activities that benefit thelocal community and suitably disclose environmentalinformation to ensure transparency and increase trustfrom society.

Forest conservation program to protect water qualityin Kochi Prefecture

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Corporate Governance

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, 2007.

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 decision-

making 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 decision-

making 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

Group companies

Compensation Advisory Committee

Appointment Advisory Committee

Group Executive Committee

Group CSR CommitteeGroup Risk Management CommitteeGroup Information Disclosure Committee

Shareholders

Board of Auditors Board of Directors

Operating companies Service companies

President

Group Head OfficeDivisions

Internal AuditDepartment

AccountingAuditor

Auditing

Auditing

Internal Auditing

Intern

al Au

ditin

g

Aiming for transparent, fair and efficient management

Global Reports LLC

36

Consolidated Eleven-Year Summary of Selected Financial DataKirin Holdings Company, Limited and Consolidated SubsidiariesYears ended December 31,

For the Year:SalesLess liquor taxesNet sales

Alcohol beverages1

Soft drinks and foods2

Pharmaceuticals3

Other businessesCost of salesGross profitSelling, general and administrative expensesOperating Income Income before income taxes and minority interestsNet IncomeEBITDA4

At year end:Total assetsBondsLong-term debtShareholders’ equity5

Net income per share:PrimaryDiluted

Net assets per share applicable to the yearValue 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)13

2006

¥ 1,665,946402,321

1,263,625696,986392,729

67,245106,664585,531678,093561,735116,358111,560

53,512191,161

¥ 1,963,58698,830

116,586993,989

¥ 55.98—

1,040.44

0.2412.6

33.41.8

17.0030.4

2.75.4

0.8515.6

2005

¥ 1,632,249397,527

1,234,721621,819380,177

67,605165,118576,393658,328546,619111,708109,001

51,263188,459

¥ 1,937,866106,241

54,236972,601

¥ 53.23—

1,016.74

0.2612.6

25.81.4

14.5027.2

2.75.6

0.8718.4

2007

¥ 1,801,164400,555

1,400,608788,922474,560

69,90967,216

678,058722,550601,942120,608128,413

66,713213,129

¥ 2,469,66792,831

112,2441,054,811

¥ 69.86—

1,104.83

0.5810.1

23.51.5

21.0030.1

3.06.5

0.8113.4

2008

¥ 2,303,569380,691

1,922,877801,727716,688171,517232,943

1,012,204910,673764,696145,977165,735

80,182264,620

¥ 2,619,623242,850257,731927,812

¥ 84.01—

972.19

0.725.6

14.01.2

23.0027.4

3.28.1

0.9112.5

Millions of yen

Yen

Notes 1: The presentation of the former ‘Beer’ section was changed to ‘Alcohol beverages’ in 2001. The businesses of engineering, logistics, etc., which were previously included inthe ‘Others’ segment, were reclassified into the ‘Alcohol beverages’ segment in 2007. Information for 2006 has been restated to conform to the new classification; prioryears have not been restated.

2: The presentation of the former ‘Soft drinks’ section was changed to ‘Soft drinks and foods’ in 2008. The businesses of foods, health foods and functional foods, etc., whichwere previously included in the ‘Others’ segment, were reclassified into the ‘Soft drinks and foods’ segment in 2008. Information for 2007 has been restated to conformto 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 segmentinformation 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

Global Reports LLC


2002

¥ 1,583,248445,935

1,137,313623,586342,946

49,617121,163554,264583,048493,259

89,78974,51732,540

157,742

¥ 1,744,131129,948105,148769,227

¥ 33.26—

795.71

0.3710.4

22.70.9

12.0036.2

1.94.2

0.9321.2

2001

¥ 1,561,879461,265

1,100,614616,739332,951

—150,922538,642561,972486,907

75,06557,13423,122

139,233

¥ 1,661,65287,40074,511

782,902

¥ 23.4923.48

795.25

0.248.1

39.91.2

12.0051.1

1.43.0

0.9524.3

2003

¥ 1,597,509431,749

1,165,760613,673359,622

57,540134,924555,223610,536508,981101,555

78,14732,395

165,412

¥ 1,787,867167,428

93,617803,882

¥ 33.27—

831.84

0.3510.7

27.41.1

12.0035.8

1.84.1

0.9118.5

2004

¥ 1,654,886430,957

1,223,929622,333372,392

62,702166,500577,092646,836537,444109,392110,018

49,099193,507

¥ 1,823,790171,564

67,119858,615

¥ 50.58—

888.65

0.3111.1

20.01.1

13.5026.7

2.75.9

0.9219.2

1999

¥ 1,451,520544,270907,250523,926280,610

—102,714433,359473,891396,649

77,24169,34933,245

—

¥ 1,430,021—

26,957725,942

¥ 32.5732.51

724.15

0.0529.5

33.11.5

12.0036.9

2.34.6

1.0128.7

1998

¥ 1,477,288582,362894,926530,636276,534

—87,755

453,421441,504371,735

69,76860,41527,058

—

¥ 1,443,179—

22,306735,196

¥ 25.9325.83

715.54

0.0624.1

55.72.0

12.0046.5

1.93.6

1.0228.4

2000

¥ 1,580,825507,617

1,073,208604,265318,006

—150,936513,384559,823465,425

93,39771,24532,924

—

¥ 1,627,40027,61292,370

768,486

¥ 33.1833.06

780.58

0.1911.6

30.91.3

12.0036.3

2.24.4

1.0327.7

Millions of yen

Yen

5: 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 debt7: 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 expense8: PER = Year-end share price/Net income per share9: PBR = Year-end share price/Net assets per share

10: ROA = Net income/Average total assets11: ROE = Net income/Average shareholders’ equity12: Asset turnover = Sales/Average total assets13: Inventory turnover = Sales/Average inventories

Please refer to the following URL for the financial statements and notes, including the auditor’s report, as well as for the data book.http://www.kirinholdings.co.jp/english/ir/library/index.html

Global Reports LLC

38

Management’s Discussion and Analysis

Operating performanceBusiness environment overview

Financial instability spread as the problems in the US subprime loan market precipitated a crisis. The global

economy decelerated sharply from September 2008. 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 2008. Raw material prices

remained elevated for most of the year, putting further downward pressure on corporate earnings.

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 ¥910.6 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%.

Operating income and expenses

Selling, general and administrative (SG&A) expenses rose 27.0% to ¥764.6 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).

Consolidated operating income increased 21.0% to ¥145.9 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%.

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 2008. 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

¥103.0 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

Note: Unless otherwise stated, all comparisons are with the previous fiscal year (FY07). Under the pure holding companystructure adopted in July 2007, consolidated financial disclosures by Kirin Holdings Company, Limited (“the Company”) relate tothe worldwide operations of the group of companies operating under this umbrella (“the Kirin Group,” or “the Group”) and arein accordance with Japanese GAAP.

04 05 06 07 08

Net salesCost of sales

Gross profit margin

577.0577.0 576.3 585.5678.0

1,012.2

47.4

576.3 585.5

1,223.9 1,234.7 1,263.6

678.0

1,012.2

1,400.6

52.8 53.3 53.751.6

1,922.8

47.4

Net sales, cost of sales andgross profit margin

Perc

ent

Billi

ons

of y

en

04 05 06 07 08

Selling, general and adminstrative expensesPercentage of net sales

39.839.8

537.4 546.6 561.7601.9

764.6

43.044.544.343.9

Selling, general andadministrative expenses andpercentage of net sales

Perc

ent

Billi

ons

of y

en

04

49.0 51.253.5

66.7

80.1

84.01

69.86

55.9853.23

50.58

05 06 07 08

Net incomeNet income per share

Net income andNet income per share

Perc

ent

Billi

ons

of y

en

Global Reports LLC


(¥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 ¥165.7 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 ¥109.9 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 ¥716.6 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.

Pharmaceuticals

Consolidated net sales surged 145.3% to ¥171.5 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 $100 million.

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 ¥233.8 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 ¥119.6 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 ¥438.0 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.


04 05 06 07 08

Alcohol beveragesSoft drinks and foods

PharmaceuticalsOther businesses

166.5

62.7372.3

622.3

165.1

67.6380.1

621.8

106.667.2

392.7

696.9

67.269.9

474.5

788.9

232.9

171.5

716.6

801.7

166.5

62.7372.3

622.3

165.1

67.6380.1

621.8

106.667.2

392.7

696.9

67.269.9

474.5

788.9

232.9

171.5

716.6

801.7

Net sales by business segment

Billi

ons

of y

en

04 05 06 07 08

Asia/OceaniaJapan

Others

57.41,018.3 1,029.6

57.8 1,130.2

77.51,408.7

436.6

208.8176.1158.9156.8

1,011.4

61.5

55.7 57.41,018.3 1,029.6

57.8 1,130.2

77.51,408.7

436.6

208.8176.1158.9156.8

1,011.4

61.5

55.7

Net sales by geographic segment

Billi

ons

of y

en

*Engineering, distribution and other such companies thatwere previously included in the other business segmenthave been transferred into the alcohol beverages businesssegment. Figures for 2007 and 2006 have been restatedto reflect the new business segment allocations.

Global Reports LLC

40

Management’s Discussion and Analysis

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 ¥282.3 billion to ¥571.2 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.

Financial positionAssets

Total assets at December 31, 2008 amounted to ¥2,619.6 billion, increasing by ¥149.9 billion, or 6.1%,

compared with the previous fiscal year-end.

Current assets grew by ¥191.5 billion, or 30.2%, to ¥826.2 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 ¥155.3 billion to ¥791.3 billion, while intangible assets grew by

¥62.5 billion to ¥449.4 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 ¥259.5 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 ¥172.1 billion, or 19.3%, compared with the previous year-end, to ¥719.6 billion.

Long-term debt grew by ¥145.4 billion and bonds (including those with maturities of less than a year) increased

by ¥194.1 billion, while short-term loans payable (including the current portion of long-term debt) decreased by

¥285.5 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 ¥750.0 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 ¥295.5 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 ¥132.64 to ¥972.19.

Total shareholders’ equity at December 31, 2008 of ¥983.7 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 ¥184.0 billion in year-on-year terms, moving from

a net gain of ¥128.0 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 ¥222.0 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.

04

83.769.0

38.0

62.9 59.9 66.8

126.0

-38.0-29.5

-155.0

05 06 07 08

Free cash flowsCapital expenditure

Free cash flows* andcapital expenditure

Billi

ons

of y

en

04

178.0

117.4 126.0 106.6

-257.1

114.8

71.2

128.0124.6

140.2

05 06 07 08

Working capitalCurrent ratio

Working capital and current ratio

Perc

ent

Billi

ons

of y

en

04

1,122.1 1,221.21,235.0

1,664.61,591.6

05 06 07 08

Long-term debt and bondsShort-term loans/long-termdebt with current maturitiesand bonds due within one yearShareholders’ equity

858.6 972.6993.9

1,054.8927.8

24.8238.6

160.318.2

215.4

25.6

404.7

205.0

163.3

500.5

858.6 972.6993.9

1,054.8927.8

24.8238.6

160.318.2

215.4

25.6

404.7

205.0

163.3

500.5

Total capital

Billi

ons

of y

en

*Free cash flows = Net cash provided by operatingactivities — Net cash used in investing activities

Global Reports LLC


Net cash provided by operating activities increased by ¥16.6 billion to ¥131.2 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 ¥169.3 billion, declining by ¥100.2 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 ¥126.0 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

¥181.6 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 2007.

Bond issuance created a net inflow of cash of ¥199.9 billion. Net cash outflow due to borrowings was ¥127.4

billion, compared with net cash inflow of ¥151.2 billion in fiscal 2007. 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 ¥213.1 billion to ¥264.6 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 1907. Under

the three-year medium-term business plan for the Kirin Group covering the period FY2007-09 (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 2009. 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.

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.

04

28.2 28.7 28.2 28.5

2.0

2.8

2.22.32.3

05 06 07 08

R&D expensesPercentage of net sales

54.054.0

R&D expenses andpercentage of net sales

Billi

ons

of y

en

04

5.95.6

5.4

6.5

8.1

05 06 07 08

ROE

Perc

ent

Perc

ent


04

193.5 188.4 191.1

213.1

264.6

05 06 07 08

EBITDA

Billi

ons

of y

en

Global Reports LLC

42

Kirin Group Companies (As of December 31, 2008)

Kirin Group includes 371 consolidated subsidiaries, one unconsolidatedsubsidiary and 26 affiliates accounted for by the equity method.

Key Group companies in Japan and overseas include the following:

Company name Main businessLocationPaid-in capital

(¥ million unless stated)Percentage of holding Established

Alcohol beverages1 Kirin Brewery Company, LimitedKirin 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 LLC8 Kirin Europe GmbH9 San Miguel Corporation

0 Dalian Daxue Brewery Co., Ltd.Heineken Japan Co. Ltd.

A Hangzhou QiandaohuBrewery Company, Ltd.

Soft drinks and foodsKirin 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 LimitedBerri Ltd.Dairy Farmers LimitedKirin Food-Tech Company, Limited6 Indústria Agrícola Tozan Ltda.Kirin Tropicana, Inc.Cosmo Foods Co., Ltd.

7 PT Kirin-Miwon Foods

Tokyo, JapanKanagawa, Japan

Kanagawa, Japan

Tokyo, Japan

Tokyo, JapanTokyo, JapanShizuoka, JapanTokyo, JapanTokyo, Japan

Tokyo, Japan

Sydney, Australia

Western Australia, AustraliaTaipei, TaiwanShanghai, China

Zhuhai, China

California, U.S.A.California, U.S.A.

Kentucky, U.S.A.Dusseldorf, GermanyMetro Manila, Philippines

Dalian, ChinaTokyo, Japan

Hangzhou, China

Tokyo, JapanHokkaido, JapanTokyo, JapanOsaka, JapanHiroshima, JapanTokyo, JapanShanghai, China

Shanghai, ChinaBangkok, ThailandNew Hampshire, U.S.A.

Nagano, Japan

Tokyo, JapanMelbourne, AustraliaMelbourne, AustraliaVictoria, AustraliaNew South Wales, AustraliaTokyo, JapanSao Paulo, BrazilTokyo, JapanTokyo, Japan

Jakarta, Indonesia

Manufacture and sale of beer and other alcohol beveragesPlant engineering for alcohol beverage, soft drink, foodand pharmaceutical industriesDevelopment, manufacturing and sale of systems toimprove efficiency in bottling, pharmaceutical,automobile and other industriesMerchandising of Kirin products at volume outlets; on-premise quality control and merchandisingDistribution of Kirin products and general goodsProduction and sale of Chinese liqueursProduction of alcohol beveragesManagement of nationwide chain of beer pubsPR activities, centered on management of customerfacilities at factories, theme parksManufacture and sale of wine and other alcoholbeverages, chemicals, pharmaceuticals and feedstuffsProduction and sale of alcohol beverages in Australia andNew ZealandProduction of high-quality maltImport and sale of Kirin brand beer, sakeManagement of alcohol beverages business in China;sale of Kirin brand beer in Yantze River DeltaProduction and sale of beer in Pearl River Delta;production base Kirin Group in AsiaProduction and sale of wineManagement of Kirin brand beer business in the United StatesProduction and sale of Four Roses bourbonKirin brand beer business in EuropeProduction and sale of beer and food products mainly inthe PhilippinesProduction and sale of beer in Northeast ChinaLicensed production and domestic marketing ofHeineken beerProduction and sale of beer at Zhejiang Provice in China

Development, production and marketing of soft drinksSale of soft drinksSale of soft drinksSale of soft drinksSale of soft drinksMarketing and sale of soft drinksSale of soft drinks and alcohol beverages

Sale of soft drinksSale of soft drinksManufacture and sale of Coca-Cola products and othersoft drinks in six states of the New England regionManufacture and sale of ketchup, tomato juice, etc.;manufacture of Kirin Beverage brand soft drinksManufacture and sale of soft drinks and dairy foodsHolding company of National Foods GroupManufacture and sale of soft drinks and dairy foodsSale of soft drinksManufacture and sale of dairy foodsManufacture and sale of seasonings and food additivesProduction and sale of sake and food products in BrazilSale of soft drinksManufacture and sale of natural seasonings, and healthfood ingredientsManufacture and sale of seasonings and food additives

30,0001,000

1,590

10

5049010

10050

20,972

AU$436M

AU$12MTW$60MUS$150M

US$74M

US$21.7MUS$13

US$60MEUR 76K

PHP 16,112M

RMB 150.3M200

RMB 265M

8,416801010

4901,500

US$24.8M

UD$17.5MTB 85M

US$0.93M

711

1,689AU$2,023MAU$552M

AU$186.5MAU$81.9M

5,000BRR 1,000M

48052

US$20K

100100

100

100

10099.9100100100

50.8

46.1

100100100

100

100100

10010019.9

2549

25

10010010010010051

57.8

100100100

99.4

75.510010010010010088.450

34.1

50

July 2007Mar. 1988

Jan. 1990

Sept. 2002

Jan. 2000July 1948Aug. 1972May 1983Feb. 1988

Dec. 1934

1860

June 1976May 1988Dec. 2004

Dec. 1996

May 1971July 1996

Feb. 2002Oct. 19911890

Aug. 2001June 1983

July 1998

Apr. 1963Dec. 1971Jan. 2000Jan. 2001Apr. 1990Nov. 2002Mar. 1996

Apr. 2006May 2005May 1977

Apr. 1957

Jun.1976Oct. 20071991July 1985Jan. 1900Apr. 2002Nov. 1934Jan. 1991Nov. 1969

Apr. 2006

Global Reports LLC

43Kirin Holdings Company, Limited Annual Report 2008

Company name Main businessLocationPaid-in capital

(¥ million unless stated)Percentage of holding Established

PharmaceuticalsKyowa 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.

Other businessesKyowa 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.

Tokyo, JapanPrinceton, U.S.A.Princeton, U.S.A.California, U.S.A.Seoul, KoreaHong Kong

Shanghai, China

California, U.S.A.

Tokyo, JapanTokyo, JapanTokyo, Japan

Tokyo, JapanDe Lier, NetherlandsShanghai, China

Tokyo, Japan

Kanagawa, JapanTokyo, Japan

Hyogo, JapanKanagawa, JapanKanagawa, Japan

Tokyo, Japan

Kanagawa, Japan

Tokyo, JapanTokyo, JapanSaitama, Japan

Aichi, JapanQingdao, China

R&D, Manufacture and Sales of pharmaceutical productsLicensing Business ActivitiesDevelopment of pharmaceutical productsResearch of pharmaceutical productsSale of G-CSF, Aranesp, Busulfex, and RenagelSale of Aranesp, Busulfex, and Renagel

Manufacture and sale of G-CSF and EPO in China; sale ofBusulfex in ChinaR&D and licensing of pharmaceutical products

R&D, Manufacture and Sales of Bio-Chemical productsR&D, Manufacture and Sales of Chemical productsOversees group management and domestic sale ofproprietary carnations, chrysanthemums, roses, petunias,and related productsSale of potato varieties, seeds and vegetablesHolding company in EuropeProduction of seedlings and management of royalties inChinaManagement and real estate brokerage of leasedoffices, company housing and welfare facilitiesManagement of large event hall in YokohamaFood and beverage export and import; importing ofmalt from AustraliaHotel operationsManagement of membership tennis clubWarehouse operations specializing in hazardousmaterials and frozen goodsProcessing and sales of by-products feed and insurances sales agentManagement of commercial premises in landmark brickbuildingDevelopment and management of IT systemsProvision of shared Group administrative servicesDevelopment of tomato, onion, komatsuna varieties andsale of seedlingsProduction and sale of cells tissue-culturedBreeding of vegetable seeds and production and sale ofseeds and seedlings

26,745US$10MUS$0.1MUS$0.1MKRW 2.2B

HK$6M

US$29.8M

US$10

10,0005,320

30

65EUR 18KRMB 5M

10

10,000100

101940

408

2,090

50500148

98120

50.110010010090

100

70

50

100100100

93100100

100

58.8100

10091.4100

100

71.8

10010024.7

27.545

Oct. 2008Feb. 2003Oct. 1992Sep. 1988May 1991Aug. 1993

June 1997

May 1984

Oct. 2008Apr. 2004Nov. 2001

Mar. 2000Apr. 2004Apr. 2004

Aug. 1976

Nov. 1986June 1979

Sep. 1998Mar. 1916Dec. 1947

Oct. 1941

July 2000

May 1988Nov. 1947

Jan. 1975May 1990

Global Reports LLC

44

Directors and Auditors (As of March 26, 2009)

President & CEOKazuyasu Kato

Executive Vice PresidentsKazuhiro SatoSenji Miyake

Managing DirectorsEtsuji TawadaYoshiharu Furumoto (CFO)Yuji Owada

DirectorsYuzuru MatsudaSatoru KishiAkira Genma

Standing AuditorsHitoshi OshimaTetsuo Iwasa

AuditorsToyoshi NakanoTeruo OzakiKazuo Tezuka

From left: Etsuji Tawada, Kazuhiro Sato, Yoshiharu Furumoto, Kazuyasu Kato, Yuji Owada, Senji Miyake, Yuzuru Matsuda

Global Reports LLC


Investor Information (As of December 31, 2008)

Head Office

10-1 Shinkawa 2-chome, Chuo-ku

Tokyo 104-8288, Japan

Tel: +81-3-5541-5321

Fax: +81-3-5540-3547

Further Information

Kirin Holdings Company, Limited

Corporate Communications Dept. IR Section

Tel: +81-3-5540-3455

Fax: +81-3-5540-3550

e-mail: [email protected]

URL: http://www.kirinholdings.co.jp/english/ir

Date of Incorporation

February 23, 1907Note: 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

7-10-11 Higashi Suna, Koto-ku Tokyo 137-8081

Tel: +81-3-5391-1900

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

Kirin Holdings Company, Limited

5.17%

4.43

4.16

4.12

3.56

2.36

2.30

2.08

1.58

1.29

Percentage of totalshares outstanding

0

30

60

90

120

140

0

30

60

90

120

140

¥600

¥800

¥1,000

¥1,200

¥1,400

¥1,600

¥1,800

¥2,000

2004 2005 2006 2007 2008 2009

2004 2005 2006 2007 2008 2009 ¥6,000

¥8,000

¥10,000

¥12,000

¥14,000

¥16,000

¥18,000

¥20,000

Millions of shares Millions of shares

Nikkei 225 average (right scale)

Trading volume

* Simple average of monthly highs and lows

Share price (left scale)

Monthly share price range & trade volume Tokyo Stock Exchange

Global Reports LLC

Printed in Japan with soy ink on recycled paper.

Please refer to the following URL for the financial statements and notes, including the auditor’s report, as well as for the data book.

http://www.kirinholdings.co.jp/english/ir/library/index.html

Global Reports LLC

KIRIN HOLDINGS COMPANY, LIMITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 2008 TOGETHER WITH INDEPENDENT AUDITORS’ REPORT

Global Reports LLC

Consolidated Balance Sheets

Kirin Holdings Company, Limited and Consolidated Subsidiaries December 31, 2008 and 2007

Millions of yen

Thousands of U.S. dollars (Note 1)

ASSETS 2008 2007 2008 Current Assets

Cash (Notes 3 and 24) ¥72,662 ¥55,009 $798,220 Notes and accounts receivable, trade (Note 3) 446,630 361,127 4,906,404 Marketable securities (Note 18) 762 246 8,370 Inventories 219,320 148,649 2,409,315 Deferred tax assets (Note 25) 22,991 19,906 252,565 Other 65,735 52,190 722,124 Allowance for doubtful accounts (1,879) (2,500) (20,641)

Total Current Assets 826,222 634,629 9,076,370 Fixed Assets

Property, plant and equipment (Notes 3 and 4) (Net of accumulated depreciation and accumulated loss from impairment)

Buildings and structures 229,619 203,103 2,522,454 Machinery, equipment and vehicles 217,872 197,053 2,393,408 Land (Note 29) 244,240 158,558 2,683,071 Construction in progress 57,244 35,437 628,847 Other 42,335 41,809 465,066

Total 791,311 635,963 8,692,859

Intangible Assets Goodwill 343,975 258,780 3,778,699 Other 105,493 128,134 1,158,881

Total 449,469 386,915 4,937,592

Investments and Other Assets (Note 3) Investment securities (Notes 18 and 21) 425,384 712,234 4,673,008 Long-term loans receivable 9,343 10,387 102,636 Deferred tax assets (Note 25) 34,700 34,583 381,193 Other (Note 21) 87,139 57,838 957,255 Allowance for doubtful accounts (3,947) (2,884) (43,359)

Total 552,619 812,160 6,070,734 Total Fixed Assets 1,793,400 1,835,038 19,701,197

Total Assets ¥2,619,623 ¥2,469,667 $28,777,578

The accompanying notes are an integral part of these statements.

Global Reports LLC

Millions of yen Thousands of U.S.

dollars (Note 1) LIABILITIES 2008 2007 2008 Current Liabilities

Notes and accounts payable, trade ¥189,589 ¥139,255 $2,082,708 Short-term loans payable and long-term debt with current maturities (Note 3) 119,197 404,725 1,309,425 Bonds due within one year 44,112 - 484,587 Liquor taxes payable 104,245 108,260 1,145,171 Income taxes payable 28,495 31,958 313,028 Allowance for employees’ bonuses 5,647 4,334 62,034 Allowance for bonuses for directors and corporate auditors 257 442 2,823 Reserve for loss on repurchase of land - 2,987 - Accrued expenses 116,569 105,216 1,280,555 Deposits received 26,773 17,286 294,111 Other 84,725 77,293 930,737

Total Current Liabilities 719,613 891,760 7,905,229 Long-term Liabilities

Bonds (Note 3) 242,850 92,831 2,667,801 Long-term debt (Note 3) 257,731 112,244 2,831,275 Deferred tax liabilities (Note 25) 55,780 88,329 612,765 Deferred tax liability due to land revaluation (Notes 25 and 29) 1,471 1,471 16,159 Employees’ pension and retirement benefits (Note 27) 82,704 60,188 908,535 Retirement benefits for directors and corporate auditors 673 589 7,393 Reserve for repair and maintenance of vending machines 4,756 6,387 52,246 Reserve for loss on repurchase of land 1,068 - 11,732 Deposits received (Note 3) 67,093 69,644 737,042 Other 35,882 46,665 394,177

Total Long-term Liabilities 750,012 478,351 8,239,173 Total Liabilities 1,469,625 1,370,111 16,144,402

NET ASSETS Shareholders’ Equity (Note 22)

Common stock Authorized - 1,732,026,000 shares Issued - 984,508,387 shares ¥102,045 ¥102,045 $1,121,004

Capital surplus 71,536 71,353 785,850 Retained earnings 839,248 781,499 9,219,466 Treasury stock, at cost

30,157,914 shares in 2008 and 29,779,060 in 2007 (29,058) (28,170) (319,213) Total Shareholders’ Equity 983,772 926,727 10,807,118

Valuation and Translation Adjustments Net unrealized holding gains on securities 37,430 124,743 411,183 Deferred gains or losses on hedges 79 370 867 Land revaluation difference (Note 29) (4,713) (4,713) (51,774) Foreign currency translation adjustments (88,756) 7,683 (975,019)

Total Valuation and Translation Adjustments (55,959) 128,083 (614,731) Subscription Rights to Shares 162 - 1,779 Minority Interests 222,023 44,744 2,439,009 Total Net Assets 1,149,998 1,099,555 12,633,175

Total Liabilities and Net Assets ¥2,619,623 ¥2,469,667 $28,777,578 The accompanying notes are an integral part of these statements.

Global Reports LLC

Consolidated Statements of IncomeKirin Holdings Company, Limited and Consolidated Subsidiaries

For the years ended December 31, 2008, 2007 and 2006

Millions of yen Thousands of U.S.

dollars (Note 1) 2008 2007 2006 2008 Sales ¥2,303,569 ¥1,801,164 ¥1,665,946 $25,305,602

Less liquor taxes 380,691 400,555 402,321 4,182,038 Net sales 1,922,877 1,400,608 1,263,625 21,123,552 Cost of sales 1,012,204 678,058 585,531 11,119,455

Gross profit 910,673 722,550 678,093 10,004,097 Selling, general and administrative expenses (Note 6) 764,696 601,942 561,735 8,400,483

Operating income 145,977 120,608 116,358 1,603,614 Non-operating income

Interest income 2,399 1,971 1,484 26,353 Dividend income 6,566 5,292 5,124 72,130 Equity in earnings of affiliates 11,833 10,282 8,131 129,990 Other 7,027 5,548 4,401 77,194

Total 27,827 23,094 19,142 305,690 Non-operating expenses

Interest expense 25,385 12,618 9,736 278,864 Loss on sale and disposal of finished goods 1,073 1,944 994 11,787 Foreign currency translation loss (Note 8) 37,287 - - 409,612 Other 6,994 5,749 3,904 76,831 Total 70,739 20,312 14,635 777,095

Ordinary income 103,065 123,389 120,865 1,132,209 Special income

Gain on sale of fixed assets 11,016 19,728 2,007 121,015 Reversal of allowance for doubtful accounts 222 687 670 2,438 Gain on sale of investment securities (Note 18) 2,313 653 7,940 25,409 Gain on change in equity (Note 9) 72,654 - - 798,132 Reversal of reserve for repair and maintenance of vending machines 787 - - 8,645 Compensation for expropriation (Note 10) 9,591 - - 105,360 Reversal of reserve for loss on repurchase of land - - 270 - Gain on sale of shares of subsidiaries and affiliates - 184 - - Reversal of reserve for losses on guarantees - 62 139 - Gain on transfer of real estate in trust - 1,089 - - Total 96,585 22,404 11,028 1,061,023

Special expenses Loss on disposal of fixed assets 5,320 5,578 6,041 58,442 Loss on sale of fixed assets 322 564 127 3,537 Loss on impairment (Note 7) 3,564 2,361 5,755 39,151 Loss on devaluation of investment securities (Note 18) 5,878 230 195 64,572 Loss on sale of investment securities (Note 18) 607 14 4 6,668 Business restructuring expense (Note 11) 3,451 3,878 4,492 37,910 Expenses for integration (Note 12) 4,643 - - 51,005 Non-recurring depreciation on fixed assets 762 - - 8,370 Compensation for damages (Note13) 1,937 - - 21,278 Loss on sale of shares of subsidiaries and affiliates - 1,731 - - Loss on liquidation of business (Note 14) 2,714 - - 29,814 Amortization of goodwill (Note 15) 1,531 - 1,588 16,818 Loss due to the change in the pension and retirement benefit plans - - 2,126 - Loss of equity method investments (Note 16) 3,180 1,929 - 34,933 General interest charge of income taxes for prior years in a foreign subsidiary(Note 17) - 1,092 - - Total 33,915 17,380 20,332 372,569

Income before income taxes and minority interests 165,735 128,413 111,560 1,820,663 Income taxes - current 64,026 48,800 52,485 703,350 Income taxes for prior years (Note 17) - (2,011) - - Income taxes - deferred 4,366 3,554 (1,627) 47,962 Minority interests 17,160 11,355 7,189 188,509

Net income ¥80,182 ¥66,713 ¥53,512 $880,830

Global Reports LLC


Yen

U.S. dollars

(Note 1) Earnings per share

Primary ¥84.01 ¥69.86 ¥55.98 $0.92Diluted - - - -

Cash dividends per share applicable to the year 23.00 21.00 17.00 0.25

Global Reports LLC

Consolidated Statements of Changes in Net Assets Kirin Holdings Company, Limited and Consolidated Subsidiaries

For the years ended December 31, 2008, 2007 and 2006

Millions of yen Thousands of U.S. dollars (Note 1)

2008 2007 2006 2008 Common stock Number of shares (Thousands of shares)

Balance at beginning of year 984,508 984,508 984,508 Balance at end of year 984,508 984,508 984,508

Amount Balance at beginning of year ¥102,045 ¥102,045 ¥102,045 $1,121,004 Balance at end of year ¥102,045 ¥102,045 ¥102,045 $1,121,004

Capital surplus

Additional paid-in capital: Balance at beginning of year ¥71,353 ¥71,114 ¥70,999 $783,840 Surplus from sale of treasury stock 182 239 114 1,999

Balance at end of year ¥71,536 ¥71,353 ¥71,114 $785,850 Retained earnings

Retained earnings at beginning of year ¥781,499 ¥732,134 ¥730,226 $8,585,070 Increase in retained earnings

Increase resulting from newly consolidated subsidiaries - - 562 - Total - - 562 -

Decrease in retained earnings Cash dividends paid (Note 23) 22,432 17,192 14,820 246,424 Bonuses paid to directors and corporate auditors - - 270 -

(Including corporate auditors’ portion of ¥16 million for 2006) Decrease due to inclusion of subsidiaries in the consolidation scope - - 10 - Decrease due to change in accounting standards of foreign subsidiaries - - 6,602 -

Decrease due to exclusion of affiliates accounted for by the equity method - 155 24,404 -

Foreign currency translation adjustments of foreign subsidiaries and affiliates - - 6,057 -

Total 22,432 17,347 52,167 246,424 Net income 80,182 66,713 53,512 880,830

Retained earnings at end of year ¥839,248 ¥781,499 ¥732,134 $9,219,466 Treasury stock

Balance at beginning of year ¥(28,170) ¥(26,797) ¥(25,091) $(309,458) Purchase of treasury stock (1,372) (1,711) (1,855) (15,071) Sale of treasury stock 484 337 150 5,316 Balance at end of year ¥(29,058) ¥(28,170) ¥(26,797) $(319,213)

Net unrealized holding gains on securities

Balance at beginning of year ¥124,743 ¥122,466 ¥117,207 $1,370,350 Net changes of items (87,313) 2,277 5,258 (959,167) Balance at end of year ¥37,430 ¥124,743 ¥122,466 $411,183

Deferred gains or losses on hedges

Balance at beginning of year ¥370 ¥(352) ¥ - $4,064 Net changes of items (290) 723 (352) (3,185) Balance at end of year ¥79 ¥370 ¥(352) $867

Land revaluation difference

Balance at beginning of year (Note 29) ¥(4,713) ¥(4,713) ¥(4,713) $(51,774) Balance at end of year ¥(4,713) ¥(4,713) ¥(4,713) $(51,774)

Foreign currency translation adjustments Balance at beginning of year ¥7,683 ¥(1,907) ¥(18,073) $84,400 Net changes of items (96,439) 9,591 16,165 (1,059,419) Balance at end of year ¥(88,756) ¥7,683 ¥(1,907) $(975,019)

Subscription rights to shares Balance at beginning of year ¥ - ¥ - ¥ - $ - Net changes of items 162 - - 1,779 Balance at end of year ¥162 ¥ - ¥ - $1,779

Global Reports LLC

Minority interests Balance at beginning of year ¥44,744 ¥49,734 ¥79,292 $491,530 Net changes of items 177,279 (4,990) (29,558) 1,947,478 Balance at end of year ¥222,023 ¥44,744 ¥49,734 $2,439,009


Global Reports LLC

Consolidated Statements of Cash Flows

Kirin Holdings Company, Limited and Consolidated Subsidiaries For the years ended December 31, 2008, 2007 and 2006

Millions of yen

Thousands of U.S. dollars

(Note 1) 2008 2007 2006 2008 Cash flows from operating activities

Income before income taxes and minority interests ¥165,735 ¥128,413 ¥111,560 $1,820,663 Adjustments to reconcile income before income taxes and minority interests

to net cash provided by operating activities:

Depreciation and amortization 95,948 71,913 68,432 1,054,026 Loss on impairment 3,564 2,361 5,755 39,151 Amortization of goodwill 22,376 7,448 8,040 245,809 Increase (decrease) in employees' pension and retirement benefits 134 (1,913) (9,976) 1,472 Interest and dividend income (8,966) (7,263) (6,609) (98,495) Equity in earnings of affiliates (11,833) (10,282) (8,131) (129,990) Interest expense 25,385 12,618 9,736 278,864 Foreign currency translation gain or loss 35,957 - - 395,001 Gain on sale of fixed assets (11,016) (19,728) (2,007) (121,015) Gain on sale of marketable securities and investment securities (2,313) (653) (7,940) (25,409) Gain on changes in equity (72,654) - - (798,132) Compensation for expropriation (9,591) - - (105,360) Loss on disposal and sale of fixed assets 5,643 6,143 6,169 61,990 Loss on devaluation of investment securities 5,878 230 195 64,572 Decrease (increase) in notes and accounts receivable, trade 17,120 (3,205) 3,031 188,069 Decrease (increase) in inventories (11,755) (10,439) (5,198) (129,133) Increase (decrease) in notes and accounts payable, trade 986 5,076 (8,558) 10,831 Increase (decrease) in liquor taxes payable (3,735) (57) (1,203) (41,030) Increase (decrease) in consumption taxes payable (1,136) 7,942 1,940 (12,479) Increase (decrease) in deposits received 935 (7,310) (7,764) 10,271 Other (24,192) (3,377) 10,741 (265,758) Sub-total 222,471 177,917 168,213 2,443,930 Interest and dividend received 13,068 10,472 9,094 143,557 Interest paid (23,308) (11,629) (10,104) (256,047) Income taxes paid (80,948) (62,175) (43,517) (889,245) Net cash provided by operating activities 131,281 114,585 123,685 1,442,172

Cash flows from investing activities

Payment for purchases of property, plant and equipment and intangibleassets (126,063) (66,873) (59,953) (1,384,851)

Proceeds from sale of property, plant and equipment and intangible assets 26,506 24,747 4,745 291,178 Payment for purchases of marketable securities and investment securities (2,144) (183,787) (6,716) (23,552) Proceeds from sale and redemption of marketable securities and investment

securities 7,150 9,194 9,095 78,545 Payment for purchases of shares of subsidiaries (1,663) (6,648) (75,585) (18,268) Payment for acquisition of shares of newly consolidated subsidiaries (Note

24) (73,407) (70,589) (26,253) (806,404) Proceeds from acquisition of shares of newly consolidated subsidiaries 1,880 - - 20,652 Payment of loans receivable - (38,052) (896) - Collection of loans receivable - 38,208 1,215 - Proceeds from cancellation of life insurance investments - 23,232 - - Other (1,590) 946 1,109 (17,466) Net cash used in investing activities (169,330) (269,621) (153,239) (1,860,155)

Cash flows from financing activities

Increase (decrease) in short-term loans payable (232,766) 310,909 (980) (2,557,025) Proceeds from long-term debt 199,969 18,139 77,684 2,196,737 Repayment of long-term debt (94,699) (177,758) (21,770) (1,040,305) Proceeds from issue of bonds 199,934 - - 2,196,352 Payment for redemption of bonds (5,888) - (69,900) (64,681) Payment for purchase of treasury stock (1,372) (1,711) (1,855) (15,071) Proceeds from sale of treasury stock 667 576 265 7,327 Payment for purchase of treasury stock by the consolidated subsidiary (976) (27) (906) (10,721) Cash dividends paid (22,432) (17,208) (14,830) (246,424) Cash dividends paid to minority shareholders (19,104) (12,554) (17,408) (209,864) Other 3,354 1,189 (309) 36,844 Net cash provided by (used in) financing activities 26,684 121,555 (50,012) 293,134 Effect of exchange rate fluctuation on cash and cash equivalents (16,226) (740) 704 (178,248) Net increase (decrease) in cash and cash equivalents (27,590) (34,222) (78,862) (303,086) Cash and cash equivalents at beginning of year 52,307 86,588 164,800 574,612 Net increase (decrease) in cash and cash equivalents from new

consolidation/de-consolidation of subsidiaries 43,740 (58) 650 480,500 Cash and cash equivalents at end of year (Note 24) ¥68,457 ¥52,307 ¥86,588 $752,026


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Notes to Consolidated Financial Statements Kirin Holdings Company, Limited and Consolidated Subsidiaries

December 31, 2008, 2007 and 2006

1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS

The accompanying consolidated financial statements of Kirin Holdings Company, Limited (the "Company") and its consolidated subsidiaries have been prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Law of Japan and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards.

The accounts of overseas subsidiaries are based on their accounting records maintained in conformity with generally accepted accounting principles prevailing in their respective countries of domicile. The accompanying consolidated financial statements have been restructured and translated into English from the consolidated financial statements of the Company prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Financial Instruments and Exchange Law of Japan. Some supplementary information included in the statutory Japanese language consolidated financial statements, but not required for fair presentation, is not presented in the accompanying consolidated financial statements. The translations of the Japanese yen amounts into U.S. dollars are included solely for the convenience of readers outside Japan, using the prevailing exchange rate on December 31, 2008, which was ¥91.03 to U.S. $1. The convenience translations should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange. Fractions less than one million yen have been omitted. As a result, the total amounts in Japanese yen and translated U.S. dollars shown in the consolidated financial statements and notes to the consolidated financial statements do not necessarily agree with the sum of the individual amounts.

2. SIGNIFICANT ACCOUNTING POLICIES

(1) CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and all significant subsidiaries that are controlled through substantial ownership of majority voting rights or through certain other means. All significant inter-company balances and transactions have been eliminated in the consolidation. In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries, including the portion attributable to minority shareholders, are evaluated using the fair value at the time when the Company acquired control of the respective subsidiaries. The number of consolidated subsidiaries was as follows:

Number of companies at year-end 2008 2007 2006

Consolidated subsidiaries 371 345 272

Changes in the scope of consolidation are as follows: (a) Due to additional acquisition of shares, former Kyowa Hakko Kogyo Co., Ltd.(now Kyowa Hakko Kirin Co., Ltd.), an affiliated company

accounted for by the equity method until the previos fiscal year, became a consolidated subsidiary. Consequently, 23 subsidiaries of former Kyowa Hakko Kogyo Co., Ltd. were included in the consolidation scope.

(b) In 2008, due to new establishment, 1 subsidiary of Kyowa Hakko Kirin Co., Ltd., 1 subsidiary of Kirin Beverage Co., Ltd. and 1 subsidiary of Kirin Food-Tech Co., Ltd. became consolidated subsidiaries.

(c) In 2008, due to new acquisition, 3 subsidiaries of Kirin Beverage Co., Ltd., 16 subsidiaries of Lion Nathan Ltd., Dairy Farmers Limited and 15 subsidiaries of Kirin Holdings (Australia) Pty Ltd became consolidated subsidiaries.

(d) In 2008, due to sale of shares, 2 subsidiaries of Kirin Agribio EC B.V., 1 subsidiary of Lion Nathan Ltd., and 1 subsidiary of Kirin Holdings (Australia) Pty Ltd were excluded from the scope of consolidation.

(e) In 2008, due to completion of liquidation, 1 subsidiary of Mercian Corporation and 29 subsidiaries of Lion Nathan Ltd., were excluded from the consolidation scope.

(f) In 2008, due to merger, former Kirin Pharma Company, Limited (now Kyowa Hakko Kirin Co., Ltd.) and 1 subsidiary of Kirin Brewery Co., Ltd. were excluded from the consolidation scope.

(g) In 2007, due to new establishment, 1 subsidiary of Kirin Holdings (Australia) Pty Ltd, 1 subsidiary of Kirin Agribio EC B.V. and 1 subsidiary of Kirin Beverage Co., Ltd. became consolidated subsidiaries. (h) In 2007, due to new acquisition, National Foods Limited, Berri Limited and 44 other subsidiaries of Kirin Holdings (Australia) Pty Ltd, 2

subsidiaries of Kirin Beverage Co., Ltd. and 28 subsidiaries of Lion Nathan Ltd. became consolidated subsidiaries. (i) In 2007, due to sale of shares, Kirin Plaza Co., Ltd., Beerstyle 21 Inc. and 3 other companies were excluded from the scope of consolidation. (j) In 2007, due to completion of liquidation, Twyford International Inc. was excluded from the consolidation scope.

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(Certain subsidiaries including Koiwai Shokuhin Corporation are excluded from the scope of consolidation because the effect of their sales, net income or losses, total assets and retained earnings on the accompanying consolidated financial statements are immaterial.) Fiscal year-ends of the following consolidated subsidiaries are different from that of the Company:

2008

Consolidated subsidiaries Fiscal year-end Kyowa Hakko Kirin Co., Ltd. March 31 (i) Lion Nathan Ltd. September 30 (ii) Kirin Agribio Inc. September 30 (ii) Kirin Agribio EC B.V. September 30 (ii)

2007 Consolidated subsidiaries Fiscal year-end

Lion Nathan Ltd. and its subsidiaries September 30 (ii) Japan Potato Corporation September 30 (ii) Kirin Agribio Co., Ltd. September 30 (ii) Kirin Agribio EC B.V. and its subsidiaries September 30 (ii) Kirin Agribio Shanghai Co., Ltd. September 30 (ii) (iii) KV Corporation September 30 (ii) CHATEAU REYSSON October 31 (ii) NIPPON LIQUOR LTD. March 31 (i)

(i) The Company used the financial statements based on preliminary statements as of its fiscal year-ends and for the years then ended for

consolidation. (ii) The Company used the financial statements of the companies as of their fiscal year-ends and for the years then ended for consolidation.(iii) Kirin Agribio Shanghai Co., Ltd. has changed its fiscal year end from December 31 to September 30.

With respect to (ii) , the Company made necessary adjustments for major transactions between the fiscal year-ends of the consolidated subsidiaries and fiscal year-end of the Company. In 2008, differences between the acquisition costs and the underlying net equities of investments in consolidated subsidiaries are recorded as goodwill in the consolidated balance sheets and amortized using the straight-line method over periods mainly between 10 and 20 years. Any immaterial amounts are fully recognized as expenses as incurred. In 2007, differences between the acquisition costs and the underlying net equities of investments in consolidated subsidiaries are recorded as goodwill in the consolidated balance sheets and amortized using the straight-line method over periods mainly between 15 and 20 years. Any immaterial amounts are fully recognized as expenses as incurred. (2) EQUITY METHOD

Investments in significant unconsolidated subsidiaries and affiliates (principally ownership interests of 20% to 50%) are accounted for by the equity method and, accordingly, are stated at purchase cost adjusted for equity earnings and losses belonging to the investments after elimination of unrealized inter-company profits and losses from the date of acquisition of shares. The number of unconsolidated subsidiaries and affiliates accounted for by the equity method was as follows:

Number of companies at year-end 2008 2007 2006

Unconsolidated subsidiaries and affiliates accounted for by the equity method 27 22 19 Changes in the scope of application of the equity method are as follows:

(a) In 2008, due to additional acquisition of shares, former Kyowa Hakko Kogyo Co., Ltd. became a consolidated subsidiary and was excluded from the scope of application of the equity method. Following this change, 4 affiliates of former Kyowa Hakko Kogyo Co., Ltd. became affiliates accounted for by the equity method.

(b) In 2008, due to new acquisition, 2 affiliates of Kirin Holdings (Australia) Pty Ltd became affiliates accounted for by the equity method. (c) In 2008, accompanying with the new consolidation of former Kyowa Hakko Kogyo Co., Ltd, as a subsidiary, the Company has obtained the

majority of the voting rights of Japan Synthetic Alcohol Co., Ltd., which was a Company’s affiliated company accounted for by the equity method until the previous fiscal year . The company is regarded, however , as an unconsolidated subsidiary accounted for by the equity method because its equity interest is low and its effect on this consolidated financial statements is immaterial.

(d) In 2007, due to new acquisition, Kyowa Hakko Kogyo Co., Ltd., HANGZHOU QIANDAOHU BREWERY CO., LTD. and other 2 affiliates became affiliates accounted for by the equity method.

(e) In 2007, due to sale of shares, 1 subsidiary of Lion Nathan Ltd., which was a consolidated subsidiary in the year ended December 31, 2006, became an affiliate accounted for by the equity method.

(f) In 2007, due to sale of shares, Yonekyu Corporation and one other company were excluded from the scope of application of the equity method.

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In 2008, certain investments in unconsolidated subsidiaries including Koiwai Shokuhin Corporation and affiliates including Diamond Sports Club Co., Ltd. were not accounted for by the equity method and were stated at cost because the effect of their net income or losses and retained earnings on the accompanying consolidated financial statements are immaterial. In 2007, certain investments in unconsolidated subsidiaries including Kirin Agribio USA, Inc. and affiliates including Diamond Sports Club Co., Ltd were not accounted for by the equity method and were stated at cost because the effect of their net income or losses and retained earnings on the accompanying consolidated financial statements are immaterial. Where fiscal year-ends of the affiliated companies accounted for by the equity method are different from that of the Company, the Company mainly uses their financial statements as of their fiscal year-ends and for the years then ended for applying the equity method. In 2007, where the difference between the Company’s and an affiliates’ year-end is more than 6 months, the Company uses their interim financial statements that were for the most recent accounting periods and necessary adjustments were made for applying the equity method. In 2008, in an effort to respond to demands for expediting the process of business performance disclosure, and in consideration of the difficult situation to calculate equity in earnings of affiliates using their final figures for the year ended December 31, 2008, the Company has calculated equity in earnings of San Miguel Corporation based on the financial statements for 12 months from the fourth quarter of the previous fiscal year to the third quarter of the fiscal year. In 2007, the Company had recognized equity in earnings of San Miguel Corporation based on its year-end financial statements. As the Company has made an effort to respond to demands for expedited business performance disclosure, and in consideration of the difficulty in calculating equity in earnings of affiliates using their final figures, the Company has calculated equity in earnings of San Miguel Corporation based on its third quarter financial statements. As a result, the consolidated statements of income of the Company for the year ended December 31, 2007 include the financial results of San Miguel Corporation for 12 months from October 1, 2006 to September 30, 2007.

(3) FOREIGN CURRENCY TRANSLATION INTO JAPANESE YEN (a) Translation of accounts

All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates prevailing on the balance sheet date. Gains and losses resulting from the translation are recognized in the consolidated statements of income as incurred.

(b) Financial statements denominated in foreign currencies Balance sheets of consolidated overseas subsidiaries are translated into Japanese yen at the year-end rate except for shareholders’ equity accounts, which are translated at the historical rates. Income statements of consolidated overseas subsidiaries are translated at average rates except for transactions with the Company, which are translated at the rates used by the Company.

(4) CASH AND CASH EQUIVALENTS

In preparing the consolidated statements of cash flows, cash on hand, readily available deposits and short-term highly liquid investments with negligible risk of changes in value and maturities not exceeding three months at the time of purchase are considered to be cash and cash equivalents. (5) MARKETABLE AND INVESTMENT SECURITIES

According to the accounting standard, the Company and consolidated subsidiaries examine the intent of holding each security and classify those securities as (a) securities held for trading purposes, (b) debt securities intended to be held to maturity (hereafter, “held-to-maturity debt securities”), (c) equity securities issued by subsidiaries and affiliated companies, or (d) all other securities that are not classified in any of the above categories (hereafter, “available-for-sale securities”). The Company and consolidated subsidiaries did not have any security defined as (a) above for the years ended December 31, 2008 and 2007. Held-to-maturity debt securities are stated at amortized cost. Equity securities issued by subsidiaries and affiliates that are not consolidated or accounted for by the equity method are stated at the moving-average cost. Available-for-sale securities with fair market value are stated at fair market value as of the balance sheet date. Unrealized gains and unrealized losses on these securities are reported, net of applicable income taxes, as a separate component of net assets. Realized gains and losses on sale of such securities are computed using the moving-average method. Available-for-sale securities without fair market value are stated at the moving-average cost. If the market value of held-to-maturity debt securities, equity securities issued by unconsolidated subsidiaries and affiliated companies, or available-for-sale securities declines significantly, such securities are restated at fair market value and the difference between fair market value and the carrying amount is recognized as loss in the period of the decline. For equity securities without fair market value, if the net asset value of the investee declines significantly, such securities are restated to net asset value with the corresponding losses recognized in the period of decline. In these cases, such fair market value or the net asset value will be the carrying amount of the securities at the beginning of the next year.

(6) INVENTORIES

Merchandise, finished goods and semi-finished goods are mainly stated at cost determined by the periodic average method. Raw materials, containers and supplies are mainly stated at cost determined by the moving-average method. Construction in process is stated at cost determined by the specific identification method.

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(7) ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company and consolidated subsidiaries provide allowance for doubtful accounts in an amount sufficient to cover probable losses on collection. It consists of the estimated uncollectible amount with respect to certain identified doubtful receivables and an amount calculated using the actual percentage of collection losses.

(8) PROPERTY, PLANT AND EQUIPMENT, AND DEPRECIATION

Property, plant and equipment are stated at cost net of accumulated depreciation and accumulated loss from impairment. Depreciation for the Company and consolidated domestic subsidiaries is calculated using the declining-balance method except for buildings (excluding building fixtures) acquired on or after April 1, 1998, which are depreciated using the straight-line method. Depreciation for several consolidated subsidiaries is calculated using the straight-line method. (Additional Information) Due to the revision of the Corporation Tax Law, for property, plant and equipment acquired on or before to March 31, 2007, and whose book values have been reduced to 5% of the acquisition price by a depreciation method based on the pre-revision Corporation Tax Law, the difference between the equivalent of 5% of acquisition price and memorandum price is depreciated in equal amounts over the five-year period beginning with the year following the year when the book value reached 5%. However, the Company and certain consolidated subsidiaries adopt this method for property, plants and equipment acquired on or before June 30,2007. As a result, compared to the previous method, operating income decreased by ¥2,263 million ($24,859 thousand), ordinary income and income before income taxes and minority interests decreased by ¥2,266 million ($24,892 thousand) and ¥2,266 million ($24,892 thousand), respectively. The effect of this change on segment information is explained in Note 19 “SEGMENT INFORMATION.”

(9) INTANGIBLE ASSETS

The Company and consolidated domestic subsidiaries amortize intangible assets using the straight-line method. Consolidated overseas subsidiaries mainly adopt the straight-line method over 20 years. (10) IMPAIRMENT OF FIXED ASSETS

Effective from the year ended December 31, 2004, the Company adopted the new accounting standard for impairment of fixed assets (“Opinion Concerning Establishment of Accounting Standard for Impairment of Fixed Assets” issued by the Business Accounting Deliberation Council on August 9, 2002) and “Implementation Guidance for the Accounting Standard for Impairment of Fixed Assets” (the Financial Accounting Standared Implementation Guidance No. 6 issued by the Accounting Standards Board of Japan on October 31, 2003) with early adoption permitted from the year ended March 31, 2004 or thereafter. As a result, income before income taxes and minority interests decreased by ¥3,564 million ($39,151 thousand), ¥2,361 million and ¥5,755 million for the years ended December 31, 2008, 2007 and 2006 respectively, compared with what would have been reported if the new accounting standard had not been adopted. Accumulated loss from impairment is deducted directly from the acquisition costs of the related assets in accordance with the revised disclosure requirements. (11) ALLOWANCE FOR EMPLOYEES’ BONUSES

The Company and consolidated subsidiaries provide allowance for employees’ bonuses based on the estimated amounts of payment. (Additional Information) From the second half of the year ended December 31, 2007, the Company and several subsidiaries provided allowance for bonuses based on revised rules, since the Company and several subsidiaries revised rules for payment of employees’ bonuses including the partial introduction of performance-linked bonuses, which caused a partial difference between the period subject to the payment of bonuses and the timing of such payment. The effect of this change was to decrease operating income, ordinary income and income before income taxes and minority interests by ¥1,708 million respectively. The effect of this change on segment information is explained in Note 19 “SEGMENT INFORMATION.”

(12) ALLOWANCE FOR BONUSES FOR DIRECTORS AND CORPORATE AUDITORS

The Company and consolidated subsidiaries provide allowance for bonuses for directors and corporate auditors based on the estimated amounts of payment.

(13) EMPLOYEES’ PENSION AND RETIREMENT BENEFITS The Company and consolidated subsidiaries provide allowance for employees’ pension and retirement benefits at the balance sheet date based on the estimated amounts of projected benefit obligation and the fair value of the plan assets at the end of the fiscal year. Prior service cost is amortized by the straight-line method over mainly 5 to 15 years for the year ended December 31, 2008, mainly 13 to 15 years for the year ended December 31, 2007 and mainly 15 years for the year ended December 31, 2006. Actuarial differences are amortized by the straight-line method over the average estimated

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service period, which is mainly 10 to 15 years for the year ended December 31, 2008, mainly 13 to 15 years for the year ended December 31, 2007 and mainly 15 years for the year ended December 31, 2006, beginning from the following fiscal year. (14) RETIREMENT BENEFITS FOR DIRECTORS AND CORPORATE AUDITORS

Provision for retirement benefits for directors and corporate auditors represents 100% of such retirement benefit obligations as of the balance sheet date calculated in accordance with policies of the Company and consolidated subsidiaries. (Additional Information) For the year ended December 31, 2007, the Company and some consolidated subsidaries resolved to abolish the retirement benefit system for directors and corporate auditors. Accordingly, an amount equivalent to accrued retirement benefits due to the abolition of the system is recorded as “Other” long term liabilities. (15) RESERVE FOR REPAIR AND MAINTENANCE OF VENDING MACHINES

Kirin Beverage Co., Ltd. and consolidated subsidiaries provide reserve for repair and maintenance of vending machines by estimating the necessary repair and maintenance cost in the future, allocating the costs over a five-year period. The actual expenditure was deducted from the balance of the reserve on the consolidated balance sheets. (16) RESERVE FOR LOSS ON REPURCHASE OF LAND

For the year ended December 31, 2008, the Company provides the reserve at an amount deemed necessary to cover the possible loss related to perchase of land, which was sold to the Organization for Promoting Urban Development (the “Organization”) in September 1998 and the estimated loss for land improvement and other. For the year ended December 31, 2007, the Company provides the reserve at an amount deemed necessary to cover the possible loss such as soil pollution on repurchase of land, which was sold to the Organizationin in September 1998 with the right for the Organization to sell back the land to the Company on certain conditions. (17) RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses for the improvement of existing products or the development of new products, including basic research and fundamental development costs, are recognized in the consolidated statements of income in the year when incurred. The total amount of research and development expenses, included in cost of sales and selling, general and administrative expenses, was ¥54,004 million ($593,254 thousand), ¥28,595 million and ¥28, 292 million, respectively, in 2008, 2007 and 2006. (18) LIQUOR TAXES

The amounts of liquor taxes stated in the consolidated statements of income represent the liquor taxes on the sale of liquor products.

(19) INCOME TAXES

Deferred tax accounting is adopted in accordance with the Japanese accounting standards. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax preparation purposes.

(20) CONSUMPTION TAXES

Consumption taxes are excluded from the revenue and expense accounts which are subject to such taxes.

(21) BONUSES TO DIRECTORS AND CORPORATE AUDITORS

The company and consolidated subsidiaries recognize directors’ and corporate auditors’ bonuses as expenses when incurred. (22) LEASES

Finance leases, except for those leases under which the ownership of the leased assets is considered to be transferred to the lessee, are accounted for in the same manner as operating leases. Some consolidated subsidiaries mainly capitalize finance leases.

(23) DERIVATIVE AND HEDGE ACCOUNTING

The accounting standard for financial instruments requires companies to state derivative financial instruments at fair value and to recognize changes in the fair value as gains and losses unless derivative financial instruments are used for hedging purposes.

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If derivative financial instruments are used as hedges and meet certain hedging criteria, the Company and consolidated subsidiaries defer recognition of gains and losses resulting from changes in fair value of derivative financial instruments until the related losses and gains on the hedged items are recognized.

If forward foreign exchange contracts are used as hedges and meet certain hedging criteria, forward foreign exchange contracts and hedged items are accounted for in the following manner:

1. If a forward foreign exchange contract is executed to hedge an existing foreign currency receivable or payable,

(a) the difference, if any, between the amount in Japanese yen of the hedged foreign currency receivable or payable translated using the spot rate at the inception date of the contract and the book value of the receivable or payable is recognized in the consolidated statements of income in the period which includes the inception date, and (b) the discount or premium on the contract (that is, the difference between the Japanese yen amount of the contract translated using the contracted forward rate and that translated using the spot rate at the inception date of the contract) is recognized over the term of the contract.

2. If a forward foreign exchange contract is executed to hedge a future transaction denominated in a foreign currency, the future transaction will be recorded using the contracted forward rate, and no gains or losses on the forward foreign exchange contract are recognized.

If interest rate swap contracts are used as hedges and meet certain hedging criteria, the net amount to be paid or received under the interest rate swap contract is added to or deducted from the interest on the assets or liabilities for which the swap contract was executed. Interest rate swaps that hedge transactions between consolidated companies are stated at fair value and the changes in the fair value are recognized as income or loss for the current fiscal year. Hedging instruments and hedged items The following summarizes hedging derivative financial instruments used by the Company and consolidated subsidiaries and the items hedged:

Hedging instruments Hedged items Forward foreign exchange contracts, currency swap contracts, etc.

Receivables and payables in foreign currency, future transactions in foreign currency

Interest rate swap contracts, etc. Interests on loans receivable and loans payable Commodity swap contracts, etc. Commodity prices

The Company and consolidated subsidiaries use derivative financial instruments mainly for the purpose of mitigating (i) fluctuation risk of foreign currency exchange rates with respect to receivables and payables in foreign currency and future transactions in foreign currency, (ii) fluctuation risk of interest rates with respect to loans receivable and loans payable, and (iii) fluctuation risk of commodity prices of raw materials and others. The Company and consolidated subsidiaries evaluate hedging effectiveness semi-annually by comparing the cumulative changes in cash flows from or the changes in fair value of hedged items with the corresponding changes in the hedging derivative instruments. (24) RECLASSIFICATION AND RESTATEMENT

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications and restatement had no impact on previously reported results of operations.

(25) CHANGE OF DEPRECIATION OF FIXED ASSETS

Due to the revision of the Corporation Tax Law, for the year ended December 31, 2007 the method of depreciation of property, plant and equipment acquired on or after April 1, 2007 has been changed to the method based on the revised Corporation Tax Law. However, the Company and some consolidated companies have changed the method for the items acquired on or after July 1, 2007. The effect on net income of this change is immaterial. The change of the method was conducted in the second half of the fiscal year, since the application system update was completed at that time. Hence the previous accounting method was applied for the interim period of the fiscal year. The effect on net income of this change was not material.

3. SHORT-TERM LOANS PAYABLE, LONG-TERM DEBT, BONDS AND OTHER LONG-TERM LIABILITIES Short-term loans payable outstanding at December 31, 2008 and 2007 consisted of the following:

December 31, December 31, 2008 2007 2008

(Millions of yen) (Thousands of U.S. dollars)

(Note 1) Unsecured ¥ 89,851 ¥321,126 $ 987,048 Secured - 431 -

Total short-term loans payable ¥89,851 ¥321,557 $987,048 Average annual interest rates on outstanding short-term loans payable for the years ended December 31, 2008 and 2007 were 2.49% and 1.44%, respectively.

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Long-term debt and bonds at December 31, 2008 and 2007 consisted of the following: December 31, December 31, 2008 2007 2008

(Millions of yen)

(Thousands of U.S. dollars)

(Note 1) Loans principally from banks and insurance companies, maturing serially

from 2008 to 2018 with average annual interest rates of 3.72% for current portion and 5.68% for non-current portion

¥287,076 ¥190,812 $3,153,641

1.20% coupon debentures in yen, due in 2009 40,000 40,000 439,415 1.09% coupon debentures in yen, due in 2013 79,979 - 878,600 1.27% coupon debentures in yen, due in 2015 29,989 - 329,440 1.69% coupon debentures in yen, due in 2018 69,987 - 768,834 1.86% coupon debentures in yen, due in 2020 19,985 - 219,543 8.65% U.S. dollar private placement bonds issued by foreign subsidiaries, due in 2009-2012 16,427 22,993 180,456

4.53% U.S. dollar private placement bonds issued by foreign subsidiaries, due in 2015 20,273 22,940 222,706

3.76% U.S. dollar private placement bonds issued by foreign subsidiaries, due in 2010 10,260 11,495 112,710

Others 60 - 659 Less current maturities (73,458) (78,568) (806,964)

Total long-term debt and bonds ¥500,581 ¥209,674 $5,499,077 The above balances of loans include secured loans of ¥699 million ($7,678 thousand) and ¥18,065 million for 2008 and 2007, respectively

Other interest-bearing debt an December 31, 2008 and 2007 consisted of the following.



(Note 1)

Finance lease obligation – current (at an average interest rate of 5.42%) ¥ 226 ¥ 246 $ 2,482 Finance lease obligation – non-current (at an average interest rate of 7.96%

maturing serially between 2009-2028) 2,200 2,459 24,167 Deposits received from customers (at an average interest rate of 1.29%) ¥ 57,384 61,365 $ 630,385 Deposits received on the accompanying consolidated balance sheets include non-interest-bearing deposits. The above balance of deposits received includes a secured portion of ¥3,408 million ($37,438 thousand) and ¥3,408 million for 2008 and 2007, respectively. The aggregate annual maturities of long-term debt, bonds and finance lease obligation at December 31, 2008 were as follows.

Year ending December 31, Amount

(Millions of yen) (Thousands of U.S. dollars) (Note 1)

2009 ¥73,685 $809,458 2010 102,637 1,127,507 2011 61,953 680,577 2012 and thereafter 338,191 3,715,159 Total ¥576,467 $6,332,714

Deposits received are not included in the above schedule of annual maturities, as there is no fixed maturity period for these deposits.

As of December 31, 2008 and 2007, assets pledged as collateral for the above secured liabilities were as follows:

December 31, December 31, 2008 2007 2008 (Millions of yen)


(Note 1) Cash ¥14 ¥10 $153 Notes and accounts receivable, trade - 31,807 - Property, plant and equipment 3,778 5,444 41,502 Other 957 0 10,513 Total ¥4,750 ¥37,262 $52,180

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In addition to the above, deposits received relating to construction were recognized at the discounted present value of ¥9,779 million ($107,426 thousand), in accordance with the accounting standard for financial instruments.

4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at costs net of accumulated depreciation and accumulated loss from impairment in the consolidated balance sheets, and are summarized as follows:



(Note 1)

Buildings and structures ¥624,928 ¥496,623 $6,865,077 Machinery, equipment and vehicles 939,185 733,439 10,317,312 Land 244,240 158,558 2,683,071 Construction in progress 57,244 35,437 628,847 Other 187,092 154,783 2,055,278

Total 2,052,691 1,578,843 22,549,610 Accumulated depreciation (1,261,379) (942,880) (13,856,739)

Net of property, plant and equipment ¥791,311 ¥635,963 8,692,859

5. CONTINGENT LIABILITIES For the year ended in December 31, 2008, the Company and consolidated subsidiaries were also contingently liable for trade notes discounted for the amount of ¥13,511 million as guarantors of loan obligations of unconsolidated subsidiaries, affiliates, employees and others for the amount of ¥12,954 million ($142,304 thousand) as of December 31, 2008. The Company and consolidated subsidiaries were also contingently liable for notes receivable discounted for the amount of ¥66 million ($725 thousand). For the year ended in December 31, 2007, the Company and consolidated subsidiaries were contingently liable as guarantors of loan obligations of unconsolidated subsidiaries, affiliates, employees and others for the amount of ¥13,511 million as of December 31,2007.

6. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Major elements of selling, general and administrative expenses for the years ended December 31, 2008, 2007 and 2006 were as follows:

Year ended December 31, Year ended

December 31, 2008 2007 2006 2008

(Thousands of (Millions of yen) U.S. dollars) (Note 1)

Sales promotion ¥201,273 ¥181,475 ¥176,389 $2,211,062 Freight 79,901 56,965 53,010 877,743 Advertising 72,069 69,075 66,684 791,706 Employees’ pension and retirement benefit expenses 12,113 9,600 8,573 133,066 Salaries and wages of employees 139,550 103,494 94,588 1,533,011 Research and development expenses 53,440 28,595 28,292 587,059 Depreciation 32,426 25,353 24,856 356,212

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7. LOSS ON IMPAIRMENT In2008, the Company and consolidated subsidiaries classified fixed assets into groups by the respective type of business (Alcohol Beverages, Soft Drinks and Foods, Pharmaceuticals, and Other), which are the units making investment decisions.

Use Location Type of assets

Asset used for business (Soft Drinks and Foods business) Matsumoto, Nagano Buildings and structures, machinery,

equipment and vehicles, and others Asset used for business and idle properties (Soft Drinks and Foods business)

Bungotakata, Oita and another Buildings and structures, land and others

R&D facilities (Pharmaceuticals business) Maebashi, Gunma Buildings and structures, land

Asset for rent Shibuya-ku, Tokyo Buildings and structures

Idle properties Ube, Yamaguchi and 3 others

Buildings and structures, machinery, equipment and vehicles, and others

For fixed assets in the real estate business included in others, the restaurant business and idle properties along with individual properties or stores are considered to constitute a group. Headquarters and welfare facilities are classified as corporate assets because they do not generate cash flows independent of other assets or group of assets. Carrying amounts of certain assets were devalued to their memorandum value or recoverable amount because (i) it became clear that part of our R&D facilities would no longer be utilized as a result of the reorganization of R&D centers within the Group, (ii) the Company decided to withdraw from some part of Soft Drinks and Foods business, (iii) carrying amounts of idle properties were devalued to their recoverable amounts, owing to substantial decline in their fair market value, (iv) the Company decided to sell part of certain assets for rent in the real estate business and (v) carrying amounts of certain assets used for the Soft Drinks and Foods business were not recovered by estimated future cash flows, and their carrying amounts were devalued to their recoverable amounts. During the fiscal year ended December 31, 2008, the Company and consolidated subsidiaries recognized loss on impairment on the following group of assets. As a result, the Company recognized a loss on impairment, recorded under special expenses, comprising ¥2,333 million ($25,628 thousand) for buildings and structures, ¥608 million ($6,679 thousand) for machinery, equipment and vehicles, ¥485 million ($ 5,327 thousand) for land and ¥872 million ($9,579 thousand) for other items. ¥1,503million ($16,511 thousand) of these losses is included in loss on liquidation of business. The recoverable amount of each group of assets is the higher of net selling price (fair value less costs to sell) or value in use calculated by discounting future cash flows at an interest rate of 5.0 %. For the US consolidated subsidiaries, a deterioration of excess earning power of certain brand trademark led to a lowering of the recoverable amounts. This loss on impairment of ¥768 million ($8,436 thousand) was recognized on other intangible assets (trademark right) in accordance with US accounting standards. In 2007, the Company and consolidated subsidiaries classified fixed assets into groups by the respective type of business (alcohol beverages, soft drinks, pharmaceuticals, and others), which are the units making investment decisions.

Use Location Type of assets

Asset used for business (Restaurant business)

Shinjuku-ku, Tokyo Buildings and structures, machinery, equipment and vehicles, and others

Idle properties Guangdong Province, China and 2 others

Buildings and structures, machinery, equipment and vehicles, and others

For fixed assets in the real estate business included in others, the restaurant business and idle properties along with individual properties or stores are considered to constitute a group. Headquarters and welfare facilities are classified as corporate assets because they do not generate cash flows independent of other assets or group of assets. Carrying amounts of certain assets used for business were not recovered by estimated future cash flows, and their carrying amounts were devalued to their recoverable amounts. Carrying amounts of idle properties were devalued to their recoverable amounts, owing to substantial decline in their fair market value. During the fiscal year ended December 31, 2007, the Company and consolidated subsidiaries recognized loss on impairment on the following group of assets. As a result, the Company recognized a loss on impairment, recorded under special expenses, comprising ¥846 million for buildings and structures, ¥808 million for machinery, equipment and vehicles and ¥15 million for other items. The recoverable amount of each group of assets is the higher of net selling price (fair value less costs to sell) or value in use calculated by discounting future cash flows at an interest rate of 5.0 %.

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For the Australian subsidiaries, a deterioration of investment efficiency led to a lowering of the recoverable amounts. This loss on impairment of ¥690 million was recognized on goodwill in accordance with Australian accounting standards.

8. FOREIGN CURRENCY TRANSLATION LOSS Gain on valuation of currency swaps ¥23,541 million ($258,607 thousand) in 2008 that are carried to hedge the foreign exchange rate fluctuation risks for loans receivable in foreign currency is presented after offsetting the foreign currency translation losses.

9. GAIN ON CHANGE IN EQUITY

For the year ended December 31, 2008, a gain on change in equity arises from the share exchange undertaken between Kirin’s consolidated subsidiary former Kirin Pharma Company, Limited (now Kyowa Hakko Kirin Co., Ltd.) and former Kyowa Hakko Kogyo Co., Ltd. (now Kyowa Hakko Kirin Co., Ltd.). And this gain on change in equity is recognized as arising from the difference between the value of former Kirin Pharma Company, Limited shares held by Kirin that were exchanged (the decrease of Kirin’s holding of former Kirin Pharma Company, Limited shares, based on its market price) and the reduced amount of Kirin’s holding of former Kirin Pharma Company, Limited shares (the decrease of the value of Kirin’s holding of former Kirin Pharma Company, Limited shares based on the fair book value of Kirin’s holdings of former Kirin Pharma Company, Limited immediately prior to the share exchange).

10. COMPENSATION FOR EXPROPRIATION For the year ended December 31, 2008, Kirin Brewery Co., Ltd. entered into a sales contract of the land of its Yokohama Plant and a compensation contract for the transfer of the plant’s equipment and other, with Metropolitan Expressway Co., Ltd. related to the expressway construction. The gain on sale of land and the compensation margin for the property transfer due to the expropriation are recorded in “Compensation for expropriation” of “Special income.” “Reserve for deferred gain on sale of property” for assets subject to advanced depreciation that were acquired in the fiscal year, and “Reserve for special account for deferred gain on sale of property” for assets planned to be acquired in or after the following fiscal year, are respectively included in “Retained earnings” of “Shareholders’ Equity.”

11. BUSINESS RESTRUCTURING EXPENSE For the year ended December 31, 2008, business restructuring expense comprised a premium on retirement benefits amounting to ¥3,208 million ($35,241 thousand) resulting from early retirement at consolidated subsidiaries. For the year ended December 31, 2007, business restructuring expense comprised a premium on retirement benefits amounting to ¥28 million resulting from early retirement at one consolidated subsidiary, revaluation of certain fixed assets amounting to ¥1,634 million due to improvement of factory production efficiency, and loss on disposal of fixed assets and others amounting to ¥2,214 million at one foreign subsidiary.

12. EXPENSES FOR INTEGRATION For the year ended December 31, 2008, temporary expenses resulting from strategic integration in the Group are included in “Expenses for integration.”

13. COMPENSATION FOR DAMAGES For the year ended December 31,2008, the amount of damages resulting from sale of fixed assets of a consolidated subsidiary are included in “Compensation for damages”.

14. LOSS ON LIQUIDATION OF BUSINESS For the year ended December 31, 2008, loss on liquidation of business comprised impairment loss amounting to ¥1,503 million ($16,511 thousand), a premium employees’ retirement benefits amounting to ¥799 million ($8,777thousand), and loss on devaluation of inventories amounting to ¥ 342 million ($3,757 thousand), resulting from liquidation or downsizing of Soft Drinks and Foods business at a consolidated subsidiary.

15. AMORTIZATION OF GOODWILL For the year ended December 31, 2008, the Company fully amortized goodwill as an expense as incurred, in accordance with paragraph 32 (1) of JICPA Accounting Committee report No.7 “Practical Guidance for Consolidation Procedures Related to Equity Accounts in Consolidated Financial Statements”.

16. LOSS OF EQUITY METHOD INVESTMENTS For the year ended December 31, 2008 and 2007, the Company fully amortized goodwill related to affiliates as expenses as incurred in accordance with the proviso in paragraph 9 of JICPA Accounting Committee report No.9, “Practical Guidance for Accounting of Equity Method” and paragraph 32 (1) of JICPA Accounting Committee report No.7, “Practical Guidance for Consolidation Procedures Related to Equity Accounts in Consolidated Financial Statements”.

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17. GENERAL INTEREST CHARGE OF INCOME TAXES FOR PRIOR YEARS IN A FOREIGN SUBSIDIARY, INCOME TAXES FOR PRIOR YEARS During the year ended December 31, 2007, a deduction amount was fixed concerning the writing off of a bad debt that became a point of contention between a certain overseas consolidated subsidiary and its local tax authority. An amount equivalent to the interest charge corresponding to the tax due is recorded as “General interest charge of income taxes for prior years in a foreign subsidiary” and the refunded portion of income taxes payable recorded in the previous year is recorded as “Income taxes for prior years”.

18. INFORMATION ON SECURITIES The following tables summarize acquisition costs, book value and fair value of securities with fair market value. (a) Held-to-maturity debt securities with fair market value

December 31, 2008 December 31, 2008

Book value Fair market value Difference Book value Fair market

value Difference


1. Securities with fair market value exceeding book value Governmental/municipal bonds ¥600 ¥608 ¥8 $6,591 $6,679 $87 Corporate bonds - - - - - - Other - - - - - -

Sub-total 600 608 8 6,591 6,679 87

2. Securities with fair market value not exceeding book value

Governmental/municipal bonds 60 59 (0) 659 648 (0) Corporate bonds - - - - - - Other - - - - - -

Sub-total 60 59 (0) 659 648 (0) Total ¥660 ¥667 ¥7 $7,250 $7,327 $76

December 31, 2007 Book value Fair market value Difference (Millions of yen)

1. Securities with fair market value exceeding book value Governmental/municipal bonds ¥379 ¥383 ¥3 Corporate bonds - - - Other - - -

Sub-total 379 383 3

2. Securities with fair market value not exceeding book value Governmental/municipal bonds 409 408 (1) Corporate bonds - - - Other - - -

Sub-total 409 408 (1) Total ¥789 ¥791 ¥2

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(b) Available-for-sale securities with fair market value

December 31, 2008 December 31, 2008

Acquisition

cost Book value Difference Acquisition cost Book value Difference


1. Securities with book value exceeding acquisition cost

Equity securities ¥87,933 ¥163,737 ¥75,804 $965,978 $1,798,714 $832,736Bonds

Governmental/municipal bonds - - - - - - Corporate bonds - - - - - -

Other 46 47 1 505 516 10Other 15 15 0 164 164 0

Sub-total 87,995 163,801 75,805 966,659 1,799,417 832,747

2. Securities with book value not exceeding acquisition cost

Equity securities 103,110 79,467 (23,642) 1,132,703 872,975 (259,716)Bonds

Governmental/municipal bonds - - - - - -Corporate bonds - - - - - -Other - - - - - -

Other - - - - - -Sub-total 103,110 79,467 (23,642) 1,132,703 872,975 (259,716)

Total ¥191,106 ¥243,268 ¥52,162 $2,099,373 $2,672,393 $573,019

December 31, 2007 Acquisition cost Book value Difference (Millions of yen) 1. Securities with book value exceeding acquisition cost

Equity securities ¥146,652 ¥366,427 ¥219,774 Bonds

Governmental/municipal bonds - - - Corporate bonds - - - Other - - -

Other 15 28 13 Sub-total 146,668 366,455 219,787

2. Securities with book value not exceeding acquisition cost

Equity securities 12,671 9,790 (2,880) Bonds

Governmental/municipal bonds - - - Corporate bonds - - - Other - - -

Other - - - Sub-total 12,671 9,790 (2,880)

Total ¥159,339 ¥376,246 ¥216,906

(c) Total sale of available-for-sale securities

Year ended December 31, Year ended December 31, 2008 2007 2008 (Millions of yen) (Thousands of U.S. dollars) (Note 1)

Amount sold ¥6,732 ¥1,708 $73,953 Total gain on sale 2,284 653 25,090 Total loss on sale 601 14 6,602 (d) Book value of major securities not measured at fair market value

Year ended December 31, Year ended December 31, 2008 2007 2008 (Millions of yen) (Thousands of U.S. dollars) (Note 1)

Held-to-maturity debt securities Unlisted foreign debt securities ¥655 ¥ - $7,195

Available-for-sale securities Unlisted equity securities 29,525 17,138 324,343 Other 492 240 5,404

Total ¥30,673 ¥17,379 $336,954

(e) Redemption schedule

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The redemption schedule of available-for-sale securities with maturities and held-to-maturity debt securities as of December 31, 2008 is as follows:

Due within

1 year 1 to 5 years

5 to 10 years

Over 10 years

Due within 1 year

1 to 5 years

5 to 10 years

Over 10 years


1. Bonds Governmental/ municipal bonds ¥60 ¥600 - - $659 $6,591 - - Corporate bonds - - - - - - - - Other - - - - - - - -

2. Other - - - - - - - - Total ¥60 ¥600 - - $659 $6,591 - -

The redemption schedule of available-for-sale securities with maturities and held-to-maturity debt securities as of December 31, 2007 is as follows:

Due within 1 year 1 to 5 years 5 to 10 years Over 10 years (Millions of yen)

1. Bonds Governmental/municipal bonds ¥209 ¥580 - - Corporate bonds - - - - Other - - - -

2. Other - - - - Total ¥209 ¥580 - -

(f) Impairment loss on investment securities

Impairment losses of ¥5,878 million ($64,572 thousand) and ¥230 million were recognized in the consolidated statements of income as “Loss on devaluation of investment securities”, for available-for-sale securities for the years ended December 31, 2008 and 2007, respectively. Where the fair market value of available-for-sale securities has declined by more than 30% from their acquisition costs, the value of those securities is considered to have “substantially declined” and the impairment losses are recognized in the consolidated statements of income on those securities, unless the value is considered recoverable. For available-for-sale securities without fair market value, when the substantive value of those securities has declined by more than 50% from their acquisition costs, the value of those securities is considered to have “substantially declined” and the impairment losses are recognized in the consolidated statements of income on those securities, except for cases where the recoverability of the value of those securities in the future is supported by reasonable grounds.

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19. SEGMENT INFORMATION

(a) Business segment information

Year ended December 31, 2008

Alcohol

Beverages Soft Drinks and Foods

Pharma- ceuticals Others Total

Eliminations or Corporate Consolidated

(Millions of yen) 1. Sales and operating income:

Sales Unaffiliated customers ¥1,181,509 ¥716,688 ¥171,517 ¥233,853 ¥2,303,569 ¥ - ¥2,303,569Less liquor taxes 379,782 - - 909 380,691 - 380,691

Net sales 801,727 716,688 171,517 232,943 1,922,877 - 1,922,877Inter-segment 37,046 4,845 428 33,334 75,654 (75,654) -

Total sales 838,773 721,533 171,946 266,278 1,998,532 (75,654) 1,922,877Operating expenses 728,784 715,102 143,745 247,998 1,835,630 (58,730) 1,776,900Operating income ¥109,989 ¥6,431 ¥28,200 ¥18,280 ¥162,901 ¥(16,924) ¥145,977 2. Assets, depreciation, loss on

impairment and capital expenditures:

Assets ¥1,075,161 ¥607,995 ¥401,978 ¥368,909 ¥2,454,045 ¥165,578 ¥2,619,623Depreciation and amortization 47,422 26,450 7,628 12,341 93,843 1,908 95,751Loss on impairment 1,418 26 1,751 367 3,564 - 3,564Capital expenditures 60,834 30,450 5,267 14,830 111,383 17,058 128,441


Alcohol

Beverages Soft Drinksand Foods

Pharma- ceuticals Others Total



(Note 1) 1. Sales and operating income: Sales

Unaffiliated customers $12,979,336 $7,873,096 $1,884,181 $2,568,966 $25,305,602 $ - $25,305,602Less liquor taxes 4,172,053 - - 9,985 4,182,038 - 4,182,038

Net sales 8,807,283 7,873,096 1,884,181 2,558,969 21,123,552 - 21,123,552Inter-segment 406,964 53,224 4,701 366,186 831,088 (831,088) -

Total sales 9,214,248 7,926,320 1,888,893 2,925,167 21,954,652 (831,088) 21,123,552Operating expenses 8,005,976 7,855,673 1,579,094 2,724,354 20,165,110 (645,171) 19,519,938Operating income $1,208,271 $70,647 $309,787 $200,812 $1,789,530 $(185,916) $1,603,614 2. Assets, depreciation, loss on


Assets $11,811,062 $6,679,061 $4,415,884 $4,052,609 $26,958,640 $1,818,938 $28,777,578Depreciation and amortization 520,949 290,563 83,796 135,570 1,030,901 20,960 1,051,862Loss on impairment 15,577 285 19,235 4,031 39,151 - 39,151Capital expenditures 668,285 334,505 57,860 162,913 1,223,585 187,388 1,410,974

Business segments are classified based on business management framework in consideration of the type and nature of products. Main products by each business segment are as follows:

Business segment Main products Alcohol beverages Beer, sparkling malt liquor (happo-shu), new genre, whiskey, spirits, wine, engineering, logistics, etc. Soft drinks and Foods Soft drinks ,foods, health foods, & functional foods, etc. Pharmaceuticals Pharmaceutical products Others Biochemical, chemical, floriculture, etc.

Unallocable operating expenses included in “Eliminations or Corporate” are as follows: Year ended December 31, 2008 ¥17,854 million ($196,133 thousand), mainly consisting of ¥14,779 million ($162,353 thousand) for

Group administrative expenses due to the Company’s transfer to a pure holding company and ¥3,074 million ($33,769 thousand) for research and development of basic technologies.

Corporate assets included in “Eliminations or Corporate” mainly consist of surplus funds (cash and marketable securities) and long- term investments (investment securities and life insurance investments) of the Company, assets which belong to the administrative department of the Company. Year ended December 31, 2008 ¥576,293 million ($6,330,803 thousand) In addition, impairment loss of “Soft Drinks and Foods Business” was included in “Loss on liquidation of business” in special expenses, amounting to ¥ 1,503 million ($ 16,511 thousand).

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Alcohol

Beverages Soft

Drinks Pharma-

ceuticals Others Total Eliminations or Corporate Consolidated


Sales Unaffiliated customers ¥1,189,478 ¥411,254 ¥69,909 ¥130,522 ¥1,801,164 ¥ - ¥1,801,164Less liquor taxes 400,555 - - - 400,555 - 400,555

Net sales 788,922 411,254 69,909 130,522 1,400,608 - 1,400,608Inter-segment 35,798 63 - 25,119 60,980 (60,980) -



Assets ¥1,122,086 ¥308,010 ¥134,545 ¥427,198 ¥1,991,840 ¥477,827 ¥2,469,667Depreciation and amortization 47,151 16,185 3,817 5,836 72,990 879 73,870Loss on impairment 2,011 6 - 343 2,361 - 2,361Capital expenditures 43,547 18,167 2,977 8,263 72,956 728 73,685


Alcohol

Beverages Soft

Drinks Pharma-

ceuticals Others Total Eliminations or Corporate Consolidated






Assets ¥950,694 ¥270,941 ¥104,745 ¥336,557 ¥1,662,939 ¥300,647 ¥1,963,586Depreciation and amortization 40,296 15,990 4,234 8,689 69,211 1,609 70,820Loss on impairment 3,749 16 - 1,990 5,755 - 5,755Capital expenditures 30,198 17,413 8,478 9,675 65,766 7,296 73,062

The type and nature of products are considered in the classification by business segment. Main products by each segment are as follows; Year ended December 31,2007

Business segment Main products Alcohol beverages Beer, sparkling malt liquor (happo-shu), new genre, whiskey, spirits, wine, engineering, logistics, etc. Soft drinks Soft drinks and other drinks Pharmaceuticals Pharmaceutical products Others Health foods & functional foods, floriculture, etc.

Year ended December 31,2006

Business segment Main products Alcohol beverages Beer, sparkling malt liquor (happo-shu), new genre, whiskey, spirits, wine, etc. Soft drinks Soft drinks and other drinks Pharmaceuticals Pharmaceutical products Others Engineering, logistics, floriculture, etc.

Unallocable operating expenses included in “Eliminations or Corporate” are as follows:

Year ended December 31, 2007 ¥11,713 million, mainly consisting of ¥9,055 million for group administrative expenses due to the Company’s transfer to a pure holding company and for research and development of basic technologies.

Year ended December 31, 2006 ¥2,358 million, mainly consisting of ¥2,657 million for research and development of basic technologies.

Corporate assets included in “Eliminations or Corporate” mainly consist of surplus funds (cash and marketable securities) and long- term investments (investment securities and life insurance investments) of the Company, assets which belong to the administrative department of the Company.

Year ended December 31, 2007 ¥625,844 million Year ended December 31, 2006 ¥424,560 million

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(Changes in classification of business segment) In 2008, the Company acquired all outstanding shares in National Foods Limited, a dairy and beverage producer in Australia, at the end of the previous fiscal year, expanding business locations in the areas of food and health; seizing this opportunity to begin a new strategy to “develop health food and functional food business leveraging group synergies” as one of Kirin Group’s management policies for the fiscal year. Under this strategy the Company has defined the domain identity of the health food and functional food business as "all foods that customers consciously consume for health reasons" and make efforts to strengthen this business Group-wide between companies that handle food materials—including soft drinks, dairy products, functional foods, and seasonings businesses. In accordance with this revision of the group’s management structure, from this fiscal year the businesses of food, health food and functional food etc., which had been included in the “Others” segment, have been reclassified into the “Soft Drinks” segment, as these businesses are managed as a package with the soft drinks business. And during this same time, the “Soft Drinks” segment was renamed “Soft Drinks and Foods.” For reference, business segment information for the year ended December 31, 2007 that shows the business classification to conform to this fiscal year is provided below:


Alcohol

Beverages Soft Drinksand Foods

Pharma- Ceuticals Others Total


(Millions of yen)

1. Sales and operating income:


Net sales 788,922 474,560 69,909 67,216 1,400,608 - 1,400,608Inter-segment 35,798 1,344 - 24,080 61,222 (61,222) -

Total sales 824,720 475,904 69,909 91,296 1,461831 (61,222) 1,400,608Operating expenses 728,157 459,873 56,907 84,967 1,329,906 (49,906) 1,280,000Operating income ¥96,563 ¥16,030 ¥13,001 ¥6,329 ¥131,924 ¥(11,316) ¥120,608 2. Assets, depreciation, loss on


Assets ¥1,122,086 ¥652,126 ¥134,545 ¥123,730 ¥2,032,489 ¥437,178 ¥2,469,667Depreciation and amortization 47,151 17,463 3,817 4,557 72,990 879 73,870Loss on impairment 2,011 349 - - 2,361 - 2,361Capital expenditures 43,547 20,335 2,977 6,095 72,956 728 73,685

In 2007, the Company introduced the pure holding company system on July 1, and implemented a restructuring of the Group’s management structure. In governing the Group, clarification of the roles and responsibilities between the holding company and the operating companies will be made and the independence and mobility of each operating company will also be enhanced, while the holding company seeks to achieve a quantum leap in growth and create a group premium. Accordingly, concomitant with its new management structure, the Company changed its method of business segment classification and now classifies them “based on the business management framework in consideration of the type and nature of products”. Business segments had previously been classified “in consideration of the type and nature of products”. Due to this change, the businesses of engineering, logistics, etc., which had been included in the “Others” segment, have been reclassified into the “Alcohol beverages” segment as these businesses are managed as ancillary businesses closely connected with the alcohol beverages business. For reference, business segment information for the year ended December 31, 2006 that shows the business classification to conform to the year ended December 31,2007 is provided below:


Alcohol

Beverages Soft

Drinks Pharma-

Ceuticals Others Total Eliminations or Corporate Consolidated

(Millions of yen)

1. Sales and operating income:



Total sales 728,430 392,800 67,245 124,247 1,312,723 (49,098) 1,263,625Operating expenses 641,920 373,086 55,200 123,685 1,193,893 (46,626) 1,147,266Operating income ¥86,510 ¥19,714 ¥12,044 ¥561 ¥118,830 ¥(2,472) ¥116,358 2. Assets, depreciation, loss on


Assets ¥1,036,898 ¥270,941 ¥104,745 ¥176,931 ¥1,589,516 ¥374,069 ¥1,963,586Depreciation and amortization 41,364 15,990 4,234 6,500 68,091 2,729 70,820Loss on impairment 3,768 16 - 1,970 5,755 - 5,755Capital expenditures 37,295 17,413 8,478 6,680 69,868 3,194 73,062

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(Additional Information) In 2008, as discussed in Note 2 (8), due to the revision of the Corporation Tax Law, for property, plant and equipment acquired on or before March 31, 2007, and whose book values have been reduced to 5% of the acquisition price by a depreciation method based on the pre-revision Corporation Tax Law, the difference between the equivalent of 5% of acquisition price and memorandum price is depreciated in equal amounts over the five-year period beginning with the year following the year when the book value reached 5%. However, the Company and certain consolidated subsidiaries adopt this method for property, plants and equipment acquired on or before June 30, 2007. The effect of this change in accounting method was to increase operating expenses by ¥1,469 million ($16,137 thousand) in Alcohol Beverages business, by ¥395 million ($4,339 thousand) in Soft Drinks and Foods business, by ¥172 million ($1,889 thousand) in Pharmaceuticals business, by ¥143 million ($1,570 thousand) in Other businesses, and by ¥82 million ($ 900 thousand )in Eliminations or Corporate, and to decrease operating income by the same amounts, respectively, compared with what would have been recorded under the previous method. In 2007, as discussed in Note 2 (11), from the second half of the year ended December 31, 2007, the Company and some of its consolidated subsidiaries provide an “Allowance for employees’ bonuses” in line with the revised rules for payment of employees’ bonuses. The effect of this change in accounting method was to increase operating expenses by ¥1,233 million in Alcohol Beverages business, by ¥342 million in Pharmaceuticals business, by ¥51 million in Other businesses, and by ¥80 million in Eliminations or Corporate, and to decrease operating income by the same amounts, respectively, compared with what would have been recorded under the previous method. (b) Geographical segment information

Year ended December 31, 2008 Japan

Asia / Oceania Others Total


(Millions of yen)

1. Sales and operating income: Sales

Unaffiliated customers ¥1,787,875 ¥438,097 ¥77,596 ¥2,303,569 ¥ - ¥2,303,569Less liquor taxes 379,136 1,474 80 380,691 - 380,691

Net sales 1,408,738 436,622 77,515 1,922,877 - 1,922,877Inter-segment 20,332 3,726 7,781 31,840 (31,840) -

Total sales 1,429,071 440,349 85,297 1,954,718 (31,840) 1,922,877Operating expenses 1,309,454 404,589 77,347 1,791,391 (14,491) 1,776,900Operating income ¥119,616 ¥35,760 ¥7,949 ¥163,326 ¥(17,349) ¥145,977 2. Assets ¥1,659,115 ¥632,128 ¥174,351 ¥2,465,594 ¥154,029 ¥2,619,623




(Thousands of U.S. dollars) (Note 1) 1. Sales and operating income: Sales

Unaffiliated customers $19,640,503 $4,812,666 $852,422 $25,305,602 ¥ - $25,305,602Less liquor taxes 4,164,956 16,192 878 4,182,038 - 4,182,038

Net sales 15,475,535 4,796,462 851,532 21,123,552 - 21,123,552Inter-segment 223,354 40,931 85,477 349,774 (349,774) -

Total sales 15,698,901 4,837,405 937,020 21,473,338 (349,774) 21,123,552Operating expenses 14,384,862 4,444,567 849,686 19,679,127 (159,189) 19,519,938Operating income $1,314,028 $392,837 $87,322 $1,794,199 $(190,585) $1,603,614 2. Assets $18,226,024 $6,944,172 $1,915,313 $27,085,510 $1,692,068 $28,777,578

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(Millions of yen)




Total sales 1,134,199 210,956 66,322 1,411,478 (10,870) 1,400,608Operating expenses 1,043,837 175,073 60,319 1,279,230 769 1,280,000Operating income ¥90,362 ¥35,882 ¥6,002 ¥132,247 ¥(11,639) ¥120,608 2. Assets ¥1,075,143 ¥699,575 ¥219,203 ¥1,993,922 ¥475,745 ¥2,469,667




(Millions of yen)




Total sales 1,032,354 177,372 61,421 1,271,148 (7,523) 1,263,625Operating expenses 949,141 146,835 56,618 1,152,595 (5,328) 1,147,266Operating income ¥83,212 ¥30,537 ¥4,802 ¥118,552 ¥(2,194) ¥116,358

2. Assets ¥1,031,797 ¥336,140 ¥185,827 ¥1,553,765 ¥409,821 ¥1,963,586 Geographical distances are considered in classification by country or area. Major countries or areas included in each segment except for Japan are as follows:

Asia, Oceania East Asia, Southeast Asia, Oceania Others U.S.A., Europe

Amounts and major items included in “Eliminations or Corporate” are the same as those described in (a) Business segment information.

(Additional Information) In 2008, as discussed in Note 2 (8), due to the revision of the Corporation Tax Law, for property, plant and equipment acquired on or before March 31, 2007, and whose book values have been reduced to 5% of the acquisition price by a depreciation method based on the pre-revision Corporation Tax Law, the difference between the equivalent of 5% of acquisition price and memorandum price is depreciated in equal amounts over the five-year period beginning with the year following the year when the book value reached 5%. However, the Company and certain consolidated subsidiaries adopt this method for property, plants and equipment acquired on or before June 30, 2007. The effect of this change in accounting method was to increase operating expenses of “Japan” by ¥2,263 million ($24,859 thousand), and was to decrease operating income by the same amount, compared with what would have been recorded under the previous method. There was no effect on the operating income of other segments. In 2007, as discussed in Note 2 (11), effective from the year ended December 31, 2007, the Company and several consolidated subsidiaries recorded “Allowance for employees’ bonuses” to comply with the Company’s revised rules for payment of employees’ bonuses. The effect of this change in accounting method was to increase operating expenses of the “Japan” segment by ¥1,708 million and was to decrease operating income by the same amount compared with what would have been recorded under the previous method. There was no effect on the operating income of other segments.

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(c) Overseas sales

Year ended December 31, 2008 Asia / Oceania Others Total

(Millions of yen) Overseas sales, net of liquor taxes ¥464,130 ¥107,110 ¥571,240 Consolidated sales, net of liquor taxes - - 1,922,877 Percentage of overseas sales over consolidated sales 24.1% 5.6% 29.7%






(Thousands of U.S. dollars) (Note 1)

Overseas sales, net of liquor taxes $5,098,648 $1,176,645 $6,275,293 Consolidated sales, net of liquor taxes - - 21,123,552

Geographical distances are considered in classification of country or area. Major countries or areas included in each segment are as follows:

Asia, Oceania East Asia, Southeast Asia, Oceania Others U.S.A., Europe

Overseas sales represent sales of the Company and consolidated subsidiaries to countries and areas outside of Japan.

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20. LEASE TRANSACTIONS

(a) Lessee lease – Finance lease Finance leases, except for those leases under which the ownership of the leased assets is considered to be transferred to the lessee, accounted for in the same manner as operating leases, are as follows: (1) Purchase price equivalents, accumulated depreciation equivalents and book value equivalents of leased properties


December 31, 2008 2007 2008

(Millions of yen)


(Note 1) Machinery, equipment and vehicles:

Purchase price equivalents ¥2,690 ¥2,610 $29,550 Accumulated depreciation equivalents 1,571 1,497 17,258 Book value equivalents 1,118 1,113 12,281

Other property, plant and equipment (tools and equipment): Purchase price equivalents 7,440 5,131 81,731 Accumulated depreciation equivalents 3,465 2,882 38,064 Book value equivalents 3,974 2,248 43,655

Other intangible assets: Purchase price equivalents 1,958 - 21,509 Accumulated depreciation equivalents 200 - 2,197 Book value equivalents 1,757 - 19,301

Total Purchase price equivalents 12,089 7,742 132,802 Accumulated depreciation equivalents 5,237 4,379 57,530 Book value equivalents ¥6,851 ¥3,362 $75,260

(Note) In 2008, some consolidated subsidiaries calculated purchase price equivalents based on the inclusive-of-interest method. (2) Lease commitments


December 31, 2008 2007 2008 (Thousands of (Millions of yen) U.S. dollars) (Note 1)

Due within one year ¥2,149 ¥1,367 $23,607 Due over one year 4,857 2,104 53,356 Total ¥7,007 ¥3,472 $76,974 (Note) In 2008, some consolidated subsidiaries calculated lease commitments based on the inclusive-of-interest method.

(3) Lease expenses, depreciation equivalents and interest expense equivalents


December 31, 2008 2007 2006 2008

(Millions of yen) (Thousands of

U.S. dollars) (Note 1)

Lease expenses ¥2,301 ¥1,723 ¥2,167 $25,277 Depreciation equivalents 2,102 1,575 1,935 23,091 Interest expense equivalents 123 78 101 1,351

(4) Calculation method of depreciation equivalents

Depreciation equivalents are calculated on the straight-line method over the lease terms without residual value.

(5) Allocation of interest expense equivalents Differences between total lease expenses and purchase price equivalents of the leased properties comprise interest expense equivalents and insurance, maintenance and certain other operating costs. Interest expense equivalents are allocated using the interest method over the lease terms.

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(b) Lessee lease - Operating lease The Company and consolidated subsidiaries have lease commitments under non-cancelable operating leases as follows.

December 31, December 31, 2008 2007 2008 (Thousands of (Millions of yen) U.S. dollars) (Note 1)

Due within one year ¥4,858 ¥3,860 $53,367 Due over one year 16,067 11,856 176,502 Total ¥20,926 ¥15,717 $229,880

21. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES AND AFFILIATES Investments in unconsolidated subsidiaries and affiliates at December 31, 2008 and 2007* were as follows:

Year ended December 31,

Year ended December 31,

2008 2007 2008 (Millions of yen)


(Note 1)

Investment securities (Capital stock) ¥151,544 ¥318,064 $1,664,769 Investments and other assets―other (Other than capital stock) 2,375 805 26,090

*Figures for 2008 and 2007 include the cost of investment in jointly-controlled companies, amounting to ¥31,070 million ($341,316 thousand) and ¥32,985 million, respectively.

22. NET ASSETS Under the Japanese Corporation Law (“the Law”) and regulations, the entire amount paid for new shares is required to be designated as common stock. However, a company may, by a resolution of the Board of Directors, designate an amount not exceeding one-half of the price of the new shares as additional paid-in capital, which is included in capital surplus. In cases where dividend distribution of surplus is made, the smaller of an amount equal to 10% of the dividend or the excess, if any, of 25% of common stock over the total of additional paid-in-capital and legal earnings reserve must be set aside as additional paid-in-capital or legal earnings reserve. Legal earnings reserve is included in retained earnings in the accompanying consolidated balance sheets. Additional paid-in capital and legal earnings reserve may not be distributed as dividends. However, all additional paid-in-capital and all legal earnings reserve may be transferred to other capital surplus and retained earnings, respectively, which are potentially available for dividends. The maximum amount that the Company can distribute as dividends is calculated based on the non-consolidated financial statements of the Company in accordance with the Law.

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23. NOTES TO THE CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS The consolidated statements of changes in net assets for the year ended December 31, 2008 is as follows: 1. Type and number of shares outstanding and treasury stock

Type of shares outstanding Type of treasury stock

Common stock Common stock

Number of shares as of December 31, 2007 984,508,387 29,779,060

Number of shares increased during the accounting period ended December 31, 2008

- 883,269

Number of shares decreased during the accounting period ended December 31, 2008

- 504,415

Number of shares as of December 31, 2008 984,508,387 30,157,914 Notes:

1. Increase in the number of shares was due to purchases of partial share units. 2. Decrease in the number of shares was due to sales of partial share units.

2. Subscription rights to shares and treasury subscription rights to shares

Description of subscription rights Subscription rights as stock options

Type of shares for subscription rights -

Number of shares for subscription rights

Number of shares as of December 31, 2007 -


-


-

Number of shares as of December 31, 2008 -

Amount outstanding as of December 31, 2008 ¥162 million ($1,779 thousands) 3. Matters related to dividends (1) Dividend payment Approvals by ordinary general meeting of shareholders held on March 26, 2008 were as follows: Dividend on Common stock a. Total amount of dividend ¥11,456 million ($125,848 thousand) b. Dividend per share ¥12.00 c. Record date December 31, 2007 d. Effective date March 27, 2008 Approvals by the Board of Directors meeting on August 4, 2008 were as follows: Dividend on Common stock a. Total amount of dividend ¥10,975 million ($120,564 thousand) b. Dividend per share ¥11.50 c. Record date June 30, 2008 d. Effective date September 8, 2008 (2) Dividends whose record date is attributable to the accounting period ended December 31, 2008 but to be effective after the said accounting period. The Company received approval at the general meeting of shareholders held on March 26, 2009 as follows: Dividend on Common stock a. Total amount of dividend ¥10,975 million ($120,564 thousand) b. Funds for dividend Retained earnings c. Dividend per share ¥11.50 d. Record date December 31, 2008 e. Effective date March 27, 2009

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The consolidated statements of changes in net assets for the year ended December 31, 2007 is as follows: 1. Type and number of shares outstanding and treasury stock

Type of shares outstanding Type of treasury stock

Common stock Common stock

Number of shares as of December 31, 2006 984,508,387 29,155,714


- 982,492


- 359,146

Number of shares as of December 31, 2007 984,508,387 29,779,060 Notes:

1. Increase in the number of shares was due to purchases of partial share units. 2. Decrease in the number of shares was due to sales of partial share units.

2. Matters related to dividends (1) Dividend payment Approvals by ordinary general meeting of shareholders held on March 28, 2007 were as follows: Dividend on Common stock a. Total amount of dividend ¥8,598 million b. Dividend per share ¥9.00 c. Record date December 31, 2006 d. Effective date March 29, 2007 Approvals by the Board of Directors meeting on August 3, 2007 were as follows: Dividend on Common stock a. Total amount of dividend ¥8,594 million b. Dividend per share ¥9.00 c. Record date June 30, 2007 d. Effective date September 10, 2007 (2) Dividends whose record date is attributable to the accounting period ended December 31, 2007 but to be effective after the said accounting period. The Company received approval at the general meeting of shareholders held on March 26, 2008 as follows: Dividend on Common stock a. Total amount of dividend ¥11,456 million b. Funds for dividend Retained earnings c. Dividend per share ¥12.00 d. Record date December 31, 2007 e. Effective date March 27, 2008

24. NOTES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS

(a) Reconciliation of cash Reconciliation of cash in the consolidated balance sheets and cash and cash equivalents in the consolidated statements of cash flows is as follows: December 31, December 31, 2008 2007 2006 2008


(Note 1) Cash ¥72,662 ¥55,009 ¥89,483 $798,220 Marketable securities 762 246 675 8,370 Fixed term deposits over 3 months (4,204) (2,550) (2,778) (46,182) Equity securities and bonds, etc. with maturities exceeding 3 months (762) (246) (675) (8,370)

Short-term loans payable (bank overdraft) - (150) (115) - Cash and cash equivalents ¥68,457 ¥52,307 ¥86,588 $752,026

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(b) Assets and liabilities of newly consolidated subsidiaries by acquisition of shares

Assets and liabilities of newly consolidated subsidiaries by acquisition of shares at the inception of their consolidation, related acquisition cost and net expenditure for acquisition of shares are as follows: December 31, December 31, 2008 2007 2006 2008


(Note 1) Current assets ¥23,268 ¥55,244 ¥64,285 $255,608 Fixed assets 31,285 109,453 37,480 343,677 Goodwill 51,907 164,271 2,974 570,218 Current liabilities (16,125) (247,001) (34,429) (177,139) Long-term liabilities (15,978) (4,752) (16,094) (175,524) Minority interests (46) (249) (25,135) (505) Acquisition cost of shares 74,311 76,965 29,082 816,335 Payment during the previous year - - 2,386 - Accounts payable (319) (960) - (3,504) Cash and cash equivalents of the acquired companies (585) (5,414) (5,215) (6,426) Payment for acquisition of shares of newly consolidated

subsidiaries ¥73,407 ¥70,589 ¥26,253 $806,404

As of December 31, 2007, current liabilities include short-term loans of ¥150,284 million payable to consolidated subsidiaries.

(C) Significant Noncash Transaction Assets and liabilities of former Kyowa Hakko Kogyo Co., Ltd. at the time it was included in the scope of consolidation due to additional acquisition of shares are as follows:

December 31, December 31, 2008 2007 2006 2008


(Note 1) Current assets ¥ 235,695 ¥ - ¥ - $ 2,589,201 Fixed assets 225,788 - - 2,480,369 Goodwill 128,868 - - 1,415,665 Total assets 590,352 - - 6,485,246 Current liabilities 117,957 - - 1,295,803 Long-term liabilities 53,964 - - 592,815 Total liabilities ¥ 171,922 ¥ - ¥ - $ 1,888,630 As of December 31, 2008, current assets include cash and cash equivalents of ¥43,740 million ($480,500 thousand) at the inception of consolidation, which is included in “Net increase (decrease) in cash and cash equivalents from new consolidation/de-consolidation of subsidiaries.”

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25. DEFERRED INCOME TAXES

Significant components of deferred tax assets and liabilities as of December 31, 2008 and 2007 were as follows:



(Note 1) Deferred tax assets:

Employees’ pension and retirement benefits ¥33,177 ¥24,029 $364,462 Loss carried forward 16,138 10,809 177,282 Depreciation 13,884 6,426 152,521 Deemed dividend 9,520 - 104,580 Deferred charges 6,821 7,312 74,931 Loss on impairment of fixed assets 6,675 5,442 73,327 Foreign currency translation loss of foreign subsidiaries 6,585 - 72,338 Unrealized gains on fixed assets - 4,000 - Other 71,367 47,525 783,994

Sub-total 164,172 105,547 1,803,493 Less valuation allowance (51,293) (19,254) (563,473) Total deferred tax assets 112,879 86,292 1,240,019 Deferred tax liabilities:

Net unrealized holding gains on securities (32,121) (78,146) (352,861) Adjustment of book value based on fair value (29,973) - (329,265) Depreciation of foreign subsidiaries (16,145) (18,565) (177,359) Reserve for deferred gains on sale of property (12,695) (10,018) (139,459) Prepaid pension cost (7,093) (6,196) (77,919) Temporary differences related to investments to consolidated

subsidiaries (5,495) - (60,364)

Other (7,602) (7,474) (83,510) Total deferred tax liabilities (111,126) (120,401) (1,220,762) Net deferred tax liabilities 1,752 (34,109) 19,246 Deferred tax asset due to land revaluation:

Deferred tax asset due to land revaluation 617 617 6,777 Less valuation allowance (617) (617) (6,777) Total deferred tax asset due to land revaluation - - -

Deferred tax liability due to land revaluation:

Deferred tax liability due to land revaluation (1,471) (1,471) (16,159) Net deferred tax liability due to land revaluation ¥(1,471) ¥(1,471) $(16,159)

Deferred tax assets and liabilities were included in the consolidated balance sheets as of December 31, 2008 and 2007 as follows: December 31, December 31, 2008 2007 2008


(Note 1) Current assets ― Deferred tax assets ¥22,991 ¥19,906 $252,565 Fixed assets ― Deferred tax assets 34,700 34,583 381,193 Current liabilities ― Other (158) (270) (1,735) Long-term liabilities ― Deferred tax liabilities (55,780) (88,329) (612,765)

The description of significant differences between the statutory tax rate and the effective tax rate for the years ended December 31, 2008 and 2007 is omitted because the difference between the statutory tax rate and the effective tax rate is less than 5% of the statutory tax rate.

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26. DERIVATIVE TRANSACTIONS

Derivative financial instruments currently utilized by the Company and consolidated subsidiaries include currency forward contracts, currency option contracts, currency swap contracts, interest rate future contracts, interest rate option contracts, interest rate swap contracts, commodity swap contracts, commodity option contracts and commodity forward contracts.

Interest rate derivatives such as interest rate future, interest rate option and interest rate swap are utilized to hedge fluctuation risk of interest rates with respect to loans receivable and loans payable. In 2008, currency derivatives such as currency forwards, currency options and currency swaps are utilized to hedge fluctuation risk of foreign currency exchange rates with respect to receivables and payables from import transactions of raw materials and others and receivables and payables and others in foreign currencies. In 2007, currency derivatives such as currency forwards, currency options and currency swaps are utilized to hedge fluctuation risk of foreign currency exchange rates with respect to receivables and payables from import transactions of raw materials and others and the issue of bonds and others in foreign currencies. Commodity derivatives such as commodity swaps, commodity options and commodity forwards are utilized to hedge fluctuation risk of the price of raw materials and others on purchase transactions. The Company and consolidated subsidiaries do not enter into derivative contracts for speculative purposes. The Company and consolidated subsidiaries evaluate hedging effectiveness semi-annually by comparing the cumulative changes in cash flows from or the changes in fair value of hedged items with corresponding changes in the hedging instruments. The derivatives contracts utilized by the Company and consolidated subsidiaries are exposed to the fluctuation risks of market interest rates, foreign currency exchange rates, and the price of raw materials and others. However, the credit risks associated with these derivatives are considered low because the counter parties of these derivative contracts are prime financial institutions with high credit standing and therefore it is anticipated that those counter parties are able to fully satisfy their obligations under the contracts. The administration and control of these derivative transactions are in accordance with the “Accounting Policies” authorized at the management meeting of the Company or by the board of directors of consolidated subsidiaries. The size of the amount of the derivative contracts does not necessarily indicate the significance of the risk.

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The fair value of the derivative contracts utilized by the Company and consolidated subsidiaries was as follows: Currency-related transactions

Year ended December 31, 2008 Year ended December 31, 2008

Classification Type of

transaction Notional amount

Portion due after one

year included herein

Fair value

Unrealized gain (loss)

Notional amount

Portion due after one

year included herein

Fair value Unrealized gain (loss)

(Millions of yen) (Thousands of U.S. dollars) (Note 1) Non-market transactions

Foreign exchange forward contracts

Sell US dollar ¥2,231 ¥ - ¥2,080 ¥151 $24,508 $ - $22,849 $1,658 Euro 2,386 - 2,388 (1) 26,211 - 26,233 (10) Yen 262 - 313 (50) 2,878 - 3,438 (549) Currency swap Receive yen

pay Australian dollar 73,887 61,047 23,541 23,541 811,677 670,625 258,607 258,607

Receive yen pay US dollar 4,072 - (5) (5) 44,732 - (54) (54)

Total ¥ 82,841 ¥61,047 ¥28,317 ¥ 23,635 $910,040 $670,625 $311,073 $259,639

(i) Fair value is based on the prices obtained from forward exchange market or financial institutions. (ii) Derivative transactions utilized by the Company and consolidated subsidiaries other than the above are treated under hedge accounting

rules, and are not included in the above. Interest-related transactions

Year ended December 31, 2008 Year ended December 31, 2008

Classification Type of

transaction Notional amount

Portion due after one year

included herein

Fair value

Unrea- lized gain (loss)

Notional amount

Portion due after one year

included herein

Fair valueUnrea-

lized gain (loss)

(Millions of yen) (Thousands of U.S. dollars) (Note 1) Non-market transactions

Interest rate swap Receive fixed, pay floating ¥1,041 ¥1,041 ¥(10) ¥(10) $11,435 $11,435 $(109) $(109)

Receive floating, pay fixed 1,041 1,041 (9) (9) 11,435 11,435 (98) (98)

Receive floating, pay floating 2,000 - 2 2 21,970 - 21 21

Interest rate cap Buy 14,179 1,657 6 6 155,761 18,202 65 65 Interest rate floor Sell 26,701 1,657 (693) (693) 293,320 18,202 (7,612) (7,612) Buy 12,522 - 255 255 137,559 - 2,801 2,801 Total ¥57,486 ¥5,398 ¥(448) ¥(448) $631,506 $59,299 $(4,921) $(4,921)

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Classification Type of transaction Notional amountPortion due after one year included

herein

Fair value

Unrealized gain (loss)

(Millions of yen) Non-market transactions

Interest rate swap Receive fixed, pay floating ¥ 1,308 ¥ 1,308 ¥ (71) ¥ (71)

Receive floating, pay fixed 11,326 1,308 70 70 Receive floating, pay floating 2,000 2,000 4 4 Interest rate cap Buy 2,033 2,033 26 26 Interest rate floor Sell 2,033 2,033 (2) (2) Total ¥ 18,701 ¥ 8,683 ¥ 26 ¥ 26

(i) Fair value of swaps is based on the prices obtained from the financial institutions. (ii) Derivative transactions utilized by the Company and consolidated subsidiaries other than the above are treated under hedge accounting

rules, and are not included in the above. (iii) The notional amounts of derivatives shown in the above do not reflect the market risk exposure of the Company and consolidated

subsidiaries.

27. EMPLOYEES’ PENSION AND RETIREMENT BENEFITS

The Company and consolidated domestic subsidiaries provide four types of contributory defined benefit plans, namely: the lump-sum severance payment plan; the defined benefit corporate pension plan; the employees’ pension fund plan; and the tax-qualified pension plan. The Company and several consolidated subsidiaries provide defined contribution plans and/or defined benefit plans. Extra payments may be added upon retirement of employees. (a) Liabilities for employees’ pension and retirement benefits The liabilities for employees’ pension and retirement benefits included in the liability section of the consolidated balance sheets as of December 31, 2008 and 2007 consisted of the following:


(Millions of yen) (Thousands of

U.S. dollars) (Note 1)

Projected benefit obligation ¥(313,911) ¥(246,583) $(3,448,434) Fair value of plan assets 177,442 171,200 1,949,269 Unfunded pension obligation (136,468) (75,383) (1,499,154) Unrecognized actuarial differences 73,132 34,229 803,383 Unrecognized prior service cost (deduction of obligation) (3,693) (4,136) (40,569) Net of employees’ pension and retirement benefit obligation (67,030) (45,290) (736,350) Prepaid pension cost 15,674 14,897 172,184 Employees’ pension and retirement benefits ¥(82,704) ¥(60,188) $(908,535)

A number of consolidated subsidiaries calculated projected benefit obligations using the simplified method.

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(b) Employees’ pension and retirement benefits expenses Included in the consolidated statements of income for the years ended December 31, 2008, 2007 and 2006 were employees’ pension and retirement benefit expenses comprising the following: December 31, December 31, 2008 2007 2006 2008


(Note 1) Service cost ¥10,428 ¥7,930 ¥7,747 $114,555 Interest cost 7,048 5,770 5,671 77,425 Expected return on plan assets (5,329) (4,471) (4,001) (58,541) Amortization of actuarial differences 4,423 3,438 2,846 48,588 Amortization of prior service cost (442) (439) (120) (4,855) Premium for defined contribution pension plan 2,515 2,343 1,429 27,628 Employees’ pension and retirement benefit expenses 18,643 14,572 13,572 204,800 Loss due to the change in the pension and retirement benefit plans - - 2,126 -

Total ¥18,643 ¥14,572 ¥15,698 $204,800 Employees’ contribution to the defined benefit corporate pension plan and others is excluded for the years ended December 31, 2008, 2007 and 2006. Employees’ pension and retirement benefit expenses of consolidated subsidiaries using the simplified method are included for the years ended December 31, 2008, 2007 and 2006. In addition to the above employees’ pension and retirement benefit expenses, premium on employees’ retirement benefits was recognized as “Business restructuring expense” in special expenses, amounting to ¥ 3,208 million ($35,241 thousand) and as “Loss on liquidation of business” in special expenses, amounting to 799 million ($8,777 thousand). For the years ended December 31, 2007 and 2006, such premium was recognized and included in “Business restructuring expense” in special expense, amounting to ¥28 million and ¥584 million, respectively.

Assumptions used for the years ended December 31, 2008, 2007 and 2006 were set forth as follows:

December 31, 2008 2007 2006

Discount rate Mainly 2.5% Mainly 2.5% Mainly 2.5% Expected rate of return on plan assets Mainly 2.5% Mainly 2.5% Mainly 2.5% Amortization of unrecognized prior service cost Mainly 5-15 years Mainly 13-15 years Mainly 15 years Amortization of unrecognized actuarial differences Mainly 10-15 years Mainly 13-15 years Mainly 15 years

The estimated amount of all retirement benefits to be paid at the future retirement dates is allocated equally to each service year using the estimated number of total service years.

28. STOCK OPTIONS 1. The amount and account title related to the stock option plans for the year ended December 31, 2008 Selling, general and administrative expenses ¥68 million ($747 thousand) 3. The stock options outstanding as of December 31, 2008 are as follows. Consolidated Subsidiary (Kyowa Hakko Kirin Co., Ltd.)

Stock Option Grantees’ Position Number of Options Granted Date of Grant Exercise Price

2005 Stock Option 6 directors 13 managing officers

Common stock 133,000 shares June 28, 2005 ¥1 ($0.010)







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Stock Option Vesting condition Applicable period of service Exercisable period

2005 Stock Option No provisions No provisions June 29, 2005 - June28, 2025 2006 Stock Option No provisions No provisions June30, 2006 - June28, 2026 2007 Stock Option No provisions No provisions June22, 2007 - June20, 2027 2008 Stock Option No provisions No provisions June26, 2008 - June24, 2028

(Note) Number of subscription rights to shares is expressed in number of shares to be issued upon exercise.

Scale and movement of stock options The following tables are based on the stock options which existed as of December 31, 2008. Number of stock options is expressed in number of shares to be issued upon exercise. Number of Stock Options 2005 Stock Option 2006 Stock Option 2007 Stock Option 2008 Stock Option Number of shares Number of shares Number of shares Number of shares Non-vested

December 31, 2007-Outstanding - - - - Granted - - - 91,000 Forfeited - - - - Vested - - - 91,000 December 31, 2008-Outstanding - - - -

Vested December 31, 2007-Outstanding 81,000 83,000 92,000 - Vested - - - 91,000 Exercised 20,000 25,000 31,000 9,000 Forfeited - - - - December 31, 2008-Outstanding 61,000 58,000 61,000 82,000

(Note) The above table refers to activity on or after April 1, 2008, when former Kyowa Hakko Kogyo Co., Ltd. (now Kyowa Hakko Kirin Co., Ltd.) became a consolidated subsidiary of the Company. Therefore, the number of shares of “December 31, 2007-Outstanding” represents shares outstanding at April 1, 2008.

3. The price information of stock options as of December 31, 2008 2005 Stock Option 2006 Stock Option 2007 Stock Option 2008 Stock Option

Exercise price (yen) 1 1 1 1 Average market price of the stock at the

time of exercise (yen) 1,112 1,095 1,077 1,146

Fair valuation price (date of grant) (yen) - 705 1,140 1,038 4. Method of estimating the fair value of stock options The fair value of the 2008 Stock Option is estimated using the Black-Scholes model. The following assumptions were used to determine the fair value.

Share price variability (Note 1) 5.8% Projected remaining period (Note 2) 2 years Projected dividends (Note 3) ¥20 per share Risk-free interest rate (Note 4) 0.42%

(Notes) 1. Calculated based on share price results over two years (from June 2006 to May 2008). 2. Calculated by subtracting the average years of service of present office holders from the average years of service of retirees over the past

five years. 3. Based on dividends for the year ended March 31, 2009 for Kyowa Hakko Kirin. 4. The rate of return on government bonds over the projected remaining period.

5. The method reflecting actual expirations is used because reasonable estimations of the future expirations are difficult.

29. REVALUATION OF LAND

Kirin Beverage Co., Ltd., a consolidated subsidiary, revalued land used for business on December 31, 2001 pursuant to the Law Concerning Land Revaluation (enacted on March 31, 1998) (the “Law”) and related revision of the Law (effective March 31, 2001). Due to revaluation of land in assets, the revaluation difference of the portion attributable to the interests held by the Company was accounted for as “Land revaluation difference” in net assets. Revaluation was performed by adjusting the road rating pursuant to Article 2, Item 4 of the Enforcement Ordinance for the Law Concerning Revaluation Reserve for Land enacted on March 31, 1998. Where the road rating was not provided, adjusted valuation of real estate tax prescribed in Article 2, Item 3 of the Law was used.

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(Note 1) Difference between the fair value and carrying amount of the revalued land ¥4,763 ¥5,122 $52,323

30. RELATED PARTY TRANSACTIONS

For the year ended December 31, 2008 Description is omitted because there were no material related party transactions. For the year ended December 31, 2007 Group companies

Relationship Attribute Name Domicile Capitali-

zation Nature of operation

Equity ownership

by the Company

Interlocking of directors

Operational relationship

Nature of transaction

Trading amount

(Millions of yen)

AccountBalance at year end

(Millions of yen)

Affiliate SAN MIGUEL CORPORATION

Metro- Manila, the Philippines

16,109 million pesos

Manufactur-ing and sales of beer

19.9% direct

Interlock- ing: 1Seconded: 2

– Lending funds 37,000 Short-term

loan –

Note: Loan interest rates are decided rationally with due consideration of market interest rates.

31. BUSINESS COMBINATIONS For the year ended December 31, 2008

Application of purchase method The Company, former Kirin Pharma Company, Limited (now Kyowa Hakko Kirin Co., Ltd.: “Kirin Pharma”), and former Kyowa Hakko Kogyo Co., Ltd. (now Kyowa Hakko Kirin Co., Ltd.: “Kyowa Hakko Kogyo”), pursuant to the resolutions made at the respective meetings of the Boards of Directors of the three companies, have concluded a "Share Exchange Agreement" relating to a share exchange resulting in Kyowa Hakko Kogyo becoming the absolute parent company, and Kirin Pharma becoming a wholly owned subsidiary (the "Share Exchange") on October 22, 2007. Approval for the Share Exchange was obtained at the extraordinary general meeting of shareholders of Kyowa Hakko Kogyo held on February 29, 2008, and at the Ordinary General Meeting of Shareholders of Kirin Pharma held on March 26, 2008. The Share Exchange was executed with an effective date of April 1, 2008. Although Kyowa Hakko Kogyo became the absolute parent company and Kirin Pharma became a wholly owned subsidiary as the result of the Share Exchange, the Company became the parent company of Kyowa Hakko Kogyo through the acquisition by the Company of the shares of common stock of Kyowa Hakko Kogyo partly through the Share Exchange and partly through the acquisition of shares of common stock of Kyowa Hakko Kogyo on the open market during a tender offer period from October 31, 2007 to December 6, 2007. Accordingly, the Share Exchange is accounted for as a “reverse acquisition,” with Kirin Pharma as the acquiring company and Kyowa Hakko Kogyo as the acquired company and the purchase method was to be applied based on Accounting Standard for Business Combinations (ASBJ) and Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures (ASBJ Guidance No. 10). (1) Trade name and business description of acquired company, main reasons for business combination, date of business combination, legal

description of business combination, trade name and share of acquired voting rights after business combination (a) Trade name and business description of acquired company

Acquired company: Kyowa Hakko Kogyo Co., Ltd. (now Kyowa Hakko Kirin Co., Ltd.) Business description: Production and sales of pharmaceutical products for medical professionals, raw materials for pharmaceutical/industrial use, healthcare products, products for the agriculture and livestock industry and the fishing industry, alcohol, etc.

(b) Main reasons for business combination

Both Kyowa Hakko Kogyo and Kirin Pharma, have common biotechnological strengths centered on antibody drug technology, and aim to improve their drug development capabilities by integrating their antibody drug technologies; expand opportunities to acquire novel antigens through an improved presence in the antibody drug sector; and increase development speed of antibody drugs by mutually exploiting each other’s antibody technologies while proactively developing business overseas. Furthermore, the integration of Kyowa Hakko Kogyo and Kirin Pharma is expected to result in an increase in the scale of research and development and marketing, the establishment of a more efficient business operations systems and the further strengthening of the profitability and competitiveness of their pharmaceutical business: all of which is expected to contribute to a stronger operational base. To ensure these outcomes are effectively realized, an absorption-type merger (the “Merger”) has excuted through which Kyowa Hakko Kogyo has become the surviving company and Kirin Pharma has become the merging company. In the meantime, through this business combination, Kirin Pharma has become a wholly owned subsidiary of Kyowa Hakko Kogyo as a way of expediting the preparatory work for the subsequently planned Merger.

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(c) Date of business combination

April 1, 2008 (d) Legal description of business combination

Share Exchange resulting in Kyowa Hakko Kogyo becoming the absolute parent company, and Kirin Pharma becoming a wholly owned subsidiary of Kyowa Hakko Kogyo. By purchasing shares of common stock of Kyowa Hakko Kogyo through the tender offer, the Company acquired a share of 27.95% of total issued shares of Kyowa Hakko Kogyo. As part of the subsequent Share Exchange, Kyowa Hakko Kogyo issued shares of common stock to Kirin Pharma’s parent company, the Company, to make the Company a parent company of Kyowa Hakko Kogyo that owns shares equivalent to 50.10% of total issued shares of Kyowa Hakko Kogyo.

(e) Trade name after business combination

Kyowa Hakko Kogyo Co., Ltd. (now Kyowa Hakko Kirin Co., Ltd.) Note that as part of the planned absorption-type merger between Kyowa Hakko Kogyo and Kirin Pharma effective on October 1, 2008 (the surviving company has become Kyowa Hakko Kogyo), the trade name was changed to Kyowa Hakko Kirin Co., Ltd. For this absorption-type merger, Kyowa Hakko Kirin applied the “transactions under common control accounting treatment.”

(f) Share of voting rights acquired by the Company

50.77% (2) Period of operation of acquired company included in consolidated financial statements

April 1, 2008 to December 31, 2008

Note that the acquired company was an affiliate accounted for under the equity method during the period January 1, 2008 to March 31, 2008. (3) Acquisition cost of acquired company and its breakdown

Consideration for acquisition ¥271,547 million ($2,983,049 thousand)Expenditure directly required for acquisition Advisory fees etc. ¥1,195 million ($13,127 thousand)Acquisition cost ¥272,743 million ($2,996,188 thousand)

The above amount listed as consideration paid on acquisition includes not only ¥105,980 million ($1,164,231 thousand) in shares of common stock of Kirin Pharma, but also the portion of acquisition that was by shares purchased in the tender offer and changes of book value of investment accounted by the equity method [(¥1,800) million, ($19,773) thousand]. Note that the amount of consideration paid on acquisition for the Share Exchange was based on the market price of Kyowa Hakko Kogyo shares because Kyowa Hakko Kogyo is a public company and Kirin Pharma is a private company.

(4) The share exchange ratio by type of share, the basis for its calculation, and the number and value of shares delivered (a) Share exchange ratio by type of share

Kyowa Hakko Kogyo allocated and delivered 8,862 shares of its common stock for one (1) share of common stock of Kirin Pharma. (b) Basis for calculation of share exchange ratio

Concerning Kyowa Hakko Kogyo's and Kirin Pharma’s basis for calculation of the share exchange ratio, Kyowa Hakko Kogyo appointed Merrill Lynch Japan Securities Co., Ltd. (“Merrill Lynch”) and Kirin Pharma appointed JPMorgan Securities Japan Co., Ltd. (“JPMorgan”) as the financial advisors. Merrill Lynch, to calculate the share exchange ratio, employed various analyses, including discounted cash flow analysis, comparable companies analysis, market price analysis, comparable transactions analysis, contribution analysis, earnings per share accretion/dilution analysis, value creation analysis, and reviewed and considered such analyses as a whole. JPMorgan, to calculate the share exchange ratio, employed various analyses, including comparable companies analysis, discounted cash flow analysis, and profit contribution analysis. While referring to the analysis results of the respective financial advisors, the relevant parties engaged in deliberation to decide on the share exchange ratio.

(c) Number and value of shares delivered

Number of delivered shares 177,240,000 shares Value of delivered shares ¥105,980 million ($1,164,231 thousand)

(5) Amount of goodwill, reason that the goodwill arose, and method and period of amortization (a) Amount of goodwill

¥128,868 million ($1,415,665 thousand) (b) Reason that the goodwill arose

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The goodwill arose from the future excess profitability that is expected, including synergetic factors, as a result of expanding business. The amount of goodwill listed above takes into account the premium payment made for the purchase of shares in the tender offer.

(c) Method and period of amortization

Straight-line method over a period of 20 years (6) Amounts of assets and liabilities received and incurred on the date of business combination and breakdown

Current assets ¥235,695 million ($2,589,201 thousand)Fixed assets ¥225,788 million ($2,480,369 thousand)Total assets ¥461,484 million ($5,069,581 thousand)Current liabilities ¥117,957 million ($1,295,803 thousand)Long-term liabilities ¥53,964 million ($592,815 thousand)Total liabilities ¥171,922 million ($1,888,630 thousand)

Note: “Amount of goodwill” in (5) (a) is not included in amounts of assets and liabilities. (7) Estimated impact on the consolidated statement of income for the current fiscal year, assuming the business combination had been completed at

the beginning of the current fiscal year Sales ¥94,438 million ($1,037,438 thousand) Operating income ¥5,373 million ($59,024 thousand) Ordinary income ¥4,877 million ($53,575 thousand) Income before income taxes and minority interests ( ¥1,057) million [($11,611) thousand]Net income (¥666) million [($7,316) thousand]Net income per share (¥0.70) [($0.0076)]

Basis for calculation of estimate and significant assumptions 1. The estimated impact provided above expresses the difference between the estimated sales and earnings data assuming that the business

combination had been completed at the beginning of the current fiscal year and the actual sales and earnings data presented in the Company’s consolidated statement of income. Equity in earning of affiliates for the period before the completion of the Share Exchange has been reported in the consolidated statement of income.

2. Net income per share has been calculated based on division by 954,466 thousand shares, the average number of shares for the year. 3. The above notes are not audited.

Completion of procedures for allocation of acquisition cost Kirin Holdings (Australia) Pty Ltd, a consolidated subsidiary of the Company acquired all the issued shares of San Miguel Foods Australia Holdings Pty Ltd, a consolidated subsidiary of San Miguel Corporation which is an equity-method affiliate of the Company, for cash on December 28, 2007. On January 2, 2008, San Miguel Foods Australia Holdings Pty Ltd changed its name to Kirin Foods Australia Holdings Pty Ltd. Since the acquisition was implemented immediately before the balance sheet date, provisional accounting treatment was applied for all assets and liabilities of Kirin Foods Australia and its subsidiaries in accordance with the provision of Paragraph 69 of the “Guidance for Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures”, issued by the Accounting Standards Board Guidance No. 10. However, in the current fiscal year, the procedures for allocation of acquisition cost have been completed, the impact of adjustments of allocation to assets and liabilities were immaterial.

For the year ended December 31, 2007 Kirin Holdings (Australia) Pty Ltd, a subsidiary of the Company acquired all the issued shares of San Miguel Foods Australia Holdings Pty Ltd, a consolidated subsidiary of San Miguel Corporation which is an equity-method affiliate of the Company, for cash on December 28, 2007. On January 2, 2008, San Miguel Foods Australia Holdings Pty Ltd changed its name to Kirin Foods Australia Holdings Pty Ltd. Since the acquisition was implemented immediately before the balance sheet date, provisional accounting treatment was applied for all assets and liabilities of Kirin Foods Australia and its subsidiaries in accordance with the provision of Paragraph 69 of the “Guidance for Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures”, issued by the Accounting Standards Board Guidance No. 10. ¥165,500 million of goodwill was recorded for the fiscal year by this consolidation of Kirin Foods Australia and its subsidiaries. The procedure of allocation of acquisition cost had not been completed as of the filing date of the securities report.

32. SUBSEQUENT EVENTS Sale of Shares in San Miguel Corporation and Share Acquisition in San Miguel Brewery, Inc. On February 20, 2009, the Board of Directors of the Company made a resolution to sell entire shares in San Miguel Corporation (SMC) which is an affiliated company accounted for by the equity method to Q-Tech Alliance Holdings, Inc. On the same date, the Company and Q-Tech Alliance Holdings, Inc. have entered into a Share Sale Agreement, and the Company and SMC have entered into a Share Purchase Agreement by which the Company purchases the shares in San Miguel Brewery (SMB), Inc., a domestic beer business subsidiary of SMC in the Philippines.

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Purpose of Sale of SMC shares and Acquisition of SMB Shares

The Group's long-term business vision, as outlined in "Kirin Group Vision 2015 (KV2015)", is to be a leading company in the domains of food and health in Asia and Oceania. Through the sale of SMC shares and the purchase of SMB shares, the Company will be able to focus its investment in the alcohol beverages business in Asia and Oceania. Summary of the Sale of SMC Shares 1. Purchaser Q-Tech Alliance Holdings, Inc. 2. Timing of sale The end of May, 2009 (expected) 3. Number of shares to be sold 628,666,675 shares (19.91% of the issued and outstanding SMC shares (i)) 4. Sale price Php39,606 million (Php63 per share) 5. Loss on sales ¥26.0 billion (estimate) ($285,620 million (estimate)) Summary of the Acquisition of SMB Shares 1. Seller SMC 2. Name, business, and size of a company to acquire Name: San Miguel Brewery, Inc. Business: Sales of beer products in the Philippines Sales: Php48,787 million (for the fiscal year ended December 31, 2008) Total assets: Php24,634 million (as of December 31, 2008) 3. Timing of acquisition Acquisitions will be made in two phases in April and May 2009(expected) 4. Number of shares to be acquired 6,665,023,690 shares (43.249% of the issued and outstanding shares (i)) Note that San Miguel Brewery, Inc. is scheduled to be an equity-method affiliate by the acquisition. 5. Acquisition price Php58,925 million (Php8.841 per share) 6. Source of financing and payment plan Funds from sale of SMC shares and borrowings from third parties, etc. (i) Based on the number of shares as of December 31, 2008.

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To the Shareholders and Board of Directors ofKirin Holdings Company, Limited

We have audited the accompanying consolidated balance sheets of Kirin Holdings Company,Limited and consolidated subsidiaries as of December 31, 2008 and 2007, and the relatedconsolidated statements of income, changes in net assets and cash flows for each of the three yearsin the period ended December 31, 2008, expressed in Japanese yen. These consolidated financialstatements are the responsibility of the Company’s management. Our responsibility is toindependently express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements. An audit alsoincludes assessing the accounting principles used and significant estimates made by management,as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all materialrespects, the consolidated financial position of Kirin Holdings Company, Limited and subsidiariesas of December 31, 2008 and 2007, and the consolidated results of their operations and their cashflows for each of the three years in the period ended December 31, 2008, in conformity withaccounting principles generally accepted in Japan.

Without qualifying our opinion, we draw attention to the following.

(1) As discussed in Note 19 to the consolidated financial statements, in accordance with this

revision of the group’s management structure, the businesses of food, health food and functional

food etc., which had been included in the “Others” segment, have been reclassified into the “Soft

Drinks” segment. And during this same time, the “Soft Drinks” segment was renamed “Soft Drinks

and Foods”.

(2) As discussed in Note 32 to the consolidated financial statements, on February 20, 2009, the

Board of Directors of the Company made a resolution to sell entire shares in San Miguel

Corporation which is an affiliated company accounted for by the equity method to Q-Tech alliance

Holdings, Inc. On the same date, the Company and Q-Tech alliance Holdings, Inc. have entered

into a Share Sale Agreement, and the Company and San Miguel Corporation have entered into a

Share Purchase Agreement by which the Company purchases the shares in San Miguel Brewery,

Inc.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the

year ended December 31, 2008 are presented solely for convenience. Our audit also included the

translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been

made on the basis described in Note 1 to the consolidated financial statements.

Tokyo, JapanMarch 26, 2009

Independent Auditors’Report

KPMG AZSA & Co., an audit corporation incorporatedunder the Japanese Certified Public Accountants Law.is the Japan member firm of KPMG International.a Swiss cooperative.

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