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Kirin's road ahead :Kirin's road ahead :aachieving a quantum leap in growthchieving a quantum leap in growth

Bank of America Merrill LynchBank of America Merrill LynchJapan Conference 2009Japan Conference 2009

Kirin Holdings Company, LimitedKirin Holdings Company, LimitedKazuyasuKazuyasu Kato, President and CEOKato, President and CEO

September 16, September 16, 20092009

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ContentContent

• KV2015: Kirin’s long-term operating framework

•• ＫＶＫＶ20152015: Progress report: Progress report

•• Our approach to Our approach to M&AM&A

•• KirinKirin’’s next mediums next medium--term business planterm business plan

•• CCTCCT （（Cross Company TeamsCross Company Teams））

•• Management integration with SuntoryManagement integration with Suntory

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1. KV2015: Kirin1. KV2015: Kirin’’s longs long--term operating term operating frameworkframework

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0%

10%

20%

30%

40%

50%

60%

70%

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

1998: Launch of Tanrei

2001:Lost market lead

2005: Launch of Nodogoshi

14 years with market share 60% +

Market leader

Market share 50% +

Market share 60% +

1990: Launch of Ichiban Shibori

High growth period 1st diversification Rocky period2nd diversification Renewed growth

KirinKirin’’s history: From growth to stagnations history: From growth to stagnation……to renewed growthto renewed growth

• Kinki Coca-cola (’60)• Personnel to LA/NY （’63)

• KS（’72）• Tozan （’75)• Nagano Tomato (’76)• Koiwai Dairy （’76)• KW Inc(’77)

• Pharma （’82)• Agribio（80’s)• Yeast business (’87)• Kirin Engineering (’88)• Kirin Taiwan (’88)

• Lion Nathan (‘98)• San Miguel (’02)• Eishogen (’02)• Takeda Kirin (’02)

KV2015

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Kirin Group Vision 2015 (KV2015)Kirin Group Vision 2015 (KV2015)

・ Nurture close links with customers through products that provide the enjoyment of food and health・ Integrate our expertise in fermentation and biotechnology, manufacturing, and research and marketing to create value and

offer distinctive products of the highest quality・ Be a leading company in Asia and Oceania, with alcohol beverages, soft drinks and pharmaceuticals as our core business

KV2015

① Become an integrated beverage group

② Pursue further internationalization③ Establish health food and functional food business following on from

alcohol beverages, soft drinks and pharmaceutical businesses

Strengthen foundations by achieving growth in Kirin’s

core domestic alcohol business

■ Kirin Group 2007—2009 business plan represented Stage One in reaching growth targets of KV2015

■ 2009 is final year of Stage One and also year zero for the 2010 Stage Two business plan, and we are engaging in longer term issues on a broadening front

Approx. 30%18%Sales excl. liquor

taxOverseas composition

OP margin

Sales (yen)

Approx. 30%

10% plus

2.5 trillion

3 trillion

2015

27%Operating income

9%Excl. liquor tax

1.27 trillionExcl. liquor tax

1.68 trillionIncl. Liquor tax

2006KV2015 targetsUnit: billion yen

Quantum growth trajectory

Current trajectory

0

500

1,000

1,500

2,000

2,500

3,000

1997 98 99 00 01 02 03 04 05 06 Est. 20150

50

100

150

200

250

300Sales (left axis)

Operating income (right axis)New growth trajectory

Historic growthline

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Fusing the alcohol and soft drink value chains to create value

As consumer preferences diversify and the market distinction between alcohol and soft drinks blurs, Kirin is integrating the alcohol and soft drink value chains

Pursuing technology-based group synergies for top-line growth andcost saving synergies for bottom-

line growth=

Greater potential for leap in growth

Beer business model comparison

Beer Soft drinks

LocalG

lobal

Beer Soft drinks

LocalG

lobal

Major global peers Kirin

Business model Multiple beer brands in many markets

Integrated alcohol and soft drinks

Economies of scale

Focus on scale economies within categories

Generate economies beyond individual categories

Management knowledge Specialized Broader sectorStrengths & opportunities Efficiency InnovationWeaknesses &threats

Excessive focus on business environment Dilution of resources

Unique business model as an integrated beverages groupUnique business model as an integrated beverages group

Realizing synergies to create a Group Premium

Priority areas for creating synergies include:

Procurement ++ Distribution ++ Marketing

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2. 2. KV2015KV2015 progress reportprogress report

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* 100% Dairy Farmers

Major growth initiatives have continuedMajor growth initiatives have continued

2009 * 100% Lion Nathan* 48% San Miguel Brewery

International sales on track to reach 30% by 2015

20082007 * 100% National Foods

* Kyowa Hakko Kirin* Mercian Corporation

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Integrated beverages group strategyIntegrated beverages group strategy

AlcoholR&D Production Distribution Sales Marketing

R&D Production Distribution Sales MarketingSoft drinks

Integrated beverages

＜

＋

Corporate value / customer

satisfaction

Overall demand and preferences in all beverages

Demand and preferences in alcohol

Customers

R&D Production Distribution Sales Marketing

Fusion of value chain (comprehensive approach to customer needs)

Alcohol

Soft drinks

Company

Demand and preferences in soft drinks

• Combine R&D locations

• Collaborate on product development （Kirin Free, Tanrei W, Cola Shock, etc.)

• Undertake health/ functional food projects

Share distribution and order handling

• Share TMP skills• Jointly use KMD• Collaborate on B2B• Assign KB sales

(regional volume retailers, on-premise daily wines and oolong tea, etc.)

• Strengthen brand image and exposure with unified use of TV ad jingle

• Integrate market research functions

Personnel exchanges

Allocate production mandates between group companies

Organically fusing the alcohol and soft drink value chains domestically and overseas in everything from product development through to sales

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Internationalizing our businessInternationalizing our business

San MiguelAlcohol Soft drinksLion Nathan

Dalian Daxue Brewery Co., Ltd.

Kirin Holdings

Kirin (China) Investment Co., Ltd.

Hangzhou Qiandaohu Brewery Co., Ltd.Kirin Brewery (Zhuhai) Co., Ltd.

San Miguel Brewery

Lion Nathan

J. Boag & Son Pty Limited

National Foods Limited

Taiwan Kirin Co., Ltd.

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

Shanghai Jin Jiang Kirin Beverage & Food

Beijing Flying Kirin Beverage

Pharmaceuticals

Dairy Farmers Limited

国 内

海 外

海 外

国 内

2006：18％

2015 target: Approx. 30％Net sales composition (excluding liquor tax)

2008：2７％

海 外

Domestic

Overseas

Overseas

Differentiating Kirin from global beer companies by pursuing a unique business model that Integrates alcohol and soft drink operations

Expanding in East Asia economic sphere and Oceania

Increasing synergies with partners; constructing a unique business development model

Further localizing our businesses and developing products and servicesclosely aligned with regional and cultural needs

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Highlights 1: Building a strong presence in OceaniaHighlights 1: Building a strong presence in Oceania Also pursuing integrated beverage group strategy in Australia

LN and NF will be aligned under a holding company from October 21 and a new management structure will be put in place

Kirin is becoming the biggest food and beverage groups in Australia

Kirin Group Total in OceaniaSales： A$5,603mm EBIT： A$ 636mm

Major dairy product and soft drink

company

FY20081

Sales： A$3,509mEBIT： A$129m

National FoodsDairy Farmers

No. 2 alcohol company in Oceania

FY20082

Sales： A$2,094mEBIT： A$507m

Lion Nathan

Lion Nathan National Foods*(LNNF)

(planned)

*100% subsidiary of Kirin, currently Kirin Holdings Australia (KHAU)

1 National Foods financials sourced from Kirin FY08 Results presentation dated 10 February 2009. Dairy Farmers financials sourced from investor presentation dated 25 August 2008 relating to Dairy Farmers acquisition

2 LN FY08 Annual Report

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Return to core brands→

１. Strengthening flagship products

・ Successful renewal of Ichiban Shibori; stable and strong performance from core brands Tanrei, Nodogoshi, etc.

Changes to alcohol market→

３. Expanding overall demand・ Strengthening RTD category・ Developing business interface opportunities・Developing brands in new and innovative category brands

Increasing consumer health consciousness→２. Boosting response to health trends・Strong performance of products developed to reflect consumer health awareness

Targeting 3 specific areas to develop business and succeed with evidence-based marketing

Highlights 2: Gaining traction in revitalizing Kirin BreweryHighlights 2: Gaining traction in revitalizing Kirin Brewery

■ Kirin was the market No. 1 for the first half of 2009

■ Working to hit profit targets through efficiency measures;

increasing cash flow stability

■ Pursuing further structural reforms

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Benefits from structural integration already emerging in production and marketing

Highlights 3: Integration of Kyowa Hakko and Kirin Highlights 3: Integration of Kyowa Hakko and Kirin PharmaPharma

R&D

Production

Sales

POTELLIGENT ®

COMPLEGENT TM

Approx. 950 Medical Reps

KM Mouse ®

EXPOC™ technology

Approx. 450 MRs

¥25.8 bnAllelock

¥22.4 bnConiel

¥16.6 bnGRAN/ Neu-up

¥44.4 bnNESP/ESPO

Manufacturing technology for bio-pharmaceutical products

Established Kyowa Hakko Kirin in October 2008 through merger of Kyowa Hakko and Kirin Pharma

Developing innovative pharmaceuticals using cutting-edge antibody technology with a focus on cancer, kidney disease and immunology; aiming to develop business internationally to become Japan’s first specialty pharma company contributing to human health in the global arena

*Medical Rep numbers are as of end December 2008. Product sales based on forecasts for 2009

Kirin PharmaKyowa Hakko

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Sales composition by business segmentSales composition by business segment

48%

Pharmaceuticals

Soft drinks and foodsAlcohol beverages

Other

■ Main companies• Kirin Brewery• Mercian Corporation• Lion Nathan (Australia)

• Kirin (China) Investment Co., Ltd.

33%

9%10%

■ Main companies• Kirin Beverage• National Foods (Australia)

■ Main companies• Kyowa Hakko Kirin

■ Main companies• Kyowa Hakko Bio• Kyowa Hakko Chemical• Kirin Agribio

Diversification and internationalization is creating a more balanced portfolio

Stable cash flow generation High potential in overseas markets

Includes agribio, biochemical businesses, etc.

High earnings and growth potential

2002009 forecast9 forecastsalessales

¥¥22,,300300 bnbn

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KV2015: Progress and key issuesKV2015: Progress and key issues

• Pursue concrete strategy to maximize synergies

• Renew growth in domestic alcohol

• Allocate resources to soft drinks

• Improve profitability

• Return on investment• Management control of each group company• Group integration

Issues

・Manage synergy projects with quantitative targets・Begin CCT initiatives

・Pursuing integrated beverage group strategy that fuses alcohol and soft drink value chains

• Undertaking structural reform of marketing spend in soft drinks

• Continuing to invest in soft drinks and alcohol in Asia Oceania region where high synergy effects can be created, and optimizing business portfolio

Current initiatives

Making some progress but not yet sufficient

Group synergy

3 growth patterns Progress

Resource allocation

Ahead of plan

Organic growth Domestic alcohol business on an upswing but issues remain particularly in soft drinks

Major investments have met sales targets ahead of plan ⇒ profitability is now key focus Moving to further stage of development with horizontal application of 3 growth patterns

《Cooperation between HC and operating companies》

《Led by operating companies》

《Led by holding company》

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3. Our approach to 3. Our approach to M&AM&A

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KirinKirin’’s M&A Policys M&A Policy

1. Able to contribute to customers in arena of food & health2. Able to create win—win scenario where 1＋1 ＝more than 23. Undertaken on a friendly basis

＊Assess projects from the ground up: see it for yourself, on site＊Target companies with solid markets, stability and top lines that can grow profitably＊Emphasize personnel exchanges in post-transaction management.

Exchange and integrate personnel so that the strengths of each company can be leveraged to contribute to further growth (e.g. Kirin’s strategic planning, manufacturing technology and R&D, etc.)

１．Adopt the ３Ｃs: challenge, commitment, collaboration２．Pursue actively from the top (ensure speed and trust)３．Respect the intentions of the counterparty４．Constantly help staff improve, using people-focused

management and fostering of human resources

Our key values in M&A

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M&AM&A OutcomesOutcomes

10/2006 Kirin Beverage 100% ¥75.0 bn

12/2006 Mercian Corp. business & capital alliance ¥25.0 bn

11/2007 Acecook joint beverage business in Vietnam ¥3.5 bn

12/2007 Kyowa Hakko business & capital alliance ¥170.0 bn

National Foods 100% ¥290.0 bn

1/2008 J Boag & Son Pty ¥32.0 bn

11/2008 Dairy Farmers ¥56.0 bn

5/2009 San Miguel Brewery (48%） ¥130.0 bn

10/2009 (planned) Lion Nathan 100% ¥230.0 bn

10/2006 Kirin Beverage 100% ¥75.0 bn

12/2006 Mercian Corp. business & capital alliance ¥25.0 bn

11/2007 Acecook joint beverage business in Vietnam ¥3.5 bn

12/2007 Kyowa Hakko business & capital alliance ¥170.0 bn

National Foods 100% ¥290.0 bn

1/2008 J Boag & Son Pty ¥32.0 bn

11/2008 Dairy Farmers ¥56.0 bn

5/2009 San Miguel Brewery (48%） ¥130.0 bn

10/2009 (planned) Lion Nathan 100% ¥230.0 bn

*1 Amount for Kyowa Hakko includes only the TOB portion*2 National Foods calculated on an EV base (including debt)*3 Amount for Dairy Farmers includes only equity portion*4 The 48% for SMB includes the TOB 5%. Proceeds of approx.¥75.3 from sale of SMC shares applied to purchase.*5 Lion Nathan proceeding under a Scheme of Arrangement so approval process at shareholders’ meeting required

Note: all amounts approximate

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Growth strategyGrowth strategy

Cash flowCash flowP/LP/L 07-09 operating CF¥410 bn

07-09 operating CF¥410 bn

Improve capital efficiencyImprove capital efficiency

B/SB/S

Shareholder returns

Shareholder returns07-09 Investment for growth:

¥910.0 bn(LN, SMB, KHK, etc)07-09 capex: ¥310.0 bn

Consolidated payout ratioOver 30%

Further growth

Liquidated assets¥230 bn

Liquidated assets¥230 bn

Financing¥700 bn

Financing¥700 bn Offset financing needs by

further asset liquidation of ¥100 bn plus

Create profitCreate profit

Share buybacksConsidered in context of

financial position and investment needed for

growth

Source investment funding for growth primarily externally

Rigorously review balance sheet to increase asset efficiency (make effective use of borrowing, liquidize assets)

Maximize cash flow

Financial strategy to support growthFinancial strategy to support growth

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4. Next medium4. Next medium--term business planterm business plan

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・ Nurture close links with customers through products that provide the enjoyment of food and health・ Integrate our expertise in fermentation and biotechnology, manufacturing, and research and marketing to create

value and offer distinctive products of the highest quality・ Be a leading company in Asia and Oceania, with alcohol beverages, soft drinks and pharmaceuticals as our core

business

2015 Group Vision2015 Group Vision

2010 MTP2010 MTP(2010(2010--2012)2012)

““Three years to improve performance and profitsThree years to improve performance and profits””based on strategy of quantum leap in growthbased on strategy of quantum leap in growth

Three stages to realizing the long-term goals of KV2015

2007 MTP(2007-2009)

The 2010 mediumThe 2010 medium--term business plan is the second stage in realizing KV2015, and term business plan is the second stage in realizing KV2015, and is an action plan for completing is an action plan for completing the shift from quantitative growth (sales expansion) to qualitatthe shift from quantitative growth (sales expansion) to qualitative growth (profit improvement). It focuses on ive growth (profit improvement). It focuses on Proactive management Proactive management –– Decide and Implement.Decide and Implement.

2013 MTP(2013-2015)

““Three years to kickThree years to kick--start start growthgrowth””

Priorities and direction of 2010 mediumPriorities and direction of 2010 medium--term business planterm business plan

The plan will emphasize three growth strategies outlined in KV2015 but in which sufficient progress has not yet been made, namely 1. Tireless improvement; 2. Creation of Group synergies; and 3. Fully leveraging the Group’s technical strengths and strong customer relationships. A fourth point will be to pursue the integrated beverage group strategy. Addressing and thoroughly executing these four elements will improve profitability and asset efficiency.

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5. 5. CCTCCT（（Cross Company TeamCross Company Team））

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●Monitor synergy creation through continuation of Cross Company Teams (CCT) initiative, in which KH directors act as project leaders

●CCTs address issues that would be difficult for operating companies to resolve in isolation (e.g. optimization of business locations, business integration, etc.)

●A key priority of CCTs is to achieve quantifiable benefits in the form of cost synergies

Cross Company Team (CCT)Cross Company Team (CCT)

Major cost synergies and asset efficiency enhancement in next medium-term business plan

Cost synergy initiatives by CCTs

Optimization, sharing of production and distribution operations and skills transfer between KB, KBC, and Mercian

Production & distribution

Optimization of Group R&D locationsR&DJoint purchasing, integration of operations, standardization of IT systems

Procurement

Reduction of assets, review of budget control for investments

Asset reduction & CF management

Integration of overlapping Group operationsBusiness integration

Integration of operational application systems within Group; reduction of IT assets from service level down

IT

－HR infrastructure

Sharing of operations, skills transfer between KB and Mercian, and between KB and KBC

Sales & marketing

Horizontal strategy

Operational support strategyCompany Ａ

Company B

Company C

Company D

Company A

Company B

Company C

Portfolio strategy

R&

D

Procurement

Production

Distribution

Sales/marketing

Company D

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6. Business integration with Suntory6. Business integration with Suntory

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■ BackgroundBackground：

Fits integrated beverages group strategy and other aims of KV2015Brings growth beyond KV2015 into reach

Business integration with SuntoryBusiness integration with Suntory

Constructive discussions continuing

■■ Approach in 2010 mediumApproach in 2010 medium--term business planterm business plan::

Still in negotiation with Suntory; timing and conditions of Fair Trade Commission approval undetermined.Recognizing that 2010 medium-term business plan is nonetheless necessary, management has devised a standalone plan for Kirin.

2010 medium-term business plan applies the key issues and scenarios presented in KV2015—without postponement of these initiatives in deference to business integration with Suntory

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