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Kirin Holdings reports sales down 1%, net profit up 151% in H1 2011

Japan’s Kirin Holdings Company on Friday reported the impact of the Great East Japan Earthquake, which struck on March 11, continued to place downward pressure on the Japanese economy during the first six months of this year, especially in production. Despite the harsh conditions continuing though, constraints on the supply side have been gradually easing and consumer spending is bottoming out, the company said.

Kirin for the the first six months of the current fiscal year posted a net profit of ?17,904 million, compared with a year-earlier profit of ?7,156 million. Operating income was ?72,812 million, up from ? 59,826 million in the same period of 2010. Sales in the first six month of 2011 were 1,001,445 million, down by 0.9% from ? 1,010,177 million a year earlier.

Although the Great East Japan Earthquake affected production, distribution and sales, both at Kirin Brewery Company, Limited and at its other Group companies, operations are gradually being returned to normal.

Under the economic conditions, the Kirin Group has, in the second year of the second stage “2010-2012 Kirin Group’s medium-term business plan”, strengthened its approaches for “qualitative expansion” for realizing its long-term business framework, “Kirin Group Vision 2015” (KV2015). In the Japanese market, Kirin continued to pursue an integrated beverages group strategy focused on Kirin Brewery Company, Limited and Kirin Beverage Company, Limited, and under the direction of functionally organized Cross Company Teams (CCTs), Kirin worked to increase profitability and efficiency across the Group.

Furthermore, in order to concentrate its management resources in the Wine and Alcoholic Beverages Business, Mercian Corporation signed an agreement with Mitsui & Co., Ltd. in April regarding the transfer of its Pharmaceuticals and Chemicals Business. Overseas, and Kirin has been proceeding to strengthen its business in the soft drink markets of China and Southeast Asia, where rapid growth is expected. In January, Kirin reached an agreement with China Resources Enterprise, Limited to establish a joint venture to operate non-alcohol beverage business in China, and in March, Kirin concluded acquiring shares of the Interfood Shareholding Company, a soft drink manufacturer and distributor in Vietnam. As a result, sales, operating income, ordinary income and net income increased in the second quarter. As for damage caused to products, equipment and so forth by the earthquake, ?16.9 billion was recorded under special expenses as a loss related to the Great East Japan Earthquake.

In August, the Kirin Group acquired a 50.45% shareholding in the Schincariol Group, which has interests in the beer and soft drink industries in Brazil. The acquisition gives the company a foothold in the fast-growing Brazilian marketplace to complement its existing business operations in Asia and Oceania, and represents a key plank in the deployment of the company’s integrated beverages group strategy in the international arena.

Domestic Alcohol Beverages Business (including wine business)

- Consolidated sales: ?392.3 billion, down 6.4%

- Consolidated operating income: ?28.8 billion, up 29.0%

In the domestic alcohol beverages business, sales volume temporarily decreased at Kirin Brewery Company, Limited following the Great East Japan Earthquake. This was due to production being suspended at a number of factories, a shortage of materials for manufacturing cans, logistical constraints such as the procurement of fuel, and a decline in consumer sentiment. Subsequently, though, manufacturing and supply systems have gradually been restored, and there have also been signs of slow but steady improvements in consumer sentiment.

Amid such conditions, Kirin Brewery Company, Limited put more effort into strengthening core brands, and managed to maintain strong sales in such labels as Kirin Ichiban Shibori, Tanrei Green Label and Kirin Nodogoshi Nama. Furthermore, in the new genre categories, which are continuing to expand, we sought to further increase demand with the February release of Kirin Koiaji (Zero Sugar) (sales were suspended temporarily due to the impact of the earthquake, and the product was relaunched in June), particularly targeted at health-conscious consumers.

In the RTD (ready to drink) market, the company worked hard to further enhance its market presence. In addition to renewing our Kirin Chuhai Hyoketsu standard series, Kirin released the Kirin Chuhai Hyoketsu Yasashii Kajitsu no 3%, the launch of which had been postponed due to the impact of the earthquake. As a result, sales volume, which had decreased briefly following the earthquake, has slowly but steadily been recovering.

Furthermore, following the earthquake, although production had been suspended at the stricken Sendai and Toride factories, steady progress was made in the repair work at the Toride Plant, and operations resumed in early April. At the more heavily damaged Sendai Plant, as operations remain suspended, Kirin has conducted cleanup work and equipment inspections. With the resumption of the power supply to the plant in July, the company said it is confident that operations can be returned to normal. Kirin plans to resume brewing beer in late September and to complete its first shipment in early November.

Moreover, although the Great East Japan Earthquake had resulted in partial damage being sustained at the automated warehouse at our Fujisawa Plant, as well as some shipping adjustments being needed due to a short supply of packaging materials, Kirin has resolved these problems as they occur, it said.

Overseas Beverages Business

- Consolidated sales: ?232.5 billion, up 27.6%

- Consolidated operating income: ?11.4 billion, down 22.1%

In Australia, Lion’s alcohol beverages and soft drinks & foods businesses continued to make progress in improving mix and efficiency by pursuing a strategy of investing in people and a focused portfolio of high potential brands to drive sustainable results in the long term. Conditions in the Oceania market were particularly challenging, compounded by an unusually cold summer, which is a key sales period for alcohol beverages, and two natural disasters – floods in Queensland and the earthquakes in New Zealand. Conditions in the soft drinks & foods business remained very difficult for farmers and processors alike, driven by deep discounting of white milk in retail. The business was also impacted by the loss of key private label contracts. Also, business results have been included since the second quarter for Interfood Shareholding Company, the soft drink manufacturer and distributor in Vietnam for which the acquisition of shares was completed in March.

Outlook

For the full fiscal year 2011, Kirin lowered its net profit outlook to ?52,000 million, while it cut its sales estimate to ?2,110,000 million.

Kirin Responds to Reports concerning Acquisition of Schincariol Group Shares

There have been reports concerning Kirin Holdings’ acquisition of Schincariol Group shares announced on Tuesday that minority shareholders of Schincariol Group are claiming that the transaction is illegitimate.

Kirin is aware that these claims are being made and based on prior consultations with local attorneys concerning the lawfulness and validity of the transaction, the company has proceeded with the acquisition with the understanding that the transaction is legitimate. Kirin will continue to monitor this matter to ensure that it is handled properly, it said.

8 Aug. 2011

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