Q4 2024 Kirin Holdings Co Ltd Earnings Call
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The End
Good morning everyone, this is Isozaki from Green Holdings.
We would like to express our heartfelt gratitude for your continued patronage of Kirin Group products and your understanding and support of our corporate activities.
First, I will talk about the key points regarding the achievements of 2024 and the plans for 2025.
In 2024, in addition to proactive decisions for the future such as the subsidiary acquisition of FANCL and the decision to sell the amino acid business, the impairment of the beer business in India led to a significant decrease in winter profits on the profit and loss statement.
However, we believe that this decision has prepared us to expand our health science business.
Regarding the year 2025, it will be a crucial year as the clinical trials for Kirin's KHK4083 reach their peak, temporarily making the pharmaceutical business active. However, we aim to compensate with other businesses and strive for an increase in operating profit.
Furthermore, by setting a target for structural reforms, the parent company's registered profit is expected to see a significant increase to 150 billion yen, more than 2.5 times compared to the previous year.
Along with this, naturally, we intend to steadily increase dividends as well.
Now, it has been 6 years since the announcement of the long-term management vision KV-2027, and there are 3 years left until 2027.
In the past six years, the external environment has undergone significant changes, such as the spread of the novel coronavirus and the sharp rise in various prices, leading to major shifts in consumer behavior.
Recently, the Kirin Group has also implemented various transformations, particularly preparing for the expansion of revenue in the health science business.
Speaker Change: We are making corporate efforts towards the long-term vision of becoming a leading global CSV company by creating value in the area from food to the stomach, as outlined in 2019.
Speaker Change: First, since 2024 was the final year of the medium-term management plan, we will review it.
Speaker Change: Over the past three years, we have made investments to strengthen each business.
Speaker Change: As a result, good signs are emerging in each of our businesses.
Speaker Change: In the various types of businesses, brand strength in Japan, Europe , and the United States has been steadily increasing.
Speaker Change: In North America, Coke Northeast has improved profitability medically.
Speaker Change: In Kyowa Accounting, global strategic products are growing steadily.
Speaker Change: We are also advancing the reshuffling of our business portfolio, and we have made progress in addressing the issue of selling the amino acid business.
Speaker Change: While there have been many instances of achieving plans in this way,
Speaker Change: There are also ongoing challenges to address, partly due to the rapid changes in the external environment.
Speaker Change: To solve these challenges, it is necessary to deeply understand the customers and the market and manage accordingly.
Speaker Change: Therefore, the relay that has been fixed for the past three years will now be rolled over every year.
Speaker Change: While keeping a firm eye on the long-term goals without changing them, we will flexibly draw up plans and achieve our objectives.
Speaker Change: And, in order to enhance corporate value, we will continue to emphasize utilizing dialogue with the capital markets in the management of the group.
Speaker Change: Additionally, through Kirin's unique business portfolio, we aim for the group's survival and sustainable growth.
Speaker Change: As we anticipated, the environment surrounding alcohol is becoming increasingly severe worldwide.
Speaker Change: Along with that
Speaker Change: The TSR of Shuri Enterprises has been stagnating over the past three years.
Speaker Change: Our TSR slightly exceeds the average of players in the same employee sector, but it is not at a satisfactory level.
Speaker Change: As we have indicated, we hope that everyone will look forward to the achievement of future goals in the health science business.
Speaker Change: In light of these circumstances, we are once again determined to work harder than ever to enhance corporate value.
Speaker Change: Next, I will talk about what we aim to achieve in the next three years.
Speaker Change: Until now, it has been a period that could be described as a structural reform phase, focusing on strengthening the competitiveness of core businesses and boldly reshuffling the business portfolio.
Speaker Change: As I mentioned at the beginning, we will now aim to conclude structural reforms and quickly enter the next stage of growth realization, achieving high EPS growth.
Speaker Change: The foundation is the existing business.
Speaker Change: The alcoholic beverages, beverage, and pharmaceutical businesses are expecting a stable profit increase of around the mid-single-digit percentage.
Speaker Change: In addition, with the contribution of profits from the health size business, the group's EPS will achieve growth of around the high single-digit percentage.
Speaker Change: We are confident that we can achieve this growth precisely because of Kirin's unique portfolio, even in an uncertain business environment.
Speaker Change: Looking at it by region, the EPS contribution of the Kirin Group is one-third each from Japan, APAC, and North America.
Speaker Change: Japan is a market aiming for stable growth.
Speaker Change: In recent years, the virtuous cycle of prices and wages has been gradually strengthening.
Speaker Change: The Healthy Science business will leverage FANCL's strong brand and channels to create added value.
Speaker Change: As expected, it is the overseas classes that lead the group.
Speaker Change: In the APAC region, in addition to Lion and San Miguel further enhancing their brand power, Blackmores will collaborate with Fancl to achieve further profit growth.
Brock Morris: In North America
Celia Brown: In addition to the beverage business with strong brands, significant profit contributions from the pharmaceutical business can be expected.
Speaker Change: In a situation where the risk of regulatory amounts could materialize at any time, we will continue to discuss the business portfolio while considering the balance of the region.
Speaker Change: From here, I will talk about initiatives to enhance corporate value.
Speaker Change: Maruha Shuri India Jinyot
Speaker Change: In 2024, products that capture customer needs
Speaker Change: Products designed to address social issues have gained support.
Speaker Change: Kirin Beer's Harekaze was one of them.
Speaker Change: Overseas, Japan's Hyoketsu is being expanded in Gauche and New Zealand, and in North America, sales of RTD have begun under the Voodoo brand.
Speaker Change: Additionally, in Australia and New Zealand, the Ultra series, a range of zero-sugar products, is performing well in response to the growing health consciousness.
Speaker Change: In this way, we will further evolve our approach to make our customers feel valued and enhance our brand power in the future.
Speaker Change: Inflation is expected to continue in many markets, but we are confident that by enhancing our brand power, strategic price adjustments will also be possible.
Speaker Change: We will achieve an increase in unit price, improve business profit margins, and make a stable contribution to EPS.
Speaker Change: The pharmaceutical business will continue to expand global strategic products such as Crysvita and Poteligeo, and actively pursue research and development for the future.
Speaker Change: The promising pipeline KHK4083 will proceed with clinical trials aiming for a U.S. approval application between 2025 and 2026.
Speaker Change: Additionally, we will continue to expand our pipeline for 2030 and beyond in collaboration with Orchard and Kura, with whom we announced a partnership last year.
Speaker Change: As I mentioned earlier, this year, due to an increase in research and development expenses, profits will temporarily decrease, but we anticipate significant business profit contributions in 2026 and 2027.
Speaker Change: The company aiming to be the largest health science business in APAC is a health science company.
Speaker Change: First and foremost, the strong growth of the three brands Kirin, Fancl, and Blackmores is the foundation.
Speaker Change: In addition, the basic strategy is to create unique value for the group by utilizing FANCL's capabilities in the overseas skincare business and the expansion of the beauty category.
Speaker Change: In Japan, advancing business integration with FANCL and enhancing added value is the most important task.
Speaker Change: We are committed to the health science business with a strong determination to achieve the business profit level target by 2027.
Speaker Change: Regarding plasma lactic acid bacteria, we are continuing research on its application as a pharmaceutical, which was announced last year, to further enhance the value of the material.
Speaker Change: Domestically, we are expanding our plasma lactic acid bacteria products both within our company and with other companies, and we will accelerate overseas expansion by leveraging Blackmores' brand, channels, and regulatory compliance capabilities.
Speaker Change: In Taiwan, the city has been decided for 2025, and next is Gosh, the home base of Blackmores. Then, we will expand to places like Thailand and Vietnam as soon as preparations are ready.
Speaker Change: And the plasma lactic acid bacteria business will turn profitable in 2025.
Speaker Change: We will continue to expand the development of materials utilizing the technical capabilities and brand of the Kirin Group.
Speaker Change: In order to create new value in the medium to long term, we will continue to accelerate investment in organizational capabilities.
Speaker Change: We will enhance the group's capabilities in the areas of human resources, R&D, digital, and marketing to demonstrate competitive advantage, particularly in digital, by collaborating with partners.
Speaker Change: We will continue to strive to solve social issues in order to achieve KV-2027, becoming a leading global CSV company by creating value in various fields across different countries.
Speaker Change: And by engaging in continuous dialogue with our investors and solving each issue one by one, we will achieve an increase in corporate value.
Speaker Change: Please look forward to the future growth of the Kirin Group.
Speaker Change: Good morning, everyone. Once again, I am Akieda from Kirin Four Links.
Speaker Change: I will first discuss our future financial strategy, and then provide an overview of the financial results.
Speaker Change: First, the overall picture of the financial strategy.
Speaker Change: There are no major changes to the basic concept.
Speaker Change: We will enhance corporate value by growing EPS while maintaining financial discipline through careful management.
Speaker Change: Specifically, we will be implementing the four pillars mentioned, and I will explain the key points on the following pages.
Speaker Change: In an era where changes in the external environment are so rapid, it is necessary to maintain a long-term perspective while flexibly adapting to immediate changes.
Speaker Change: Therefore, our company will change from a fixed 3-year relay system to a rolling management system that continuously reviews the level three years ahead each year.
Speaker Change: We have been implementing a financial modeling system for several years,
Speaker Change: We are estimating the startup value of each business.
Speaker Change: Specifically, we project the PLPS cash flow for each class for the next 9 to 10 years, and based on that, we determine the cash allocation for the entire group using a backcasting method.
Speaker Change: This enables strategic short-term decision-making that leads to the enhancement of the overall group's corporate value, including long-term investments.
Speaker Change: We will advance management that balances investment in new businesses such as health science projects for sustainable growth in the medium to long term, with the creation of short-term results in existing businesses, truly embodying good management.
Speaker Change: As a long-term financial goal, we aim for an ROIC of over 10% and an annual average growth rate of EPS in the high single digits.
Speaker Change: The same applies to the KPIs for the three years up to 2027.
Speaker Change: Due to the temporary increase in debt repayment for the launch of the healthy science business, the growth rate this year is 7.2%.
Speaker Change: The forecast for 2027 is 9%.
Speaker Change: Regarding EPS, we will change our target to a more understandable, non-smoothed EPS, aiming for an 8% increase to 185 yen by 2025.
Speaker Change: There are no rules for improving old age.
Speaker Change: The improvement of returns in each business aims for top-line growth through revenue management that constantly considers optimal pricing, in addition to cost optimization.
Speaker Change: We will work on improving the balance sheet by undertaking specific initiatives tailored to the challenges of each business, with a medium- to long-term perspective.
Speaker Change: I will explain the cash allocation for the next three years.
Speaker Change: The way of thinking doesn't change much here either.
Jean: Thank you, Go ahead.
Jean: We will make solid investments in assets, ICT, marketing, etc., to maximize operating cash flow.
Speaker Change: With that in mind, we will prioritize stable dividends for our shareholders and steadily make capital investments to enhance the sustainability of each business.
Speaker Change: In 2025, we will prioritize actual payments for the M&A conducted last year and the repayment of increased liabilities.
Speaker Change: For the time being, we will focus on achieving organic growth and enter a phase of non-repayable measures for party revenue recovery.
Speaker Change: We will respond promptly if there are good investment opportunities. That is all.
Speaker Change: From 2025, in order to further advance management with an awareness of capital costs, we will change dividends to a DOE basis.
Speaker Change: In addition, to ensure stable dividends, we will introduce a similar dividend with a target of DOE of 5% or more.
Speaker Change: Our company has never reduced dividends, and we will continue to provide stable and sustainable returns to our shareholders. Next, please.
Speaker Change: At the end of the financial strategy, I will talk about responding to globalization and portfolio transformation.
Speaker Change: The weight of the pharmaceutical business in the Kirin Group has increased, and the health science business has also reached a certain scale.
Speaker Change: In addition, as the globalization of each business progresses, the scope and degree of risk are increasing compared to before.
Speaker Change: Addressing increasing risks usually results in higher costs, but we will work to control or optimize them.
Speaker Change: Furthermore, there is still room for improving the efficiency of fund management and cost reduction in North America and APAC, where the weight is increasing due to globalization, and we will continue to work on these efforts.
Speaker Change: Now, I will briefly explain the overview of the 2024 financial results and the 2025 plan.
Speaker Change: Despite the challenging business environment, we achieved increased revenue and profit while investing in brand and research and development.
Speaker Change: However, regarding profit before tax and below, there was a significant decrease in profit due to decisions made to establish the foundation of the health science business.
Speaker Change: In addition to the decrease in registration profit, the increase in liabilities due to future investments in health science and pharmaceuticals resulted in a labor area of 4.1%.
Speaker Change: The normalized EPS is 172 yen, showing a slight decrease, and the dividend is planned to be the same as last year at 71 yen. Next, please.
Speaker Change: This page shows the increase and decrease in operating profit by segment.
Speaker Change: I will omit the detailed explanation, but I will add one supplementary point.
Speaker Change: The forced compensation resulted in an inventory valuation loss due to accounting processes related to the amino acid business, leading to a decrease in profit by approximately 5 billion yen compared to the company's forecast.
Speaker Change: We aim for increased revenue and profit in the fiscal year 2025 as well.
Speaker Change: The significant profit decrease exceeding 10 billion yen due to increased R&D expenses for enhanced giraffes will be covered by other businesses, resulting in an overall profit increase for the group.
Speaker Change: Furthermore, as we have made progress with structural reforms by last year, we are expecting a V-shaped recovery in winter profits to 150 billion yen, with an EPS of 185 yen and a planned dividend increase of 3 yen to 74 yen.
Speaker Change: We will omit the detailed explanation, so please check it later.
Speaker Change: In 2025, the business profit of the Eristance segment will significantly improve and turn profitable due to the full-year profit contribution from Fancl and the revenue improvement of Strong Issuing Bio.
Speaker Change: Additionally, revenue improvement through price increases in various types of classes is progressing.
Speaker Change: As for the points by business history, first is the main business.
Speaker Change: Both Kirin Beer and Lion have been achieving results through efforts to enhance brand power and revenue management, even as the overall market is shrinking.
Speaker Change: We will continue to work towards maintaining this trend in 2025 as well.
Speaker Change: Next is the beverage business. Despite the challenging environment of inflation, we have achieved increased profits, and we will continue this trend consistently through 2025.
Speaker Change: In particular, Kirin Beverage will focus on expanding its health science beverages, further enhancing its image as a beverage company focused on health.
Speaker Change: The pharmaceutical business will temporarily see a decline in profit levels due to factors such as the heavy burden of research and development costs for KHK4083, which is in the final stage of clinical trials.
Speaker Change: However, due to M&A activities over the past two years, the enhancement of the medium- to long-term pipeline, which was a concern, has been progressing, and we expect to return to a profit growth trend from 2026 onwards.
Speaker Change: The health science business has been established with the acquisition of FANCL and Blackmores.
Speaker Change: In 2025, we will enter a phase where we will create synergies in addition to each organic growth.
Bill Smith: First, we will proceed with preparations for the integration of Kirin and Fancl's supplement businesses within Japan.
Bill Smith: In addition to creating cost synergies, we will generate a synergistic effect by adding Kirin's marketing expertise to Fancl's extensive customer base.
Bill Smith: In the United States of China, we will achieve autonomous growth of each business while advancing considerations for future collaboration.
Bill Smith: Finally, Southeast Asia requires an approach tailored to the unique characteristics of each country.
Bill Smith: In 2025, while embarking on the development of new financial systems and channels, we will accelerate efforts to obtain approval in various countries.
Bill Smith: We will embody the vision for the future of the entire group with a single-minded determination.
Bill Smith: That concludes my explanation. Thank you for your attention.