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Kirin CEO calls activist proposal to sell health business 'unacceptable'

UK-based FP asking brewer to concentrate on beer ahead of shareholder meeting

Yoshinori Isozaki, Kirin's president, speaks at a press conference on Tuesday. (Photo by Nana Shibata)

TOKYO -- Japanese beverage group Kirin Holdings' CEO insisted selling its health business would be unacceptable ahead of the company's annual general meeting, opposing an activist's call to refocus on its core beer business.

London-based Independent Franchise Partners (FP) is asking Kirin to sell its non-beer businesses in areas including health foods and medicine.

Kirin president Yoshinori Isozaki insisted the activist's idea of "giving up our pharmaceutical business, Fancl, Kyowa Hakko Bio, and the [nonalcoholic] beverage business to focus on beer are alien" to his way of thinking. "It's unacceptable," Isozaki told reporters on Tuesday.

"[Alcohol businesses are] under pressure from the WHO," Isozaki said. He explained the risks of the World Health Organization introducing regulations for alcohol such as controls on packaging and advertising.

"We are not sure how much beer [consumption] will drop, especially now with problems such as the coronavirus, and the health science business is something very meaningful. It can contribute enough [to society]."

As part of its future growth strategy to offset a decline in beer consumption, Kirin is trying to nurture another core source of revenue to complement its drinks and pharmaceuticals businesses.

In 2019, the brewer acquired a biochemical business from Kyowa Hakko Bio and purchased a stake of about 33% in Japanese skin care and health supplement producer Fancl.

However, the activist, which owns 2% of the brewer, insists that Kirin's stock price drops have coincided with its acquisition of health-related businesses.

Kirin plans to generate up to 18 billion yen ($166.5 million) of profit from the health sector by 2024, citing synergies from Kyowa Hakko Bio and Fancel that could yield up to 9.5 billion yen and 7 billion yen respectively.

The brewer will develop a brain-related health business after 2024 that it predicts will make a profit of 1 billion yen. Probiotic and skin biome-related products are expected to be launched during the same period would contribute another 500 million yen.

In the long term, Isozaki added, "We would like to make hundreds of billions" in the health sector.

Isozaki said he "believes that many of its investors would agree to its growth strategy," as they demand a stable business and dividend payouts.

FP holds a contrary view, pointing out that even large consumer companies such as Nestle have sold their skin care businesses.

Isozaki said Kirin did not acquire other companies with the aim of expanding the pharmaceuticals business but that nonetheless, his company "has been doing research & development since 100 years ago. This is why the pharmaceutical business has succeeded. Thus, we can do health science," he said confidently.

Kirin is under pressure ahead of its annual general meeting on March 27 in Tokyo, as FP has started its campaign by phoning and emailing other investors in the company. FP also used its website to explain its arguments to other investors.

FP's campaign is targeted at the top 100 shareholders and investors who have exercised voting rights in the past two years.

Furthermore, FP Managing Partner Hassan Elmasry will come to Tokyo to hold a news conference on March 13 to promote its proposal for the upcoming investors' meeting.

Meanwhile on Tuesday, Kirin held an investor day in Tokyo to explain its growth strategy and answer questions from shareholders.

In addition to its proposal for future growth, FP is demanding that Kirin appoint the unaffiliated directors it suggested.

Kirin announced its latest board last month, and it did not include directors suggested by FP.

"Unfortunately [they] did not know about Kirin," Isozaki said after Nomination and Remuneration Advisory Committee conducted an interview with two proposed candidates. "Kirin's suggested directors are more appropriate for giving advice and monitoring to achieve KV2027," Isozaki added in reference to the company's growth strategy.

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