Overview of 2015 Financial Results 2016 Business Strategy

FY2015 Financial Results (consolidated)

Sales in 2015 totaled 1,857.4 billion yen, a 71.9 billion yen increase over 2014. In addition to sales growth for the core brands at all of our businesses, the increase reflects contributions from newly consolidated subsidiaries - ENOTECA, which was included in the Alcoholic Beverages Business from April 2015, and Etika, which has been included in our Overseas Business segment results since the latter half of 2014.

Regarding operating income, we achieved a 6.8 billion yen increase in profits, posting total operating income of 135.1 billion yen. Although profits fell at the Soft Drinks Business owing to increased spending on advertisement and sales promotion expenses, all three other businesses achieved profit growth supported by increased sales and profit structure reforms.

FY2015 Financial Results (Alcoholic Beverage)

Asahi Breweries' 2015 operating income came to 116.0 billion yen, an increase of 1.6 billion yen over 2014. The subsidiary offset the negative impacts of lower shipments of its beer-type beverages and increases in advertisement and sales promotion expenses with higher sales of its non-beer alcoholic beverages increased and product mix improvements that helped lower overall costs.

FY2015 Financial Results (Soft Drinks)

Regarding Asahi Soft Drinks, 2015 operating income totaled 21.3 billion yen, 2.2 billion less than in 2014. Although the company increased shipments of its products and achieved greater efficiency with variable costs, especially raw material costs, profits were hurt by deterioration in the product and container mix and by increased spending on advertisement and sales promotions.

FY2015 Financial Results (consolidated)

Net non-operating income increased 6.0 billion yen, primarily thanks to increases in dividend income and in equity in net income of unconsolidated subsidiaries.

Equity in net income of unconsolidated subsidiaries improved by 6.1 billion yen as we posted a 9.5 billion yen profit related to a change in the structure of Itochu's shareholdings in China's Ting Hsin Holding. This positive offset the negative impact of lower profits at two Chinese equity-method affiliates as well as our Indonesian sales affiliate.

As a result, ordinary income for 2015 totaled 145.9 billion yen, 12.8 billion yen more than in 2014.

Meanwhile, net extraordinary income declined 29.2 billion yen in 2015, as the positive impact from an increase in intercompany profit and a decrease in impairment losses was offset by the absence of two major positive inputs in 2014, namely the gain on the sale of the site of our former Nishinomiya brewery and settlement package received upon a lawsuit in Oceania.

There are two main causes of impairment losses in 2015. The first is an impairment loss of goodwill stemming from a more conservative future net cash flow outlook for our Oceania operations, reflecting our expectation of continued increases in the cost of imported raw materials caused by weakening of the Australian dollar. The second is an impairment loss on the disposal of underutilized assets in Japan and overseas.

Corporate taxes for 2015 were 22.3 billion less than in 2014, reflecting a lower effective tax rate caused by changes in Japan's tax code, the positive effect of preferential tax treatment in Australia, and non-taxable equity-method income and extraordinary income. As a result, consolidated net income for 2015 increased 7.3 billion yen year on year to 76.4 billion, continuing our consecutive years of record earnings, which is now at 15 years.

FY2016 Financial Targets (consolidated)

In our 2016 forecasts, comparisons with 2015 results are based on adjusted figures that reflect the changes in the components of our reportable business segments.

Starting with sales, we expect the Foods Business' regeneration of unprofitable business and the negative impact of a stronger yen to reduce Overseas Business sales by about a 21.7 billion yen. Both businesses' sales are expected to decrease in 2016. However, we expect that negative to be more than offset by sales growth at our Alcoholic Beverages and Soft Drinks businesses, which we expect to strengthen core brands and nurture the growth of new products. We are targeting year-on-year sales growth of about 12.6 billion yen to 1,870.0 billion yen.

Turning to operating income, we expect to achieve steady growth at the Alcoholic Beverages and Soft Drinks businesses, driven by higher sales volumes and more cost-effective operations as we hold down costs, including raw material costs. However, both businesses will boost spending on advertisement and sales promotions to strengthen brand power.

The Foods Business is also targeting profit growth, as it plans to offset the negative impact of lower sales and one-off business integration costs by seeking greater synergies in raw material procurement.

Meanwhile, Overseas Business profits are expected to increase 17% on a local currency basis on strengthening of brand power and synergies to compensate for rising raw material costs caused by weak local currencies. The stronger yen is expected to reduce repatriated profits by about 1.6 billion yen, resulting in a 0.8 billion yen or 6% increase in segment operating income.

Holding company expenses which are included in adjustments, are expected to include a 2.1 billion yen increase in expenditures related to the cost of shifting functions required by business integration and in R&D expenses related to the development of foods with function claims. However, goodwill amortization costs are expected to decline 1.3 billion yen on the absence of impairment losses and the strong yen in 2015. Factoring in the above, we forecast that consolidated operating income in 2016 will increase by 1.9 billion yen to 137.0 billion yen.

FY2016 Financial Targets (Alcoholic Beverage)

Regarding Asahi Breweries, we forecast shipments of our beer and beer-type beverages will get a boost from marketing efforts focused on new products, such as Asahi The Dream, a beer scheduled for launch in March. Overall, we aim to ship 161.5 million cases in 2016, up 0.4% year on year.

At our non-beer alcoholic beverages business, we look for strong contributions from a new brand of RTD beverages to be launched in 2016 and the integration of ENOTECA into Asahi Breweries. We look for Asahi Breweries sales to increase by 12.9 billion yen, to 978.7 billion yen.

Among factors affecting operating income, we expect increases in variable costs and in advertisement and sales promotion expenses. We also expect fixed costs to rise owing to the addition of ENOTECA to the Group. However, we think these cost factors will be offset by higher sales and our efforts to cut other costs, including raw material costs. We therefore forecast Asahi Breweries' operating income will increase by about 0.1 billion yen over 2015, to 118.5 billion yen.

FY2016 Financial Targets (Soft Drinks)

Regarding the forecasts for Asahi Soft Drinks, we expect the subsidiary to increase annual shipments by 0.9% to 248.70 million cases as it strengthens marketing of its six core brands, including Mitsuya and WONDA, while also strengthening its efforts to introduce products offering new value proposals centered on health.

We also target an increase in operating income. Again, we expect raw material and other costs to rise and plan to increase spending on advertisement and sales promotions. However, we expect to offset these cost increases with increased product shipments, cuts to overall variable costs achieved by realizing synergies with Calpis, and the transfer of some expenses as a result of business integration. Consequently, we target a 1.9 billion yen increase in Asahi Soft Drinks' operating income, to 26.0 billion yen.

FY2016 Financial Targets (consolidated)

We expect non-operating income to decline by 9.8 billion yen, primarily owing to a fallback in equity in net income of unconsolidated subsidiaries. We expect this decline will effect to a 7.9 billion yen decrease in consolidated ordinary income to 138.0 billion yen.

We are forecasting a 9.4 billion yen drop in equity in net income of unconsolidated subsidiaries. About 0.3 billion yen of that decline is expected to come from the negative impact of foreign currency translations on income received from Tsingtao Brewery and Tingyi-Asahi Beverages, which is largely in line with 2015. We expect an earnings recovery at our Indonesian joint-venture company but expect the total equity-method income to fall due to the absence of a special income that affected last year's contribution.

In 2016 we expect net extraordinary losses to be 21.2 billion yen less than in 2015, owing to the lack of the large impairment loss posted in 2015. As a result, we target consolidated net income of 80.0 billion yen, a 3.6 billion yen increase over the previous year.

Summary of the impact of IFRS introduction (estimate)

We summarizes the impact of IFRS introduction. First, IFRS will eliminate sales promotion incentives and similar items from sales, which will have the greatest impact on Asahi Soft Drinks. The overall impact will be to reduce J-GAAP sales by 160–180 billion yen.

Operating income will get an 8.5 billion yen boost as we will no longer have to amortize goodwill. That will increase 2016 operating income by 9.5 billion yen, but that figure will be reduced by a 1.0 billion yen increase in depreciation expenses under IFRS.

Net income will get another 3.5 billion yen boost from the removal of goodwill amortization at equity-method affiliates, resulting in a total net income increase of 12.0 billion yen under IFRS.

Summary of the impact of IFRS introduction (estimate)

The diagram outlines the reclassification of financial statement items caused by the switch to IFRS. Because we cannot accurately forecast the direct impact of non-operating and extraordinary items on operating income at this time, the figures presented here are rough estimates.

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