E-Malt.com News article: Japan: Suntory to hold off on acquisitions for a year

Suntory Beverage & Food Ltd., the Japanese drinks maker that had Asia’s biggest initial public offering in 2013, plans to hold off on acquisitions for a year as it integrates past deals and bolsters existing operations, Bloomberg reported on December 6.

The company will consider issuing stock if its future deal making should exceed an initial budget of 500 billion yen ($4.9 billion), President and Chief Executive Officer Nobuhiro Torii said in an interview in Tokyo on December 5. The company could also sell bonds to raise funds, he said, adding that it has no specific plans so far.

“I don’t think we have enough capacity or ability to pursue another opportunity at this point,” Torii said, referring to acquisitions. “At least I have to take a break for 12 months.” After that, “if we deliver the plan in the next year, then our financial capability will grow.”

The Tokyo-based seller of Orangina soda and Boss coffee cut its profit outlook in November on rising marketing costs to boost domestic sales and Europe’s economic slump. The company, which began trading in July after raising about $4 billion, faces an aging population and competition from larger rival Coca-Cola Co. in the local market.

“I think it’s a good thing,” Takashi Aoki, a Tokyo-based fund manager at Mizuho Asset Management Co., said of the company’s plans to hold back on deals. “This year’s profit is a little bit lower than investors’ expectations, so they should focus on improving its profitability.”

While Suntory is taking a break from acquisitions, Nobuhiro Torii, president of Suntory Beverage & Food Ltd., said dealmaking is ‘‘opportunistic’’ so it is still possible the company will do acquisitions within the next year.

While the company is taking a break from acquisitions, Torii said dealmaking is “opportunistic” and it is still possible the company will do acquisitions within the next year.

Net income will probably be 31 billion yen for the year ending December, lower than its previous forecast of 35 billion yen, the company said in November.

“It’s perceived among investors as a stock that has high potential for overseas growth, so it’s not too late to wait and focus on existing businesses to win back investors’ trust before they go for acquisitions abroad,” said Mizuho Asset’s Aoki. “Investors would find it easier to invest in the company that way.” He declined to say if he currently owns the stock.

The Japanese market is the most important for Suntory Beverage and the company plans to stabilize its business and strengthen existing operations as competition intensifies, Torii said. Japan’s government will raise the sales tax to 8 percent in April from 5 percent at present.

“There will be very, very intensive competition before the tax increase,” Torii said, without elaborating on the impact to the industry. “We should not hesitate to fight against competitors before the tax will be increased. Again, it’s quite important for us to put money in the existing market probably next year.”

Suntory Beverage had a 20 percent share of Japan’s non-alcoholic drinks market in 2012, the second-biggest after Coca-Cola’s 28 percent, according to research company Inryosoken.

From the 500 billion yen budget for acquisitions, Suntory Beverage has already earmarked 1.35 billion pounds (225 billion yen) in September for the purchase of the Lucozade and Ribena drink brands from GlaxoSmithKline Plc. If future deals should top its budget or financial capability “issuing new stock can be one option,” Torii said. “But it’s too early to say.”

Suntory Beverage’s next area of focus would be in Vietnam and Indonesia which “are still rapidly growing,” he said. The company gets about 30 percent of its sales from overseas.


13 December, 2013