E-Malt.com News article: Japan: Kirin Brewery expects 4.7 % growth in 2006 profit

Japan's second-biggest beer maker, Kirin Brewery Company, Limited, announced on Friday, February 17, it expects its operating profit to grow 4.7 % to another record in 2006 on higher beer sales. That outlook contrasts sharply with rivals such as Sapporo Holdings and Asahi Breweries , both of whom are struggling to win more consumers as the market shrinks due to an ageing population and a falling birth rate, according to Reuters.

Kirin has been doing well, attracting consumers with its low-cost beer-like beverages and benefiting from moves to strengthen its product lineups. The maker of the "Ichiban" and "Lager"-brand beers forecast a group operating profit of 117 billion yen ($989 million) in the year to December, in line with a consensus estimate of 117.5 billion yen in a poll of 10 analysts by Reuters Estimates.

For 2005, the company posted a record profit of 111.71 billion yen, up 2.1 percent and beating market expectations of 110 billion yen. That figure was also up from 109.39 billion yen a year earlier.

While it expects the domestic market to shrink about 1 percent in 2006, Kirin said last month it sees a 3.5 percent rise in its own beer sales including regular beer, low-malt happoshu and low-cost beer-like drinks in 2006.

Kirin has been closing the gap on industry leader Asahi Breweries as beer-like drinks have shown strong growth, while it continues to lead the market in the low-malt happoshu category. These products are cheaper than regular beer because of lower tax rates.

Kirin, which has been diversifying into areas outside beverages, said it aims to win more customers by strengthening its product lineups. "We have a long history of making beer and it will remain a pillar of our business, although I'm aware that we have to survive in a shrinking beer market," Kirin's managing director Kazuhiro Sato told reporters.

ASAHI, SAPPORO STRUGGLE

In 2005, Asahi lost 0.8 percentage point of its share of the overall domestic beer market, falling to 38.8 percent, while Kirin added 1.3 points to 35.7 percent. Asahi last week reported a 10.9 percent drop in its 2005 operating profit, falling short of market expectations, but forecast its profit would rise 16 percent this year as it aims for a 3.4 percent rise in total beer sales.

On Friday, Sapporo Breweries, Japan's third-largest beer maker, reported a 56.4 percent drop in its 2005 operating profit but forecast that figure would rise 63 percent this year. As the outlook for the domestic beer industry remains gloomy, Kirin is relying increasingly on subsidiaries such as Kirin Beverage Corp. for growth.

Its overseas units, such as Australia's Lion Nathan and the Philippines' San Miguel Corp. , have also supported Kirin's earnings.

Unlike rival Asahi, which aims to strengthen its regular beer business, Kirin's strategy is to diversify its business and product lineups and expand its operations in overseas markets. "The population of southeast Asia and China is set to grow and their economies are also seen expanding. We can't aim for growth without targeting this region," said Kirin's Sato.

As part of its growth strategy, it struck a tie-up deal last year with Yakult Honsha Co. , known for its fermented lactic drinks and owned 20 percent by French food group Danone , to jointly develop health food and share the groups' distribution channels to tap the growing health-food market.

It has also invested about 10 billion yen to take full control of its joint venture in China, the world's largest beer market, and build a new plant.

In January, Kirin said Kazuyasu Kato, managing director in charge of sales and marketing, would replace Koichiro Aramaki as president at the end of March. Aramaki will become chairman.

Shares in Kirin rose 36 percent in 2005, outperforming a 24 percent increase in the Tokyo Stock Exchange's foods subindex in the same period.

Kirin's shares closed down 1.4 percent at 1,449 yen on Friday, while the subindex lost 1.7 percent. The Nikkei average sank 2.1 percent. Shares in Sapporo tumbled 3.1 percent to 597 yen and those of Asahi closed off 0.2 percent at 1,558 yen. ($1=118.21 Yen)


17 February, 2006