Diversification and internationalisation are to boost Kirin’s operating profit

If Kirin’s forecast were to materialise, this might be the time to pick up some shares in the brewer.

Japan’s Kirin Brewery said it aims to increase its operating profit by 28 percent or more in the next three years, led by growth in overseas operations and non-beer alcohol and soft drink businesses.

Kirin, which for years has battled against Asahi over who was to be Japan’s number one brewer, has been keen on expanding abroad and into non-beer categories. In an effort to fend off the impact from a saturated domestic beer market, caused by a shrinking population and a shift in consumers’ tastes, the brewer said in January 2007 that it plans to spend 250 billion yen (USD 2.1 billion) in capital investments between 2007 and 2009 and an additional 300 billion yen for other operational investments such as acquisitions.

Kirin, which also has food and pharmaceutical businesses, said it aims for a group operating profit of 150 billion yen or higher in 2009, compared with a projected 117 billion yen in the current financial year.

The company also aims to increase sales by 28 percent to 2.15 trillion yen in 2009.

Kirin said it plans a dividend payout ratio of 30 percent or higher based on its consolidated profits from 2007. The brewer currently has a dividend payout ratio of around 30 percent of parent profits.

Given Japan’s bizarre excise regime, Kirin was forced to move into low-malt "happoshu" brews and beer-like drink categories, which were developed to escape higher tax imposed on regular beer. Beer-like drinks, or so-called third-type beer, are made from ingredients such as bean protein and caramel, allowing them to avoid high taxation because they are not classified as beer.

Boosted by the third-type beer category, Japan’s overall beer market showed its first year-on-year growth in five years in the January-June 2006 period. However, the sale of regular beer has dropped 36 percent over the last five years, it was reported.

Looking for growth in its non-beer operations, Kirin made its soft drink unit Kirin Beverage a wholly owned unit last year.

In China, Kirin said it would invest USD 38 million to acquire a 25 percent stake in Hangzhou Qiandaohu Brewery Co. Ltd. plus the rights to lift its stake to 49 percent in the future.

Interestingly, Kirin seems intent on becoming a diversified beverage company, having recently spent USD 210 million to take a 50.1 percent stake in one of Japan’s leading wine producers and distributors, Mercian Corp, a deal that will raise Kirin’s 2006 group sales forecast to 1.78 trillion yen when the two companies’ sales are added. By purchasing Mercian, Kirin is also hoping to make inroads into the shochu market. A spirit distilled from sweet potatoes or rice, shochu is known as the poor man’s drink. The shochu market is still highly fragmented between a large number of local distillers.

Kirin already has a 46 percent stake in Lion Nathan, Australia’s second-largest brewer, and a 20 percent stake in the Philippines’ San Miguel Corp, Southeast Asia’s largest food and drinks group, and it has expressed hopes to raise its stakes in the companies in the future.