Kirin hopes to double profit at drug unit by 2011
Kirin Holdings aims to almost double in five years the profits of a new drug unit to be formed after it takes control of Kyowa Hakko Kogyo Co in a USD 2.6 billion stock and cash deal.
Kirin, which is running neck-and-neck with Asahi Breweries for the title of Japan’s top brewer, announced in October that it plans to acquire a majority stake in Kyowa Hakko through a tender offer and a stock swap with its drug unit, Kirin Pharma.
Kirin said it will aim to generate YEN 80 billion or USD 700 million in operating profit from the merged drug business by 2011, compared with YEN 42.6 billion in combined profits of Kyowa Hakko and Kirin Pharma last year.
Kirin has made a string of acquisitions and diversified into other industries over the past few years as it seeks to cut its reliance on Japan’s stagnating beer market.
Kirin said it would offer YEN 1,500 per Kyowa Hakko share to acquire a 27.95 percent stake, or 111.58 million shares. Kirin Pharma will then conduct a share swap with Kyowa to take 177.24 million new shares in Kyowa, boosting Kirin Holdings’ stake in the drug maker to 50.1 percent.
On 1 November Kirin Holdings posted a 4.6 percent decline in quarterly operating profit, hurt by rising raw materials costs and sluggish beer sales. It also cut its full-year outlook by 3 percent.
A few days earlier, Kirin said it would raise the price of beer for the first time in 18 years in February 2008, to pass on rising raw materials costs, a move expected to lead to a 3 to 5 percent rise in retail prices.
But Kirin’s beer sales remain weak. It said its domestic beer shipments fell 2.2 percent in January to September, underperforming the overall market’s 1.3 percent decline.
Kirin’s spokesperson was quoted as saying: “A drop in the overall Japanese beer market for 2007 is likely to be bigger than we anticipated."
Kirin now expects a full-year operating profit of YEN 114 billion or USD 987.7 million, down from an earlier forecast of YEN 117 billion and 2 percent below last year. It would mark its first fall in operating profit in six years.
For the July-to-September period, Kirin’s operating profit came to YEN 47.2 billion, down 4.6 percent from the same period last year.
The company said it had curbed advertising and marketing spending, but a sharp rise in prices of key raw materials such as aluminium and malt dented its earnings.
Shares of Kirin have fallen 11.6 percent this year, underperforming the Nikkei average’s 2.1 percent drop, it was reported.
