Japan: Kirin Brewery reported a 3.4 % rise of group operating profit for Q3 2005

Kirin Brewery Co., Japan's second-largest beer-maker, reported a 3.4 % rise in group quarterly operating profit on Friday, November 11 on strong sales of beer-like drinks, and kept its 0.6 % growth forecast for the year.

Consolidated sales for the first nine months of the fiscal year ending December 31, 2005 were YEN 1,195.4 billion, 2.3% lower than in the previous comparable period. Although pharmaceutical business sales increased, sales of alcohol and soft drink beverages declined. Consolidated operating income for the nine-month period was YEN 85.4 billion, 6.3% lower than the previous comparable period, consolidated ordinary income decreased 2.5% to YEN88.1 billion, and consolidated net income increased 7.7% to YEN 43.6 billion.

In beer, the category with the strongest impact on the value of the Kirin brand, a number of initiatives were undertaken. The brewery commented: “We continued to support sales of Kirin Ichiban Shibori with the food-based marketing campaign we have promoted since 1998, appealing to the complementary nature of this beer with various foods. In August we released our special seasonal beer Kirin Akiaji, the 15th year of this fall-only product. In September we launched the second phase of our ‘happy meal times with Kirin beer’ campaign, centered on local delicacies in 47 prefectures of Japan. In the high added-value chilled beer market, pioneered in Japan by Kirin, we took steps to further develop this market with the renewal of Maroyaka Kobo in March.”

“In happo-shu, a category that has become central in the household evening consumption market, we reinforced our number one market position by renewing the Tanrei series Tanrei Nama, Tanrei Green Label and Tanrei Alpha, supported by a large advertising and sampling campaign.

In the closely watched new genre category, the successful launch of so-called "third-type" beer, Kirin Nodogoshi in April resulted in Kirin sustaining number one market share by volume in this category as of the end of September. This launch was supported by initiatives including comprehensive marketing efforts across the Group, a large-scale promotional campaign, and the release of a 250ml can in August to enhance the product line-up.

The product, along with the company's popular low-malt "happoshu" brews, boosted Kirin's sales in the July-September summer quarter by 5 percent, while Japan's overall beer market dwindled by about 1.5 percent, Kirin said.

"Strong sales carried into August and September, while last year we had brisk sales just in July, when the weather was hot," a company spokeswoman said.

Kirin, the maker of Ichiban and Lager beers, posted a group operating profit of 47.89 billion yen ($405.3 million) for the three months ended in September, compared with 46.34 billion yen a year earlier, according to Reuters calculations that subtracted reported half-year results from nine-month numbers.

It kept its full-year operating forecast of 110 billion yen, in line with the consensus projection from nine analysts polled by Reuters Estimates.

Industry leader Asahi Breweries Ltd. last month reported an 18 percent fall in third-quarter operating profit as sales slowed, and kept its full-year forecast for profit to be little changed.

The domestic beer market has shrunk by one-third in the last five years, and Japanese brewers have been shifting their focus to overseas expansion, other alcoholic beverages and soft drinks for growth, according to Reuters.

Cheaper third-type beers were first developed early last year in an effort to jumpstart the market. The country's current alcohol tax system allows these drinks, which are made from such things as hops, bean protein and caramel, to escape high taxes because their ingredients mean they are not classified as beer.

Low-malt happoshu, which has been on the market longer and is slightly pricier than third-type brews, was introduced for the same reason.

But the government is now trying to tackle the differences. One possible scenario is to raise taxes on third-type beers and happoshu while cutting them for regular beers, eventually unifying taxes for all beer-related products.

Japan has a higher alcohol tax rate -- tax makes up nearly 36 percent of canned beer prices -- than other developed countries such as the United States and Britain.

A change in the alcohol tax would hit Kirin hard because the two cheaper types of products make up more than half its beer-related product sales, and those sales are expected to decrease when higher taxes are imposed.

The Kirin spokeswoman said the company and four other domestic beer makers were jointly fighting a rise in alcohol tax. "We knew the risk when we introduced Nodogoshi," she said.

Asahi is strong in the regular beer segment with its flagship product, Super Dry, and is expected to benefit from a tax change.

Shares in Kirin rose more than 16 percent in the July-September period, outperforming a 9.2 percent increase in the Tokyo Stock Exchange's foods sub-index .

After the earnings announcement, the stock closed flat at 1,300 yen, while the sub-index was up 0.85 percent. The Nikkei average ended up 0.53 percent. ($1=118.15 YEN)

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