Japan: Kirin to reach full-year operating profit targets, according to its executive

It is quite likely that Kirin Brewery will hit its full-year operating profit target, a top executive said on November 18, according to Dow Jones. Naomichi Asano Kirin Executive Vice President said strong earnings from its Australian unit Lion Nathan Ltd. and firmer domestic beer sales would offset a drag from its beverage business, whose profits have suffered due to higher costs of attracting customers in Japan's fiercely competitive drinks market.

"I think we can recover and we can attain the budget," Asano told Dow Jones in an interview.

The Japan's No. 2 beer maker by shipment volume, expects a group operating profit of Y110 billion for the year through December. For the nine months ended Sept. 30, its group operating profit fell 6.3% to Y85.42 billion, raising concern among some analysts that it might fall short of its full-year goal. irin own a 46% stake in Lion Nathan, which earlier this month said its net profit jumped 40% in the year to September as beer sales improved in its home market.

In Kirin's all-important domestic market, its beer sales have been picking up as some rivals struggle. Year-to-date, Kirin's beer shipments have risen around 1% on year, bucking a roughly 2% drop industrywide, said a spokeswoman.

Kirin, which posted group revenue of Y1.655 trillion for 2004 and employed 22,160 people around the world as of Dec. 31, is striving to increase its presence in China, where potential for growth in beer demand outstrips other markets, Asano said.

An average person in China drinks far less beer than a typical American or Japanese. So in terms of per-capita beer consumption, China is about one-fourth in size compared to the U.S. and two-fifths compared to Japan. But given its massive population, China has surpassed the U.S. to become the world's largest beer market both in terms of consumption and production.

Kirin established a foothold in China in 1996 and set up a holding company in January in Shanghai, which concentrates on three key areas - the northeast, the central coastal area, and southern China. It owns a 25% stake in Dalian Daxue Brewery Co. in the northeast region and a 60% stake in Zhuhai Kirin President Brewery Co. in the southern region.

The Japanese company isn't the only foreign brewer with its sights set on China. Anheuser-Busch Cos. (BUD) and SABMiller PLC (SAB.JO) have been aggressively expanding their operations there.

"It's very difficult to get a profit," Asano said. "Our operations still get a profit, but not so huge profits." Kirin believes it's important to stick it out in China, given the immense opportunity the market presents as the Chinese economy expands and consumers grow wealthier.

Asano predicts beer consumption by volume in China to double within 10 years, presenting a big opportunity for the Japanese brewer. "There aren't many markets for such growth," he said. "We can't neglect the market."

In terms of sales volume, Asano said he expects China will likely account for 10%-20% of Kirin's business in 10 years, up from just under 5% now.

To expand in China, Kirin will seek both "organic growth and some more investments," Asano said. Kirin is "open and flexible" on forming ties with other Chinese companies and has held talks with several potential partners, he said. Golden Star Beer Group was among the firms Kirin has met with, Asano said without elaborating.

Separately, Asano said that Kirin would consider raising its 20.06% stake in its Philippine affiliate San Miguel Corp. if an opportunity presents itself.

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