Kirin underestimates benefits from Dairy Farmers acquisition, but profit hurt by exchange rate

Posted by Daniel Palmer on 7th August 2009

Japanese brewer Kirin Holdings has reported a 16 per cent drop in operating profit as the exchange rate hurts their Australian operations and Japanese consumption remains subdued.

Despite the drop in profit, the owner of National Foods consolidated Dairy Farmers into their Australian fruit juice and dairy business with better-than-expected results and has now raised their profit expectations for the full year.

Kirin said that Lion Nathan, which they are currently seeking to buy (they currently own 53 per cent),  had performed well as beer consumption in Australia remained strong. They reported that the Boag’s consolidation into the company had progressed well, with the only dampeners on results being the wine division and Australian exchange rate. However, they upgraded their forecasts for the full year on the back of a significant surge in the value of the Australian dollar.

Their National Foods operation – which includes Dairy Farmers – was similarly hurt by the exchange rate. The owner of the Berri and Pura brands was also impacted by the economic downturn but integration of Dairy Farmers was likely to bring more cost savings than forecast.

“At National Foods in Australia, the economic slowdown impacted performance, with a worsening of the product mix in dairy products from a consumer shift to lower price points and a slump in fruit juice sales,” Kirin advised in a statement. “Raw dairy input prices eased, however, after having risen suddenly since the second half of 2007.”

“Following the 100% acquisition of Dairy Farmers in November 2008, integration initiatives have been progressing steadily, with indirect expenses and other cost reductions producing higher than expected cost savings, and certain operations have been sold in line with directives from the Australian Competition and Consumer Commission.”

Talks with Suntory continue

Kirin is currently pursuing a merger with Suntory, advising on a conference call that they were hopeful an agreement could be reached before the end of the year. And more purchases could be on the agenda.

“(The merger) would bolster our foundation and speed up our expansion,” Kirin President Kazuyasu Kato noted. “We’re targeting Asia Oceania and more possibilities may lie ahead.”

The company added that they believe a deal would receive approval from competition authorities.

Suntory also has significant operations in Australia and New Zealand following their purchase of Frucor early this year.