Kirin slashes profit forecast on National Foods write-downs
Japanese food and beverage group Kirin Holdings has slashed its profit forecast for 2010 due to JPY38.8bn (US$463.5m) of write-downs at National Foods, its dairy and juice unit in Australia.
Kirin was targeting net income of JPY35bn for 2010 but on Monday (20 December) set a new forecast of JPY10bn.
The company said an “appraisal” of National Foods’ assets and operations had shown that increasing input costs and “changes in the Australian market” would hit the brand value of its subsidiary. The review concluded that Kirin would have to file JPY38.8bn in impairment losses for the year.
National Foods, now part of Lion Nathan National Foods, Kirin’s dairy-to-beer arm in Australia, said trading conditions in the country’s dairy and juice sectors had “eroded” since the Japanese group had bought the business – and Australian dairy firm Dairy Farmers – in 2007 and 2008.
“National Foods is still a long way from achieving acceptable margins with FY09 EBIT margin at less than 5% and the business faces some considerable headwinds. Input costs remain relatively high by historical standards and National Foods endures ongoing challenges to maintain adequate operating margins in a very competitive retail environment,” National Foods admitted.
The company said it continues to “optimise” the combined manufacturing footprint of National Foods and Dairy Farmers and “leverage its scale and route to market”.
National Foods also plans to focus its marketing spending on a core portfolio of “power brands”. It added: “The combined business has quality brands that require investment to reach their full potential.”
The write-downs at National Foods have not prevented Kirin from upping its forecast for operating income. Kirin now expects operating income to reach JPY143bn thanks to cost control and improved efficiency.
However, Kirin has trimmed its sales target for 2010, cutting it from JPY2.18trn to JPY2.17trn due to the “continuing difficult market conditions”.
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