Kirin me softly

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Big ambitions are seldom matched by big success. This is especially true of the Japanese beer industry. As tastes at home continue to shift away from the amber nectar (volume sales fell another 4 per cent last year, according to market researchers Plato Logic), hopes shifted overseas and into other (non-brewing) business lines. Kirin, the country’s biggest brewer by sales, now generates a fifth of its revenues outside Japan, while Asahi, the second biggest, makes just under a 10th. Kirin reported a 5 per cent fall in sales in 2011, while net income slumped by one-third. Asahi, meanwhile, saw sales dip 2 per cent; only heavy cost-cutting kept profits ticking up.

Kirin has certainly been eyeing growth through beer goggles. Since 2007 it has spent more than Y1tn buying brewing and beverage groups from Australia to Brazil. It has expanded its pharmaceuticals business (in Japan). This binge has left Kirin with net debt to equity of 94 per cent – six times higher than in 2006.

The acquisitions have not gone smoothly. At Lion in Australia operating income fell by almost one-fifth last year and Y26bn and Y9bn had to be cut off goodwill and the value of brands, respectively. Kirin hopes that its 2011 purchase of Schincariol – for an enterprise value 18 times the Brazilian group’s 2011 earnings before interest, tax and amortisation – will reverse its fortunes. Good luck. Brazil’s second-biggest brewer made just R400m of ebitda last year, one-quarter less than initial targets.

Kirin president Senji Miyake knows that the profitability of its overseas units needs improving. But there are few crossborder synergies in beer. Schincariol faces tough competition from AB InBev, which dominates the Brazilian market. While there is logic to Kirin’s expansion plans, Mr Miyake needs to add delivery to ambition.

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