Sapporo Holdings Ltd. (2501), the Japanese brewer that last month cut its profit forecast, will invest as much as $2.5 billion over five years to boost growth and consider acquisitions to expand in food and soft drinks.
The beer maker is keeping its pledge to invest 150 billion yen to 200 billion yen ($2.5 billion) by 2016 even after cutting annual revenue and profit projections, President Tsutomu Kamijo said in a Sept. 6 interview in Tokyo.
Sapporo and larger competitors Kirin Holdings Co. (2503) and Asahi Group Holdings Ltd. (2502) are making investments overseas and in businesses such as food and soft drinks to help offset slumping beer demand at home. Sapporo last month slashed its operating income forecast 20 percent to 16 billion yen for 2012 on higher marketing expenses.
“We lowered the earnings forecast so the level of operating cash flow will be lower a little bit, but it won’t have a big impact” on the investment plan, Kamijo said.
The brewer is planning the investments amid a slump in its stock price this year. Sapporo shares dropped 0.5 percent to 214 yen at the close of Tokyo trading today. The stock is down 26 percent this year, compared with a 1.2 percent gain for the Topix Index.
Sapporo wants to strengthen its domestic food business after last year buying Pokka Corp., a Japanese beverage and food maker.
Yogurt, Dairy Industries
“Sapporo should go ahead and buy something that has a solid business with large shares even if it ends up costing a little high,” saidMikihiko Yamato, deputy head of research for JI Asia in Tokyo.
The commercial sales of food and beverages in Japan fell 7.3 percent to 46 trillion yen in 2011 from 20 years ago, according to statistics compiled by the Ministry of Economy, Trade and Industry.
Kamijo, without elaborating, said he is also “watching with interest” for possible investment opportunities in the domestic yogurt or milk industries. The company bought a 51 percent stake in U.S. beverage maker Silver Springs Citrus Inc. earlier this year as part of its plan to expand in North America. Its domestic investments include a 49 percent stake in a yogurt and milk product maker Azumino Shokuhin Kobo KK. in 2009.
Industrywide beer sales in Japan fell 3.7 percent to 442 million cases last year, the lowest level since records began in 1992.
“For beer, lowering production cost and increasing the competitiveness is what the company needs” said Yamato. “It needs to grow out of the business style that depends on promotion.”
Sapporo posted 1.7 billion yen operating loss for the half year ended in June partly due to increased marketing cost, the company said in a statement in August. It posted 3 billion yen profit a year earlier.
The company got 65 percent of its 2011 revenue of 454 billion yen from the brewing business, 17 percent from the Pokka Group and 8 percent from other drinks businesses, according to data compiled by Bloomberg. The brewer last month reduced sales forecast by 3 percent to 493 billion yen.
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