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Beermaker Kirin weighs sale of its Australian dairy business

[TOKYO] Japan's Kirin Holdings Co. said it is reviewing options including a possible sale for the Australian dairy business it bought for US$2.6 billion a decade ago.

The Japanese brewer, which has been streamlining its brand portfolio, has struggled with a cutthroat milk market in Australia. While Kirin said the Lion Dairy & Drinks unit has improved its performance since 2015 following a restructuring, the business has been cited by executives for its low profitability.

Kirin will "give consideration to all potential options for Lion Dairy & Drinks, including retaining and investing in the business and a sale of LDD," Kirin said in a statement Tuesday. Spokesman Toshiaki Hyoudou said the initial review phase will be four weeks, after which the company may make a decision or continue the process.

Kirin bought the dairy and drinks unit in 2007 for 294 billion yen (S$3.58 billion) from the Philippines' San Miguel Corp. The business, now part of Kirin-owned Australian beer and food giant Lion Pty., had sales of 153.4 billion yen in 2017. The operating margin was 3.5 per cent in 2017, compared with 28 per cent for Lion's beer and spirits unit.

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Shares of Kirin rose as much as 2.5 per cent in early Tokyo trading Tuesday. The stock is down 4.7 per cent for the year, compared with a 6.8 per cent drop in the benchmark Topix Index.

Japan's second-largest brewer has been narrowing its business holdings to improve profitability. In its home country, where beer consumption is falling, Kirin has focused on the fledgling craft beer segment through investments in Brooklyn Brewery and local brewers. It's also turning its attention to a health and wellness segment.

Making money from dairy products in Australia became much tougher almost a decade ago when the country's two dominant supermarket chains, Coles and Woolworths, started a price war with household staples including break and milk. The rivals in 2011 cut the price of supermarket-branded milk to just A$1 a liter (S$0.97 ), undercutting Kirin's brands.

While Australian farmers campaigned in 2016 to persuade the public to boycott supermarket milk, prices at both chains today remain at the same discounted level. Dairy Farmers milk, owned by Kirin, costs A$1.50 a liter at Coles.