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Kirin profits sent reeling by discount milk prices

SLUGGISH earnings growth, discounting and intense competition in its dairy division have hit Australia's biggest brewer, forcing its Japanese owner, Kirin, to issue a profit warning that sent its shares plunging on the Tokyo stock exchange.

Kirin Holdings fell the most in almost a year yesterday after cutting its 2015 sales forecast on weakening demand in its home market of Japan and a worsening outlook for its Australian subsidiary.

The earnings disappointment is further proof of a worsening market for dairy producers in Australia following the introduction of $1-a-litre milk by the big supermarket chains nearly two years ago, rises in commodity prices and the rush by customers away from branded dairy foods to private-label products.

In February, Lion blamed the supermarkets' heavy discounting of private-label milk for its decision to write down the value of its dairy and drinks business by $1 billion.

Yesterday Kirin shares fell more than 3 per cent, their biggest slide since November, when the conglomerate announced its annual sales would reach around ¥2.3 trillion by 2015, significantly lower than an earlier projection of ¥3 trillion.

The blame was laid at the feet of its Australian dairy operations, which sit under its Lion subsidiary.

''Domestic [Japanese] liquor and beverage business didn't grow as expected and growth in Australia's dairy business wasn't enough,'' Kirin president Senji Miyake said at a press conference in Tokyo.

Earlier this year Kirin forecast 2012 earnings would land below analyst estimates amid declines in its Lion unit in Australia and in the Japanese drinks market. Kirin has forecast pre-tax earnings this year of $96 million from Lion, lower than the $350 million target set in 2010.

Lion's dairy division, which owns Pura milk, King Island cheese and Yoplait yoghurt, reported an 8.9 per cent fall in sales for the first half of 2012 to $1.317 billion while EBIT fell 27 per cent to $49.8 million.