Kirin Holdings Company Limited has knocked almost $500 million off the value of dairy heavyweight National Foods, with changes to the carrying value of brands and goodwill on its balance sheet for the business.

Kirin has written-down the value of brands and goodwill by ¥38.8 billion (A$485 million) following a strategic review of core brands, which National Foods said reflected difficult trading conditions, especially in the white milk and juice sectors.

“As previously communicated, conditions in both the dairy and juice sectors have eroded since Kirin purchased National Foods in 2007 and Dairy Farmers in 2008 and remain very challenging for farmers, processors and brand owners alike,” said a statement from National Foods.

“National Foods is still a long way from achieving acceptable margins with FY09 EBIT margin at less than 5 per cent 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 tried to put a positive foot forward, highlighting the company’s efforts to rationalise the business.

“Against this backdrop, the National Foods business is making strong progress in integrating the former Dairy Farmers business. The Company continues to optimise its manufacturing footprint and undertake initiatives to leverage its scale and route to market. The combined business has quality brands that require investment to reach their full potential,” said the company.

National Foods has conducted extensive reviews of all its fresh dairy and milk operations this year, closing a number of sites and currently reviewing its cheese-making operations.

“National Foods is committed to patient investment in its core strategic assets – our people, brands and production assets – to deliver sustainable growth over the long term. National Foods has instituted a new strategy of focussing marketing investment around a portfolio of core ‘Power Brands’ to drive value. This initiative involved an assessment of the cashflow generating potential of brands, including the none-core brands, and contributed to the revaluation.”

Kirin said that Lion Nathan National Foods (LNNF), the Japanese food giant’s Australian holding company, had conducted a full reappraisal of National Foods’ assets.

“The asset appraisal included the impact of both increasing input costs, which remain relatively high by historical standards, and changes in the Australian market, on NF brand value.It also closely examined the effect of factors such as strategic brand management on brand value,” said a statement from Kirin.

“LNNF is making progress in improving NF’s profitability by concentrating brand investment in core ‘Power Brands’ to strengthen its portfolio, and by creating synergies through the optimization of NF’s manufacturing footprint, in line with Kirin’s integrated beverages group strategy.”

“The NF Group remains the core of Kirin’s integrated beverages group strategy in Asia and Oceania, and there is no change in the fundamental direction of the Kirin Group Vision 2015 (KV2015), the long-term business framework for the Kirin Group.”

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