Japan: Asahi seeks debt reduction before looking into new acquisitions

Asahi Group Holdings seeks to reduce its debt by 260 billion yen ($2.36 billion), or about 20%, by December 2019, aiming to put itself in a better position from which to launch acquisitions seeking growth beyond Japan, the Nikkei Asian Review reported on May 24.

The Tokyo-based beverage group's debt ballooned following ambitious acquisitions in 2016 and 2017. Asahi spent a total of about 1.2 trillion yen during that period to buy several European beer brands from Anheuser-Busch InBev, the world's largest brewer.

This drove its interest-bearing liabilities to more than 1.2 trillion yen at the end of 2017, up from many years at the 400 billion yen level.

Through next fiscal year, the brewer of Super Dry expects free cash flow to turn positive and average over 140 billion yen a year, helping to pay down this debt load. The company plans to cut its debt to below 1 trillion yen by the end of 2019.

Asahi will "prioritize strengthening our finances while improving our flexibility for M&A and other growth investments," says Chief Financial Officer Kenji Hamada.

The group has seen sales of profitable premium beers soar in Europe on the back of the acquisitions, which brought in brands including Pilsner Urquell, Peroni and Grolsch. This helped operating cash flow jump 50% from a year earlier to more than 230 billion yen in fiscal 2017.

Asahi also aims to lighten its debt load with proceeds from the sale of its stake in China's Tsingtao Brewery to investors including conglomerate Fosun International for about 106 billion yen. The deal is expected to close this year, ending a capital tie-up dating back to 2009 that Asahi had hoped would grow its share of the world's biggest beer market. Since then, the Japanese brewer has pivoted more toward Europe.

Bonds comprise roughly 540 billion yen of Asahi's interest-bearing debt, a sum which includes a 280 billion yen issue last year. The company will begin its debt reduction by tackling its commercial paper and short-term loans, which make up 143 billion yen and nearly 200 billion yen of the total, respectively.

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