Lion reports six months of challenging conditions and declining revenue

Posted by AFN Staff Writers on 8th August 2011

Lion, the Kirin-owned food and drinks company, has experienced challenging conditions and declining revenue across its businesses in Australia and New Zealand over the last six months, ending March 31 2011, according to its latest financial figures reported on August 5, 2011.

The report shows declines in Lion’s beer, spirits and wine divisions in Australia and New Zealand, and in its dairy and drinks division:

  • Beer, spirits and wine divisions in Australia and New Zealand delivered earnings before interest and tax (EBIT) of $308.9 million, a decrease of 10.8 per cent. For the period, revenue declined 6.3 per cent to $1.178 billion.
  • The dairy and drinks division delivered operating earnings before interest and tax (EBIT) of $68.3 million, a decline of 43.2 per cent. Revenue declined 9.4 per cent to $1.4 billion, driven by the loss of key private label contracts and a decrease in export sales due to the impact of the strong Australian dollar.

Lion CEO Rob Murray has blamed multiple factors for the revenue decline.

“Low consumer confidence, fuelled by sustained economic uncertainty and rising cost of living pressures, continues to impact spending in both Australia and New Zealand,” said Murray.

“These softer trading conditions have been compounded by natural disasters in Lion’s key markets, including the February earthquake in Christchurch, the coldest and wettest East Coast spring and summer for decades, and the March quarter was further affected by the timing of Easter in April instead of March.”

Formerly known as Lion Nathan Australia, Lion Nathan New Zealand and National Foods, Lion Nathan, Lion rebranded its three divisions in May, 2011. Wine divisions are now referred to as Lion – Beer, Spirits & Wine Australia and Lion – Beer, Spirits & Wine New Zealand, and the former National Foods Business is Lion – Dairy & Drinks.

Beer, spirits and wine in Australia

Lion’s beer, spirits and wine division in Australia saw volumes reduce by 10.3 per cent, leading to an 8.3 per cent revenue decline to $824.2 million.

According to the report, part of the decline can be attributed to the timing of Easter in April instead of March.

Significant pricing activity on key competitor brands and the company’s high share in Queensland and New South Wales, with both markets suffering declines following the floods, also contributed to the decline, reducing Lion’s share of the national market during the half by approximately 0.5 of a share point.

The product recall of select batches of key brand Boags in the lead up to Christmas 2010 on select batches of key brand Boag’s due to a bottle design fault. While significant effort was made to minimise the impact on supply, there was a one-time volume impact in the half. Key brands in the Boags portfolio, James Boag’s Premium and Boag’s Draught, have since recovered strongly,” said the report.

Despite the challenges set by the long-term decline of full-strength beer consumption in Australia, the report says that Lion is positioned to capitalise on market trends like wellbeing, premiunisation and growth of consumer repertoires. The report says that new innovations like XXXX Summer Bright Lager, Hahn Super Dry 3.5, Tooheys Extra Dry 5 Seeds and Australia’s leading craft beer trademark James Squire continued to grow.

“Since the end of the half, Lion’s Australian beer business has recovered market share, returning to its long term trend,” said Murray.

Wine saw only moderate volume and revenue declines in the half, despite the strong Australian dollar challenging export markets and an oversupply of grapes keeping prices in the domestic market down, according to the report.

Beer, spirits and wine in New Zealand

Lion’s beer, spirits and wine volumes in New Zealand remained stable and revenues increased 4.4% to NZ$356.6 million, assisted by the first time inclusion of wine brands acquired from Pernod Ricard, in particular the Lindauer trademark.

“Challenging market conditions persisted due to the weak New Zealand economy and ongoing cautiousness among consumers. This was intensified by the devastating Christchurch earthquake in February 2011, which also impacted Lion’s operational facilities, causing the closure of Lion’s Christchurch brewing operations,” said the report.

The half saw a decline in Lion’s beer volumes of 5.2 per cent, driven by an overall decline in the beer market and the timing of Easter in April instead of March. Spirits and RTD volumes experienced a smaller decline of 2.1 per cent, while cider experienced strong growth off a small base, with Lion achieving category leadership. Wine volumes increased significantly.

Dairy and drinks issues

The dairy and drinks division delivered operating earnings before interest and tax (EBIT) of $68.3 million, a decline of 43.2 per cent. Revenue declined 9.4 per cent to $1.4 billion, driven by the loss of key private label contracts and a decrease in export sales due to the impact of the strong Australian dollar, said the report.

Lion’s white milk volumes declined 10.9 per cent, largely driven by the private label contract losses. The report says that the declining volume of white milk was compounded by as deep discounting that encouraged consumers to switch from branded products to private label and from convenience stores to grocery, diluting the profit pool available to all players in the supply chain.

Other than white milk, Lion’s branded dairy products performed well, driven by the launch of Dare in West Australia and Victoria, while Yoplait and Farmer’s Union drove an increase in yoghurt sales.