Lion Nathan National Foods announced its results for the quarter ended 31 December 2010, with tough results across the board.

Revenues for National Foods and Lion Nathan Australia were both down 11%, to $729.8 and $430.2 respectively. White milk volumes declined 11% for National Foods, and Lion Nathan’s 4% higher per-litre price was also knocked out by lower volumes. Only Lion Nathan New Zealand delivered increased revenue, up 9% at NZ$204.7 million.

“Rising interest rates and power costs, increased saving and the ongoing economic uncertainty have impacted consumer spending in the FMCG and retail sectors in both Australia and New Zealand. Conditions in the December quarter were particularly challenging. For LNNF, this flowed into early 2011 where circumstances were compounded by two external shocks, the earthquake in Christchurch and floods in Queensland,” said LNNF CEO Rob Murray.

National Foods cited difficult conditions for juice and dairy processors and farmers, as well as discounting on private label and control brands by major retailers, which it says threatens to further dilute the profit pool available to players in the supply chain.

“NF is still a long way from achieving an acceptable return on invested capital and faces some considerable headwinds. NF is experiencing significant margin pressures in both dairy and juice,” said a release from the company. “In the current year, National Foods return on invested capital is now expected to be well below an acceptable level.”

Despite the bleak outlook, National Foods said the company is making “good progress” in integrating the former Dairy Farmers business, and cited Dare Iced Coffee and South Cape cheeses as good performers.

“Dare Iced Coffee again performed well and is growing into a national brand, while the South Cape cheese brand has responded well to increased marketing and sales focus,” the company said.

The group’s beverage arm, Lion Nathan, cited a harsher Queensland market and the floods for a fall in overall market share, with the state representing the company’s highest share market.

Beers XXXX and James Squire performed well, but a packaging fault on select batches of key brand Boag’s, sparking a recall, made an impact on volumes for the quarter.

Lion Nathan New Zealand’s 9% revenue increase was assisted by new wine brands acquired from Pernod Ricard, in particular the Lindauer trademark.

While the quarter saw a decline in beer volumes, particularly on packaged beer, the company said this was broadly in line with the decline in the total beer market. Spirits volumes increased by 5%, while ready-to-drink volumes reduced 3%.

Despite the sluggish market conditions, LNNZ said revenue per litre growth was encouraging with solid value performances from mainstream brands and volume growth in key premium brands, particularly Steinlager Pure and Corona.

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