Better times brewing for Lion

By Libby Middlebrook

Brewing giant Lion Nathan is confident liquor sales, supermarket beer sales and a return to price stability will help improve the performance of its New Zealand business, which produced poor results for the year to August 31.

The New Zealand brewing and spirits business had earnings before interest and tax (EBIT) of $85 million, down almost 15 per cent or $15.1 million on the previous year despite a $11 million rise in sales to $425.5 million.

Lion Nathan chief executive Gordon Cairns said a price war between brewing companies in the first two quarters had contributed to the poor result, along with a 2.2 per cent decrease in the group's volume of beer sales in a market down 3.7 per cent.

"If the price war hadn't happened I think we would have come out a lot stronger," he said.

In contrast, Australia was the star performer, showing a 0.2 percentage point gain in market share to 41.5 per cent and a 0.4 percentage point rise in Australian dollar profit margins. EBIT rose to $315 million from $286 million on sales of $1.2 billion up from $1.1 billion.

The strong Australian result pushed up group net profits before abnormals by 7. 8 per cent to $146.7 million. Group EBIT improved 2.8 per cent to $356 million.

The group declared an unchanged final dividend of 8c a share to make an unchanged 16c for the year.

To help bolster its share price, Lion announced a $125 million share buyback over the next eight months. Lion's chief financial officer, Paul Lockey, said: "Our analysts tell us that the share price is fundamentally undervalued."

Japanese brewer Kirin will not participate in the buyback and its stake in Lion Nathan will increase slightly to 47 per cent.

The weak area in the results was China where Lion Nathan's operating losses increased by $3 million to $32.6 million. It expects the business to break even by at least 2002.

Key to that turnround is a deal to brew and sell beer under licence from Germany's Brauerei Beck & Co. But progress was hampered by the previous China-based licence holder, who had continued to sell the brand.

A total of $26.7 million in after-tax abnormal costs reduced group net earnings to $120 million compared with $136.1 million a year earlier. The company wrote down the carrying value of its soft drinks businesses and provided for restructuring in Australia and other one-off charges.

The sale of non-core assets, including South Australia Hotels and Swift & Moore, generated $140.4 million.

The sale of Pepsi Cola Bottlers New Zealand to Frucor Beverages occurred after the year ended.

Mr Cairns said competitor DB Group's decision to down scale its liquor business to concentrate on beer and wine had been a surprise.

"It leaves us now in a dominant position in that market sector."

Lion Nathan closed up 9c at 427c