Brewer makes shareholders wait for payout

By IRENE CHAPPLE AND AGENCIES


Lion Nathan scotched expectations of capital return to its shareholders when it opted to use the A$219 million ($232 million) proceeds from the sale of its China arm to repay debt.

But market commentators say shareholders could be in for a higher or special dividend payout for the year ahead.

The Chinese beer business, Lion Nathan China, was sold this week to China Resources Breweries after a highly competitive sales process pushed the price well beyond the book value of about A$100 million.

CRB is a joint venture owned by SABMiller and China Resources Enterprises, and is the second-largest brewer in China, operating more than 30 breweries on the Chinese mainland.

The deal, which was widely expected, is unconditional. Settlement is due on September 30.

Lion Nathan, which has lost more than A$200 million on the operation since 1995, retains a long-term licensing agreement for Steinlager.

Yesterday, investor relations manager Warwick Bryan said it was "not unexpected there could be people who thought it was a good idea [to return capital]".

But Lion Nathan had chosen the cautious route of driving its $1.4 billion in debt down to about A$1.2 billion.

Market commentators had picked a capital return to shareholders, perhaps in the form of a special dividend, given the company's comfortable debt to equity ratio.

A report from Citibank Smith Barney said the sale was "clean and a great price but where was the anticipated special dividend?"

The report said it was possible Lion Nathan could return funds to shareholders in the next 12 months.

Lion Nathan's debt to equity ratio will now sit below 50 per cent, which Bryan said gave the company a buffer from the top end of its debt range.

He could not comment on the possibility of special dividends for the year ahead as it would be a board decision.

But he said Lion Nathan already had a generous dividend policy, returning almost 80 per cent of its reported earnings to shareholders.

Rob Mercer, head of research at Forsyth Barr, said the company had the capacity to lift its dividend return to shareholders to 90 per cent of earnings without taking on more debt.

Bryan said strategy for the year ahead, under the leadership of incoming chief executive Rob Murray, who is to take over from Gordon Cairns on October 1, would be "steady as she goes".

Lion Nathan also said that, at the end of August, trading conditions for the group's business were similar to those reported for the third quarter.

It said that as indicated in the third-quarter trading update, New Zealand beer volumes remained under pressure.