Lion aims to double wine profits

Lion Nathan aims to double the operating profits of its underperforming Australasian wine business to A$40 million ($42.7 million) within five years, the transtasman brewer says.

Lion's Australian-based executives have been hosting investor presentations at the Marlborough showcase of subsidiary, Wither Hills, headed by Brent Marris.

Spokesman Warwick Bryan said the A$40 million annual earnings target was to meet the cost of capital invested in the wine business. Lion has invested about A$300 million ($320 million) in the business to date.

It bought Wither Hills from the Marris family in 2002 for $52 million. Lion, trumped by British liquor giant Allied Domecq in a $1 billion takeover battle for Montana in 2001, was being tipped by then-chief executive Gordon Cairns to spend $880 million on small premium wine companies up to 2006.

But all that soured last November when Lion had to write down A$71.5 million on its wine business which, along with other writedowns, would reduce its annual profit by A$42.6 million.

Bryan said the heat was on to double the wine business' $20 million earnings in three to five years.

Lion's focus now was to improve the performance of its wine assets, which could involve divesting vineyards and some brands, but that was unlikely to apply to its New Zealand assets.

The company would also seek to "strengthen its alliances". "Possibly through alliances with other wine producers ... we might end up taking some of the wines they distribute in other countries and putting them through our Australian and New Zealand systems."

Bryan said Lion would not significantly increase its investment until the A$40 million earnings target had been reached.

"Don't expect us to spend significant amounts of money until we and the market are satisfied we can get an adequate return."

Grape business

Established: 2002.
A$300 million invested.
A$20 million in annual earnings.
Key brands: Wither Hills (NZ), Petaluma, Banksia, St Hallett, Tatachilla, Mitchelton/Preece (Australia).