Lion finds Chinese beer a bit too flat

By IRENE CHAPPLE

Transtasman brewer Lion Nathan is expected to quit its loss-making China venture within months.

A report in the Australian Financial Review said at least four big brewers - Heineken, Interbrew, SAB Miller and Anheuser-Busch - had undertaken due diligence on Lion Nathan's three plants in the Yangtze River Delta.

The company has been in China for nine years but is still losing money. It said earlier it was looking at a joint venture or sale.

Investor relations manager Warwick Bryan said Lion Nathan had "always said organic growth is not going to get us there and that left the option of joint venture or sales. Those have both been on the table."

He would not confirm whether due diligence was taking place but said it could be expected given the company's position.

The three breweries have a book value of A$100 million ($106 million).

Their sales in the six months to March 31 rose 54 per cent to 49.6 million litres and revenue was up 60 per cent to 139.6 million yuan ($27.6 million).

But the company's losses were 42.9 million yuan ($7.94 million) in the half year, from 34.3 million yuan a year earlier.

Lion Nathan and five other brewers - Anheuser-Busch, Interbrew, China's Chongqing, and Japan's Asahi Breweries and Suntory - control about half the Yangtze Delta market.

In May, outgoing Lion Nathan chief executive Gordon Cairns said he expected those six to consolidate down to one or two groups to become profitable.

Analysts spoken to by the Business Herald expected Lion Nathan to get between $100 million and $120 million for its Chinese operations. But other analysts say the company may receive more, given the heat in the Chinese market.

Rob Mercer, head of research at Forsyth Barr, predicted that Lion Nathan would be out of China in three to six months.

"A sell-down is much more imminent that not, and a joint venture unlikely," he said.

Lion entered China in 1995, hoping that rising incomes would increase consumption of premium beer.

But it has struggled to compete with cheap local brands.