Lion New Zealand beer company takes $26m hit from ‘onerous’ contract

A production line at Lion Breweries' site at East Tāmaki, Auckland. Photo / Michael Craig

Big brewer Lion said sales were up last year but it took a $26.2 million hit from an unidentified “onerous contract”.

The company posted a $46.4 million loss last year, outlined in newly published statements - a sharp drop from the $5.47m profit it made in 2022.

Lion refused to say what the $26.2m onerous contract was, citing commercial sensitivity.

An onerous contract, broadly speaking, is a contract likely to cost your business more to fulfill than you’ll receive in return.

Lion’s sales were up by nearly $30m in the year to $664.2m but it faced higher operating costs and higher financing costs.

Gross profit was down slightly from $197.32m to $194.36m.

Lion NZ managing director Craig Baldie said last year presented several challenges.

“While we grew revenue, and stabilised gross profit, in setting ourselves up for the future, we have in some instances incurred costs that will enable us to be more profitable,” he said.

“It is always disappointing to report a loss, but particularly so when we are in many areas making good progress against our strategy.

“The loss can largely be attributed to changes in our group cost base, a one-off cost relating to an onerous contract and higher interest costs on our debt.”

Baldie said Lion grew its market share across alcohol and in all channels last year.

He said Speight’s Summit Ultra had become New Zealand’s favourite beer in both value and volume, according to a Nielsen survey last month.

“We continue to look for ways to simplify and refocus the business to improve profitability,” Baldie said.

He said Lion was working on decarbonising its business and had plans to install an electric boiler at Speight’s to cut emissions further.

Lion NZ said a Speight's beer variety is now the most popular in the country. Photo / DunedinNZ

Lion in its financial statement mentioned how a law change involving commercial and industrial buildings will affect its bottom line in its current financial year.

The buildings are no longer eligible for depreciation tax breaks.

“The Group has assessed the impact of this change, and estimates its deferred tax liability will increase by approximately $26m, with a corresponding increase to tax expense. This is a one-off impact which will be recognised in 2024.”

Lion NZ’s ultimate parent entity is Japan’s Kirin Holdings.

Lion’s subsidiaries include brewers Emerson and Panhead Custom Ales, and multiple coffee businesses including Havana Coffee Works.

It also owns 632 hectares of grapevines and leases another 114 hectares.

Brewers face challenges

Lion’s results were released amid challenging times for many brewers.

Several craft brewers have shut down since mid-2023, others battled the CO2 shortage, and consumer spending has often been feckless.

Dylan Firth, Brewers Association of NZ executive director, said Lion produced its own CO2 from the fermentation process.

But he said smaller operators were today paying more for CO2 than they had been before the Kapuni gas plant was temporarily shut down.

Firth said consumers worried about personal debt and discretionary spending were impacting the brewing and hospitality sectors.

“The margins are better for brewers when you sell through a tap.”

But Firth said people currently seemed less likely to have two beers with dinner, or a mid-week drink, than they would have a few years ago.

Meanwhile, Lion had discontinued production of Canterbury Draught.

Firth said changing consumer tastes were inevitable.

“People are moving to higher-value products as well.”

Stats NZ data released in February showed a 4.3% decline in alcohol consumption last year compared with 2022.