Beer price war puts clamp on Lion's earnings

Rob Murray

Lion Nathan's earnings growth on this side of the Tasman remained significantly weaker than the overall group's in the half year to March 31, as the New Zealand beer market price war rumbled on.

Despite the competitive trading conditions, operations here had stabilised under a new model integrating its beer, wine, spirits and ready-to-drink (RTD) businesses, the company said.

New Zealand half-year operating earnings before interest and tax (ebit), and after one-time items, were 1.3 per cent higher at $52.6 million, while group ebit was 4.4 per cent ahead at A$258.3 million ($315.5 million).

When converted to Australian dollars, New Zealand ebit was down 2.7 per cent to A$46.7 million.

The New Zealand half-year ebit growth compared with a double-digit earnings fall before interest, tax and amortisation (ebitda) in the year to September 2005.

The result was despite Lion Nathan's New Zealand beer volumes growing 5.8 per cent, underpinned by strong growth in premium brands, and higher wine and RTD volumes.

Lion Nathan said the annual earnings outlook for New Zealand remained flat in a continuing competitive environment.

When DB Breweries released results recently, it renewed its plea for an easing in the local beer market's price war to protect margins.

But Lion Nathan chief executive Rob Murray said from Sydney yesterday he was not going to get involved "in those types of discussions" as he did not believe it was appropriate.

"Our focus is on our products and the competitiveness of our products."

Meanwhile, Lion Nathan has been tipped as a potential buyer of the late Michael Erceg's Independent Distillers - but Murray said he was not sure now if anyone could express a firm opinion about whether they would be interested.

"All I'd say is, like any company of our scale in this market, you'd expect us to evaluate opportunities when they come along.

"But for now ... our focus is on managing our business and we'll review any of those opportunities as they come along."

The group's net after-tax profit for the half-year was up 10 per cent to a record interim of A$148.9 million. After allowing for one-time items, the net after-tax profit was up 7.4 per cent to A$151.3 million.

Australian business ebit was up 8.6 per cent to A$220.8 million. Before one-time items, ebit was 5.7 per cent higher at A$221 million.

Wine group ebit fell 5.8 per cent to A$4.9 million but grew 1.9 per cent to A$5.3 million after adjusting for one-time items.

Lion Nathan said that under a capital management programme the company was raising the annual dividend payout ratio from 70 to 80 per cent of after-tax earnings.

A fully franked interim dividend of A19c a share was declared, as well as a A30c a share special dividend.

The company is also planning an on-market share buy-back of up to 5 per cent of its issued capital.

It has announced Project Invest, a programme to lift beer marketing investment, capital expenditure and business restructuring.

Lion Nathan is looking to launch its own RTDs but Murray would not be drawn on exactly what it was looking at, although the company said it intended to enter the "dark spirit" RTD segment in the second half. DB has recently launched a bourbon and cola RTD in New Zealand.

Group net after-tax profit was on track for A$258 million for the financial year, excluding the impact of one-time items and Project Invest.

Beyond 2006, the sharp rise in commodity prices, especially aluminium and sugar, could raise costs.

SOAKING IT UP

Drink sales
* Lion Red down 9 per cent.
* Speights up 7 per cent.
* Stella Artois up 37 per cent.
* Steinlager up 17 per cent.
* Total Lion beers up 5.8 per cent.
* Total NZ beer sales up 0.7 per cent.
*Total NZ RTDs up 20 per cent.

Lion nathan
Half year to March 31, group results:
Ebit: A$258.3m, up 4.4 per cent.
Net profit: A$151.3m after allowing for one-time items, up 7.4 per cent.
EPS: A28.3c.
Interim dividend: A19c
Special dividend: A30c.
NZ results: Ebit up 1.3 per cent at $52.6 million, after one-off items.