Lion Nathan struggling in New Zealand

Japanese owned Australian-based brewer Lion Nathan today posted a 52 per cent jump in its half year net profit but the result showed it was struggling in New Zealand.

The company, 46 per cent owned by Kirin Breweries of Japan, posted a net profit to A$127.6 million ($137.6 million) despite an 8.8 per cent fall in its New Zealand earnings before interest, tax, depreciation and amortisation (ebitda) to $46.4m.

The prospects ahead were not particularly positive, Lion said. Ebitda earnings are forecast to be down 7 per cent for the full year and then flat in 2006 and 2007 as investment in the business increases.

Lion said it experienced diffucult trading conditions partly induced by poor weather and lower volumes in a declining beer market. It lost market share over the vital Christmas trading period following an attempt to raise prices that had to be rolled back.

The local beer market, having being flat to slightly stronger in volume terms in the past three or four years, contracted 3.5 per cent over the last year on a moving annual total (MAT) basis.

The reduction of trading hours as a result of the new Holidays Act and the anti-smoking legislation had contributed to the contraction of the beer market, Lion said.

Lion hiked its prices in New Zealand in June but said it faced "aggressive promotional pricing" leading up to Christmas that led to much of its price increase having to be reversed. However, the damage was done and Lion lost market share "which made delivering profit growth during this period difficult".

Lion NZ's net revenue fell to $236.9m from $255.3m in the year ago period.

Lion's market share by MAT fell to 50.3 per cent from 52.8 per cent a year earlier and 53.3 per cent in March 2003.

Lion said it had undertaken a full strategic review of the New Zealand business to return it to earnings growth "in the medium-term".

It said its newly purchased Wither Hills vineyard had performed particularly well with earnings up as a result of strong domestic and international demand. Sales volumes jumped 38 per cent.

The New Zealand based wines and spirits manufacturing and distribution business also performed well with underlying earnings up on the back of increased revenue as a result of new contract packing opportunities. This was partly offset by a fall in earnings from the distribution business due to competition and parallel importing.

Lion shares were unchanged on $7.35 in New Zealand. The stock has dropped from $9.27 at the start of the year.

- NZPA