DB swallows Lion's shrinking profits

Lion Breweries' big summer earnings loss went down the throats of the opposition, judging by a sharp rise in DB Breweries half-year sales and profit.

The Heineken, Tui and Monteith's brands flagship, which delisted from the NZX last year after a full takeover by Singapore's Asia Pacific Breweries, notched up a 7 per cent increase in sales and a 25 per cent increase in pre-tax profit in the six months to March 31.

In the same period Lion's New Zealand business returns plunged 8.8 per cent and revenue dropped to $236 million from $255.3 million.

Lion's New Zealand earnings before interest, tax and amortisation fell to $46.4 million.

DB's profit before interest and tax rose to S$38.7 million ($32.9 million).

Lion's market share fell to 50.3 per cent from 52.8 per cent last year and 53.3 per cent in March 2003.

DB managing director Brian Blake said his figures showed Lion's market share loss had been DB's straight gain.

Blake said DB had not increased sales by discounting or by being particularly aggressive in its pricing.

"Our result is a combination of increased volumes and increased margins. You don't get an increase in margin if you aggressively discount your brands."

In the brewing industry there was always tension between volume and price, and DB was managing the tension well, Blake said.

He believed Lion's market activity in the next two years would be price-driven, judging by its statement last week that New Zealand earnings were likely to be down 7 per cent for the full year and then flat next year and in 2007.

"They are the biggest players, and therefore if they decide to be incredibly aggressive, that has a negative impact on the whole industry, and that is the signal we are getting. Those comments indicate a lot of their activity will be price-based," Blake said.

DB experienced the same difficult environment that Lion Breweries blamed for their disappointing six months - "dreadful" Christmas weather, the Holidays Act that cut trading hours, and the smoking ban in pubs and cafes. Lion also raised its prices at this time.

Blake said DB rode out the rough patch because hard work on its brands was paying off.

"We launched Heineken in 1994, and the brand has just grown and grown and has led development of that whole premium segment.

"We've also put a lot of work into Monteith's, with the Monteith's Wild Food Festival, the Hokitika Wild Foods Festival and the Monteith's Wild Food challenge."
He said the Tui brand had successfully expanded into Auckland and the South Island, and DB had launched several new brands in the past two years such as Amstel Light, Sol and Tiger.

Heinekin sales had grown by double digits each year since its launch, but growth was slowing as the premium beer market became increasingly competitive.

Asia Pacific Breweries said New Zealand continued to rank second behind Indochina as the company's highest growth markets.