Lion pledges more strength in NZ market

By PETER GRIFFIN

Brewer Lion Nathan is promising more investment in its New Zealand beer operations as it seeks to reverse falling market share and profits.

The listed company behind brands Lion Red, Steinlager and Speights saw operating profit for New Zealand fall from $96.9 million to $92.1 million in the year to September. Market share dipped 1 per cent.

Rival DB competed strongly, while price rises resulted in lower volume of beer flowing through to the market.

Overall, Lion Nathan's annual profits fell from A$180.1 million to A$160.1 million ($175.8 million) for the year to September, a result hit by writedowns in its Australian wine and hotel assets but boosted by the A$219 million sale of Lion's assets in China.

Operating profit in the Australian beer business was up nearly 7 per cent and Lion's wine business jumped 17 per cent.

Lion chief executive Rob Murray said the New Zealand beer business would ditch its practice of "stock weight building" - where Lion discounts beer to get large volumes into the market at key points in the year. "It's an inappropriate focus on selling to customers rather than sell-through to consumers," said Murray who wants to turn New Zealand into the "strong profit engine" it once was for Lion.

DB chief executive Brian Blake said his company had ditched stock weight building five years ago.

"It moves sales from one year to the other but it catches up with you because you're constantly propping up your result," he said. "We rely far more on the strength of our brands to pull them through the market."

Lion and DB face flat growth in beer sales.

Prices have risen, pushed along by duty increases, and the two brewers have been aggressively marketing their brands. But Blake rejects claims DB and Lion have been engaged in a "beer war" this year.

DB turned a profit of $17.2 million on sales of $182.9 million in the half year to March.

Lion was happy with its "clean exit" from the Chinese market where it saw its beer volumes increase from 49 per cent but faced a price war and escalating costs.

China had an operating loss of A$8.5 million for the year and Lion made a A$104.1 million gain on the sale of the assets. Murray said Lion's "pockets weren't deep enough" to sustain long-term losses in China.

Lion Nathan declared a final dividend of 15Ac per share, up from 14Ac previously. The final dividend for the year is 29Ac, up 7.4 per cent.

Murray was confident strong underlying earnings would propel the company to a profit of between A$230 million and A$235 million this financial year.