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Lion Nathan delivers growth step-up

Investments in people, brands and breweries drive strong revenue and profit growth


November 5, 2009

Investments in people, brands and breweries drive strong revenue and profit growth

Lion Nathan today announced that it achieved its promised step-up in growth for FY09 following a comprehensive investment programme into the Company’s key strategic assets – people, brands and breweries.

Lion Nathan delivered Operating Net Profit after Tax (NPAT, pre one-time and significant items1) of $313.1 million1, an increase of 13% on the prior year. Group net sales revenue grew 7.1% to $2.242 billion.

As expected, the second half of the financial year saw an accelerated growth rate of 22%2 against the previous corresponding period. In contrast to FY08, Easter fell in the second half of the financial year and the business cycled its first half year of increased investment in the Boag’s business.

Commenting on the result, Lion Nathan CEO, Rob Murray said: “Five years ago, we decided to invest in our most valuable assets; our brands, our people and our breweries and we made a commitment that the investment would be followed by a step-up in earnings.

“I am delighted we have delivered on our promise. Our people have delivered a quiet revolution in our business model and created a company acutely focussed on the needs of customers and consumers. Our shareholders have benefitted by receiving a price for their shares that rightly reflects the high quality business we have built.”

Underpinning the result was an excellent performance from Lion Nathan Australia (LNA), which grew Operating EBIT by an impressive 16% to $515.7 million.

Net sales revenue rose 11% and total volumes increased by 4.7% against growth in the market of 4.2%3. Excluding the impact of Boag’s, volume growth was in line with the market, while a continued focus on higher value ‘power’ brands delivered slightly improved value share.

LNA’s ‘power’ brands continue to perform very well, with each of Tooheys Extra Dry, XXXX Gold and Hahn Super Dry performing ahead of their market segments. The LNA portfolio now includes three of the top five beer brands in Australia4.

Premiumisation across all market categories and the increasing popularity of mid-strength and low-carb beers continued to drive value growth. Hahn Super Dry grew volumes by 40.9% for the year, while the nation’s second largest beer, XXXX Gold grew by 6.2% off a large base.

A high level of innovation has been an important factor in the recent strength in the beer market. Reflecting LNA’s innovation focus, [10%] of FY09 net sales revenue was generated by new products launched in the last three years. New products introduced in FY09 included Hahn Super Dry 3.5, Tooheys Extra Dry 5 Seeds and XXXX Summer Bright Lager. These new brands are performing in line with expectations with a very encouraging response from customers and consumers.

The Boag’s trademark grew volume by 19% on a normalised basis as it benefits from the scale and reach of the LNA system and increased marketing investment. A major investment programme in the Launceston brewery is almost complete, doubling capacity. Last week, James Boag’s Pure was launched – a new super-premium beer showcasing the finest ingredients to be found in one of the purest places on earth.

New Zealand
Lion Nathan New Zealand (LNNZ) performed well in difficult market conditions to deliver 5% EBIT growth to NZ$94.3m.

While the market was down 2.7%5 due to the more difficult economic circumstances, LNNZ total volumes remained stable. Beer volumes were down 2.3% versus a market decline of 4.9%6. Wine, spirits and RTD volumes grew 13.1% driven by innovation in accessible wine and RTD products.

Reflecting the Company’s focus on innovation and higher margin ‘power’ brands across all segments of the market, revenue grew ahead of volume at 2%. Innovation introduced into the market in the last 3 years delivered 15.4% of annual revenue.

LNNZ is extending the value of its key trademarks through successful innovations like Steinlager Pure, Speight’s Summit and Steinlager Edge. Because the new variants are highly differentiated, growth in the new products has been achieved at the same time as overall trademark growth. The Steinlager group of brands grew by almost 8% and the larger Speight’s trademark by 3.6%. The Auckland brewery project is further progressed with full transition to the new facility expected slightly ahead of schedule in 2011.

On the market conditions in Australia and New Zealand, Mr Murray said “Our core beer markets have remained robust despite the economic circumstances, with premium beer remaining attractive as an affordable luxury. The level of innovation has been positive and consumers continue to move to more premium beers. We have seen some switching to at home consumption in particular regions, but overall the market remains in good health.”

Lion Nathan Wine, which constitutes less than 1% of the Company’s total EBIT, has experienced greater volatility and exposure to the current economic conditions. While Australian wine consumers continue to trade up in quality, wine consumers globally have responded to the more challenging economic conditions by trading down to less expensive lines. This has proved particularly challenging for premium wine companies like Lion Nathan Wine.

While the company grew total volumes by 9.7% across owned and agency brands, the adverse economic impact, higher trading costs in the UK and Australian markets, investment in developing an owned US route to market (Lion Nathan USA) and more aggressive inventory management by distributors in the US in the context of the economic slowdown caused EBIT pre SGARA to decline to $4.0 million.

Merger with National Foods
Kirin’s purchase of the remaining Lion Nathan issued capital that it did not already own completed on 21 October. Lion Nathan and National Foods consequently merged to create Lion Nathan National Foods. The two large Australian-based business units will operate separately to ensure continued focus on the needs of customers and consumers. A review is currently underway to determine a new strategy for the combined group.

Rob Murray said: “While I don’t intend to pre-judge the outcome of the operational review, we have previously made it clear that these are two quite different businesses and we’re not about to integrate operations for the sake of it.

“It’s very early days and both Andrew Reeves and I are keen to learn from the National Foods people before we make any judgements on how the business should move forward. I can say however that the business has fantastic people and I’m encouraged by the enthusiasm I have already heard from many of them.

“Lion Nathan National Foods is a company that brings together some of the best known brands in the country. It will be a business that invests in its brands and its people for long term sustainable growth,” Mr Murray said.

Culture, Customer Service and Sustainability
Lion Nathan continues to place significant focus on maintaining an achievement-orientated company culture. In FY09, the Company again conducted its annual people engagement survey in July using the Towers Perrin ISR research tool. 88% of Lion Nathan people are ‘engaged’ or ‘highly engaged’, which places the Company in the top quartile for global high performance cultures.

A significant portion of the Company’s investment in people capability has been directed towards skilling the sales and marketing teams. It was therefore pleasing to see that in the Company’s annual surveys of customers in both Australia and New Zealand, Lion Nathan was considered to lead the market in customer service.

The Company also continued its focus on sustainability with a range of initiatives to minimise its environmental footprint including the full commissioning of a water recycling plant at the XXXX brewery in Queensland which has reduced water consumption to world’s best practice. In the year, in addition to continuing its existing social investment programme, Lion Nathan launched a partnership initiative with an indigenous community in regional New South Wales. The initiative seeks to establish a sustainable tourism economy in the community over a period of years.

The future
Lion Nathan National Foods brings together two great businesses to create the region’s largest food and beverage business. Lion Nathan National Foods will continue to invest in its core assets to drive long-term sustainable growth.

Key Facts:

  • Group net sales revenue up 7.1% to $2.242 billion
  • Group Operating Earnings Before Interest and Tax (EBIT) increased 10% to $556.8m
  • Operating Net Profit After Tax (NPAT pre-significant items) up 13% to $313.1m
  • Very strong results from Lion Nathan Australia achieved through core brand growth, innovation, and Boag’s growth
    • EBIT up 16% to $515.7 million
    • Volume up 4.7%
    • Net sales revenue up 11%
  • New Zealand – maintaining position through innovation success
    • NZ$ EBIT up 5% to NZ$94.3 million
    • Domestic beer volume out-performs market
    • Growth of Steinlager Pure and Speight’s Summit resulted in strong mix gains
  • Wine – profitability adversely impacted by economic environment in US, UK and Australia and investment in the US owned route to market

1. Operating NPAT is Net Profit After Tax excluding the one-time impact of costs relating to the CCA and Kirin transactions in the current year and acquisition of Boag’s in the prior year.
2. ibid
3. AC Nielson, MAT beer market size to September 2009
4. AC Nielson, MAT volume data. Brands referenced are XXXX Gold, Tooheys New and Tooheys Extra Dry
5. Statistic New Zealand MAT, June 09
6. ibid

For further information, please contact :
James Tait
Corporate Affairs Director
Phone: +61 2 9320 2236
Mobile: +61 400 304 147
E-mail: james.tait@www.lionco.com