3 August 2017: Lion today announced its trading update for the half year ended (31 March 2017) in conjunction with Kirin Holdings’ half year announcement.
Overall net sales revenue was down 9.5% to $2,176m, largely due to the termination of a distribution agreement with AB Inbev in Australia and the sale of Fine Wine Partners. While the underlying performance of the Group remained solid, the portfolio changes contributed to a 12.9% decline in operating earnings to $334.7 million.
Lion CEO Stuart Irvine said: “Lion continued to perform strongly during a period where one-off events significantly affected this result, including the end of our relationship in Australia with AB Inbev, our decision to sell Fine Wine Partners and a global shortage in juice raw materials.
“Sections of the Australian beer market remain challenging. However, our craft offerings continue to post strong growth, helping to offset softness in mainstream beer. We remain focused on strengthening our core brands and growing the category in order to support profit growth in the medium to long-term.
“Our Dairy & Drinks business posted particularly strong sales in specialty cheese and yoghurt categories as well as with leading milk-based beverage brand Dare Iced Coffee. Despite short-term set-backs in the form of higher raw material prices in the juice category caused by national orange supply shortages and increased commodity prices for orange fruit juice concentrate, the underlying performance of the Dairy & Drinks business was solid and our turnaround program remains on track.
“In New Zealand our business continues to perform well and is set for future growth as it leverages the market’s most compelling brand portfolio and gets ready to take on distribution rights to AB Inbev’s portfolio of Australian beer and cider brands.”
Lion Beer Australia
Lion Beer Australia continued to invest in its core portfolio through quality marketing and new innovations with the aim of achieving sustainable growth. A renewed focus on the Kirin brand has seen it more than triple its volume in Australia, while XXXX Summer Bright Lager, already a scale brand, continued to grow with volumes up more than 10%.
A strong performance from Lion’s market-leading craft beer portfolio offset some of the impact of tough conditions in the mainstream beer market. James Squire has again been a top performer with 150 Lashes Pale Ale growing by 14%, while Furphy has become a favourite in Victoria, more than quadrupling its volume during the half.
Overall volumes were affected by the termination of the Australian distribution agreement with AB InBev and the loss of system volume placed upward pressure on the cost of sales. Against this backdrop, Lion continued its strong cost management focus.
Lion Beer, Wine & Spirits New Zealand
A stellar performance by Steinlager Tokyo Dry contributed to a solid performance in New Zealand. The biggest launch from our New Zealand business in over a decade, Steinlager Tokyo Dry became the division’s fastest beer ever to sell a million litres, bucking prevailing trends in a challenging beer market. The strong first half result was further driven by success in craft, with volume up 31% for Mac’s and 90% for Emerson’s’. Lion’s commitment to world-class brewing was recognised at the International Brewing Awards in London, with the company taking home five medals across the Mac’s range.
Panhead Custom Ales continued its impressive growth trajectory, with volume up 76%. An upgrade of its Upper Hutt brewing facilities trebled its brewing capacity, with Panhead looking to the future in both the domestic and global market.
Lion’s New Zealand portfolio continued to grow, with the agreement of a deal for the exclusive distribution of AB Inbev’s portfolio of Australian beer and cider from August 2017.
The wine market remained very competitive with challenging pricing conditions. Wither Hills continues to perform strongly, with sales up 21% since the launch of the Made Beautifully campaign last year.
Lion continued its push into the non-alcoholic market, following the success of Höpt, with the launch in June of coffee brand The Good Patron in recognition of the increasing value of the coffee market, and the opportunity for on-premise operators to offer an all-day trading proposition.
Lion Dairy & Drinks
Our Dairy & Drinks business saw strong sales in the specialty cheese and yoghurt categories during the first half, while leading milk-based beverage brand Dare Iced Coffee continued its growth momentum based on its ongoing marketing support focused on brand distribution and consumer growth in the iced coffee category.
Costs increased due to higher raw material prices in the juice category caused by national orange supply shortages and increased commodity prices for orange fruit juice concentrate. Lion also booked an inventory revaluation at the beginning of the year to reflect lower milk prices. Despite these short-term set-backs, the underlying performance of Lion Dairy & Drinks was solid, and once these market factors subside, the business is expected to return to its moderate growth trajectory.
The strong growth in the specialty cheese category was led by Tasmanian Heritage which grew volumes 8.7%, and is the number one brand in Brie and Camembert. Another highlight from the half was the launch of Little Entertainers in Woolworths in November 2016. For the period of January to March 2017, Little Entertainers captured a 1.4% value share of the market in Woolworths, with the biggest selling variant being the blue cheese.
Lion Dairy & Drinks’ turnaround program remains on track and throughout the first half the business continued to make significant progress in optimising the performance of its supply chain and manufacturing footprint.
Lion Dairy & Drinks also proudly launched a unique sustainability program for its dairy farmers, called Lion Dairy Pride. This program offers our dairy farmers a way to measure, evaluate and improve key areas of sustainability on their farm.
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Group operating earnings excluding on-time items. Note; the conclusion of the AB Inbev distribution contract and sale of FWP were not classified as one-time items for the purpose of reporting this operating result.
All Lion Beer Australia volume figures are IRI packaged beer data
All NZ volume figures Neilsen MAT to 23 March 2017 unless otherwise stated.
Neilsen MAT to 23 April 2017
All Lion Dairy and Drinks brand performance data from Aztec scan Jan – Mar 2017