Lion FY12 Result

 

14 February 2013: Lion today announced its trading update for the full year ended 30 September 2012 in conjunction with Kirin Holdings’ full year announcement.

Across the entire Lion group operating earnings[1] before interest and tax increased 5.0 percent to $625.0 million.

Lion CEO Stuart Irvine said: “Despite interest rate relief in Australia from early May, consumer sentiment in our key geographies remained relatively subdued. In these tough conditions, we are seeing some good momentum in the Australian Beer Spirits & Wine business as innovation drives revenue growth and international brand owners choose to partner with Lion.

“Top line growth is proving challenging in our Dairy & Drinks business, which operates in a highly competitive environment with discounting on white milk, juice and everyday cheese impacting margins. While returns remain unacceptably low, the Dairy & Drinks team deserves enormous credit for the successful implementation of a range of efficiency initiatives, which have delivered a full year profit improvement.”

Beer, Spirits & Wine

Following last year’s 7.7 per cent earnings decline, Lion’s Beer, Spirits & Wine division returned to growth with operating earnings before interest and tax rising 7.6 percent to $633.3 million.

Australia

In Australia, Lion grew volumes 1.6 percent, leading to a 6.0 percent revenue increase to $1,817.5 million. This was achieved against the backdrop of a beer market that declined 5.0 percent[2].

The solid revenue performance reflects successful innovation and portfolio management initiatives delivering improvements in revenue mix, as well as decisions by international brand owners to partner with Lion in the Australian market – including Corona Extra and Stella Artois, which joined the portfolio in the third quarter.

Lion has successfully geared its portfolio to the growth segments of the market. XXXX GOLD, now Australia’s largest beer, continues to grow volume and value share off a large base while the new generation XXXX Summer Bright Lager, now a scale brand, continued its impressive growth trajectory, up close to 7 percent on the prior year[3].  The Hahn Super Dry and James Boag & Son trademarks performed strongly across the year, and Tooheys 5 Seeds cider grew over 64 percent[4].

Lion’s James Squire trademark continued to drive growth in the craft market, and following the conclusion of FY12 was joined by Little Creatures and White Rabbit, to become the most attractive craft beer portfolio in Australia.

Lion’s premium wine business performed solidly in challenging market conditions, however international wine sales continue to be crimped by the high Australian dollar.

New Zealand

Lion’s Beer, Spirits & Wine division in New Zealand saw total volumes decline 5.0 percent leading to a 3.9 percent decline in revenue to $NZ 659.8 million.

The total New Zealand beer market declined 5.1 percent[5], with the first half result impacted by the unseasonably poor weather conditions over the summer and the rate of decline reducing in the second half.

This solid result in challenging circumstances was driven by strong performances from Beck’s and Mac’s, with the latter ascending to the number one volume driver in the craft category[6]. Since the end of the financial year, Lion has moved to further strengthen its craft beer offering with the addition of Dunedin-based Emersons.

Wine, cider, spirits, RTDs and non-alcoholic RTD volumes all grew despite a very competitive pricing environment. With strong performances in Pinot Gris, Shiraz, Pinot Noir and Merlot, Lion’s wine portfolio grew ahead of the category, posting a 16 percent increase in volume in the final quarter, versus a category decline of 2 percent6.

Bourbon performed well in spirits, with a strong performance from the McKenna Bourbon brand a highlight in the last quarter, with the highest growth of its top ten peers. Continuing this growth trend, bourbon RTDs contributed the highest absolute gains to this category, supported by McKenna6

Dairy & Drinks

Revenues in Lion’s Dairy & Drinks business declined 10.0 percent to $2,535.6 million, driven by white milk private label contract losses and reduced branded milk sales in the grocery channel as a result of the highly competitive market and continued deep discounting. Lion’s total white milk volume across branded and private label was down 14.5 percent on the prior year.

Following FY11, which saw a 49.4 percent reduction in Lion Dairy & Drinks earnings, internal cost savings in manufacturing, distribution and back office functions delivered a modest recovery in FY12, with earnings[7] increasing 9.1 percent on the previous year to $92.1 million. Despite this, EBIT margin and return on capital remain challenging at circa 3 percent, with revenue pressure offsetting efficiency gains.

In June, Lion innovated across its leading branded white milk products, Dairy Farmers and Pura, making them permeate free. These initiatives have since resulted in modest volume growth in branded white milk[8].

Poor consumer sentiment and aggressive competitive activity in all categories continues to squeeze margins. The ambient juice market remains challenging with category volumes in decline. While Lion’s everyday cheese sales are down more than 10 percent due to fierce competition in the grocery channel, Cracker Barrel is holding its own and performing ahead of the category.

Specialty cheese continues to show positive momentum, with South Cape and Tasmanian Heritage delivering revenue growth.  In fresh dairy, Yoplait grew revenues following a brand refresh and Farmers Union cemented its position as Australia’s favourite Greek Yoghurt, delivering 20 percent growth in the last quarter[9].

In 2012 Dare became Australia’s number one dairy beverage in both grocery and petrol and convenience, growing volumes by 21 percent[10].

Lion remains committed to innovation to drive value growth. In the second half, Lion launched a reduced sugar fruit juice drink range, ‘be by Berri’, and in September and October added two new juice and four fruit smoothie variants to its successful Berri Super Juice trademark. Since launch, ‘be by Berri’ 1.5L formats became the best performing new product development in the chilled juice category for both major supermarkets.  

Asset revaluations

Due to the challenging outlooks in the dairy, juice and New Zealand alcohol markets, Lion has recorded an impairment in goodwill and brands of $305.1 million in the Dairy & Drinks business unit and A$210.2 million in respect of the Beer, Spirits & Wine business unit (predominantly New Zealand), again relating to both goodwill and brands.

Outlook

Like all businesses in the FMCG, retail, hospitality and consumer goods sectors, Lion is hoping recent monetary policy initiatives start to rebuild consumer confidence. At the same time, Lion also continues to execute a significant change agenda.

Since the end of the financial year, Lion’s Dairy & Drinks business has begun to realise some of the benefits of the manufacturing assets rationalisation it undertook in FY11 and FY12, and these should help deliver modest improvement in returns from FY13. Acceptable returns cannot be delivered by a focus on costs alone and Lion is engaged in a range of initiatives to drive top-line growth.

Mr. Irvine said: “Lion is rightly seen as a company with a long term view, prepared to invest in its most important assets for long-term growth. We are continuing to invest in our people, brands, production assets and supply chains, and innovation is a major priority in all our business units – particularly our Dairy & Drinks business, where we need to further differentiate our great brands and derive more value from key trademarks.”

For further information, please contact:

Media                                                             Analysts

Leela Sutton                                                     Peta Joyce

External Relations Director                                Stakeholder Communications & Relations Manager

61 2 9290 6645 / 0402 260 540                          61 2 9320 2254 / 0400 015 605

 

About Lion

Lion brings together great household brand names including Tooheys, Dairy Farmers, XXXX, PURA, Hahn, Berri, Speight’s, King Island Dairy, Boag’s, Yoplait, Wither Hills and COON. We believe business success comes from investing in our people and brands and by constructively engaging our stakeholders. Lion employs over 7,000 people across Australia and New Zealand and delivers revenues in excess of AU$4.8 billion.

In addition to direct employment, we make a significant contribution to the Australian and New Zealand economies. We are one of the region’s largest purchasers of agricultural goods and an integral component of the retail, hospitality and tourism industries.

Our products accompany life’s sociable moments, whether it’s a family meal or good times at the pub with friends. Dairy, juice, soy and the responsible enjoyment of alcohol beverages are all part of a healthy lifestyle for many people and we aim to maximise the community wellbeing arising from the enjoyment of our products while playing a leading role in helping the community minimise misuse.

www.lionco.com

 




[1] EBIT pre-significant items

[2] AC Neilson, VOL % share, MAT to September 2012

[3] AC Neilson, VOL % change vs. year ago, MAT to September 2012

[4] Ibid

[5] Nielsen Scan Data, MAT to end September 2012

[6]Nielsen Scantrack

[7] EBIT pre-significant items and excluding corporate costs. Note that the LD&D result now includes brand amortisation and joint venue income previously classified in corporate. Prior year comparatives have been restated

[8]Nielsen, Lion’s branded white milk volume grew 2.8ppts (value +2.4ppts) for the September quarter (rolling 8 week average).

[9] Nielsen

[10] Ibid