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Full Year 2016 Trading Update

Lion today announced its trading update for the year ended 30 September 2016, in conjunction with Kirin Holdings’ announcement.

Full Year 2016 Trading Update

13 February 2017: - Lion today announced its trading update for the year ended 30 September 2016, in conjunction with Kirin Holdings’ announcement.

Overall, the Lion Group delivered operating earnings before interest and tax[1] of $694.3m, consistent with the prior earnings of $694.6m. Operating net profit after tax[2] rose $11.7m to $280.1m in the current year.

Lion CEO Stuart Irvine said: “Lion’s solid performance in what is a highly competitive global and domestic marketplace highlights the underlying strength of our core business and reflects our ongoing investment in brands and innovation.

“While consumer confidence remains fragile I am confident Lion Beer Australia will continue to make good progress and the conclusion of Lion’s distribution agreement with ABInBev, means Lion will be able to increase its focus on its core Lion and Kirin portfolio of strong brands as well as driving the beer category as a whole through our Beer, the Beautiful Truth campaign.

“The high-value craft beer segment remains a key focus and success for Lion, both here and abroad. James Squire and Little Creatures are delivering solid growth and the acquisitions we have made this year in both Australian and New Zealand will only increase this momentum.  We are now also taking these brands across the region opening Little Creatures Bars in Hong Kong and Shanghai with further expansion planned for the year ahead.

“Lion New Zealand has continued to perform well with the alcohol business growing revenues ahead of solid volume growth, driven by a strong innovation agenda and improved on-premise beer market share.

Significant progress in the turnaround of our Dairy & Drinks business was a key contributor to our improved performance, in particular a strong performance from milk-based beverages. Innovation, disciplined cost management and recent restructuring has helped Lion weather challenging conditions in the Australian consumer goods sector, including declines in some dairy and juice categories and we are well placed to continue our growth agenda for Dairy & Drinks including investing to continue to increase our presence in Asia, primarily through growth in branded yoghurts.”

Group-wide cost management gains were partly offset by increased licensing costs on Corona Extra in Australia, driven by a weaker Australian dollar.  In addition a softer New Zealand dollar increased the cost of key inputs for Lion New Zealand.

Lion Beer Australia

During the year, Lion continued to invest in the health of the beer category through its Beer, The Beautiful Truth campaign. While the Australian beer market benefited from this and grew slightly off the back of warmer weather in key states, Lion’s portfolio performed slightly behind the market in volume terms.  

Lion’s core beer business remains strong and will benefit from renewed focus and investment in FY17.

Lion’s craft brands are continuing to perform strongly with both James Squire and Little Creatures posting solid growth. Building on this momentum, Lion acquired Byron Bay Brewery and will build a new micro-brewery to rekindle the Eumundi brand at the Imperial Hotel, where the much-loved Queensland beer was first crafted in 1988. 

Since the conclusion of the year Lion made the decision to sell its premium fine wine business, Fine Wine Partners, to Accolade Wines, allowing focused investment on its core category of beer.

Lion Beer, Spirits and Wine New Zealand 

In New Zealand, premiumisation and innovation are driving value back into the market. Total volumes in Lion’s Beer, Spirits & Wine business increased by 1%, while sales revenues increased by 5%. This growth was fuelled by innovation and a strong performance in the craft beer category.

Lion’s craft beers continued their strong performance, with Emerson's growing 49% and moving to a new home in Dunedin. A multi-million dollar investment, the new site combines a tap-room, restaurant and brewery. Following the Speight’s Brewery redevelopment in 2014, the new Emerson’s Brewery is Lion’s second significant investment in Dunedin in recent years.  Lion’s craft portfolio was further strengthened in July, with the acquisition of Panhead Custom Ales. Growing at 80%, Panhead is the fastest growing of the top 10 craft beers in New Zealand.

Innovation continued to drive growth, with the revitalised Mac’s range growing at 30%, contributing to an excellent performance in popular craft. In September, Speight’s Summit expanded its range into flavoured beer, with the launch of Summit Flavours’ Apple and Lime lagers.  Lion grew its share of the on-premise market following investment in new concept bars, backed by a strong performance from its premium and craft beer portfolios.

The strong performance of Mac’s’ rejuvenated portfolio was backed by its “Here’s To Interesting” campaign. Wither Hills saw exponential growth with its “Made Beautifully” campaign, with volume up an incredible 17%. 

With continued growth in the mid and low-alcohol sectors, Lion’s Enlighten team partnered with Auckland City Limits to deliver New Zealand’s first mid-strength music festival. The business increased its focus on non-alcoholic options, building on the success of the Höpt range with the launch of Mac’s Brewhouse Non-Alcoholic Soda.

Lion continued to experience significant cost pressures, largely due to the relatively weak New Zealand dollar compared with the prior year, coupled with commodity price increases. 

Lion Dairy & Drinks

In Lion’s Dairy & Drinks (LDD) business, the three-year turnaround program designed to improve profitability remains on track with growth the continued focus. While revenues and volumes declined, these figures were influenced by Lion’s decision to exit the low margin everyday cheese segment and the loss of some private label milk contracts.

Growth in the higher margin milk-based beverages category helped the business deliver a solid increase in underlying EBIT, which contributed significantly to the improved Lion Group result.

Lion’s priority dairy categories – in particular milk-based beverages and yoghurt – are performing well. Dare Iced Coffee was again the star of the LDD portfolio – volume grew by 9.9% against the prior year in the grocery and convenience channel, ahead of the total market at 4.6%. Flavoured milk brand Big M benefited from a successful marketing push which helped deliver 11% growth in the Victorian grocery and convenience channel.

In the yoghurt category, Dairy Farmers Thick & Creamy continues to perform well with 12% growth YOY and Farmers Union Greek Yoghurt experiencing a 13% YOY growth.

In other brand highlights, Zooper Dooper water ice was boosted by strong summer promotional activity through its partnership with The Big Bash League, adding 18% like for like in new revenue. 

LDD made significant progress in optimising its supply chain and manufacturing assets throughout the year, including announcing significant site investments to drive efficiency and innovation capability, including an $87million investment to transform its white milk and milk based beverages manufacturing footprint on the eastern seaboard and the start of a three-year, $40 million investment in its Bentley dairy manufacturing site in Western Australia.

Lion has continued to invest in growing its presence in Asia primarily through branded yoghurts with robust results during the year.  In the past year our South East Asia yoghurt business posted 30% growth with Lion now being the number one yoghurt manufacturer in Singapore and the number one imported yogurt manufacturer in Malaysia and Thailand.   With this proven track record of achieving leadership positions in a short period of time together with its continued focus on driving investment to develop sustainable brand franchises the business is well placed to achieve its growth plans for South East Asia and meet the inevitable challenges of currency movement and regulatory issues expansion that the region may present.   

 


[1] EBIT net of one-time-items

[2] NPAT net of one-time-items