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Lion FY11 Result

10 February 2012: Lion today announced its trading update for the full year ended 30 September 2011.

 

February 10, 2012

10 February 2012: Lion today announced its trading update for the full year ended 30 September 2011, in conjunction with Kirin Holdings’ full year announcement. The full year trading update reflects the twelve months to 30 September 2011 for all Lion business units.

Like most companies across retail, grocery and other consumer goods sectors, Lion experienced tough market conditions during FY11, with persistent poor global economic conditions sustaining low consumer confidence and increasing saving activity in both Australia and New Zealand.

This challenging environment was further exacerbated by short-term factors such as poor weather and natural disasters in Lion’s key markets, as well as nine months of sustained deep discounting activity in white milk – which has seen a transfer of sales volumes from higher margin branded products into private label and from the non-grocery channel to grocery.

As a consequence of this challenging operating environment, Lion has recorded a consolidated local impairment charge of $1.2 billion – the majority of which sits in its Dairy & Drinks division.

 Lion CEO Rob Murray said: “For Lion and many other businesses like it, the 2011 financial year was one of the most challenging on record, as low consumer confidence, aggressive discounting, poor weather and natural disasters combined to create a perfect storm.

 “Since the conclusion of the full year we have seen some of these pressures moderate, while others have persisted. For Lion we will remain focussed on our strategy of investing in our people and a focussed portfolio of high potential brands to drive sustainable results in the long term.”

 Beer, Spirits & Wine

 Lion’s Beer, Spirits & Wine division delivered operating[1] earnings before interest and tax of $588.8 million, a decline of 7.7 per cent[2].

 Australia

 As the total beer market declined, Lion’s Beer, Spirits & Wine division in Australia saw full year volumes decline 6.0 per cent. Through premiumisation and improvements in mix Lion was able to moderate the volume decline impact on revenue, with revenues declining 4.2 per cent versus the previous year to $1,584.1 million.

 As previously disclosed, due to its strength in Queensland Lion experienced a disproportionate impact from the floods that hit in the first half of the year. The first half was also characterised by deep promotional activity on key competitor brands and a recall in the lead up to Christmas 2010 on select batches of key brand Boag’s, due to a bottle design fault.

 Despite the tough market, Lion’s XXXX trademark continued to grow volume share, with both XXXX GOLD and new innovation XXXX Summer Bright Lager performing well. Benefiting from a new flavour variant and the popularity of cider, now the fastest growing alcohol category, Tooheys 5 Seeds continued its strong growth, securing its place as the equal second largest cider in the market. Lion’s latest mid-strength innovation, Hahn Super Dry 3.5, also continued to perform, while the country’s largest craft trademark, James Squire, saw double digit volume growth vs. the previous year[3].

 New Zealand

 Lion’s Beer, Spirits & Wine division in New Zealand saw full year volumes increase 3.1 per cent, contributing to a revenue increase of 4.9 per cent to $NZ 642.6 million – assisted by the first time inclusion of wine brands acquired from Pernod Ricard, in particular the Lindauer trademark. 

 In addition to a significant wine volume increase as indicated above, cider volumes doubled year on year and Lion saw continued growth in spirits and RTDs. This offset a 2.8 per cent decline in beer volumes, driven by a combination of weak consumer demand and a highly competitive market. As previously reported, the Christchurch earthquake in February 2011 caused the closure of Lion’s Christchurch brewing operations; however Lion was able to mitigate any significant loss of production volume.

 Off the back of an award winning marketing campaign, Steinlager Classic saw continued sales growth off a large base.  A new pear flavour variant helped the Mac’s Isaac’s Cider trademark retain its number one category position, while Lion’s most successful spirits marketing platform, The Mix, continued to spur volume and market share growth for featured brands from Lion’s spirits portfolio. Following the successful integration of 12 new wine trademarks acquired from Pernod Ricard, Lion saw a strong performance from Lindauer and Corbans, with both growing volume year on year. Lion-owned wine brand Wither Hills also made a notable performance, posting double digit volume growth.

 Dairy & Drinks

As previously communicated, Lion’s Dairy & Drinks business is still a long way from achieving an acceptable return on invested capital, with conditions in both the dairy and juice sectors remaining very difficult for farmers and processors alike.

The Dairy & Drinks division reported a revenue decline of 10.1 per cent to $2,817.4 million, driven by the general downturn in spending, the loss of key private label contracts and deep discounting on white milk. Reflecting the significant value erosion driven by sustained deep discounting on white milk, aggressive promotional activity in other core categories such as juice and rising input costs, operating1earnings before interest and tax declined 49.4 per cent on the previous year[4] to $90.3 million.

Despite the challenging environment in white milk and juice, Lion saw a strong performance in dairy beverages and specialty cheese. Dairy beverages remained Lion’s fastest growing dairy category, with the popularity of iced coffee flavour variants continuing to drive overall category value growth. Aided by successful innovations in its South Cape trademark and a consumer trend towards premium cooking cheeses, Lion saw strong value growth in specialty cheeses year on year[5].

Lion also continued to progress its integration of the former Dairy Farmers and National Foods businesses, removing duplication from its network and focussing site investment for future growth.

 Outlook

 

While low consumer sentiment persists in both Australia and New Zealand, Lion has seen some moderation of the overall beer market decline in Australia since the conclusion of the 2011 financial year.  

 Lion’s Dairy & Drinks division continues to face significant margin pressures in both dairy and juice. Lion has quality dairy and drinks brands that require investment to reach their full potential and remains committed to patient investment in a portfolio of high potential brands to deliver sustainable growth over the long term.

 For further information, please contact:

 Media                                                                   Analysts

Leela Sutton, External Relations Director               Peta Joyce, 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 close to 7,500 people across Australia and New Zealand and delivers revenues in excess of AU$5 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. At Lion we aim to maximise the wellbeing arising from the responsible enjoyment of our products while playing a leading role in addressing misuse.

 


 

[1] Pre significant items

[2] Excluding corporate costs

[3]All BS&W AU brand data: AC Nielsen Australia ScanTrack, MAT 30/09/2011.

[4] Due to changes in Lion Dairy & Drinks’ financial year, the FY10 results only included nine months of Dairy & Drinks operations. This decline figure of 49.4 per cent has been restated to provide a 12 month comparison.

[5] All D&D brand data: Nielsen Scan Data, grocery only,  MAT to 02/10/11