August 16, 2010
Lion Nathan National Foods (LNNF) today announced its financial results for the first half of the 2010 financial year in conjunction with Kirin Holdings’ first half announcement.
Alignment of reporting year ends to September 30 means the first half results represent a full six months for the Lion Nathan (LN) business unit* (October to March) and three months for the National Foods (NF) business unit (January to March). NF’s October to December performance was disclosed on February 10.
LNNF continues to invest in its people and a focussed portfolio of core ‘power brands’ to drive sustainable results in the long term. The business integration process continues to progress to plan.
LN delivered operating earnings before interest and tax (EBIT) of $329.1 million, an increase of 7.2%.
A solid performance from Lion Nathan Australia (LNA) underpinned this result. Net sales revenue grew 8.1% to $899 million, while volumes increased by 3.4% in a relatively flat beer market. This result was aided by the timing of Easter early in the second half, which supported strong volumes toward the end of March.
LNA’s power brand portfolio continued to grow its share of portfolio mix and now represents 83% of total volume. XXXX Gold, Australia’s second largest beer, continued its impressive growth. Hahn Super Dry also had a particularly strong summer. New innovations XXXX Summer Bright Lager and Tooheys Extra Dry 5 Seeds performed ahead of expectations. The Boag’s portfolio continues to grow, benefiting from the reach of LNA’s route to market and a significant increase in marketing investment.
Since the conclusion of the half there has been some softening in the overall beer market, consistent with conditions across many retail and fast-moving consumer goods categories, and the market has been very competitive.
Lion Nathan New Zealand (LNNZ) performed well in challenging market conditions with total revenue growing 5.3% to NZ$341.5 million. The core beer business grew revenue by 2.9% on last year realising value in a market in which volume declined overall. Steinlager Classic was a standout performer with double digit value growth, supported by a packaging refresh. The Wines, Spirits and RTD businesses benefitted from the acquisition of distribution rights for Bacardi brands and the successful launch of Mac’s Isaac’s Cider, which has driven strong cider category growth in the New Zealand market.
More broadly, conditions in the global wine industry remain very challenging with the economic slowdown combined with an oversupply of grapes putting downward pressure on pricing in domestic and international markets. In the first half, the strong Australian dollar continued to undermine performance in key export markets. Wine remains a very small part of LNNF’s business, accounting for less than 1% EBIT.
LNNF CEO, Rob Murray said: “Our alcohol businesses delivered a solid first half performance against the backdrop of increasingly challenging market conditions. Consumers continue to trade up to more premium brands and this is driving solid revenue growth.
“It’s well documented that rising interest rates and the ongoing economic uncertainty have had an impact across the FMCG and retail sectors in both Australia and New Zealand. While the alcohol market tends to be relatively robust in most economic circumstances, following a period of growth over the last two years, the Australian beer market has seen some softening in volumes and this has continued into the second half of the year.”
While the National Foods business continues to make progress towards its integration goals, conditions in both the dairy and juice sectors remain very challenging for farmers and producers alike.
While quarterly revenue declined 8.8% to $775 million, this was predominantly driven by the divestment of the Freshco and Ski assets. Despite an increase in operating EBIT to $42.7 million, the business is still some way from achieving an acceptable return on invested capital and faces some considerable headwinds. While they have moderated, input costs remain relatively high by historical standards and the business faces ongoing challenges to maintain adequate operating margins in a very competitive retail environment.
The business has some quality brands that require sustained investment to reach their full potential. There were some significant successes during the March quarter. NF’s iced coffee business continues to show positive momentum, with a new 750ml bottle of Farmers Union Iced Coffee launched in the third quarter of 2009 supporting the South Australian icon’s return to growth, and Dare Iced Coffee performing strongly.
NF also achieved innovation successes targeted at growing category value. NF launched Dairy Farmers New Milk in the third quarter of 2009 and initial sales have been encouraging.
NF Managing Director Andrew Reeves said: “While the results are an improvement against the prior year, the business is still some distance from delivering an acceptable return on invested capital. We intend to remain focussed, continue our integration progress and invest in our strategic assets to create a business fully focussed on the needs of customers and consumers.”
Synergies from the Dairy Farmers integration process are on plan. Significant progress has been made against the previously disclosed target of $120 million and this contributed to the improved EBIT performance.
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Leela Gantman Peta Joyce
02 9290 6645 / 0402 260 540 02 9320 2254
About Lion Nathan National Foods:
Lion Nathan National Foods brings together great household brand names including Tooheys, Wither Hills, Dairy Farmers, XXXX, PURA, Berri, Speight’s, King Island Dairy, Boag’s, Yoplait, Hahn and COON.
We believe that business success comes from investing in our people and brands and by constructively engaging our stakeholders. Lion Nathan National Foods employs close to 8,000 people across Australia and New Zealand and delivers revenues in excess of AU$5.6 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 mates. Dairy, juice, soy and the responsible enjoyment of alcoholic beverages are all part of a healthy lifestyle for most people, and we aim to maximise the community wellbeing arising from the enjoyment of our products while playing a role in helping the community minimise misuse.