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Lion Q3 Trading Update

Lion today announced its trading update for the quarter ended 30 June 2011.

 

November 4, 2011

Lion today announced its trading update for the quarter ended 30 June 2011 in conjunction with Kirin Holdings’ third quarter announcement. The third quarter trading update reflects the nine months to 30 June 2011 for all Lion business units.

Lion continues to pursue its strategy of investing in its people and a focussed portfolio of high potential brands to drive sustainable results in the long term.

Like most companies across retail, grocery and other consumer goods sectors, Lion continued to experience tough market conditions during the quarter. Year to date (YTD) revenue declines were driven by weak consumer sentiment along with the ongoing consequences of poor weather, natural disasters in Lion’s key markets, the loss of private label contracts and deep retailer discounting on white milk.

Lion CEO Rob Murray said: “Low consumer confidence has continued to impact spending into the third quarter in both Australia and New Zealand and the ongoing deep discounting on white milk continues to impact profitability in Lion’s white milk business.”

Beer, Spirits & Wine

Australia

Lion’s Beer, Spirits & Wine division in Australia saw third quarter revenues increase 4.3 percent versus the previous year, resulting in a YTD revenue decrease of 4.8 percent to $1,190.6 million.

Third quarter volumes were up 4.2 percent, resulting in a YTD volume decrease of 6.2 percent versus the prior corresponding period, consistent with the overall beer market decline of 6.3 percent[1]. The improved third quarter conditions saw Lion’s volume share grow 1.1 share points[2], returning to its historical trend.

The market continued to be very competitive, and in this challenging environment Lion remained focussed on managing its business for the long term through a sustainable balance of volume, pricing and mix. Lion continued its program of innovation to drive value growth and widen the footprint of its portfolio.

Due to its strength in regions most affected by natural disasters, and in particular Queensland, Lion experienced a disproportionate impact from the floods that hit Australia 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.

Lion’s new innovations performed well during the quarter, with XXXX Summer Bright Lager close to doubling volumes, and Lion’s latest mid-strength offering, Hahn Super Dry 3.5, continuing its impressive growth. Leveraging the strong growth of both the cider and craft categories, Tooheys 5 Seeds took its place as the equal number two cider brand in the market1, while Australia’s number one craft trademark, James Squire, posted double digit volume growth year on year.

New Zealand

Lion’s Beer, Spirits & Wine division in New Zealand saw revenues increase 5.5 percent to $NZ 500.6 million, assisted by the first time inclusion of wine brands acquired from Pernod Ricard, in particular the Lindauer trademark.  

Overall YTD volumes grew 2.6 percent versus the prior corresponding period, compared to flat volumes reported at the half. This included a beer volume decrease of 3.1 percent, an improvement from the 5.2 percent decline reported at the half, and a spirits and RTD volume increase of 2.7 percent, versus a 2.1 percent decline reported at the half. As indicated above, wine volumes increased significantly.

Challenging market conditions persisted due to the weak New Zealand economy and ongoing cautiousness among consumers. This was intensified by the devastating Christchurch earthquake in February 2011, which also impacted Lion’s operational facilities – causing the closure of its Christchurch brewing operations.

Despite these challenges, Lion continued to invest in its brands for long term growth. Following the launch of a major marketing campaign in June, celebrating 25 years of support for the All Blacks, Steinlager reasserted its position as the number one premium beer trademark in New Zealand. The country’s largest beer brand by volume, Speight’s Gold Medal Ale, grew volumes during the quarter, while the country’s leading cider brand, Isaac’s, grew three times faster than the market – driving overall cider segment growth.

Following the successful integration of twelve new wine trademarks acquired from Pernod Ricard, Lindauer Classic made a notable performance, with double digit volume growth versus the previous year.

Dairy & Drinks

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

The Dairy & Drinks division delivered a revenue decline of 8.9 percent to $2,128 million, driven by the loss of key private label contracts and deep discounting on white milk. As a result of this continued discounting activity Lion has seen a transfer of sales volumes from higher margin branded products into private label and from the non-grocery channel to grocery, and is now projecting a full-year loss in its white milk business.  

Lion has quality dairy and drinks brands that require investment to reach their full potential and remains committed to patient investment in its core strategic assets – its people, brands and production assets – to deliver sustainable growth over the long term.

Despite the challenging conditions in white milk, Lion achieved double digit value growth in the dairy beverages category in grocery, driven by the strong performance of Dare[3]. Lion’s value share of the everyday cheese category returned to growth during the quarter, while its specialty cheese portfolio grew faster than the market3 – driven by a trend towards premium cooking cheeses.

Lion also continued to progress its integration of the former Dairy Farmers and National Foods businesses, including the announcement of the results of a review of its cheese manufacturing assets.

For further information, please contact:

MediaAnalysts
James Tait                               Peta Joyce, Stakeholder Communications & Relations Manager
0400 304 147       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 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.

 

[1] Nielsen ScanTrack, YTD to 30/06/11

[2] Nielsen ScanTrack, quarter to 30/06/11

[3] Nielsen Scan Data, grocery only, YTD to 30/06/11