Lion Nathan disappointed the market yesterday when it didn’t reactivate its suspended share buyback plan.
The plan, announced in early 2006, was suspended in November at the time of the annual results, to give the board enough fire power to run its billion dollar plus bid for Independent Liquor.
That bid was made, then withdrawn when LNN realised that it lacked the financial firepower of the private equity groups which eventually won the RTD liquor group.
There had been a feeling that with that deal off the table, the share buyback would be re-implemented, which was to buy up to five per cent of the company.
But yesterday’s first quarter update and AGM in Sydney had no such news.
In a statement on Thursday, Lion Nathan said its commitment to “good corporate governance” would see the offer put on hold.
“In May 2006 the Company announced a suite of capital management initiatives including an increase in its dividend payout ratio to 80% of operating Net Profit after Tax and a special dividend of 30 cents per share paid in conjunction with the 2006 interim dividend. A proposed share buy back was suspended in November 2006 pending acquisition opportunities being evaluated at that time.
“Given the current corporate development opportunities and the Company’s commitment to good corporate governance, the share buy back will not be activated for the time being.
“However, capital management remains firmly on the Company’s agenda and options will continue to be reviewed as future circumstances allow.”
That was about as clear as a glass of Toohey’s Old. It wasn’t the most encouraging of statements and the shares fell to a day’s low of $8.39 against an opening of $8.65, before steadying to finish around $8.45, down 11c.
Helping the recovery in sentiment was the promising news about the guidance for full year earnings, after a strong first quarter for its Australian business.
Lion Nathan expects operating earnings between $245 million and $260 million for the year ending September 30, which is what the guidance was at the annual results last November.
But that was tempered by worries about rising costs of materials, such as aluminium and hops.
Clearly the very dry weather in states like NSW, Queensland, South Australia, WA (and Victoria where it is not as popular) has boosted the Australian beer business. Here’s a company which finds a silver lining in the drought!
It points to a better than expected result from Fosters Group which is the largest brewer in the country.
LNN said Australia total beer volumes rose 3.3 per cent to 204.8 million litres in the first quarter.
This was largely as a result of strong growth in the Power brand portfolio, which lifted 5.4 per cent and offset a decline in regional and value brands.
Lion Nathan chief executive Rob Murray said while market conditions in New Zealand had become increasingly difficult, Australian sales would ensure outlook targets were met.
“While our New Zealand business continues to face highly competitive conditions, we are confident about meeting our full year profit outlook on the basis of a solid overall first quarter, particularly from our Australian business,” Mr Murray said in a statement to the ASX.
Lion said its biggest volume brand, XXXX Gold, as well as Toohey’s Extra Dry and imported premium brands such as Heineken and Becks had been strong sellers during the quarter.
The premium imports are being discounted heavily (under $40 a case in January) which is also happening at FGL.
The picture in New Zealand isn’t so positive with intense price discounting in key sales weeks slicing margins and volumes.
Total beer volume dropped 0.7 per cent to 52.1 million litres, and while off-premise activity drove pack volume growth, it was offset by lower on-premise tap volumes.
Lion said its wine business; the premium portfolio’s strong performance – particularly in the St Hallett, Stonier and Petaluma lines – was countered by lesser volumes in the company’s lower mainstream segment.
CEO Rob Murray said “While our New Zealand business continues to face highly competitive conditions, we are confident about meeting our full year profit outlook on the basis of a solid overall first quarter, particularly from our Australian business.”
