Unlike its larger rival Fosters, brewer Lion Nathan managed to eke out higher earnings from its basic business, beer in Australia.
That was despite continuing price rises for commodities such as sugar and aluminium, which were offset by small price rises which stuck and delivered an extra $50 million in revenue in the half.
Fosters Group surprised the market with news in its interim statement for the six months to December that beer volumes and earnings were flat to lower in the half, despite dry arm conditions conducive to sales growth.
Fosters in fact botched its marketing and distribution in both beer and wine in Australia in the half (and failed to take advantage of a good Christmas period).
Lion Nathan was surer-footed, despite some internal restructuring of its own, posting a near nine per cent lift in first half earnings and revising up its guidance for the full year.
The company said net profit for the March half year was $162 million, up 8.8 per cent on the same first half of 2006, while operating net profit rose 3.6 per cent to $156.8 million.
As a result, Lion Nathan revised up its guidance for its full year net after tax operating profit from $245-$260 million to $250-$260 million for the 2007 year.
It doesn’t sound much but it’s a bit more information than FGL shareholders have had about their company’s performance.
But that forecast is clouded by continuing upward price pressure for barley, a key ingredient in beer making (hops), as a result of the drought.
LNN said the guidance excluded the impact of one-off and significant items, most of which will be booked in the second half. These have been taken into account in the new guidance figures.
Beer volumes in Australia rose 1.6 per cent, from 370 million litres to 375 million litres, in the half, but revenue from beer jumped 8 per cent to $682.5 million ($632 million) thanks to those price rises sticking.
Net sales revenue for the half rose 5.3 per cent to $1.04 billion in the first half as price rises stuck and earnings before interest and tax (EBIT) edged up 42 per cent to $264.1 million.
“Revenue and EBIT growth for the first half of the 2007 financial year reflect the benefits of brand investment and new product development,” the company said in a statement accompanying the profit announcement.
“The result was also achieved after incurring higher commodity costs, primarily in aluminium and sugar as well as the planned investments associated with the company’s ready to drink spirits (RTD) strategy, which contributed to a $41 million increase in costs for the period.”
But it said its stronger operating outlook, following the conclusion of Project Invest at the end of the 2007 financial year, is clouded by rising barley costs associated with drought conditions in rural Australia.
That impact is estimated at $6 million pre-tax for 2007, which was included in the revised guidance, and a further $9 million pre-tax in 2008.
LNN said its Australian business generated operating EBIT was $231.4 million, up 4.7 per cent, even though costs were higher because of those commodity price rises and an eight per cent lift in the marketing spend.
Lion Nathan New Zealand achieved operating EBIT of $NZ52.6 million ($A46.69 million), which was in line with plan.
The company’s wine business saw operating EBIT (pre SGARA) up 26.4 per cent to $6.7 million due to growth in key brand sales, cost savings, and improved Fine Wine Partners performance
But the result represented a fall of 4.3 per cent in Australian dollar terms, reflecting a weaker New Zealand dollar.
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Meanwhile Foster’s Group is expanding further into the faster growing premium beer market by reaching agreement with Carlsberg Breweries to brew, market, sell and distribute Carlsberg beer brands in Australia.
Carlsberg, the flagship brand in Carlsberg’s portfolio, is one of the most well known beer brands in the world, fighting with the likes of Heineken and Becks (Lion Nathan), Corona (Fosters) and local brands, Crown Lager and Cascade (Fosters), Hahn (Lion Nathan), Boags (San Miguel) and Coopers Brewery’s brands from Adelaide.
Coca Cola Amatil has entered the segment with some of SABMiller’s brands, such as Stella Artois, in a distribution joint venture and is investigating the feasibility of setting up a premium brewery in this country. A decision is due by the end of the year.
Sales of international premium beer brands are said to be growing at around 24 per cent a year, making it the fastest growing segment in the beer category.
But much of that is being driven by intense price cutting by Fosters with Corona and LNN with Heineken and Becks, as well as their own premium brands.
The big two are using their nice safe profits from bulk beer brands (Tooheys and VB) to finance this price war.
It is likely that CCA and SABMiller will be taken on by the big two later this year.
The agreement, effective from July, includes the Carlsberg, Carlsberg Elephant and Tuborg beer brands.
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David Jones has again shown a hard-nosed approach to profits and margins by pulling out of a second Sydney suburban shopping centre in four days because it was concerned the new lease terms on offer wouldn’t add to profitability.
The department store retailer said yesterday it would end its tenure at the Bankstown Shopping Centre, in Sydney’s inner south western suburbs, at the end of July or at another date acceptable to the owner, Centro.
On Tuesday it announced it would not be renewing its lease at Westfield Eastgardens Centre, in the Eastern Suburbs, near Sydney airport.
DJS has a new and bigger store at the huge Westfield Bondi Junction Centre further to the north east and in a more upscale area.
David Jones chief executive Mark McInnes said yesterday the Bankstown stor
