A reasonable result for Australia's second brewer, Lion Nathan, but might minority shareholders be wondering if their chances of a capital return or some other goody have gone by the bye because of the clubby, in-house deal involving the J Boag Brewery purchase.
Lion Nathan shares had a mixed day after the result yesterday.
They touched a high of $9.08, a finished at a low of $8.89.
It was all a bit underwhelming for investors, despite forecasts from the company of a surge in earnings in late 2008 and in the 2009 year. That's a long way off in the current market conditions..
The news on the outlook for the company was mixed with a rise in the cost of goods sold, on the back of higher metal, plastic and barely costs tipped to again hit the business in 2008.
The company said net profit after tax will be in the range of $270 million to $280 million for the 2008 year but analysts say the dilutive nature of the Boag purchase is such that the effective figure could be closer to $262 million than to $272 million.
Lion Nathan earned a 4% higher net profit after tax of $267.2 million ($257.4 million in 2006), so there's every likelihood the Boags' purchase and its cost of some $325 million, will actually be a drawback for the company in the coming year, especially if the rising cost of barley, metal (and even water) are factored in.
Boags could contribute $15 million or so to Lion's earnings before the costs of merging the two and any extra interest costs are factored in.
Boags was bought from San Miguel as part of an asset swap carried out by Lion's 46% shareholder, Kirin Brewery of Japan. That saw Kirin buy the Australian food assets of San Miguel (in which Kirin controls a 20% stake) and Lion bought Boags from San Miguel.
All nice and tidy and in the family and to the benefit of the major shareholder.
But that $325 million might have helped finance a buyback for non-Kirin holders, or for all shareholders if Kirin wanted to maintain its stake at 56%.
Lion Nathan has undergone significant cost cutting and rationalisation and sold an unwanted brewery site in New Zealand a few months ago at a nice profit.
The company said yesterday that it has no plans in the "foreseeable future'' for capital management, such as a share buyback or special dividend, after the Boag acquisition and investments in its breweries.
That is certainly understandable but that purchase benefited one shareholder when all may have benefited from a buyback.
Lion Nathan will pay a second-half dividend of 21c, bringing its annual payout to 40c. Earnings per share was 50c a share, so the company is maintaining a high payout ratio of 80%. The previous year's dividend was 69c a share and was boosted by special payments.
Lion said the 2008 estimated operating profit of between $270-$280 million would be restrained by higher barley prices, smoking bans in pubs and higher interest rates.
Lion Nathan said in May it expected 2007 profit in a $250-$260 million range but a strong second half saw the result beat estimates.
Lion says the next year will see the overall costs of goods rise by around 4.5%, but earnings were expected to improve from 2009.
"The outlook is for a significant step up in earnings from the 2009 financial year," the brewer said in a statement to the ASX yesterday.
2007 sales grew 6.6% to $1.97 billion, with a continued shift towards premium brands and higher prices the main cause of the faster than inflation rise.
Profits came under pressure from higher barley costs, caused by the long-running drought, higher aluminium costs, and marketing spending on the spirits and ready-to-drink business.
Full-year operating earnings before interest and tax at Lion Nathan's wine business, which includes brands such as St Hallett and Petaluma, rose 37% to more than $ 6.5 million.
