The acquisition of the Tasmanian brewer, J. Boag, is paying off for Lion Nathan: Australia’s second-largest brewer reported a 7% growth in nine-month sales revenues and it reaffirmed its earnings guidance for the full year and for 2009.
Lion Nathan is 46%-owned by Japan’s Kirin Brewery and late last year it bought Boag for more than $300 million from San Miguel, in a swap of assets within the Kirin group. Kirin is the major shareholder in San Miguel. The move saw Kirin buy control of National Foods and the Berri juice business from San Miguel.
From the limited information contained in the update, it is clear the acquisition of Boag’s has offset slow growth in the company’s key market: Australian beer.
But that performance was better than the overall market which fell. Lion Nathan did better (excluding Boag’s sales), a good effort in relative terms.
Despite this, Lion said it still expected to meet net profit forecast of $265 million to $275 million for the year ended September 30, including a one-off item linked to its Boag’s brand.
Shares in Lion Nathan ended up 6 cents at $8.90 after falling to around $8.75 in early trading after the update was issued..
"The company remains confident of its ability to step up earnings in the 2009 financial year consistent with analysts" expectations of operating NPAT (pre significant and one-time items) in the range of $295 million to $315 million," it said in a third quarter trading update.
That was in contrast to its bigger rival Foster’s, which cut its profit forecasts last month after becoming more realistic about its underperforming wine business. Fosters is looking for a new CEO and reviewing its wine business after warning it would write down the value of the business by up to $700 million.
In its update Lion Nathan warned that costs continued to be a challenge and confirmed it expected cost increases of around $30 million to $36 million in fiscal 2009 from higher prices for raw materials like glass, aluminium and fuel.
The company said revenue grew around 7% for the nine months to June 30 with total beer volumes rose 3.3% to 686 million litres from its brands including Boag’s, Tooheys, Hahn and “XXXX" and new products like Hahn Super Dry and Barefoot Radler. But excluding Boag’s contribution and the growth in Lion’s existing brand volumes in Australia was negligible.
Lion Nathan said its Australia’s beer volumes grew by 3.7% to 550 million litres for the nine months to June 2008 (YTD). Excluding Boag’s, the company’s Australian beer volumes grew by 0.3%.
"On a MAT basis, the beer market in Australia declined by 1.3% in volume terms, but grew by 3.8% in value. A wet summer on the east coast of Australia contributed to the volume decline although in more recent periods the overall market is stable compared to prior year.
"The Boag’s portfolio is now fully integrated into the Lion Nathan Australia business and the sales results to date are encouraging.
"Despite the impact in the third quarter of the recent excise changes, Lion Nathan Australia’s spirits and ready to drink (SRTD) volumes are up on a year to date basis, albeit off a low base, as McKenna and Inner Circle Rum brands gain traction in their first full year."
In fact there was a better performance in New Zealand where beer volumes rose 1.8% to 129 million litres in the first nine months. NZ wine volumes grew by 6.2% year to date and Spirits/RTD volumes were 25.5% up on last year.
"But volume growth slowed in the third quarter after a strong, hot summer," the company said yesterday.
Lion Nathan said its wine volumes rose 6.8% even though sales to the United States were lower than forecast following the sale of the distributor to rival wine group, Constellation Brands (it owns the old Berri Romano wine businesses in Australia).
"Market conditions continue to present challenges to the wine industry, with currency levels and lower consumer spending particularly in the US and UK, impacting upon international growth expectations," Lion Nathan said.
