Brewers compete for brownie pointers with healthy results

Duncan Bridgeman

Friday 7th November 2003

Encouraging results from the two listed brewers suggest the hospitality industry is in good shape.

Lion Nathan and DB Breweries this week posted healthy profits on the back of strong sales.

Lion Nathan chief executive Gordon Cairns said yesterday the company was forecasting another year of double-digit growth in 2004 after reporting a net profit of $A180.1 million ($200.5 million) for the year ended September 2003.

The result up 11.2% on last year was in line with expectations.

Overall earnings before interest, tax and amortisation from brewing rose 9.1% to $A406.1 million ($452.2 million) but the China operation continued to lose money.

The New Zealand liquor business increased earnings, volumes and market share with earnings before interest, tax and amortisation (ebita) up 8.4% to $100 million.

Lion Breweries New Zealand managing director Julian Davidson said the result reflected a positive year for the New Zealand operations.

Cairns said the China operations had improved with sales increasing 30% last year and had reduced its losses by 55.7% to $A6.2 million ($6.97 million).

However, the wine business had a tough year recording ebitda of $13.2 million. Wines and spirits ebitda fell to $A3.1 million.

"The overall result from our wine business was disappointing," Cairns said.

DB Breweries also this week announced a lift in its September net profit, up $2.8 million to $25.4 million on sales of $318 million, up 10.7% on last year.

Managing director Brian Blake said several factors contributed to the higher sales and profit.

Reinvestment in suburban areas with new bars and theme pubs was showing good results and a changing beer culture led to stronger sales of premium brands, he said.

Supermarket beer sales had skyrocketed since the practice was introduced four years ago, with nearly 50% of take-home beer now bought from supermarkets, he said.

Focused sporting events, including the America's Cup, had also contributed.

"You can see a spike in certain areas when these events crop up."

Large-scale investment in advertising and marketing was also a key driver, Blake said. Last year saw the first overall beer market growth for 10 years.

Blake said the company was on track to meet its increased sales forecasts in the current year and its reorganisation should continue to reap gains.

DB targeted earnings before interest and tax (ebit) growth of 10% a year, he said.

Significant cost reductions were also achieved in the period, including efficiencies achieved as a result of a recent $60 million investment on the redeveloped Waiteamata site.

The company said it had lifted its final, fully imputed dividend to 20.5c a share from 14.5c a share a year ago.

Direct comparisons between DB and Lion could be misleading. The former operates predominately in New Zealand but the latter earns 51% of its revenue and 59% of profit before interest and tax from Australia in the year ended September 30. Lion has suffered a drag on profitability in its China operation but sales increased 30% this year.

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