Lion Nathan and DB Group head opposite ways to profit

Friday 8th June 2001

By Peter V O'Brien

Brewers DB Group and Lion Nathan seem to have adopted the Humpty Dumpty approach to language: "When I use a word it means exactly what I want it to mean."

DB Group's report for the six months ended March 31 said the company's Export Gold lager beer was rated by consumers as the most popular brand in the country in the "mainstream" category and dominated the lager category with sales growing at the consistent rate.

The report was issued on May 23. Along came Lion Nathan on May 28, with its report for the six months ended March.

It said Lion Red retained its market leadership status. The "mainstream" beer market remained competitive and the challenge was to meet the changing needs of younger drinker.

The comments seemed to indicate Lion Red was part of the mainstream market, where is retained its market leadership.

DB said Export Gold was the country's most popular brand in the mainstream category.

Either "mainstream" means different things to each brewer or "most popular brand" and "market leadership" mean different things within the "mainstream."

Very confusing, but that little matter had no detrimental effect on the sharemarket's perception of the two groups, for which share price data is in the table.

Each company's price was close to the year's high at the end of last week and substantially above the lows.

Lion Nathan had a small gain from the situation at the end of last year, while DB was comfortably ahead.

Investors would note some irony in the information that DB was apparently quite proud it was now solely a brewing company, subject to an interest in ownership and management of the Liquorland stores franchise.

Lion Nathan seemed equally proud, in its New Zealand operations, of "strategic initiatives directed at providing a growth platform," including demonstrating its "commitment to its wine strategy" with the acquisition of a controlling interest in Montana Group.

DB sold its Corbans Wines subsidiary to Montana and Lion Nathan moved on Montana.

One strategy was based on getting out of wine and the other set out to increase involvement in wine.

More irony was added with the ruling this week that Lion Nathan breached Stock Exchange rules when it lifted its Montana holding to 62%.

That was the situation at the time of writing but there may have been later developments.

Apart from the marked difference in their attitude to wine, both companies considered beer their core business.

They had another difference in their attitude contributions to change in the beer market.

Lion Nathan reckoned it "lead (sic) innovation" in the competitive beer markets of Australia, New Zealand and China.

DB would probably disagree with that assessment in the New Zealand context.

The company's report had long references to what it had done with its various brands and new initiatives in its key focus which "remains on beer and in becoming New Zealand's most valuable brewery."

While Lion Nathan is now an Australian-domiciled company, with most of its business done in that country, the New Zealand situation is more a battle of international groups than the usual desire of "New Zealand" companies to compete against each other in the traditional manner of local brewers.

Japan's Kirin Brewery Company now has 46% of Lion Nathan after a capital reorganisation last year.

DB's Asia Pacific Brewery shareholder can be presumed to be in competition with Kirin and while New Zealand would be small beer (pun intended) in the wider context, every bit helps.

Both companies had good cashflow in the latest six months, although DB's profit was only marginally up on a pre-interest, tax and unusuals basis and Lion Nathan was up 15.9% on the same basis.

New Zealand-based brewers have lost the cachet they had in the days when their directors were chosen like cabinet ministers; proper attention paid to geographical distribution, powerful connections, general community associations and an apparent upright life (not always applied in either the case of the boards or the cabinet).

The brewers are a useful guide to what is happening in the country, in terms of consumer discretionary spending, changing patterns in trends in liquor consumption and the community's attitude to social matters.

They are useful for shareholders, particularly the small variety, because they retain blue-chip status.

Brewers' share price statistics
Company	1.6.01	31.12.00	% change	2001 high	2001 low

DB Group	550	470	+17.2	555	470
Lion Nathan	520	509	+2.2	540	454

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