Australia & New Zealand: Lion Nathan announces record interim result
Lion Nathan Ltd., Australia's second- biggest brewer, said May 18 its first-half earnings rose 10 percent on demand for more-profitable premium beers such as Heineken and Tooheys Extra Dry.
Net income rose to A$148.9 million ($113 million), or 27.9 cents a share, in the six months ended March 31 from A$135.4 million, or 25.3 cents a year earlier, Sydney-based Lion Nathan said in a statement.
Chief Executive Officer Rob Murray will spend more promoting beers such as Beck's and XXXX Gold and overhauling plants to cut costs as growth in the beer market slows and the cost of ingredients such as sugar rises. The shares rose after the company said it will return A$380 million to investors through a buyback and special dividend.
“They've got to support their core brands in Australia and promote their strengths to maintain growth,'' said Grant Saligari, an analyst at Commonwealth Securities Ltd. in Sydney, who rates Lion Nathan “accumulate.'' “The result was solid and the capital management surprise has really enhanced it.''
Lion Nathan shares rose 2.6 percent to A$8.41 at the 4:15 p.m. market close in Sydney May 18, extending this year's gain to 10 percent. On the same day, the benchmark S&P/ASX 200 index fell 1.9 percent.
Lion Nathan is 46 percent owned by Kirin Brewery Co., Japan's biggest beverage maker.
Full-Year Forecast
Murray said full-year earnings would rise to about A$258 million before one-time items. The company was expected to post first-half earnings of A$146.6 million, according to the median estimate of four surveyed analysts.
Higher costs for aluminum and sugar could shave as much as A$15 million from pretax earnings after this year, the company said. Lion Nathan sells about 40 percent of its packaged beer in aluminum cans.
The company will pay a first-half dividend of 19 cents, up from 15 cents a year ago, with a similar dividend forecast for the second-half. It will also pay a special 30 cents-a-share dividend and plans to buy back about 5 percent of its shares.
“We're always very happy to see management returning capital to shareholders,'' said Sean Fenton, who helps oversee the equivalent of $760 million at Jenkins Investment Management Pty. in Sydney, including Lion Nathan shares. “I don't think it necessarily rules out any acquisitive plans they may have.''
Murray said it was too early to tell if Lion Nathan would bid for Independent Distillers, New Zealand's biggest maker of pre-mixed spirit drinks, which is for sale after founder Michael Erceg died in a helicopter crash in November.
“Like any company of that scale in this market, you would expect us to evaluate the opportunities when they come along,'' he told reporters on a conference call.
Independent may fetch A$1.1 billion, according to Paul Ryan, an analyst at Goldman Sachs JBWere. UBS AG is managing the sale.
Australian Beer
Earnings before interest and tax from the Australian brewing unit, which contributes 70 percent of sales, rose 8.6 percent to A$220.8 million as the company raised prices and increased sales of beers including XXXX Gold and Tooheys Extra Dry.
Murray has already increased spending on his national and international brands by a fifth, and will lift investment in his labels to as much as 10 percent of net revenue to drive demand.
“We're changing our business model and trying to be more consumer-led and brand-led,'' Murray said. ``We need to adapt.''
The plan has helped increase sales of international beers that Lion Nathan brews under license, such as Beck's and Heineken, by 13 percent. Sales of national brands increased 4 percent, while sales of regional beers such as Western Australia's Emu and South Australia's West End fell 12 percent.
“Transitioning Australia and New Zealand beer portfolios from regional to national brands comes at a cost'' Goldman's Ryan said in a report.
New Zealand
In New Zealand, where Lion Nathan is the biggest brewer, earnings fell 2.1 percent to NZ$50.8 million ($32 million) amid increased rivalry from second-ranked DB Breweries Ltd., a unit of Singapore's Asia Pacific Breweries Ltd. Profit has also been crimped by the falling New Zealand dollar, which has declined 8.3 percent this year.
Earnings from the wine unit fell 5.8 percent to A$4.9 million on costs for establishing a sales and distribution venture with Tucker Seabrook.
Murray said the company will develop new spirits as it seeks to add faster-growing pre-mixed canned drinks and ``dark spirits'' such as bourbon and Scotch whisky to tap new growth.
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