Lion hit by volume decline

Lion-logoAugust 5: Lion todayannounced its trading update for the half year ended 31 March 2015 in conjunction with Kirin Holdings’ half year announcement.

Amidst highly competitive and deflationary market conditions, net sales revenue decreased 6 percent to $2,514 million across the entire Lion group, contributing to a 7.5 percent decrease in Lion group operating earnings[1] to $389 million.

While a contraction in beer volumes in line with the decline in the overall beer market was significant in crimping H1 operating earnings, the phasing of Lion’s innovation calendar is also a material factor. In contrast to the prior year, much of Lion’s program falls in the second half in FY15, meaning the group remains on plan to deliver full-year earnings growth.

Lion CEO Stuart Irvine said: “Like most FMCG businesses Lion is yet to see the recent uptick in consumer confidence translate into improved retail spending. At the same time, while Lion has geared its beer portfolio to higher value growth segments, the total beer market decline intensified during the half.

“While market conditions remain challenging, we have a clear strategy in place to reinvigorate the beer category with a number of significant brand and category initiatives planned over the upcoming key sales period.

“Lion’s Dairy & Drinks business is also on plan one year into its three year turnaround. Our focus on high value product categories is showing positive signs, with Dare iced coffee now outselling Coca Cola in the convenience channel and Farmers Union Greek Style Yoghurt becoming the number one selling yoghurt in Australia. The recent sale of our everyday cheese business will enable further investment in the turnaround strategy.

“Our recently opened specialty cheese site, The Heritage, in Tasmania will further support our domestic growth plans and our ambitions to take our premium specialty cheese brands to Asian consumers.
“While it’s still early days, our recently formed Lion Asia Dairy business is also making solid inroads. We already have category leading yoghurt brands in Singapore and Hong Kong and a branded white milk presence in China, Singapore and Malaysia.”

Beer, Spirits & Wine

While total volumes in Lion’s Beer, Spirits & Wine business in Australia declined 2.8 percent, in line with the total beer market decline, Lion saw strong growth in its market-leading craft portfolio with James Squire 150 Lashes, Little Creatures Pale Ale and Little Creatures Rogers all posting double digit growth[2].

Contemporary brands Hahn Super Dry and mid-strength variant Hahn Super Dry 3.5 were also in growth during the half[3] while Corona Extra, Heineken and Stella Artois remain the number one, two and four brands respectively in the growing international premium segment[4].

Lion’s premium wine business, Fine Wine Partners, had a strong first half with Petaluma and Croser gaining overall value share[5] and the construction of the new Petaluma winery consolidating winemaking, bottling and packaging for these brands at a single site in the Adelaide Hills.

Following the half Fine Wine Partners also signed a deal with Jebsen Wines to distribute St Hallett, Petaluma, Knappstein, Stonier and Argyle across China.

New Zealand
In New Zealand increased promotional activity saw Lion gain market share and grow Beer, Spirits & Wine volumes by 1.3 percent against a backdrop of intense competition and continued margin pressure.
While market conditions remain challenging, Lion has a strong innovation pipeline in the growing mid-strength beer segment. The launch of Speight’s Mid Ale on tap in December is already exceeding expectations and Mac’s Mid Vicious Pale Ale is performing well as a full-flavoured mid-strength craft offering.

Lion’s craft beer portfolio also continued to flourish, with Mac’s posting solid growth following a major restage towards the end of the half, including new packaging and the launch of several new products6]. Speight’s 5 Malt Old Dark was also awarded Best International Beer at the recent Australian International Beer Awards, and progress continued on the new Emerson’s Brewery site in Dunedin towards its opening in 2016.

During the half Lion also secured a long term agreement to be the exclusive beer supplier to Air New Zealand on all domestic and international flights and all lounges.

1 Excluding one-time items
2 IRI Aztec MarketEdge Liquor, packaged beer 6 months to March 2015 vs YAGO
3 IRI Aztec MarketEdge Liquor, packaged beer 6 months to March 2015 vs YAGO
4 IRI Aztec MarketEdge Liquor, packaged beer 6 months to March 2015 vs YAGO
5 IRI Aztec MarketEdge Liquor, six month to March 2015 vs YAGO

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