Lion H1 Trading Update
Lion today announced its trading update for the half year ended 31 March 2014 in conjunction with Kirin Holdings’ half year announcement.
Across the entire Lion group, revenue decreased 0.6 percent to $2,674 million as Lion continued to face highly competitive market conditions across its Dairy & Drinks and Beer, Spirits & Wine New Zealand businesses. While the Beer, Spirits & Wine Australia business experienced volume declines as a result of the declining beer market and the timing of the key Easter trading period, improvements in mix secured moderate revenue growth.
As a result Lion group operating earnings increased 1.9 percent to $420 million, supported by a favourable New Zealand exchange rate ((Excluding one-time items)).
Lion CEO Stuart Irvine said: “Like all FMCG businesses Lion is navigating a highly competitive market against a backdrop of subdued consumer confidence and rising input costs. In this environment we are firmly focused on high value category and brand growth, while reviewing operational efficiency across the business.
“Lion has a clear ten year strategy in place to fuel future growth. As the leading brewer in both Australia and New Zealand we are committed to reinvigorating our beer markets and driving high value category growth through best-practice marketing and innovation investment.
“Our Dairy & Drinks business has made a fast start in implementing its three-year turnaround plan, applying discipline and focus to leverage our portfolio’s health and wellness credentials, unlock value opportunities and relentlessly improve market execution and efficiency.
“We are also devoting more focus and resource to growing our high-value branded dairy brands in key Asian markets through the establishment of a fourth business unit, alongside our domestic dairy and alcohol business units.
“While the international business unit is nascent and will take time to grow, we believe the increasing demand for trusted dairy products in Asia, coupled with our strengths in building high-equity, nutritionally powerful brands, puts us in good stead to unlock these opportunities and build our presence across Asia for long-term growth.”
Beer, Spirits & Wine
Volumes across Lion’s total Beer, Spirits & Wine business in both Australia and New Zealand declined 2.5 percent, largely driven by the timing of the Easter trading period in April 2014, which fell in H1 (March 2013) the previous year.
While total market conditions remain challenging, Lion’s portfolio is geared to the growth segments of the market, including mid-strength, contemporary, craft and international premium. Australia’s largest beer, XXXX GOLD, continued its long-term growth trajectory, growing 2.8 percent off a large base, while contemporary brands Hahn Super Dry and mid-strength variant Hahn Super Dry 3.5 outperformed the segment ((Aztec, packaged beer, MAT to March 31 2014 vs. YAGO)). Lion’s market-leading portfolio in craft continued to flourish, with James Squire 150 Lashes Pale Ale and The Chancer Golden Ale posting double-digit growth.
Alongside its continued focus on brand and innovation investment, Lion is investing in the capability of its site network to drive growth across its portfolio.
During the half Lion opened its new Little Creatures craft brewery and hospitality venue in Geelong Victoria and announced the construction of a 2,000 tonne boutique Petaluma winery, consolidating winemaking, bottling and packaging at a new Woodside site in the Adelaide Hills by late 2014. Lion has also earmarked a $3 million expansion of the tourism and hospitality experience around the historic James Boag’s Brewery in Launceston and is close to completing its investment in its cider capabilities at the West End Brewery in South Australia.
New Zealand market conditions remain challenging and Lion continued to experience aggressive competition during the half. Despite these conditions Lion’s Speight’s craft portfolio maintained positive growth ((Aztec, MAT to March 2014 vs. YAGO)), supported by strong double digit growth in Crafty Beggars and Lion’s highly successful ‘Made to Match’ marketing campaign, which aims to reinvigorate the beer category through improved consumer education of beer and food matching. In wine top performing brands Wither Hills, The Ned, Huntaway and Mount Difficulty all posted strong growth.
During the 2013 half year period Lion announced a new distribution agreement with Campari for the New Zealand market, including the Wild Turkey Bourbon and American Honey brands. One year on Lion has grown Wild Turkey from the number 8 bourbon brand in the country to number 4, through improved distribution and marketing investment, while the Dewar’s brand also enjoyed double digit volume growth during the 2014 half.
Dairy & Drinks
In Lion’s Dairy & Drinks business subdued consumer confidence and a deflationary retail environment saw volumes decline 3.2 percent. While the business continues to face significant headwinds, it has a clear three-year turnaround strategy in place to unlock value through focus and operational simplicity.
To lift brand and category performance Lion is preparing to leverage and optimise the health and wellness credentials of its portfolio and has focused resources on winning in priority categories, segments, brands, SKUs, customers and channels. To date 20 percent of the portfolio had been deleted, allowing renewed focus on high performers such as milk based beverages, which continued to grow volume and value share during the half ((Aztec, Volume and Value MAT to March 2014 vs. YAGO)).
The business is also firmly focused on optimising the performance of its supply chain and manufacturing footprint and since the conclusion of the half has implemented a refresh of its organisational structure to align resources to its strategy and respond to feedback from customers, farmers and other stakeholders.
Key to the new structure is the separation of the juice and dairy businesses, with the appointment of a juice General Manager to ensure these distinct businesses receive the support they need to grow. In addition, the Sales function has been re-organised into two teams focused on the specific needs of Grocery and Convenience & Food Service customers and performance in product quality, manufacturing and logistics will be improved with dedicated Leadership Team appointments.
Key to the achievement of Lion Dairy & Drinks’ strategy is genuine, mutually rewarding farmer partnerships. Since the conclusion of the half a new milk pricing strategy has been implemented, offering Lion farmers a mix of compelling pricing, tenure and other benefits, tailored to each market.
In Far North Queensland Lion announced a record milk price increase, together with further increases in South East Queensland and New South Wales, positioning Lion as the clear leader across these regions and signaling its confidence in the Northern dairy industry and its own growth strategy. In the Southern states Lion has introduced a new pricing model for direct suppliers that will allow farmers to choose from three competitive options delivering enhanced transparency, visibility and security over the three year contract terms.
Lion is a leading beverage and food company with a portfolio that includes many of Australia and New Zealand’s favourite brands.
Lion employs close to 7,000 people across Australia and New Zealand predominantly, as well as in Hong Kong, Malaysia, Singapore and the US, and takes great pride in its local manufacturing footprint, which spans 36 sites across the Tasman – including large breweries, craft breweries, wineries, dairy farms, milk, cheese, yoghurt and juice sites as well as hospitality venues and over 40 Liquor King retail outlets in New Zealand.
Lion is one of the region’s largest purchasers of agricultural goods and an integral component of the retail, hospitality and tourism industries, with a total direct plus indirect contribution to the Australian and New Zealand economies estimated at more than $5 billion annually.
Lion builds marketplace success from the foundations of great people and great brands, with a portfolio of household-name brands such as Tooheys, Dairy Farmers, Steinlager, Tasmanian Heritage, XXXX, PURA, Hahn, Berri, Speight’s, King Island Dairy, James Boag & Son, Dare, Yoplait, Wither Hills, St Hallett and COON.
Lion’s products accompany life’s sociable moments, whether it’s a family meal or good times at the pub with mates. Dairy, juice, soy and the responsible enjoyment of alcohol beverages are all part of a healthy lifestyle for many people, and when enjoyed in moderation, Lion’s combined portfolio of food and drink brands can benefit wellbeing, and help people to live well.