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Australian brewer Lion Nathan Ltd expects its operations in China to be swallowed by one or more of its multinational competitors by early next year. Company’s CEO Gordon Cairns said he thought the big six international brewers in China would consolidate down to two. He conceded Lion Nathan, which told shareholders last week it would struggle to break even in China in 2003-04 on an earnings before interest and tax basis, could not survive there alone, according to Nationwide News.

"We are competing against the two biggest brewers in the world," Mr Cairns told Channel 7's Sunday Sunrise program. "We are competing against two Japanese companies, who have different shareholder requirements, we're competing against one of the largest Chinese brewers and there's us. Together those six brewers have got only half the market, so there is going to be a tremendous dogfight. We just don't have the fire power to be able to compete."

Mr Cairns said South African Breweries, Anheuser-Busch from the US, Interbrew and Heineken were all possible partners for Lion Nathan. "Everyone is talking to everyone else because they realise the six players have got to consolidate down to about two. So you are going to see aggregation," he said. Lion Nathan's often-criticised Chinese experiment began seven years ago and the company has built new breweries capable of producing international brands such as Becks.

China has cost the company roughly $100 million. Asked whether Lion Nathan, as the smallest and arguably weakest of the group of six, would be negotiating from a point of weakness, Mr Cairns said, "No. On the contrary, I think we're seen as one of the jewels." Mr Cairns, who retires at the end of July after seven years at the helm, said no deal would be complete by Christmas. By then English-born head of Nestle Oceania Rob Murray will be in charge of Lion Nathan.

Lion Nathan recently signed a deal with Heinekin to make and sell its beer in Australia and Mr Cairns said there had been talks with the Dutch brewer about opportunities beyond the Australian market. "They are obviously ambitious to do something in China," he told Channel 9's Business Sunday program. Mr Cairns admitted that most of his schemes to grow the company had not worked. "But I would say to you that despite the boo-boos, we have actually grown our top line every year by about 6 per cent and there are not many companies where you accuse them of not growing that have done that well," he said.

Because of the $34 million writedown from Lion Nathan's ill-fated attempt to grow beer consumption through hotel ownership, he himself had suffered a financial penalty. "I think it is important that if you make a mistake like that then you should be penalised so effectively the board decided, and I think quite rightly, that I shouldn't get a bonus this year," he said. He has downplayed the possibility of Lion Nathan making any acquisitions in the short-term. "I think we have got to be patient -- asset prices are still too high," he said.


26 May, 2004