Australia: Lion’s revenue and profitability drop as Australian beer market remains challenging

Japan’s Kirin-owned dairy and drinks group Lion has suffered a 9.5 per cent slide in first-half revenue and a 13 per cent drop in profitability as the Australian beer market remained challenging and it was forced to book an inventory revaluation at the start of the year due to lower milk prices, The Australian reported on August 4.

A shortage of oranges and a spike in prices for orange juice concentrate also hurt earnings for its non-alcoholic drinks business.

Driving the retreating sales and earnings was the termination of a distribution agreement with global brewer AB InBev for a number of key beer brands including Australia’s No 1 imported beer, Corona, and the sale of Lion’s wine arm, Fine Wine Partners.

The brewer is finding the A$14 billion Australian beer market tough going as drinkers turn away from traditional beers in favour of craft, or turn off beer completely.

While Lion has a strong portfolio of craft beers — including James Squire and Little Creatures, White Rabbit and Kosciuszko Pale Ale — growth wasn’t enough to counter the unfavourable conditions for its mainstream beers such as XXXX, Toohey’s and Hahn.

In a trading update on August 3, Lion said overall net revenue was down 9.5 per cent to A$2.176 bln. The underlying performance remained solid, with the portfolio changes contributing to a 12.9 per cent decline in operating earnings to A$334.7 million.

“Lion continued to perform strongly during a period where one-off events significantly affected this result, including the end of our relationship in Australia with AB InBev, our decision to sell Fine Wine Partners and a global shortage in juice raw materials,” said Lion chief executive Stuart Irvine. “Sections of the Australian beer market remain challenging. However, our craft offerings continue to post strong growth, helping to offset softness in mainstream beer.

“We remain focused on strengthening our core brands and growing the category in order to support profit growth in the medium to long term. Our dairy and drinks business posted particularly strong sales in specialty cheese and yoghurt categories, as well as with leading milk-based beverage brand Dare Iced Coffee.

“Despite short-term setbacks in the form of higher raw material prices in the juice category ... the underlying performance of the dairy and drinks business was solid and our turnaround program remains on track.”

Lion continued to invest in its beer portfolio after losing key brands, while a renewed focus on the Kirin brand has seen it more than triple its volume in Australia.

03 August, 2017