Ferret's Stock to Watch: LION NATHAN LIMITED
08:54, Tuesday, March 13, 2007
HO HO AND A BOTTLE OF RUM TO DRIVE A BEVERAGE CONGLOMERATE
Sydney - Tuesday - March 13: (RWE Aust Business News)
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OVERVIEW
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Beverage stocks have been the volatile sector in the market for
some time now, mainly due to the wild fluctuations in the fortunes of the
wine industry and the impact of the supermarkets holding a serious grip
on the retail trade.
Lion Nathan Australia Ltd (ASX:LNN) gave the market something to
think about last week when it announced the acquisition of the Inner
Circle Rum trademark and distillery operations.
For most of its life, Inner Circle Rum was produced only for the
enjoyment of the most senior executives of the CSR company, the "Inner
Circle".
In 1986 it ceased production until one of its fans, Olympic
yachtsman Stuart Gilbert, reawakened the brand and restarted production.
Meanwhile, following a good performance from its Australian
business in the quarter ended December 31, Lion Nathan has confirmed its
guidance for operating earnings (NPAT pre significant and one-time items)
at $245-$260 million for the 2007 financial year.
Managing Director Andrew Reeves said: "The acquisition of Inner
Circle Rum meets our clearly defined strategy for entry into the spirits
and RTD (ready to drink co cktails) category through Lion Nathan
Australia.
"Inner Circle Rum is a brand with strong quality and heritage
credentials.
"As brand owner, we will have access to the full profit margin.
While the brand is relatively small at this stage, we intend to invest
patiently to build the brand and we believe it has great potential," Mr
Reeves added.
Lion Nathan believes that beer, spirits and RTDs are attractive
and complementary profit pools in the alcohol market because of their
value growth and high economic profit.
"Beer and RTDs are highly complementary," Mr Reeves continued.
"They are both brand driven products requiring marketing
investment and targeting a similar customer and consumer.
"Our strong route to market means we are well placed to build a
credible position in the spirits and RTD's market via LNA".
Lion Nathan's sales and distribution capability means that it is
well placed to take the brand to the next level.
The dark rum category, worth about $550 million annually in
retail value terms, is sizeable.
The category is showing continued growth with full-strength
bottled dark rum growing at around 3 per cent per annum and rum RTDs
growing at around 5 per cent per annum.
Lion Nathan has also added the Inner Circle Rum brand to its New
Zealand portfolio.
A little over a week ago, Lion Nathan received several
expressions of interest in relation to the possible sale of its Newmarket
brewery site in Auckland.
The company is entering into further discussions with a small
number of parties with a view to fully understanding the opportunities
offered by these expressions of interest.
As part of this process, the company is considering all factors
influencing a potential relocation to a new site, including the value of
the current site and any proposed new site, and the construction cost of
a new brewery.
No decisions will be made in relation to the existing brewery
site until the conclusion of this next phase of the strategic review,
which is expected to be in May.
These three pieces of news appeared to give the market more
confidence which was reflected in just over a week when Lion Nathan
shares climbed from $8.15 to an all-time high of $8.85 during yesterday's
session.
SHARE PRICE MOVEMENTS
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Shares of Lion Nathan yesterday finished 25c higher at $8.77.
Rolling high for the year is $8.85 and low $7.45. Dividend is 39c to
yield 4.45 per cent. Earnings per share is 42.5c and p/e ratio 20.46. The
company has 534 million shares on issue with a market cap of $4.6
billion.
Last month chairman Geoffrey Ricketts told shareholders the
company had delivered a solid result for the year in a period of
significant significant investment for the future.
Lion Nathan achieved continued underlying operating improvement
and a record return on capital employed and shareholder dividend, while
making a substantial investment in the health of the business through
Project Invest.
In FY06, the company lifted operating profit after tax by 3.2 per
cent to $257.4 million for the year to September 30.
The result was slightly above guidance provided during the year.
It was achieved after the company absorbed an increase in
marketing investment in Australia and the costs incurred of entering the
dark spirit and ready-to-drink market.
The company's financial position remains sound with solid
earnings growth and cash flow from its core beer businesses.
Operating cash flow remained strong at $501.1 million before
interest and tax.
During the first quarter of the 2007 financial year, the company
undertook a rigorous evaluation of Independent Liquor Ltd, and ultimately
decided to submit a bid for that business.
However, prior to the sale concluding, Lion Nathan withdrew from
the sale process when it became clear that it would need to revise its
offer materially.
The company remains committed to its strategy to grow organically
and through acquisition in the Australian spirits and ready-to-drink
segments, the chairman declared.
BACKGROUND
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Lion Nathan Ltd was listed on the Australian Stock Exchange on
October 3, 1991.
The company is an Australasian premium alcoholic beverages maker
with operations in Australia and New Zealand.
Lion is 46 per cent owned by the Japanese Kirin Brewery Company.
It has five Australian breweries: Castlemaine (Qld), South
Australian Brewing, Swan Brewery (WA), Tooheys (NSW) and Malt Shovel
Brewery (NSW).
Major brands include Tooheys, XXXX, James Squire, Beck's, and
Hahn.
In May 2004 Lion entered into a joint venture with Heineken to
manufacture, import, market, sell and distribute Heineken Lager in
Australia.
Across the Tasman, Lion has breweries in Auckland, Christchurch,
Dunedin and Nelson.
Major brands include Lion, Speight's, Stella Artois, Corona,
Guinness and Kilkenny and Beck's.
With ties to Australia's first brewer, James Squire, who arrived
in the colony as a convict on the First Fleet, Lion Nathan began in
earnest with the formation of New Zealand Breweries in 1923.
By the late 1980s, New Zealand Breweries had developed into one
of New Zealand's largest corporate companies and in 1990, became an
Australasian business when it established a major presence in Australia
by securing management control of Bond Corporation's brewing assets,
including the Tooheys Brewery in Sydney and Castlemaine Perkins in
Brisbane.
Since then the company has expanded its operations and is now a
leading brewer, winemaker and marketer/distributor of alcoholic beverages
in the Australasian and international markets.
It employs over 1,800 Australians and 1,400 New Zealanders.
Lion Nathan's ordinary shares trade on both the Australian and
New Zealand Stock Exchanges.
The company has around 90 per cent of its assets in two core
brewing businesses in Australia and New Zealand operating in attractively
structured, highly profitable and defendable markets.
In October 2005, Lion Nathan created a fine wine joint venture
distribution business with Tucker Seabrook called Fine Wine Partners to
distribute a portfolio of Lion Nathan owned and agency brands fine wine
brands.
In Australia, which accounts for around 75 per cent of group
assets and 80 per cent of operating profits, beer market share is stable
at around 42 per cent.
Operating performance has been driven by a combination of factors
including mix shift to higher margin premium and core brands, improved
pricing and cost control.
Lion Nathan's strategy of growing its "Power" brands in Australia
(Tooheys New, Tooheys Extra Dry, XXXX Gold and Bitter, Hahn Premium and
Premium Light, James Squire, Becks and Heineken) is delivering earnings
growth.
ENDS
Copyright © 2007 RWE Australian Business News. All rights reserved.
LNN
lion nathan limited
