Craft beer rivals take bite out of Lion profit

Lion – Beer, Spirits and Wine (NZ), New Zealand's largest brewer, posted a 21% decline in full-year earnings as the industry adjusts to a market that's seen a rise in craft beers and where people are choosing to drink less.

Pretax earnings fell to $55.6 million in the 12 months ended September 30, from $71.2 million, according to Lion's financial statements. Sales fell 5.2% to $535 million. Lion says earnings rose 5% excluding one-time costs.

In February, Lion said sales volumes had fallen 4.4% in New Zealand as the alcohol market declined to its lowest level in 18 years. Statistics New Zealand said the total volume of pure alcohol sold in the country fell 4.1% in 2015.

Lion, which is owned by the Japanese brewer Kirin Holdings, has described the New Zealand beer market as highly competitive. Falling sales reflected aggressive pricing and promotion, although a re-launch of its Mac's brand had produced growth of 10%. The company is increasingly targeting premium, craft beers, low-alcohol and non-alcoholic drinks to boost profit.

An ANZ Bank report on the sector, published last year, said beer sales in New Zealand had fallen 12% since 2008, yet off-premise craft beer sales had risen 42% between 2014 and 2015. In two years, craft beer sales had risen to 13% of the market from 9% while beer exports to Asia had doubled. Lion was last year named Champion Brewery at the 2015 Brewers Guild of New Zealand Awards, winning 28 medals, including four golds. The company is due to open a new Emerson's brewery in Dunedin in July this year and says sales of the brand have risen 20%.

As the industry changes, Lion has set aside more money to cover the cost of restructuring and termination benefits to staff made redundant. The company paid out $1.9 million over the year to September 30 and set aside another $2.8 million. Lion paid out $1.5 million in the year to September 30, 2014, and had set aside $3 million to cover future costs. Lion declined to give specifics but said that its head count remained similar to last year as the business refocused on growth opportunities.

Lion Liquor Retail, the division that includes the retail chain Liquor King, recorded a 3.8% gain in sales to $82 million. However, the cost of making those sales rose by 4.6%, partly because of a rise in finance costs and other expenses. That meant the company recorded a loss before tax of $1.82 million.

(BusinessDesk)