Milk is cheap. Photo: James Davies
OUTGOING Lion chief executive Rob Murray says the company's struggling dairy business has turned the corner and would return a better profit to Japanese owner Kirin, despite the margin-crushing impact of the big supermarkets' $1-a-litre milk offer.
In Melbourne yesterday, Mr Murray, who will leave Lion at the end of the year, said the fresh milk part of the dairy business was in a terrible state and not too dissimilar to the profitability profile of a charity. ''We have a challenge which is the core of the business, the fresh milk business, which is a charity - in fact, a lot of charities do better than that,'' Mr Murray said.
He said the blame for the sliding profits was down to Coles and Woolworths, which nearly two years ago launched their own-label milk priced at $1 a litre, effectively undercutting branded milk sold by Lion. ''We don't make any money [on milk],'' Mr Murray said. ''The simple truth of that is nobody is making money and you can't make money if [consumers] buy milk at $1 a litre, it physically can't be done.''
This week Kirin shares fell the most in almost a year after it cut its 2015 sales forecast on weakening demand in its home market of Japan and a worsening outlook for its Australian dairy subsidiary. Mr Murray also said Kirin had paid a ''suicidal price'' of more than $3.9 billion for the dairy business, which was now worth less than $2 billion.
He said other segments of Lion's dairy division, which owns Pura milk, King Island cheese and Yoplait yoghurt, were improving as it focused on premium products and new brands.
''I really believe we have turned the corner, we have had some massive cost-saving projects in place which will impact the bottom line in that business and there will be parts of that [dairy] business that will become increasingly profitable,'' Mr Murray said.
He said specialty cheeses and premium flavoured milk would supply growing robust profits for the group.
Lion is also Australia's biggest brewer, with XXXX Gold now the biggest-selling beer in the country.