Lion earnings rise 4pc as fatter dairy profits offset flat beer

Soaring sales of craft beer have failed to offset an ongoing slump in demand for mainstream beer, dragging down revenues at Australia's largest brewer, Lion Co.

While sales of niche brands such as James Squire 150 Lashes Pale Ale jumped almost 36 per cent and Little Creatures Pale Ale by 15 per cent in volume terms last year, demand for top-selling beers such as XXXX Gold and Tooheys New went backwards, dragging Lion's Australian beer, wine and spirits volumes down 3 per cent in the year ending September 2015.

Lion chief executive Stuart Irvine and chairman Sir Rod Eddington (left) are investing capital into new wine, beer and ...
Lion chief executive Stuart Irvine and chairman Sir Rod Eddington (left) are investing capital into new wine, beer and dairy facilities and overseas expansion.  Photo: David Mariuz

This followed a 2.7 per cent decline in Lion's beer wine and spirits volumes the previous year.

Mainstream beer consumption has fallen to its lowest level in Australia in 68 years, prompting Lion to establish a global markets unit to tap opportunities for its beer, wine and spirits brands in targeted markets overseas.

Lion, which accounts for 48 per cent of the beer market, also spent about $10 million over the summer in a marketing campaign aimed at dispelling myths about beer and is sticking nutrition information panels on bottles and cartons across its entire portfolio listing ingredients.

In Lion's dairy and drinks division, volumes fell 17.4 per cent on top of a 7.3 per cent decline the previous year, dragged down by the sale of Lion's low-margin everyday cheese business in May and the loss of private label milk contracts with Coles and Woolworths in 2014.


Juice sales also went backwards, with recent Retail World figures showing sector-wide fruit juice volumes fell 6.1 per cent and sales by value fell 7.2 per cent in 2015 as demand for new generation chilled juices failed to counter a slump in demand for ambient juices.

However, Lion said earnings in dairy and drinks ticked up "significantly" as it reinvested cost savings into high margin, high growth products such as specialty cheese, its category-leading Farmers Union yoghurt and Dare flavoured milk.

Higher dairy profits countered flat earnings in alcoholic beverages and pushed Lion's group earnings before interest and tax up 4 per cent to $695 million, before one-off costs, despite a 5.6 per cent decline in group sales to $4.71 billion.

Lion chief executive Stuart Irvine said the company, one of the largest suppliers of fresh and packaged foods to Woolworths and Coles, had yet to see recent improvements in consumer confidence translate into improved spending.

"Despite the tough conditions we've remained firmly focused on managing our business for the long term and we are continuing to invest in our brands, new facilities and to grow our presence in Asia," he said, citing a new specialty cheese plant in Tasmania, a new Petaluma winery in the Adelaide Hills and brew houses in South Australia and Victoria.

Lion's Asia Dairy unit signed a distribution agreement last year with the leading fresh milk processor and distributor in southern China, Canton American Flower Lounge, to sell its products to China's growing middle class. Flower Lounge will import and market Lion's Pura extended shelf life and UHT milk, and Dairy Farmers and Greek-style yoghurts across Guangdong province.

The figures for the 12 months ending September 30 were released in a trading update on Monday night to coincide with full year results for Lion's Japanese parent, Kirin.