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Lion NZ full-year profit falls 6.3% as drinkers seek quality over quantity

16 Mar 15

Lion - Beer, Spirits & Wine (NZ) Ltd , which has 46 percent of the New Zealand market and is owned by Japan's Kirin Holdings, is making less money in the domestic market as alcohol drinkers opt for quality over quantity.

Accounts for Lion filed to the Companies Office add to the picture of a declining booze industry, partly offset by a move to "premiumisation" and a push into new, healthy non-alcoholic drinks that was highlighted when Kirin reported results for the year ended Sept. 30 last month.

Kirin talked about a competitive and deflationary market of subdued consumers when it reported that total beer, spirits and wine volumes across both Australia and New Zealand declined 2.7 percent, while volumes at its Lion dairy & drinks business declined 7.3 percent.

The New Zealand accounts for Lion show total revenue fell to $NZ564 million in the year ended Sept. 30, from $611 million a year earlier. Pretax earnings fell to about $66 million from $73.6 million, while net profit declined to $44 million from $55.2 million.

Sales and marketing expenses fell to $75 million from $82 million and administration costs were cut to $57.7 million from $69 million. Distribution costs were little changed and finance costs declined.

The Companies Office filing does not have a commentary but Lion chief executive Stuart Irvine said last month that Australian and New Zealand consumers were drinking less alcohol overall than at any time in the previous 15 years.

The company is also opting for quality over quantity and contemporary, craft and mid-strength beer brands are flourishing, it said. Of its biggest brands, Speight's notched up growth of 3 percent and Steinlager Classic sales rose 4 percent.

In the New Zealand wine portfolio, Wither Hills achieved strong growth domestically and through export markets, while Huntaway became the fastest-growing premium wine brand in grocery in the country.

Lion's dairy & drinks business struggled with historically high global milk prices and the company said it is underway with a three-year turnaround strategy being implemented in that business. The strategy is based on the idea that consumers want better quality and less processed food, and will pay more for it.

New arrangements with farmer suppliers were well received but the company described the dairy drinks market as increasingly competitive.

Other brewers have also reported subdued results.

The total volume of beer available for sale in New Zealand has been sliding for three decades, according to government figures, reflecting changing consumer tastes toward wine, cider and the ready-to-drink 'alco-pops' favoured by young drinkers.

In 2013, the total was 288.8 million litres, down from more than 400 million litres in 1987, the year of the stock market crash. Yet according to Nielsen & Aztec Scan data, the total retail value of off-licence beer sales has risen in four of the past five years, reaching $717.9 million in the year through July 31.

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